Annual Report

ANNUAL REPORT

AT DECEMBER 31, 2018 This is English translation of the Italian Annual Report, which is the sole authoritative version. ANNUAL REPORT

Registered office in Milan - Via Angelo Rizzoli no. 8 Share capital €270,000,000.00 fully paid in Milan Company Register and Tax Code no. 12086540155

NOTICE OF CALL OF THE ORDINARY SHAREHOLDERS’ MEETING

Those entitled to vote in the Ordinary Shareholders’ Meeting of RCS MediaGroup S.p.A. (the “Company” or “RCS MediaGroup”) are called to the Ordinary Shareholders’ Meeting, to be held on 2 May 2019, at 10.30 a.m. in single call, in via Balzan 3, Milan, to resolve on the following

Agenda 1. Financial statements at 31 December 2018; Report on Operations; Auditing Firm Report; Report of the Board of Statutory Auditors; Presentation of the Consolidated financial statements at 31 December 2018. Allocation of the profit for the year. Related and ensuing resolutions. 2. Appointment of the Board of Directors and of the Chairman, after determining the number and the remuneration of the members of the Board of Directors, and exoneration of the directors from the non-competition obligations per Article 2390 of the Italian Civil Code. Related and ensuing resolutions. 3. Report on Remuneration pursuant to Art. 123-ter, paragraph 6, of Legislative Decree no. 58 of 24 February 1998; related and ensuing resolutions.

* * *

Shareholders’ entitlement to participate in the meeting Pursuant to the law and the By-laws, entitlement to participate in the Shareholders’ Meeting and exercise the right to vote is certified by means of a communication sent to the company by the intermediary who has holding accounts in which the ordinary shares of RCS MediaGroup are registered, 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 fixed for the Meeting (i.e. Thursday, 18 April 2019, the so-called “Record date”). All crediting and debiting entries made on accounts after this deadline are irrelevant for the purposes of entitlement to exercise the vote in the Shareholders’ Meeting. Therefore, those who become hold- ers of the Company’s ordinary shares after that date will not be entitled to participate and vote at the Shareholders’ Meeting. The aforementioned intermediary communication must be received by the Company by the end of the third open market day preceding the date set for the Shareholders’ Meeting (i.e. by Friday, 26 April 2019). How- ever, shareholders are still entitled to participate and to vote if the communication is received by the Company after such date, provided it is received before the start of the Shareholders’ Meeting. It should be pointed out that the communication is sent to the Company by the intermediary on the request of the person with the right to vote.

Addition to the agenda and presentation of new proposals for resolution Pursuant to Art. 126-bis of Legislative Decree no. 58 of 24 February 1998 (“TUF”), Shareholders who, even jointly, represent at least one fortieth of the share capital may request, within ten days of publication of this notice (i.e. by Monday, 1 April 2019), addition of the items to be discussed, indicating in their request the additional items proposed, or present draft resolutions on the matters already in the agenda of the Shareholders’ Meeting, indicating the additional items proposed in their request.

Addition is not permitted in relation to matters that, under the applicable provisions of law, are resolved upon proposal of the Board of Directors or on the basis of a project or a report prepared by the latter, other than that referred to in Art. 125-ter, paragraph 1, of the TUF.

The application, together with the communication (or communications), issued pursuant to the applicable provisions by the intermediary holding the accounts in which are registered the ordinary shares of the Shareholders requesting confirmation of ownership of said investment (for the purposes of their eligibility), must be sent in writing, within the aforementioned period, delivered by hand, or sent by registered mail with proof of receipt,

III – ANNUAL REPORT

to the registered office of the Company (Via Angelo Rizzoli 8, 20132 Milan), to the attention of the Corporate Affairs department, or by e-mail to the address [email protected], together with information that makes it possible to identify the submitting Shareholders (in this regard, please provide a telephone number for reference). A report that states the reasons for the draft resolutions on the new matters being proposed as integration of the agenda, or reasons relating to the further proposals for resolution presented on matters already on the agenda, must be submitted by any proposing Shareholders, by the deadline and by the abovementioned method.

Any additions to the list of items on the Shareholders’ Meeting agenda or the submission of additional proposals for resolution on matters already on the agenda is published by the Company, using the same method as prescribed for the publication of this notice, at least fifteen days before the date of the Meeting (i.e. by Wednesday, 17 April 2019).

At the time of the publishing of the addition notice for the agenda or submission of the proposals for resolution on the issues already on the agenda, these latest proposals, as well as the related report prepared by members attending the Shareholders’ Meeting and reports of Shareholders requesting addition to the agenda, accompanied by any assessment of the Board of Directors, shall be made available to the public, using the same method as described in Art. 125-ter, paragraph 1, of the TUF. It should be remembered, in accordance with Article 126- bis, Paragraph 1, of the TUF, that each person entitled to vote may individually submit proposals for resolution at the Shareholders’ Meeting (subject to the applicable statutory provisions).

Representation at the shareholders’ meeting All persons entitled to attend the Shareholders’ Meeting may be represented by written proxy, in accordance with applicable laws and regulations (in particular, please note that proxy may be granted even by means of an electronic document, signed electronically in accordance with the provisions of Art. 135-novies, paragraph 6, of the TUF). For this purpose, the proxy form may be downloaded from the Company’s website www.rcsmediagroup. it (Corporate Governance/Shareholders’ Meetings/2019 section), as an option, or it may be collected from the Company’s registered office (Via Angelo Rizzoli 8, 20132, Milan) concurrently with the publication date of the present notice. Proxy may be notified to the Company by sending a registered letter to the company’s registered office, to the address already indicated, to the attention of the Corporate Affairs department, with the reference “Proxy voting – Ordinary Shareholders’ Meeting, May 2, 2019”, or by sending a fax to +39 02 25845443 or a communication via certified 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, it must certify, under his/ her 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, during accreditation for access to the Sharehold- ers’ Meeting, 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 designated as the designated representative, in accordance with Article 135-undecies of the TUF, la Società per Amministrazioni Fiduciarie “Spafid S.p.A.” which may be provided, without expenses for the delegating parties, with voting instruction, with a written proxy on all or some of the proposals in the Agenda of the Shareholders’ Meeting. The proxy shall be provided by hand signing or by affixing qualified electronic signature or digital signature, in accordance with the Italian regulations in force, on the specific form available at the Web site of the Company www.rcsmediagroup.it (Governance/Shareholders’ Meeting/2019 section) or at the registered office and it shall be delivered no later than the end of the second open market date preceding the date set for the shareholders’ meeting (i.e. no later than Monday, 29 April 2019) together with the copy of an identity document of the delegating Shareholder having current validity or, if the delegating Shareholder is a legal person, of the legal representative pro tempore or of another person vested with suitable powers, together with suitable documentation to attest his/her qualification and powers to Spafid S.p.A.: i) for proxies with hand signature delivered or shipped via courier or registered mail (Foro Buonaparte 10, 20121 Milan); and ii) for proxies with qualified electronic signature or digital signature, by certified electronic mail to the address [email protected]. The proxy and the voting instructions may be revoked within the same term. The proxy has no effect with regard to proposals for which not voting instructions are given. The shares for which proxy has been given, including partial, are calculated for the purpose of valid constitution of the Shareholders’ Meeting. In relation to the proposals for 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.

– IV ANNUAL REPORT

The communication sent to the Company by the authorised intermediary, certifying entitlement to participate in the Shareholders’ Meeting, is also necessary where proxy is granted to the Representative Appointed by the Company; therefore, without the aforesaid communication, the proxy shall be considered ineffective.

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 the TUF, those who have the right to vote can submit questions on items on the agenda before the Shareholders’ Meeting. The Company will not consider any requests not relating to the matters in the agenda of the Shareholders’ Meeting. Questions can be sent, together with information that makes it possible to identify the shareholder, via registered letter to the company’s registered office (Via Angelo Rizzoli 8, 20132 Milan), to the attention of the Corporate Affairs department, or via fax sent to +39 02 25845443 or a communication via certified e-mail to the following address: [email protected]. In this regard, the Company must also receive a specific communication issued by the intermediary in whose accounts ordinary shares of ownership are registered, proving entitlement to exercise the right to vote. Requests must be received the Company by the end of the third open market day preceding the date set for the Shareholders’ Meeting, i.e. by Monday, 29 April 2019. Questions submitted before the Shareholders’ Meeting, within the abovementioned period, shall be answered at the latest during the Shareholders’ Meeting, provides that an answer shall be deemed to be given at the Shareholders’ Meetingif made available in printed format, at the beginning of the meeting, to each of those entitled to vote. The Company may provide one overall answer to questions with the same content. The Company also reserves the right to provide the requested information in response to questions received before the Meeting, through the appropriate “Questions and Answers” section, provided, if necessary, and available for consultation on the Company’s website www.rcsmediagroup.it (Corporate Governance/Shareholders’ Meetings/2019 section).

Share capital and shares with voting rights The share capital amounts to € 270,000,000.00, divided into 521,864,957 ordinary shares with no indication of the nominal amount. Each ordinary share (excluding own ordinary shares, currently equal to 4,497,737, whose voting rights are suspended in accordance with the law) entitles the Shareholder to one vote.

Item no. 2 on the agenda The Shareholders’ Meeting is called to proceed with the appointment of a new Board of Directors (whose members, in accordance with the By-laws, hold office for three years, with their term expiring on the date of the Shareholders’ Meeting convened for approval of the Financial Statements relative to the last year in office). Members of the Board of Directors are appointed by election in accordance with Art. 10 of the By-laws (which can be consulted on the company’s website www.rcsmediagroup.it, under the Corporate Governance section) and applicable legal and regulatory provisions.

In conformity with the By-laws, the Company is managed by a Board of Directors, consisting of seven to eleven members appointed by those attending the Shareholders’ Meeting, based on lists in which the candidates are listed in numerical order.

The directors must meet the requirements of the By-laws and applicable regulations in force, and can be re-elected.

Additionally, a number of directors not less than the minimum required by applicable law must meet the requirements of independence of Art. 148, paragraph 3, of the TUF. In the composition of the Board of Directors, the balance between the male and the female members must be ensured in compliance with applicable laws and regulations.

Shareholders who, alone or together with other shareholders, on the date for list submission, own at least 2.5% of subscribed share capital, having voting rights at Ordinary Shareholders’ Meetings have the right to submit lists, as prescribed by Consob Decision no. 13 of 24 January 2019. Each list must indicate the candidates in a sequential numbered order and must expressly contain and identify the minimum number of candidates established by law who qualify as independent, in accordance with Art. 148, paragraph 3 of the TUF. Under Article 10 of the By-laws, lists that have a number of candidates equal to or greater than three must be composed of candidates of both genders (male and female), with at least one third of candidates belonging to the least represented gender (rounded up to the higher unit). Each candidate may appear in only one list, otherwise they will be disqualified.

V – ANNUAL REPORT

No shareholder may present or present with others more than one list, nor may they vote directly or through another person or nominee for more than one list. In addition, the Shareholders which: (i) belong to the same group (i.e., in compliance with Articles 93 of the TUF, are in a relationship of control amongst themselves or are subject to joint control, even if the parent company is a natural person), or (ii) are parties to a shareholder agreement pursuant to Article 122 of the TUF and pertaining to shares of the Company, or (iii) are parties to a shareholder agreement and are, in accordance with the law, parent companies or subsidiaries of, or subject to the joint control of one of these shareholders which is a party, cannot present or participate with others in presenting more than one list nor can they, similarly to any other party with voting rights, vote for different lists. Participation and votes cast in breach of this prohibition shall not be allocated to any list.

The lists, accompanied by the curricula of the candidates, containing detailed information on the personal and professional characteristics of each candidate, with the list of offices of administration and control, if applicable, held in other companies and signed by the shareholders who submitted them, or their representatives, with indication of their respective identities and the percentage of shares held on the date of submission, must be submitted to the registered office within twenty-five days prior to the date set for the meeting convened in sole call (i.e. no later than Sunday, 7 April 2019). The associated communication(s) confirming the aforementioned shares issued by an authorised intermediary pursuant to the applicable legal provisions may also be sent after- wards, provided it is sent within the 21 days prior to the date set for the Shareholders’ Meeting convened in sole call (i.e. by Thursday, 11 April 2019). Each list must also be accompanied by statements in which the individual candidates accept their candidacy and certify, under their own responsibility: 1) the absence of causes of ineligibility or incompatibility with the office, and the existence of requisites provided by applicable law and regulations; 2) the potential existence of the prerequisites of independence required by Article 148, paragraph 3, of the TUF. Those who submit a “minority list” are invited to submit a declaration attesting to the absence of any connection, even if indirect, with shareholders who hold, even jointly, a controlling or majority share. Moreover, those who submit “minority lists” are recipients of the recommendations formulated by Consob with its Communication no. DEM/9017893 of 26 February 2009.

Furthermore, pursuant to Art. 147-ter, paragraph 4, of the TUF, at least one director, or two if the Board is composed of more than seven members, must meet the independence requirements established for auditors laid down in Art. 148, paragraph 3, of the TUF.

It should be noted that, in compliance with the recommendations of the Corporate Governance Code for listed companies adopted by Borsa Italiana S.p.A. (as amended in July 2018), the Board of Directors has established that a sufficient number of Directors shall be independent according to the Corporate Governance Code and that the candidate submissions indicate whether they qualify as Independent Directors based on these criteria. Furthermore, in accordance with Article 147-ter, paragraph 1-ter, of the TUF, at least one third of the members of the new Board of Directors must belong to the less represented gender.

If only one list is submitted, the shareholders shall adopt resolutions based on the legal majority and all directors shall be elected by the shareholders, according to the progressive order and up to the number previously determined by the shareholders, without prejudice to the presence of directors with the independence requirements of Art. 148, paragraph 3, of the TUF, with at least the minimum number required by law and in order to ensure compliance with the applicable laws and regulations relating to gender balance.

Lastly, in accordance with Article 10 of the By-laws, in the absence of lists and in cases in which, based on the voting mechanism for lists, the number of candidates elected is less than the minimum number required by the By-laws for the composition of the Board, the Board of Directors shall be respectively appointed or supplemented by the shareholders according to the legal majority. The shareholders shall ensure that the presence of directors with the independence requirements referred to in Art. 148, paragraph 3, of the TUF, is at least the minimum number required by law and in compliance with the applicable laws and regulations relating to gender balance.

For all other information about the procedures for preparing, submitting and voting the lists, please refer to Arti- cle 10 of the By-laws, available at the registered office and published on the Website of the Company, at www. rcsmediagroup.it Corporate Governance section and to the Board of Directors’ Report on the topic per point no. 2 of the Agenda of the Ordinary Shareholders’ Meeting.

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Submission of the lists with a remote communication means and publicity thereof In addition to submission at the registered office, lists and copies of the requested documents in support thereof can be submitted via e-mail or certified mail to the address [email protected] (to this regard, it is necessary to submit information together with the above documentation identifying the person making the submission as well as their telephone number of reference). The lists and supporting information presented shall be published pursuant to the prevailing legislation (i.e. by making it available at the company’s registered office and publishing it on the company website, in the Corpo- rate Governance/Shareholders’ Meetings/2019 section, as well as filing it with Borsa Italiana S.p.A. and with the authorised storage device SDIR & STORAGE managed by Bit Markets Services S.p.A. and available for consultation at www.emarketstorage.com) at least 21 days before the date set for the Shareholders’ Meeting in sole call (i.e. by Thursday, 11 April 2019). In the same manner and within the same term, any proposals concurrently formulated by shareholders presenting lists for the appointment of the Board of Directors, which are relevant to said appointments, shall be made public.

Documents and information It should be noted that the documentation related to the matters on the agenda required by the applicable provisions of laws and regulations is made available to the public at the registered office of the Company and is published on the Company’s website www.rcsmediagroup.it (Corporate Governance/Shareholders’ Meetings/2019 section) and in any case in the manner required in accordance with the regulations in force in the terms prescribed and the Shareholders and other persons entitled to attend the meeting are entitled to obtain a copy. In particular, the following are available to the public: - from this day onwards, concurrently with the publication of the present notice, the Board of Directors’ Report on the subject matter per item no. 2 of the Agenda of the Shareholders’ Meeting; - no later than 11 April 2019, the Financial Report and the other documents per Article 154-ter of the TUF and the Board of Directors’ Report on the subject matters per item no. 3 of the Agenda of the Shareholders’ Meet- ing. No later than 17 April 2019, the documentation pursuant to Art. 77, paragraph 2-bis of the Regulations set forth in Consob Resolution no. 11971/1999 and subsequent amendments and additions will be made available to the public at the company’s registered office.

Information on the Shareholders’ Meeting and participation in said meeting, also with reference to the provisions of Art. 125-quater of the TUF, is published under the terms of the law on the Company’s website (Corporate Governance /Shareholders’ Meetings/2019 section).

for the Board of Directors The Chairman Urbano Cairo

This notice is published on 22 March 2019 on the Website of the Company www.rcsmediagroup.it (Governance/ Shareholders’ Meetings/2019) and, in excerpt form, on the daily paper Corriere della Sera on 23 March 2019.

The Company’s Corporate Affairs Department can be contacted for any information on participation in the Shareholders’ Meeting as follows: tel. no. +39.02.25845403, telefax nr. +39 02 25845443, email address: affari- [email protected].

VII –

CONTENTS

CONTENTS Directors’ Report on group operations by RCS MediaGroup Corporate Officers 3 Group overview 4 Information regarding shareholders 5 Consolidated financial highlights of RCS MediaGroup 7 Report on operations 8 Group performance at 31 December 2018 9 Human resources 17 Environment 19 Principal risks and uncertainties 24 Operating segment performance 27 Financial highlights of RCS MediaGroup S.p.A. 41 Business outlook 46 Alternative performance measures 47 Information on ongoing disputes 48 Other Information 50 Proposed Resolution 52

Consolidated Financial Statements 53 Income statement 55 Statement of comprehensive income 56 Statement of financial position 57 Statement of cash flows 58 Statement of changes in equity 59 Notes to the consolidated financial statements 63 Statement of the Financial Reporting Manager and the Chief Executive Officer 137

Separate Financial Statements of RCS MediaGroup S.p.A. 139 Income statement 141 Statement of comprehensive income 142 Statement of financial position 143 Statement of cash flows 144 Statement of changes in equity 145 Notes to the separate financial statements 147 Statement of the Financial Reporting Manager and the Chief Executive Officer 205

Annexes to the Consolidated Financial Statements 207 List of RCS Group equity investments 209 Exchange rates against the Euro 212 Quarterly consolidated income statement 213 Related party transactions 215

Tables attached to the Separate Financial Statements of RCS MediaGroup S.p.A. 219 Details on Related Party Transactions at 31 December 2018 220 Equity Investments and Changes thereto at 31 December 2018 222 2017 Pro-Forma Statement 230 List of Local Branches of RCS MediaGroup S.p.A. at 31 December 2018 232

Independent Auditors’ Report on the Consolidated Financial Statements 233 Independent Auditors’ Report on the Separate Financial Statements 243 Report by the Board of Statutory Auditors 251

IX –

DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

1 –

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 Micciche’ 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 held on 26 September 2016. The Directors 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 the 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 Company’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 (*)

Enrico Maria Colombo Chairman Marco Moroni Standing auditor Paola Tagliavini Standing auditor Guido Croci Alternate auditor Maria Pia Maspes Alternate auditor Piera Tula Alternate auditor

(*) The Board of Statutory Auditors in office at the date of approval of this Report was appointed by resolution of the Shareholders’ Meeting on 26 April 2018. The Stat- utory Auditors are in office for the years 2018-2019-2020 and therefore until the Shareholders’ Meeting called to approve the financial statements relating to the last of these years.

Independent Auditors (*)

Deloitte & Touche S.p.A.

(*) In office until the Shareholders’ Meeting called to approve the 2026 financial statements.

3 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

GROUP OVERVIEW

RCS MediaGroup is one of the top publishing groups in Europe. It is a leader on the Italian and Spanish daily newspaper market, active in magazines, television, radio and new media, one of the top players in the advertising sales market, and operates also in the distribution field. It is a reference point 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 spearheads the evolutionary process in the publishing industry, drawing on 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, leading names in national and sport dailies, as well as local editions and weekly and monthly magazines, including Amica, Dove, Oggi and Abitare and numerous supplements (weekly and monthly) associated with the two daily newspapers, such as La Lettura, L’Economia, 7, Buone Notizie - L’impresa del Bene, Style Magazine, Living, Liberi Tutti, Corriere Innovazione, IO Donna for Corriere della Sera as well as SportWeek, Time Out and Fuorigioco for La Gazzet- ta dello Sport.

In Spain, the Group is one of the main players in the media sector with the Unidad Editorial Group, which publishes Spain’s second daily newspaper El Mundo, Marca, leader in sports news, and Expansión, leader in business news, in addition to numerous magazines, including Telva and Marca Motor. The supplements (weekly and monthly) of these publications include Actualidad Economica, Yo Dona, Fuera de Serie, El Cultural and Metropoli.

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 Milano-Sanremo, Il Lombardia, the Dubai Tour, the Abu Dhabi Tour, the Milan City Marathon and the Color Run, and is well-positioned as a partner for the creation and organization of events through RCS Live. In Spain, with Last Lap, it is a reference point in the organization of mass events. The Group works in Spain in the football and sport online betting sector with the Marca Apuestas website. Lastly, mention should be made of the debut in April 2018 of Solferino - i libri del Corriere della Sera and, from March 2019, of RCS Academy, the RCS Group’s new Business School, which focuses on six areas of speciali- zation offering an innovative and qualified programme: Journalism and Communication; Economy, Innovation and Marketing; Art, Culture and Tourism; Fashion, Luxury, and Design; Food & Beverage; Sport.

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 and Pesca, and through 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, produced by third parties.

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.

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 newsstands 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)

2018 2017 High (€) 1.29 1.46 10 January 9 May Low (€) 0.83 0.79 24 October 31 January December average price (€) 1.19 1.23

Average volumes (m) 0.47 0.87 Max. volumes (m) 2.17 6.70 3 December 24 March Min. volumes (m) 0.04 0.11 23 July 23 February

Capitalization (€ m) (at 31 December) 600.8 637.7 Source: Reuters Shareholder composition (1)

Refer to the data published on the CONSOB website updated in January 2019.

Shareholder Share % (*) Urbano Cairo (**) 59.831 Mediobanca - Banca di Credito Finanziario S.p.A. 9.930 Diego Della Valle (**) 7.624 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, and 90 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

The Italian Stock Exchange closed 2018 with a sharp drop, plunging down to the bottom positions in Europe. In particular, the Ftse Mib index has fallen by 16.1% since the beginning of the year, and the Ftse Italia AllShare index by 16.5%, while trading volumes were basically stable. The main European stock exchanges were affected by the performance of the banking and automotive sectors, and the markets were impacted by the forecasts of a slowdown in the global economy due to both commercial and geopolitical tensions, as well as the uncertainty of the monetary policy of the main central banks. Against this backdrop, RCS MediaGroup S.p.A. shares delivered a bearish performance, yet outperforming the main market indexes, closing the year down by -5.7% versus the end of the prior year.

1 For additional information, refer to the Report on Corporate Governance and Ownership Structure.

5 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

RCS Italia FTSE All All Share Share

120

100 RCS Italia FTSE All Share 120 80

100 60

80 40

60 20

40 0 29/12/17Jan-18 29/01/18Feb-18 28/02/18Mar-18 31/03/18Apr-18 30/04/18May-18 31/05/18Jun-18 30/06/18Jul-18 31/07/18Aug-18 31/08/18Set-18 30/09/18Oct-18 31/10/18Nov-18 30/11/18Dec-18 20

Minimum2,5 value (24 October): € 0.83 - Maximum value (10 January): € 1.29 - Average price (December): € 1.19 Source: Reuters 0 29/12/17 29/01/18 28/02/18 31/03/18 30/04/18 31/05/18 30/06/18 31/07/18 31/08/18 30/09/18 31/10/18 30/11/18

2 2,5

1,5 2

Milioni 1

1,5

0,5 Milioni

Milioni 1

0 29/12/17 29/01/18 28/02/18 31/03/18 30/04/18 31/05/18 30/06/18 31/07/18 31/08/18 30/09/18 31/10/18 30/11/18 0,5

0 29/12/17Jan-18 29/01/18Feb-18 28/02/18Mar-18 31/03/18Apr-18 30/04/18May-18 31/05/18Jun-18 30/06/18Jul-18 31/07/18Aug-18 31/08/18Sep-18 30/09/18Oct-18 31/10/18Nov-18 30/11/18Dec-18

Minimum volume (23 July): 0.04 million - Maximum volume (3 December): € 2.17 million – Average volume: € 0.47 million Source: Reuters

– 6 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

CONSOLIDATED FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP

2018 2017 (€/millions) INCOME STATEMENT Revenue 975.6 895.8 EBITDA (1) 155.3 138.2 EBIT (1) 115.5 95.6 Profit (loss) before tax and non-controlling interests 100.5 87.4 Income tax ( 15.2) ( 16.5) Profit (loss) from continuing operations 85.3 70.9 Profit (loss) for the year attributable to the owners of the parent 85.2 71.1

Basic earnings (losses) per share: continuing operations (Euro) 0.16 0.14 Diluted earnings per share: continuing operations (Euro) 0.16 0.14

(€/millions)) 31/12/2018 31/12/2017 STATEMENT OF FINANCIAL POSITION Net capital employed 442.1 458.9 Net financial debt (1) 187.6 287.4 Equity 254.5 171.5

Average number of employees 3,310 3,390

(1) For the definitions of EBITDA, EBIT and Net Financial Debt, reference should be made to the paragraph “Alternative Performance Measures” in this Annual Report.

The Board of Directors approved the Group Consolidated Financial Statements and Separate Financial State- ments on 18 March 2019.

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

4th quarter 2018 % 4th quarter 2017 % Difference (€/millions) (1) A B A-B % Revenue 262.3 100.0 238.1 100.0 24.2 10.2% Publishing revenue 105.7 40.3 81.7 34.3 24.0 29.4% Advertising revenue 124.8 47.6 125.4 52.7 (0.6) (0.5%) Sundry revenue 31.8 12.1 31.0 13.0 0.8 2.6% EBITDA 53.6 20.4 53.8 22.6 (0.2) (0.4%) Operating profit (loss) 38.2 14.6 48.5 20.4 (10.3) (21.2%) Profit (loss) for the year attributable to the owners of the parent 33.1 12.6 51.2 21.5 (18.1) (35.4%)

(1) The adoption of IFRS 15 as from 1 January 2018, without restating the balances at 31 December 2017, produced in fourth quarter 2018 an overall increase in net revenue of € 19.1 million versus fourth quarter 2017, consisting of higher publishing revenue of € 24.8 million, lower advertising revenue of € 3.4 million and lower sundry revenue of € 2.3 million. These changes did not affect EBITDA.

Operating profit in fourth quarter 2018, amounting to € 38.2 million, was affected by the comparison with fourth quarter 2017, which had benefited from the positive effect on amortization of € 7.5 million, due to the transfer of a number of Unidad Editorial titles from finite to indefinite useful life. It was also affected by impairment losses on intangible assets of € 8.1 million (€ 2.4 million in fourth quarter 2017). Net of these impacts, operating profit in fourth quarter 2018 would improve by € 2.9 million versus fourth quarter 2017.

7 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

REPORT ON OPERATIONS

In 2018, the Italian economy started losing momentum, with GDP coming to a grinding halt in the third quarter. The change for 2018 shows a GDP growth of 0.9%, down from 1.6% in 2017 (ISTAT). The slowdown in the Italian economy is part of an international economic scenario marked by signs of cyclical deterioration in many advanced and emerging economies. Factors that have led to the slowdown include the Brexit outcome still mired in uncertainty and the effects of the continuing tensions on tariffs between the US and China. (Bank of Italy Eco- nomic Bulletin). The Spanish economy shows a different picture, where growth is much stronger in 2018, driven by domestic demand. Specifically, the Spanish GDP grew by 2.5% in 2018 (Institute of National Statistics - INE), higher than other major European economies.

Against this backdrop, in 2018 the Italian advertising market saw investments drop slightly by 0.2% versus 2017. Print media decreased by 7%; specifically, newspapers declined by 6.2% and magazines by 8.2%. Bucking this trend was the advertising market on radio, up in investments by 5.5%, and on online, up by 4.5% (excluding Over the tops) versus 2017 (Nielsen). Spain continued the growth in gross advertising sales, rising by 1.3% versus 2017. However, the newspaper advertising market fell by 6.8%, while magazines lost 10% and supplements fell by 11.5% versus 2017. The Internet segment drove the market (net of social media) and posted a 14.8% improvement (i2p, Arce Media).

In Italy, ADS figures show a 7.6% drop in the circulation of paper copies of the main national general interest newspapers in the January-December 2018 period, or -5.6% including digital copies. Circulation of the main sports newspapers was equally down, dropping by 10.3% in 2018 (also including digital copies). In Spain too, sales performance on the newspapers market declined versus 2017. Circulation figures for Spain up to year end regarding the generalist newspapers market show an overall 11.2% reduction. The fall in the circulation of business newspapers was 5.2% in the same period. Daily sports newspapers witnessed the same trend, with circulation down by 10.4% (OJD).

Despite the challenging environment, the Group achieved its targets:

─ EBITDA of € 155.3 million, up by € 17.1 million versus 2017; ─ efficiencies of € 25.7 million; ─ net profit of € 85.2 million, up by € 14.1 million versus 2017, which had benefited for approximately € 14.9 million from the net capital gain from the sale of the investment held in I.E.O.; ─ financial debt at € 187.6 million, improving by € 99.8 million, thanks to cash generation from ordinary operations.

In 2018, we continued in our efforts to curb operating and structural expenses, accompanied by intense publishing development, with the aim of strengthening our competitive positioning in the Group’s strategic business areas.

– 8 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

GROUP PERFORMANCE AT 31 DECEMBER 2018

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

Reference to 31 31 the financial December % December % Difference Difference statements 2018 2017 (€/millions) (4) A (3) B A-B % Revenue 975.6 100.0 895.8 100.0 79.8 8.9% Publishing revenue I 432.3 44.3 344.9 38.5 87.4 25.3% Advertising revenue I 405.8 41.6 409.8 45.7 (4.0) (1.0%) Sundry revenue (1) I 137.5 14.1 141.1 15.8 (3.6) (2.6%) Operating costs II (549.2) (56.3) (491.4) (54.9) (57.8) (11.8%) Personnel expense III (264.7) (27.1) (258.1) (28.8) (6.6) (2.6%) Provisions for risks IV (5.4) (0.6) (6.5) (0.7) 1.1 16.9% Allowance for impairment V (3.0) (0.3) (3.7) (0.4) 0.7 18.9% Share of profits VI 2.0 0.2 2.1 0.2 (0.1) (4.8%) of equity-accounted investees EBITDA (2) 155.3 15.9 138.2 15.4 17.1 12.4% Amortization of intangible assets VII (19.6) (2.0) (25.3) (2.8) 5.7 Depreciation of property, VIII (11.5) (1.2) (14.3) (1.6) 2.8 plant and equipment Depreciation of investment property IX (0.6) (0.1) (0.6) (0.1) - Other impairment losses X (8.1) (0.8) (2.4) (0.3) (5.7) on non-current assets Operating profit (loss) (2) 115.5 11.8 95.6 10.7 19.9 Financial income (expense) XI (14.1) (1.4) (24.4) (2.7) 10.3 Other income (expense) from financial XII (0.9) (0.1) 16.2 1.8 (17.1) assets/liabilities Profit (loss) before tax 100.5 10.3 87.4 9.8 13.1 Income tax XIII (15.2) (1.6) (16.5) (1.8) 1.3 Profit (loss) from continuing operations 85.3 8.7 70.9 7.9 14.4 Profit (loss) from assets held for sale and XIV - - - - - discontinued operations Result before non-controlling interests 85.3 8.7 70.9 7.9 14.4 Profit (loss) attributable to non-controlling XV (0.1) - 0.2 - (0.3) interests Profit (loss) for the year attributable to 85.2 8.7 71.1 7.9 14.1 the owners of the parent

(1) Sundry revenue includes primarily revenue for television activities, the organization of events and exhibitions, sales of customer lists and boxed sets and, in Spain, for betting activities. (2) For the definitions of EBITDA and EBIT, reference should be made to the paragraph “Alternative Performance Measures” in this Annual Report. (3) The adoption of IFRS 15 as from 1 January 2018, without restating the balances at 31 December 2017, produced an overall increase in net revenue of € 76.4 million in 2018, consisting of higher publishing revenue of € 100.7 million, lower advertising revenue of € 11.5 million and lower sundry revenue of € 12.8 million. These changes did not affect EBITDA. The adoption of IFRS 9 resulted in an increase in financial income of € 3 million in the 2018 income statement, instead of being reflected as a benefit in the actual cost of financing for future years, as previously under IAS 39. (4) These references relate to the corresponding items in the Consolidated Income Statement.

9 –

DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The change in revenue versus 31 December 2017 is shown below.

Mention should be made that this Annual Report incorporates the new IFRS 15, which came into effect as from 1 January 2018. The income statement figures of 2018, therefore, cannot be directly compared with the corresponding amounts of 2017. Specifically, if this new standard had not been applied, cumulative consolidated revenue at 31 December 2018 would total € 899.2 million instead of € 975.6 million, with a difference of € 76.4 million, due to reclassification of publishing revenue of € +100.7 million, advertising revenue of € -11.5 million and sundry revenue of € -12.8 million. Excluding from the comparison the effects of the application of the new IFRS 15, the year under review reported a € 3.4 million increase on a like-for-like basis versus 2017 (€ 895.8 million), attributable to advertising revenue of € 7.5 million, sundry revenue of € 9.2 million and a decrease in publishing revenue of € 13.3 million.

The Group’s digital revenue is highly significant; at 31 December 2018, it amounted to approximately € 163 million, up by 12.6% versus the same period of 2017, with a percentage on total revenue of 16.7% (18% prior to application of IFRS 15).

Publishing revenue amounted to € 432.3 million versus € 344.9 million (+87.4 million) in 2017. Excluding the above effects of the adoption of IFRS 15 (€ +100.7 million), revenue would drop by a total of € 13.3 million. The above decrease, analyzed on a like-for-like basis, is explained basically by the following elements: ̶ the € 15.2 million decrease in Unidad Editorial’s publishing revenue, due largely to the adverse trend in the relevant markets. Specifically, the performance by Group publications was almost generally in line with the decline in the relevant market of print products. Mention should be made that the trend recorded by El Mun- do’s print circulation (-7.8% versus the figure in 2017) outperformed the decline of the market (-11.2%; OJD). The decrease, including digital copies, would amount to 7.1% versus 2017 (OJD). Distributed copies of Mar- ca and Expansión (including digital copies) decreased by 10.4% and 4% respectively versus 2017 (OJD); ̶ a € 1.8 million increase in Newspapers Italy’s publishing revenue, due largely to higher sales of add-on products (€ +5 million, net of IFRS 15) and the development of revenue from digital subscriptions to Corriere della Sera. Specifically, total circulation, both print and digital, for Corriere della Sera and La Gazzetta dello Sport, dropped by 3.8% and 7% versus 2017 (ADS). These trends outperformed the market; specifically, the generalist newspapers market was down by 5.6% and the sports newspapers market was down by 10.3% (ADS). Both newspapers retained their circulation leadership in their respective market segments at Decem- ber 2018 (ADS); ̶ the basic stability in publishing revenue from Magazines Italy. A noteworthy point was the increased circulation of monthly magazine Dove (including digital copies) by +1.9% versus 2017 (Internal Source based on ADS data).

Publishing revenue from add-on products rose from € 49.6 million in 2017 to € 70.3 million in 2018, up by an overall € 20.7 million. Excluding the effects of the application of IFRS 15, revenue would amount to € 53.1 million, up by € 3.5 million, due mostly to Newspapers Italy (€ +5 million versus 2017), as a result also of the dif-

– 10 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ferent publishing plan. Special mention should be made of the success achieved with works such as “A scuola di pasticceria con Igino Massari”, “Il Grande Blek” and “Fabrizio De André vinyl collection”.

Advertising revenue, which amounted to € 405.8 million, decreased by € 4 million versus the prior year (-1%). Excluding the effects of the application of IFRS 15 mentioned above, advertising revenue increased by € 7.5 million versus 2017. Specifically, Newspapers Italy and Unidad Editorial reported an increase in advertising revenue. These results add steam to the moderate uptick recorded in 2017 (first time since 2011), despite the persisting downturn of the relevant print media market. Specifically, digital advertising revenue rose to € 126 million at 31 December 2018 (+15.1 million or +13.6% versus 2017), versus the 4.5% increase by the online market in Italy (Nielsen - excluding Over the tops) and 14.8% in Spain (i2p, Arce Media - excluding social media). Advertising revenue from Eventi Sportivi remained basically steady (€ +0.3 million or +1% versus 2017).

Sundry revenue amounted to € 137.5 million and, net of the above differences, increased by € 9.2 million, due mainly to other revenue in the Advertising and Sport area (€ +8.1 million versus 31 December 2017) and in the Unidad Editorial area (€ +2.7 million). These performances were only partly offset by the downturn in sundry revenue from other areas.

The change in EBITDA versus 31 December 2017 is shown below.

EBITDA came to a positive € 155.3 million and improved by more than € 17.1 million (+12.4%) versus 31 December 2017, as a result of the new initiatives launched in 2018 and also to the constant and effective cost-cutting measures that led to benefits amounting to € 25.7 million for the year. These positive effects are attributable to the activities in Italy (€ 12 million) and Spain (€ 13.7 million), and more than offset the drop in circulation and the increase in the price of raw materials and personnel expense. Net non-recurring income contributed € 0.2 million to EBITDA in 2018 (net non-recurring expense of € 1.8 million in 2017).

11 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

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

31/12/2018 (1)

(€/millions) Revenue EBITDA % of revenue EBIT % of revue Newspapers Italy 458.6 84.2 18.4% 71.1 15.5% Magazines Italy 95.9 10.8 11.3% 2.4 2.5% Advertising and Sport 301.0 32.5 10.8% 32.5 10.8% Unidad Editorial 310.8 44.7 14.4% 37.8 12.2% Other Corporate Activities 21.5 (16.9) n.s. (28.3) n.s. Other and eliminations (212.2) 0.0 n.s. 0.0 n.s. Consolidated 975.6 155.3 15.9% 115.5 11.8%

31/12/2017 (€/millions) Revenue EBITDA % of revenue EBIT % of revue 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 n.a. 0.2 n.a. Consolidated 895.8 138.2 15.4% 95.6 10.7%

(1) The adoption of IFRS 15 as from 1 January 2018, without restating the balances at 31 December 2017, produced an overall increase in revenue of € 76.4 million in 2018, consisting of higher revenue from Newspapers Italy of € 72.8 million, from Magazines Italy of € 8.4 million, from Unidad Editorial of € 15.2 million, and a decrease from Advertising and Sport of € 20 million. These changes did not affect EBITDA. At 31 December 2018, the EBITDA margin on revenue increased from 15.9% to 17.3% before application of IFRS 15, versus 15.4% at 31 December 2017.

Various business areas contributed to the increase in EBITDA. As described in greater detail in the comments on business sector performance, the areas contributing to the positive performance were: ̶ EBITDA in the Newspapers Italy area down by € 2.6 million versus 2017, due mainly to the lower margin on revenue from add-on products, as a result of both a different mix and a different scheduling of works versus the 2017 publishing plan. The downturn is also explained by the decrease in revenue from Television Activi- ties and in circulation revenue, and the increase in personnel expense, although offset by the positive effects of the measures to continuously expand and enhance the publishing offer, and by the increase in advertising revenue, the ongoing cost containment measures and the push for efficiency of corporate processes; ̶ EBITDA in the Advertising and Sport area up by € 9.8 million (€ +7.2 million net of non-recurring income for the year), due mainly to the growth in the activities relating to RCS Sport; ̶ EBITDA in the Magazines Italy area down by € 3.4 million as a result of lower advertising revenue and the drop in direct marketing activities of Childhood Magazines; ̶ EBITDA in the Unidad Editorial area (€ +12.6 million) up as a result of continued cost containment and efficiency gains (such as the rationalization of consultancy services and collaborations, the revision of supplier fees and the efficiency of marketing expenses) and of the steady development of digital revenue. These positive performances more than offset the decrease in traditional publishing revenue; ̶ EBITDA of Other Corporate Activities improved by € 0.8 million versus 2017.

Net non-recurring income with an impact on EBITDA amounted to € 0.2 million in 2018 (€ -1.8 million at 31 December 2017), resulting from non-recurring income in the Advertising and Sport area (€ +2.6 million), which was mainly offset by non-recurring expense in the remaining areas, mostly for personnel expense.

Personnel expense, including non-recurring expense, increased by € 6.6 million versus the prior year. The € 5.5 million increase before non-recurring expense is attributable mainly to Newspapers Italy, whose personnel expense increased as a result of the non-application in 2018 of solidarity arrangements in force for employees

– 12 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

in 2017, and of an increase in average headcount aimed at developing digital assets and strengthening the publishing portfolio.

Overall, the Group’s average headcount decreased from 3,390 employees at 31 December 2017 to 3,310 employees at 31 December 2018. The decrease of 80 units is due primarily to the activities in Italy (-42 units) and Spain (-33 units), as explained in the paragraph on Human Resources.

Net income from equity-accounted investees at 31 December 2018 amounted to € 2 million (€ 2.6 million before non-recurring expense) versus net income of € 2.1 million at 31 December 2017. The item includes income from the Group’s investees, whose performance was basically steady. Specifically, the share attributable to m-dis Dis- tribuzione Media S.p.A., distributor of the RCS Group’s publishing products in the newsstands channel and by other authorized resellers, totaled € 1.8 million (€ 1.8 million at 31 December 2017). The RCS Group’s share of profits of the Spanish Corporation Bermont group, which handles printing activities for the Unidad Editorial group’s publishing products, amounted to € 0.2 million (€ 0.8 million before non-recurring expense, up slightly versus € 0.3 million in 2017). 31/12/2017 (€/millions) Revenue EBITDA % of revenue EBIT % of revue Operating profit amounted to € 115.5 million versus € 95.6 million at 31 December 2017. The increase of € 19.9 Newspapers Italy 380.4 86.8 22.8% 71.6 18.8% million is explained by the improvement in EBITDA, by lower amortization and depreciation (€ -8.5 million), Magazines Italy 93.6 14.2 15.2% 10.6 11.3% in particular intangible assets (€ -5.7 million), and partly offset by increased write-down of non-current assets, from € 2.4 million at 31 December 2017 to € 8.1 million at 31 December 2018. 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% Amortization and depreciation of fixed assets decreased versus 2017, due mainly to the gradual completion of Other Corporate Activities 23.1 (17.7) n.a. (33.4) n.a. the useful life of intangible and tangible assets. Other and eliminations (215.0) 0.1 n.a. 0.2 n.a. Write-downs of € 8.1 million refer to the goodwill of Sfera and RCS Digital Ventures S.r.l., written down follow- Consolidated 895.8 138.2 15.4% 95.6 10.7% ing the results of the impairment test.

Net expense on financial assets and liabilities amounted to € 0.9 million. This includes the write-down of financial receivables (€ -2.4 million), only partly offset by the gain from the liquidation of the investee Emittenti Tito- li S.p.A. (€ +1.5 million), versus net income at 31 December 2017 of € 16.2 million, attributable mainly to gains earned from the total or partial disposal of non-strategic investees.

Tax in 2018 came to € -15.2 million (€ -16.5 million at 31 December 2017), attributable mainly to the tax charge of € 12.3 million relating to the companies participating in the national tax consolidation scheme, and to IRAP of € 5.1 million, partly offset by the positive tax effect attributable to the Unidad Editorial group.

As a result of the above elements, the Group’s net profit in 2018 amounted to € 85.2 million, improving by € 14.1 million versus the net profit in 2017 of € 71.1 million, which had benefited for approximately € 14.9 million from the net capital gain from the sale of the investment held in I.E.O..

13 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

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

31 31 Reference to the December % December % (€/millions) financial statements (2) 2018 2017 Intangible assets XVI 369.4 83.6 383.9 83.7 Property, plant and equipment XVII 65.4 14.8 73.8 16.1 Investment property XVIII 20.1 4.5 20.7 4.5 Non-current financial assets and other assets XIX 154.1 34.9 171.4 37.4 Non-current assets 609.0 137.8 649.8 141.6 Inventory XX 19.6 4.4 15.9 3.5 Trade receivables XXI 212.0 48.0 240.3 52.4 Trade payables XXII (204.7) (46.3) (236.3) (51.5) Other assets/liabilities XXIII (57.8) (13.1) (66.6) (14.5) Net working capital (30.9) (7.0) (46.7) (10.2) Provisions for risks and charges XXIV (47.6) (10.8) (50.4) (11.0) Deferred tax liabilities XXV (51.5) (11.6) (55.4) (12.1) Employee benefits XXVI (36.9) (8.3) (38.4) (8.4) Net capital employed 442.1 100.0 458.9 100.0 Equity XXVIII 254.5 57.6 171.5 37.4 Non-current financial payables XXIX 141.6 32.0 235.8 51.4 Current financial payables XXX 58.8 13.3 67.0 14.6 Current financial liabilities recognized for derivatives XXXI 0.1 0.0 1.0 0.2 Non-current financial liabilities recognized XXXII 1.0 0.2 0.1 0.0 for derivatives Cash and cash equivalents and current financial XXXIV (13.9) (3.1) (16.5) (3.6) receivables Net financial debt (1) 187.6 42.4 287.4 62.6 Total sources of financing 442.1 100.0 458.9 100.0

(1) For the definition of Net Financial Debt, reference should be made to the paragraph “Alternative Performance Measures” in thisAnnual Report. (2) These references relate to the corresponding items in the Statement of Financial Position.

The main changes in the Group’s statement of financial position at 31 December 2018 versus 31 December 2017 will now be discussed.

Net capital employed, amounting to € 442.1 million, decreased by € 16.8 million versus 31 December 2017, due to the decrease in fixed assets of € 40.8 million, offset by an increase in net working capital of € 15.8 million and a decrease in provisions for deferred tax liabilities, provisions for risks and charges and employee benefits totaling € 8.2 million.

Specifically: ̶ Intangible assets decreased by € 14.5 million versus 31 December 2017. This change reflects investments of € 13.2 million, amortization of € 19.6 million, and impairment losses of € 8.1 million. Most of the capital expenditure refers to the Other Corporate Activities area (€ 5.6 million) and to Unidad Editorial (€ 4.8 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 made also by the subsidiary Digicast S.p.A. (€ 2.3 million), for the acquisition of television rights and concessions used on the channels Lei, Dove, Caccia and Pesca. The write- downs of € 8.1 million concerning the goodwill of Sfera and RCS Digital Ventures S.r.l. were made to align their book values with the recoverable amounts resulting from the impairment test. ̶ Property, plant and equipment and investment property fell by an overall € 9 million versus 31 December 2017, due mainly to depreciation of € 12.1 million, partly offset by capital expenditure of € 3.1 million. Cap- ital expenditure refers to tangible assets and consists mainly of the renewal of plant used in the shipping and

– 14 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

packaging process, as well as the purchase of hardware for office equipment and other IT and audiovisual equipment. Overall expenditure was made primarily by Newspapers Italy and Other Corporate Activities (€ Reference to the 31 31 2.6 million) and by Unidad Editorial (€ 0.4 million). financial statements (2) December % December % (€/millions) 2018 2017 ̶ Non-current financial assets and other assets amounted to € 154.1 million at 31 December 2018 versus € 171.4 Intangible assets XVI 369.4 83.6 383.9 83.7 million in non-current financial assets at 31 December 2017 (€ -17.3 million). The change mainly includes Property, plant and equipment XVII 65.4 14.8 73.8 16.1 the decrease in deferred tax assets (€ -10.7 million), almost entirely attributable to RCS MediaGroup S.p.A.. Investment property XVIII 20.1 4.5 20.7 4.5 Additionally, the share of profits of equity-accounted investees decreased (€ -3.9 million), owing essentially to the distribution of the amount of dividends due (€ -5.9 million), partly offset by the positive contribution of Non-current financial assets and other assets XIX 154.1 34.9 171.4 37.4 the net share of profits of companies measured at equity (€ +2 million). Other equity instruments decreased (€ Non-current assets 609.0 137.8 649.8 141.6 -0.9 million), due to the fair value adjustment, with a balancing entry in the comprehensive income statement Inventory XX 19.6 4.4 15.9 3.5 (€ -1.5 million), partly offset by capital increases. Trade receivables XXI 212.0 48.0 240.3 52.4 Net working capital came to € -30.9 million versus € -46.7 million at 31 December 2017, increasing by € 15.8 Trade payables XXII (204.7) (46.3) (236.3) (51.5) million. The various components of net working capital contributed to the growth, with the exception of trade Other assets/liabilities XXIII (57.8) (13.1) (66.6) (14.5) receivables, which fell by € 28.3 million. The main trends are highlighted below: Net working capital (30.9) (7.0) (46.7) (10.2) ̶ Inventory increased by € 3.7 million from € 15.9 million at 31 December 2017 to € 19.6 million at 31 Decem- Provisions for risks and charges XXIV (47.6) (10.8) (50.4) (11.0) ber 2018. The change is due mainly to paper inventory in Italy and to a lesser extent in Spain. The trend was Deferred tax liabilities XXV (51.5) (11.6) (55.4) (12.1) affected by the changed cost of paper and the development of new publishing initiatives, including Solferino, Employee benefits XXVI (36.9) (8.3) (38.4) (8.4) and of a portfolio of add-on products featuring a greater number of literary works. Net capital employed 442.1 100.0 458.9 100.0 ̶ Trade receivables amounted to € 212 million, down by € 28.3 million, achieved despite the increase in rev- Equity XXVIII 254.5 57.6 171.5 37.4 enue in fourth quarter 2018 versus the same period of 2017 (prior to IFRS 15). The performance reflects the Non-current financial payables XXIX 141.6 32.0 235.8 51.4 Group’s meticulous management of receivables. Current financial payables XXX 58.8 13.3 67.0 14.6 ̶ Trade payables at 31 December 2018 decreased by € 31.6 million versus 2017. All the Group’s business areas Current financial liabilities recognized for derivatives XXXI 0.1 0.0 1.0 0.2 contributed to this change. Non-current financial liabilities recognized XXXII 1.0 0.2 0.1 0.0 for derivatives ̶ Net other liabilities amounted to € 57.8 million at 31 December 2018 (net other liabilities of € 66.6 million at Cash and cash equivalents and current financial 31 December 2017), posting lower net liabilities of € 8.8 million versus 31 December 2017. Liabilities fell by XXXIV (13.9) (3.1) (16.5) (3.6) receivables € 11.3 million, due mainly to a decrease in deferred income of € 9.4 million. Assets fell by € 2.5 million, due Net financial debt (1) 187.6 42.4 287.4 62.6 to the decrease in receivables from social security institutions (€ -1.4 million), attributable to the recovery of advances paid in application of the extraordinary redundancy fund, and in current tax receivables (€ -1.4 mil- Total sources of financing 442.1 100.0 458.9 100.0 lion), due to the use of IRAP advances and advances to agents (€ -1.8 million). The trend was only partly offset by higher advances to suppliers and authors and by higher prepayments.

Provisions for risks and charges decreased from € 50.4 million at 31 December 2017 to € 47.6 million at 31 December 2018 (down by € 2.8 million versus 31 December 2017), with increases of € 10.1 million, uses and releases of € 12.2 million, and reclassifications to payables of € 0.7 million.

Net financial debt at 31 December 2018 amounted to € 187.6 million (€ 287.4 million at 31 December 2017), confirming the ongoing downward trend since 2016. Specifically, the decrease versus 31 December 2017 was € 99.8 million, while the overall reduction versus 30 June 2016 was € 234.8 million, meaning that the initial debt has more than halved since mid-2016.

The improvement recorded in 2018 was attributable to the significant positive cash flows from ordinary operations (approximately € 118.7 million), including the cash in of dividends from associates and joint ventures (€ +5.9 million), only partly offset by outlays for capital expenditure and non-recurring expense mainly incurred in prior years. The net financial debt/EBITDA ratio before non-recurring expense is thus 1.2x versus 2.1x at 31 December 2017.

15 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

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

Source: Management reporting, based on the analysis of the main changes in total net fi nancial debt. The analysis of fl ows 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

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

31/12/18 Equity Profi t (loss) Equity and profi t (loss) for the year of RCS MediaGroup S.p.A. 451.3 41.9

Deferred tax on consolidation adjustments (34.0) (2.9)

Total amount of equity and pro-rata results of investees 122.9 60.5 Elimination of the total carrying amount of equity investments and related reversals, write-downs and dividends (196.1) (13.5) Recognition of allocations and goodwill in the consolidated fi nancial statements 113.5 (0.8) Elimination of effects of transactions between consolidated companies (204.4) - Equity and profi t (loss) for the year attributable to the owners of the parent 253.2 85.2 Equity and profi t (loss) for the year attributable to non-controlling interests 1.3 0.1 Equity and profi t (loss) for the year 254.5 85.3

– 16 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

HUMAN RESOURCES

Breakdown of employees by geographic segment

The exact headcount of the RCS Group at 31 December 2018 (3,265 units, of whom 93 fixed-term contracts) shows 56 units less than the figure at 31 December 2017. The drop in the workforce affected both permanent contracts (-20 units) and temporary contracts (-36 units). The change primarily includes the effects of the efficiency plans, partly offset by the measures taken to enhance the publishing offer and develop digital assets, and the new business line RCS Academy, and by actions to sta- bilize and manage turn over.

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

OTHER ITALY SPAIN COUNTRIES TOTAL 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 2018 2017 2018 2017 2018 2017 2018 2017 Executives, middle managers and white collars 994 1,005 707 738 47 53 1,748 1,796 Publication editors and journalists 765 767 517 521 3 2 1,285 1,290 Blue collars 193 195 39 40 - - 232 235 Consolidated total 1,952 1,967 1,263 1,299 50 55 3,265 3,321

The average number of RCS Group employees in January-December 2018 was 3,310, down by 80 units versus 2017 (an average of 3,390). The reduction in average workforce in Italy was quite significant (-42 employees), especially in clerical staff (-33 employees), while in Spain the difference in average workforce (-33 employees) mainly affected the editorial population (-20 units).

Average employees working in the Group’s foreign operations accounted for approximately 40% of the Group’s average total at December 2018.

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

OTHER ITALY SPAIN COUNTRIES TOTAL JAN-DEC JAN-DEC JAN-DEC JAN-DEC 2018 2017 2018 2017 2018 2017 2018 2017 Executives, middle managers and white collars 1,002 1,035 728 739 50 55 1,780 1,829 Publication editors and journalists 774 782 521 541 2 2 1,297 1,325 Blue collars 194 195 39 41 - - 233 236 Consolidated total 1,970 2,012 1,288 1,321 52 57 3,310 3,390

Changes in the organizational structure

RCS manages its organizational structure in accordance with the following core principles: ̶ 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.

In 2018, in accordance with these principles, RCS carried out actions on its organizational structure, streamlin- ing the corporate structure and implementing organizational solutions to encourage the development of digital business and new forms of revenue (i.e. Digital Area News Italy and RCS Academy). The year under review also saw the continuation of the projects to optimize and improve the efficiency of operating processes and to keep a tight rein over expenditure.

17 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Skills development and training

In 2018, RCS MediaGroup delivered over 31,000 hours of training dedicated to monitoring legally-required training and to updating and developing in-house 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. In compliance with workplace health and safety regulations, staff training programmes further expanded to keep abreast with the legislative developments in the field. Additionally, a number of training activities were planned and implemented to increase skills for digital development in the publishing industry and in the field of journalistic professionalism. Skill assessment was carried out by HR with the area managers of the various business divisions.

Industrial relations

With regard to trade union relations in Italy, in 2018 trade union agreements were formalized with the representatives of the two daily newspapers, aimed at reviewing the second-level framework, providing for special action in this context on professional training and disposal of untaken holidays. With regard to the two newspapers, in 2017 the crisis status and the use of social safety nets and/or solidarity arrangements had, in fact, come to an end. With both newspapers, efforts were focused on increasing productivity with new publishing products (first and foremost “Liberi Tutti” for Corriere della Sera and “Fuorigioco” 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 ended, with a total of 15 journalists leaving for early retirement pursuant to Law 416/1981. With regard to RCS MediaGroup’s blue-collar and white-collar workers, in December 2017 the solidarity agreement signed in July 2015 was terminated, with different percentages and areas of application in the various areas of the Group. In 2018, no new agreements were signed on using social safety nets. A turnover management approach was adopted to identify specific skills, especially digital skills, to support the evolution of the business. The insourcing of activities continued, returning what had previously been carried out by external suppliers to employees.

Unidad Editorial Towards the end of 2018, the existing trade union agreements were terminated in order to open a new round of negotiations on the collective agreements of the Unidad Editorial Group. The objective is to make new agreements with the trade unions that are more in line with the environment that Unidad Editorial’s business will find itself operating in over the short and medium term, guaranteeing the economic/financial sustainability of the Unidad Editorial Group and above all its development, especially in new digital environments.

Specific committees have been set up for training, workplace risk prevention, equality and a joint equality committee. This aims to establish more effective channels of communication with trade unions on issues of particular importance. In 2018, the organization of the various units was also analyzed with the aim of further improving their processes and achieving greater efficiency, including through the use of internal mobility. At the same time, with a view to optimization, the potential and performance of staff were assessed so as to correctly recognize their abilities and contribution to the creation of value and therefore appoint the most suitable people to key positions.

– 18 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ENVIRONMENT

In 2018, the RCS Group continued to pay the utmost attention to environmental issues, continuing a process that has gone on interrupted for quite a few years now. The ongoing improvement actions have involved the production and the other processes. In accordance with the provisions of art. 5, par. 3, letter b, of Legislative Decree 254/2016, the RCS Group has prepared the consolidated non-financial statement, which constitutes a separate report. The 2018 consolidated non-financial statement was prepared according to the “GRI Standards” reporting standard and subject to a limited audit by Deloitte & Touche S.p.A..

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 business 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 2018 from offices in 2017 % change Paper and cardboard Kg 288,310 276,110 4.4% Bulky goods Kg 35,180 41,490 (15.2)% Other hazardous waste Kg 920 1,900 (51.6)% Toners Kg 680 - n.s. Disused equipment Kg 380 1,125 (66.2)% Neon bulb lights Kg - 10 n.s. Lead batteries Kg - 20 n.s.

The greatest impact in terms of waste is essentially composed of two items: Paper and cardboard and Bulky waste: the former are significant as they are connected to the main activities of the Group, while the latter are connected to the disposal of furnishings and obsolete material, also following relocation, internal refurbishment or, more generally, upgrading.

Bulky waste has shown mixed trends over time, recording a 15.2% drop in 2018 versus 2017, due to the very fact that such waste is linked to snap activities. The trend in paper and cardboard waste has reversed versus prior years, with an increase in disposal volumes of 4.4% (down 15.8% in 2017 versus 2016). This figure was affected in 2018 by both an increase in production and by the rationalization of the spaces dedicated to archives, the effects of which were only partly offset by the results of the ongoing process of sensitizing employees about mindful use of company equipment such as pho- tocopiers and printers.

19 – 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 2018 residual waste 2017 residual waste % change Paper Kg 205,200 194,470 5.5% Yellow category (carton) Kg 25,800 28,320 (8.9)% Electronic material Kg 10,016 5,357 87.0% Trimmings Kg 6,400 9,420 (32.1)% Other material Kg 2,426 2,253 7.7% Fluorescent tubes Units 1,300 1,780 (27.0)%

Paper waste and the disposal of obsolete electronic materials increased, due to space reorganization carried out in a warehouse of the Spanish group. There was a general decrease in other waste due to improved differentiated waste collection, with the result that only waste that can no longer be reused is sent to landfill, with an associated reduction in environmental impact.

The following is the number of printed sheets in 2018 and 2017:

Unidad Editorial no. of sheets 2018 2017 % change A4 sheets 2,447,473 3,013,543 (18.8)% A3 sheets 429,733 264,311 62.6% Total consumption 2,877,206 3,277,854 (12.2)%

* * *

Figures relating to the quantities of industrial waste produced by the main Italian printing plants for 2018 are as follows:

MILAN – Pessano ROME PADUA

2018 2018/2017 2018 2018/2017 2018 2018/2017 Hazardous waste kg 50,212 +0.7% 4,447 +13.7% 0 (100)% Non-hazardous waste kg 345,175 +27.7% 123,386 (46.5)% 87,640 (38.6)% Waste for recycling and kg 3,115,738 +24.2% 1,275,040 +31.1% 2,096,292 +5.6% recovery Total waste kg 3,511,125 +24.1% 1,402,873 +16.2% 2,183,932 +2.6%

The figures shown in the table refer to the quantity of industrial waste removed by specialist companies authorized to recover or dispose of it. In 2018, the RCS Group was registered with SISTRI (The Italian tracking control system), until its dissolution.

Pessano plant - The overall increase in waste was due mainly to higher production volumes and different use of rotary presses versus the prior year. Typical waste from the printing process increased, especially aqueous damping solutions which are considered non-hazardous waste. Paper waste also increased, linked to higher production volumes with a consequent increase in waste for recycling and recovery. The volume of hazardous waste disposal is basically in line with the prior year.

Rome plant - The increase in hazardous materials is due to a one-off oil-waste disposal. The reduction in non-hazardous waste was due to the reclassification of certain materials as waste intended for recycling and recovery, as well as to the removal from the item of aluminum sheets no longer considered as waste, but now made available by the supplier for processing. The increase in production has resulted in an increase in materials intended for recovery.

– 20 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Padua plant - The overall increase in waste was essentially linked to paper waste due to higher production volumes, only partly offset by the different treatment of aluminum sheets now made available by the supplier for processing and no longer considered waste. Disposal of hazardous and non-hazardous waste fell due to a different schedule of collection operations versus 2017, with the consequent postponement of certain disposal operations to January 2019.

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 the raw material, recycled paper and pulp are 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 differences in consumption are due to the following factors.

Milan plant - The decrease in consumption, which began in the last few months of 2017, continued in 2018 (reaching -12% at the end of 2018). This is due mainly to the installation of the osmosis purification plant.

Rome plant - The +4.2% increase in consumption is explained by a one-off breakdown in the bathroom water circuit, remedied during the year.

Padua plant - The 22% decrease in consumption is linked to the efficiency of the water softening plant.

The figures shown in the tables refer to metered water consumption at the two Italian plants and for the Unidad Editorial headquarters in 2018:

MILAN – Pessano ROME PADUA Unidad Editorial 2018 2018/2017 2018 2018/2017 2018 2018/2017 2018 2018/2017

Water consumption 30,296 (12.0)% 2,299 +4.2% 2,056 (22.0)% 8,740 (36.4)%

► Energy

The Group’s energy consumption is shown below.

Electricity The RCS Group is constantly committed to a policy of containing electricity consumption and to the optimized use of resources. Electricity is used for air conditioning, lighting offices and for the office equipment power supply, as well as for production in the plants in Italy. Specifically, Rizzoli and Solferino, which account for over 90% of the Group’s office space, saw an increase in consumption in 2018 versus 2017.

21 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Mention should be made that 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 the office locations is strongly affected by the weather.

* * *

The figures shown in the table below refer to metered electricity consumption at the principal Italian production plants in 2018:

MILAN – Pessano ROME PADUA

2018 2018/2017 2018 2018/2017 2018 2018/2017 Electricity consumption (kwh) 8,592,180 (1.1)% 4,916,962 +3.6% 4,660,282 (1.4)%

Milan and Padua Plants - The slight decrease in electricity consumption of the two plants is linked to a change in the programming of the air conditioning/heating systems and to last summer not being particularly hot. It is partly offset by the greater use of the rotary presses for the production of the newspapers and their inserts.

Rome plant - The increase in electricity consumption is attributable to the greater use of the rotary presses for the production of the newspaper and its inserts.

In 2018, the Unidad Editorial Group’s energy consumption decreased by 8.7% versus 2017, which translates into 156 fewer tons of CO2 emitted into the atmosphere. The decrease is the result of the installation of new condi- tioners in the air conditioning system and from having reduced the amount of space used at the Unidad Editorial office in Madrid.

Details of consumption are shown in the table below:

Unidad Editorial 2018 2017 % change Electricity consumption (kwh) 5,635,697 6,175,090 (8.7)%

Energy for heating The Via Rizzoli offices stopped using fossil fuel heating systems in 2010 to switch to heat-pump systems only. The building in Via Campania in Rome still has natural-gas powered boilers for heating. Gas consumption in Rome was affected by the extreme weather seen in 2018. At the Via Solferino site, natural-gas boilers are used for domestic hot water and preheating batteries.

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

2018 2018/2017 2018 2018/2017 2018 2018/2017 Methane gas consumption m3 389,090 (10.0)% 220,801 +10.6% 258,404 (12.4)%

Milan and Padua Plant - The drop in natural gas consumption in these two plants is due to replacements/ improvements in the heating system made in during 2017, in light of the malfunctions detected and a change in the switch on/off hours of the systems. These lower consumption levels are partly offset by the extension of production hours due to greater use of the rotary presses for printing inserts.

Rome Plant – The increase in consumption levels is due to the extension of production hours owing to the greater use of the rotary presses for printing inserts.

– 22 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

► Electromagnetic and atmospheric emissions

Fuel for vehicles RCS’s car fleet complies with anti-pollution regulations and undergoes constant renewal; this ensures increasingly low consumption. 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.

MILAN – Pessano ROME PADUA

2018 2018/2017 2018 2018/2017 2018 2018/2017 Methane gas consumption m3 389,090 (10.0)% 220,801 +10.6% 258,404 (12.4)%

23 – 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 2018, the Italian GDP started losing momentum, coming to a grinding halt in the third quarter. The change for 2018 shows a GDP growth of 0.9%, down from 1.6% in 2017 (ISTAT). Forecasts on the Italian economy in the 2019-2021 three year period point to a GDP growth of 0.6% in 2019, 0.9% in 2020 and 1% in 2021 (Bank of Ita- ly Economic Bulletin January 2019). The European Commission’s expectations are lower, estimating a growth of 0.2% for 2019 and 0.8% for 2020 (Economic Forecast European Commission February 2019).

The Spanish economy shows a different picture, where growth is much stronger in 2018, driven by domestic demand. Specifically, the Spanish GDP grew by 2.5% in 2018 (Institute of National Statistics - INE), far higher than other major European economies. Growth forecasts estimate a +2.1% uptick in GDP for 2019 and +1.9% for 2020 (Economic Forecast European Commission February 2019).

These estimates are nonetheless contingent on the risks of instability that could affect the two countries following the European and Spanish elections in 2019, the Brexit outcome, and the implications of the tariff war on the real economy, also as a result of the frictions in the banking world in Italy.

Risks relating to the Group’s results

Advertising: Among the Group’s activities, advertising represents nearly half of total revenue and, though it has generally higher 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 2018 the specific advertising markets in which RCS operates performed poorly with advertising down both in newspapers (6.2% in Italy and 6.8% in Spain) and magazines (8.2% in Ita- ly and 10% in Spain).

Online: The digital segment may help to mitigate the abovementioned pro-cyclical trend of the advertising market, as it has progressively established itself (since it first appeared) both in Italy and in Spain; a point to bear in mind, however, is Italy’s inconsistent performance.

Moreover, it should be noted that the digital segment includes different types of advertising messages 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 OTT (Over-The-Top).

Publishing: One of the 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.

Sporting Events: The group activities correlated with sports and in particular the organization of sporting events, have an appreci- able margin experiencing rapid development. The business is seasonal in nature, as it is correlated with the frequency of the sporting events. This situation 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).

Other: 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.

– 24 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 assets 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 targets, policies and procedures in 2018 from the year ended 31 December, 2017.

The Loan Agreement concluded on 4 August 2017 was renegotiated in 2018 with the signing of an Amending Agreement on 10 October 2018. The Amending Agreement deferred the final due date from 31 December 2022 (as previously in force) to 31 December 2023, with a reduction in the spread charged on both credit lines, re-determined from time to time in respect of a margin grid determined by the leverage ratio (NFP/EBITDA), which is more favourable than the original level.

For further details, reference should be made to the comments made in Significant Events during the Year in 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, supplier and client relationships

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

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 distribution, attaching greater importance to close relationships with suppliers. On other types of supplies, in particular, paper, the main risks are those tied to the current oligopolistic market with possible ensuing difficulties in procurement and dependency on suppliers.

Certain dealings with suppliers/customers are based on licence and/or sponsorship agreements, non-renewal of which on expiry or renewal of which at less favourable conditions could impact on the results and financial position of the Group.

The Group is additionally exposed in terms of distribution to the geographical setup of newsstand sales points. Their more or less ubiquitous presence in the territory could have an impact on the Group’s activities and affect the Group’s operating and financial results.

As far as relations with employees are concerned, 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 operating and financial results.

Risks associated with 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 and affect the valuation of the related intangible assets.

Risks associated with the valuation of assets

At 31 December 2018, the Group held € 333.3 million in intangible assets with indefinite useful life. Interna- tional accounting standards require the periodical assessment of the book value of intangible assets, by means of an impairment test to determine their recoverability (see also Note 33 of this Annual Report). This test is based on financial ratios and estimates of the trend of the activities to which the assets are linked, which are highly sensitive to the financial and economic markets. The main decisions when applying accounting standards and key sources of estimation uncertainty are commented on in Note 12 of this Annual Report, to which reference is made for further details.

25 – 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, including tax, 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, with resulting negative effects on profits

Risks related to privacy, data protection and cybersecurity

The innovation and enhancement of technological platforms and the organic development of digital products and customer centric strategies lead to increased risks related to cybersecurity and data protection. Privacy and personal data protection are becoming an increasingly important issue for the Group and, especially in the publishing industry, play a key role in the relationship of trust with readers and users. The issue requires stringent rules and policies, complemented with a corporate culture that needs to be aligned with the latest regulations that have extended and consolidated the protection of data subjects’ rights.

The Group has procedures and tools in place to ensure compliance with the European Regulation on the protection of personal data EU 679/2016, with Legislative Decree 196/2003 as amended by Legislative Decree 101/2018 in Italy, and with Ley Orgánica 3/2018, de Protección de Datos Personales y Garantía de los Derechos Digitales in Spain of 5 December.

Risks associated with 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 business 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, earnings and financial position.

Risks associated with disputes

The RCS Group’s exposure to litigation risks is consistent with the Group’s size and business activities. By way of example, unlike other industries, publishing is marked by greater exposure to the risk of civil and criminal litigation for libel. However, even where RCS lost the case, such disputes gave rise to generally small amounts of compensation compared to the original claims of the counterparty.

The most significant disputes, both qualitatively and quantitatively, are commented on in the notes to the Infor- mation on ongoing disputes, to which reference is made for more detailed information. Contingent liabilities are allocated to provisions for risks and charges in the financial statements in accordance with the criteria explained in Note 8: “Valuation Criteria”.

Risks relating to RCS MediaGroup S.p.A.

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

– 26 OPERATING SEGMENT PERFORMANCE

27 –

DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

NEWSPAPERS ITALY

Segment profile

The Newspapers Italy area 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 (Gazzetta dello Sport publications). It also includes television activities for satellite channels and digital development activities. Mention should also be made of the recent initiative Solferino - i libri del Corriere della Sera launched starting from April 2018.

Corriere della Sera publications include the national newspaper, the leading national news and information daily, in addition to a structured, integrated platform of print and digital information media, including a network of local newspapers, the weekly 7, special sections 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 sections and specialized supplements, the website gazzetta.it, the info- tainment GazzaNet website, featuring the latest news and details about the main teams and athletes.

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

The segment includes the television activities carried out in Italy through Digicast S.p.A., which operates in the satellite television broadcasting segment, offering five channels on SKY: Lei (channel 138), Lei+1 (channel 139) and Dove (channel 413), in addition to the optional channels Caccia (channel 235) and Pesca (channel 236).

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

Lastly, 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 Italy and Magazines Italy areas, contributed to the segment’s results.

Financial highlights

2018 2017 Change % change (€/millions) Publishing revenue 285.2 209.4 75.8 36.2 Advertising revenue 157.6 154.9 2.7 1.7 Sundry revenue 15.8 16.1 (0.3) (1.9) Total revenue from sales and services (1) 458.6 380.4 78.2 20.6 EBITDA 84.2 86.8 (2.6) (3.0)

(1) Revenue from add-ons at 31 December 2018 stood at € 66.6 million, € 63.8 million of which attributable to publishing revenue, € 2.7 million to sundry revenue and € 0.1 million to advertising revenue (the total at 31 December 2017 was € 44.3 million, of which € 42.8 million attributable to publishing revenue, € 1.4 million to sundry revenue and € 0.1 million to advertising revenue). Specifically, it should be noted that the adoption of IFRS 15 as from 1 January 2018, with no impact on EBITDA, produced in 2018 higher revenue from add-ons of € 16 million, entirely attributable to publishing revenue.

Market trend

The advertising market at end December 2018 was in line with 2017 (-0.2%). The print media segment fell overall by 7%, with newspapers down by 6.2% and magazines by 8.2%. Bucking the trend were radio (+5.5%), the online segment (+4.5%) and the TV segment (+0.6%) versus the same period of 2017 (Nielsen). In terms of circulation, in Italy the unfavourable trend in the print products market also continued in 2018. In 2018, generalist newspapers recorded a 7.6% decline in print circulation versus the same period of 2017. Includ- ing digital copies, the market dropped by 5.6% (ADS, January-December 2018). In 2018, print sports newspapers fell by 10.3% versus 2017, the same drop reported including digital copies (ADS January-December 2018).

29 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The average audience of paid-for satellite television channels in December 2018 was down 21% versus the same period of the prior year (Internal source from data processed by Auditel – Average Daily Audience figures - Live + Vosdal - calculated in respect of paid-for TV broadcasts), achieving a 5.2% share of the total television audience in December 2018 (Internal source from data processed by Auditel – Share - Live + Vosdal - calculated in respect of paid-for TV broadcasts). Total Digicast channels in December 2018 reached an average audience of approximately 5,200 AMR (Average Minute Rating, Auditel All day - consolidated).

Performance

The RCS Group continued its intense efforts in 2018 to enrich and expand its publishing products on both the digital and traditional channels.

In Italy, with regard to Corriere della Sera: ̶ on 23 February 2018, it launched Corriere Innovazione, the new magazine that explores the varied facets of innovation, touching science, technology, culture, research and development, offering different perspectives in the digital and paper domains and a generous calendar of local-based dedicated events; ̶ 19 April 2018 saw the debut of Solferino - I Libri del Corriere della Sera, which spans from fiction and non-fiction, to poetry and children’s books, both Italian and foreign; ̶ 18 May 2018 saw the launch of Liberi Tutti, the new free weekly supplement of Corriere della Sera, dedicated to the pleasure of living. The Friday issue complements the offer of the six Corriere della Sera supplements out at newsstands on the remaining days of the week; ̶ July saw the revamping of laLettura, Corriere della Sera’s cultural supplement, now richer, with up to 64 pages as well as new room for fiction and a section on science; ̶ 10 September saw the launch of the new six-monthly Style Dresscode dedicated to the fashion trends of the season; ̶ 17 September saw the unveiling of COOK, Corriere della Sera’s new monthly insert on the world of cook- ing and food, which covers these topics in an unprecedented way, through original pictures, photo reports and superb storytellers; ̶ at end September, women’s weekly Io Donna revamped its content and is out now with a larger size and better paper to add increasing value to images and graphics; ̶ the new Vivimilano has been on newsstands since 3 October. It features a modern, simple and fresh design and a completely new website, which can also be accessed directly from a smartphone. Distribution was also extended to the areas of Lombardy surrounding Milan, thus reaching a new set of target readers; ̶ on 19 November, the new series dedicated to the work world was launched, complementing the already exten- sive suite of publications dedicated to job adverts and job seekers, which also includes the content of Tro- volavoro.it, Nuvola del Lavoro and the two pages that the Corriere della Sera dedicates to job seekers every Tuesday.

Noteworthy events organized in the fourth quarter to support Corriere della Sera included: the Neapolitan edition of Cibo a Regola D’Arte, which at the end of October brought together Italian cuisine celebrities in the Cam- pania capital, with a focus on the common thread of food democracy.

As for La Gazzetta dello Sport: ̶ in 2018, the sections were enhanced, shining a daily spotlight on Torino, Cagliari and Genova, offering more in-depth information around the football teams and their fans; ̶ theme supplements continued to be published, including those dedicated to the 2018 Winter Olympics and the Formula 1 World Championship, as well as those (GMagazine and Grande Gazzetta) offering analysis on major sporting events such as the 101st Giro d’Italia, the FIFA World Cup, the Tim Cup, on Golf, the Luna Rossa challenge and the major regattas; ̶ the information offer stretched online to gazzetta.it with two new sections dedicated to Nutrition and to Virtu- al Sports through the eSports section, proof of the publication’s ongoing focus on news and issues that appeal to its readers and users, with a significant editorial and organizational investment;

– 30 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

̶ mention should be made of the new inserts Gazza Mondo on international football, on newsstands free of charge on Tuesdays, and Time Out, offering free weekly insights into the Italian basketball championship, on newsstands on Wednesdays; ̶ and starting from 1 July, published on Sundays, the free summer supplement Fuorigioco bundled with the newspaper. The weekly, which covers the sports world, its legends and celebrities, was supposed to be released for the summer months; ̶ from 11 to 14 October, RCS was also a key player and supporter – together with Trentino Region and with the patronage of the Italian Olympic Committee and the Italian Paralympic Committee – of Il Festival dello Sport, which staged more than 130 events in 15 different locations, recording over 50 thousand spectators and over 500 accredited journalists. The Festival has set itself the goal of conducting a live journalistic investigation, an all-round look at “The record”, on how to create, achieve and defend it; ̶ finally, December again saw the Gazzetta Awards, the eagerly awaited event that gives awards to the most deserving athletes of the year and celebrates athletic and human values.

Editorial initiatives have also focused on add-on products, developing a significant range of products widely appreciated by the public. Particularly worthy of note were La Gazzetta dello Sport’s “A scuola di pasticceria con Igino Massari” and “Il Grande Blek”, and Corriere della Sera’s monograph on Montessori and the series of works by Philip Roth.

* * *

Mention should be made that this report incorporates the new IFRS 15, which came into effect as from 1 Janu- ary 2018. The income statement figures of 2018, therefore, cannot be directly compared with the corresponding amounts of the same period last year. Specifically, if this new standard had not been applied, revenue would have amounted to € 385.8 million instead of € 458.6 million, with a difference of € 72.8 million entirely attributable to publishing revenue.

Consolidated revenue from the Newspapers Italy area at 31 December 2018, amounting to € 458.6 million, increased by € 78.2 million versus 2017. A like-for-like comparison would show an improvement of € 5.4 million, with a fall in circulation revenue, more than offset by the increase in advertising revenue and the rise in revenue from add-on sales. On a like-for-like basis, digital revenue in the area accounted for 14.9% of total revenue in the segment (14.5% in 2017).

Publishing revenue in the Newspapers Italy area amounted to € 285.2 million, on a like-for-like basis to € 212.4 million, up by € 3 million versus the same period of 2017 (+1.4%). The increase is generated by the good performance of add-on products and the development of revenue from digital subscriptions to Corriere della Sera, which offset the fall in circulation revenue. Both newspapers retained their circulation leadership in their respective market segments at December 2018 (ADS January-December 2018). In the January-December period of 2018, Corriere della Sera reported an average circulation of 286 thousand copies, including digital copies (ADS January-December 2018). Total circulation of La Gazzetta dello Sport in the January-December period of 2018 was 166 thousand average copies, including digital copies (ADS January-December 2018). As regards the comparison with the market, the newsstands channel (channels required by law) outperformed the market with both Corriere della Sera, -2.7%, versus the market’s -7.6% (ADS January-December) and La Gazzetta dello Sport, -6.4% versus the market’s -10.3%.

As regards paid digital offers, active paying subscribers at end December increased sharply versus the prior year (+35%), with approximately 108 thousand paid subscribers comprising the digital edition, membership and m-site. In December, the total active customer base for Corriere della Sera was 135 thousand subscribers, up by 29% versus 2017. In 2018, the average monthly unique browsers of corriere.it reached 48.9 million (+4% versus the same period in 2017) (Adobe Analytics). The mobile version of the website, Corriere Mobile, recorded 29.5 million average monthly unique browsers in 2018, up by 17.1% versus 2017 (Adobe Analytics). Gazzetta.it recorded 34.3 million average monthly unique browsers in 2018 (up by 17.9% versus 2017). Gazzetta Mobile counted 22.5 million unique browsers, up by 45.8% versus 2017 (Adobe Analytics).

31 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Advertising revenue in the Newspapers Italy area amounted to € 157.6 million, up by € 2.7 million (+1.7%) versus the same period of 2017. Total advertising sales for online media reached approximately 26.8% of total advertising revenue for the segment, versus 25% in 2017.

Sundry revenue amounted to € 15.8 million, in line with the prior year, when the improved performance of add- on products was offset by lower revenue from subscriptions to satellite channels.

* * *

EBITDA amounted to € 84.2 million, down by € 2.6 million versus € 86.8 million in 2017 (-3% versus EBIT- DA at 31 December 2017). Net of non-recurring expense, the decrease amounted to € 2.2 million. The growth in advertising revenue, the benefits from the initiatives taken to continually expand and enhance the publishing portfolio, and the painstaking efforts in pursuing efficiency, were more than offset by the expected trend in the lower margins of add-on products, affected by the different mix and timing of the publishing plan versus the pri- or year, the general drop in circulation of the titles, the lower revenue from Television Activities, and the effects of the interrupted staff defensive solidarity contract at end 2017. Total operating costs, including personnel expense, net of the effects of the different publishing plan of add-on products, were down by 0.7%.

– 32 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

MAGAZINES ITALY

Segment profile

The Magazines Italy area 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 concern the following areas: Women’s (IO Donna and Amica), Home Furnishings and Interior Design (Liv- ing 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 January 2018 Oggi Enigmistica Mese was relaunched with a new format and more games, and in late September IO Donna was relaunched with a new design and format.

The area 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.

The Magazines area also includes 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 assort- ed sample products for mothers, the organization of events and fairs (Bimbinfiera), the offer of digital products (quimamme.it website and publication websites) 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 Portugal, its offer is exclusively online. Mention should be made that the activities of MyBeautyBox S.r.l., e-commerce cosmetics brand of the RCS Group, are now included in the Magazines Italy area. These activities previously fell under the Other Corporate Activities area; the comparison period has therefore been revised.

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

2018 2017 Change % change (€/millions) Publishing revenue 36.5 28.1 8.4 29.9 Advertising revenue 45.4 48.8 (3.4) (7.0) Sundry revenue 14.0 16.7 (2.7) (16.2) Total revenue from sales and services (1) 95.9 93.6 2.3 2.5 EBITDA 10.8 14.2 (3.4) (23.9)

(1) Revenue from add-ons at 31 December 2018 amounted to € 3.8 million, entirely attributable to publishing revenue (at 31 December 2017, revenue amounted to € 2.9 million and was entirely attributable to publishing revenue). Specifically, it should be noted that the adoption of IFRS 15 as from 1 January 2018, with no impact on EBITDA, produced in 2018 higher revenue from add-ons of € 1 million, entirely attributable to publishing revenue.

Market trend

In 2018, the Italian advertising market for magazines in print media fell by 8.2% versus 2017, against a basically steady advertising market. Internet saw investments rise by 4.5% (Nielsen December 2018).

With regard to the circulation market of titles declared in ADS in 2018, the print magazines market as a whole was down by approximately 8.7% versus 2017 (-5.2% if including digital copies). Monthly magazines fell by 7.7% (-3.4% including digital copies), while weeklies dropped by 8.9% (-5.5% including digital copies) (Inter- nal source based on ADS data).

The market for activities in the Childhood segment depends significantly also on the ongoing decline in the birth rate in both Italy and Spain in the 2008-2017 period. Specifically, since 2008, the last year of growth, births have dropped by 118,500 units in Italy, equal to -20.6%, and by 127,000 units in Spain, equal to -24.3%. Estimates for 2018 show a further decrease of 9,000 units in Italy, or -2% versus the prior year, while in Spain the figure

33 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

for 1° half 2018 was recently published, showing a decrease of 5.8% versus 1° half 2017 (Istat, Movimiento natural de la poblacion).

Performance

In 2018, a number of initiatives were taken to improve and enhance the overall offer of the Magazines Italy area. Particularly worthy of note are: the restyling of IO Donna, with a refreshed format and design and new editorial content that distinguish it as a smart and modern title increasingly aimed at the female target; the restyling of the monthly Dove, with a new format and renewed design layout to enhance its photographic reportages and with enriched and renewed content; the launch of a new format of Oggi Enigmistica Mese in maxi format; and finally the launch of Oggi Enigmistica Junior, dedicated to children.

* * *

Mention should be made that this Annual Report incorporates the new IFRS 15, which came into effect as from 1 January 2018. The income statement cumulative figures at December 2018, therefore, cannot be directly compared with the corresponding amounts of the prior year. Specifically, if this new standard had not been applied, total revenue for the area in 2018 would amount to € 87.5 million instead of € 95.9 million (€ -8.4 million), the difference relating to publishing revenue.

Total revenue of the area amounted to € 95.9 million in 2018, up by € 2.3 million versus the prior year; excluding the effects of the application of the new IFRS 15, revenue would decrease by € 6.1 million in the year, of which € 3.4 million attributable to advertising revenue and € 2.7 million to sundry revenue.

Publishing revenue on a like-for-like basis was basically steady.

On the circulation front, the weekly magazine Oggi was basically steady versus the prior year (including digital copies), while the monthly Dove grew by 1.9% (including digital copies). (Internal source based on ADS data).

As for digital performance indicators, the IODonna.it site performed well with 2.3 million average monthly unique browsers versus 2.1 million in 2017 (+7.2%), as did Oggi.it, which increased average monthly unique browsers by 29% (from 3.4 million in 2017 to 4.4 million in 2018), Amica.it, with approximately 500 thousand average monthly unique browsers, up by 82%, and Living.corriere.it, with 383 thousand average monthly unique browsers (+16%) (SiteCatalyst).

The Quimmamme.it network, with over 1.1 million average monthly unique browsers in 2018, also delivered a remarkable performance, growing by 12% versus the same period of 2017 (Adobe SiteCatalyst).

Advertising revenue fell by € 3.4 million versus 2017 (-7%), despite the fact that print media, down by 6.1%, outperformed the relevant market’s -8.2% (Nielsen), € 1.9 million of which attributable to the Magazines Seg- ment and € 1.5 million to the Childhood Segment and, in particular, to printing activities in Italy and abroad.

Sundry revenue amounted to € 14 million, down by € 2.7 million (-16.2%) versus 2017, mainly in Italy and in the Childhood Magazines area, due to lower revenue from direct marketing (€ -2.6 million) and distribution of boxed sets (€ -0.5 million). The fall was only partly offset by the good performance of sundry revenue from the Magazines Segment.

* * *

EBITDA amounted to € 10.8 million in the period, down by € 3.4 million versus 2017 (€ -3.2 million net of net non-recurring expense). This change is attributable to the effect on the margin of the drop in advertising revenue of the Magazines Sys- tem and of Childhood Magazines, and the fall in revenue from direct marketing activities in the Childhood Mag- azines segment. The measures taken to curb publishing costs, marketing expenses and the operating costs of the organizational structure allowed the trend to be partly offset.

– 34 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 are assigned to sub-concessionaires in Tuscany, Emilia-Romagna, Marche, La Spezia (Speed Società Pubblicità Editoriale e Digitale S.p.A.) Trentino-Alto Adige (Media Alpi Pubblicità S.r.l.), Friuli Venezia Giulia, Veneto, Campania, Latium, Calabria (PIEMME S.p.A.), Sicily (PK Sud S.r.l.), Apulia and Basil- icata (Mediterranea S.p.A.) and the provinces of Brescia and Bergamo (Publiadige S.r.l.).

The Division’s activities include, from 1 January 2018, the advertising sales of La7.it (on the Cairo Group TV site) and, from 1 March 2018, LeiTV.it (on the RCS Group website).

The advertising sales concession contract regarding the Warner Music sites was terminated on 1 May 2018.

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, publisher of La Sicilia and lasicilia.it; Sicilia Multimedia S.r.l., publisher of Siciliaweb.it.; Editrice del Sud Edisud, publisher of Gazzetta del Mezzogiorno and gazzettadelmezzogiorno.it; Giornale di Sicilia Editoriale Poligrafica, publisher of Giornale di Sicilia and gds.it; Unione Sarda, publisher of Unione Sarda and Unionesarda.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 S.p.A. (also through its subsidiaries: RCS Sports and Events DMCC, Consorzio Milano Marathon S.r.l. and Società Sportiva Dilettantistica RCS Active Team–SSD RCS AT a r.l.) 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

2018 2017 Change % change (€/millions) Advertising and sundry events 235.5 238.3 (2.8) (1.2) Sporting Events 65.5 74.9 (9.4) (12.6) Total revenue from sales and services 301.0 313.2 (12.2) (3.9) EBITDA 32.5 22.7 9.8 43.2

Market trend

In Italy, the advertising market (Nielsen) closed 2018 falling slightly versus 2017 (-0.2%). Specifically, newspapers lost -6.2% and magazines -8.2%. Billboards fell -8.6%, while radio grew by 5.5% and the Internet by 4.5%.

35 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

Performance

Total revenue of the area at 31 December 2018 amounted to € 301 million (€ 313.2 million at 31 December 2017), down by € 12.2 million versus the prior year; excluding the effects from the application of IFRS 15, revenue of the area at 31 December 2018 would amount to € 321 million (instead of € 301 million), up overall by € 7.8 million, entirely attributable to sundry revenue.

Advertising revenue attributable to the RCS Pubblicità Division was down slightly versus 2017 (€ -0.4 million; -0.2%). The change is due mainly to the termination in February 2017 of the advertising concession contract with the Monrif Group, resulting in a decrease in revenue of approximately € 1.3 million versus 2017. On a like- for-like basis, the increase amounted to € 0.9 million (+0.4% versus -0.2% of the total advertising market): daily newspapers grew by € 0.3 million (+0.2%, bucking the market’s -6.2%), while magazines declined by € 3.1 million (-5.9% versus the market’s -8.2%) versus the prior year. Events increased by € 0.3 million, while online grew by approximately € 3.4 million (+6.3% versus the advertising market’s +4.5%). Advertising revenue from Eventi Sportivi remained basically steady on a like-for-like basis (€ +0.3 million), due partly to the contribution of revenue from sponsorships.

Sundry revenue in the area increased by € 7.8 million, net of the above effects of the application of IFRS 15. The change was propelled by the success of sporting events.

* * *

Total EBITDA for the area amounted to € 32.5 million, improving by € 9.8 million versus 2017 (€ +7.2 million excluding non-recurring income), attributable mainly to the contribution of Eventi Sportivi as a result of the above development of sundry revenue. The Advertising division’s steadfast commitment to cost reduction also contributed to this change.

– 36 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

UNIDAD EDITORIAL

Segment profile

Unidad Editorial is one of the main players in the Spanish publishing market, where it operates under several media and brands. It operates in the daily and magazine segments, in book publishing, in the radio segment, in event and conference organization (also in Portugal) and in distribution, with products in its own portfolio and 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 newspaper Marca, and in business news, with the daily newspaper Expansión. It maintains a web presence through the relating 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 the specialist magazine Marca Motor. It operates in book publishing with the publishing houses La Esfera de los Libros and A Esfera dos Livros (Por- tugal).

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

2018 2017 Change % change (€/millions) Publishing revenue 112.5 108.3 4.2 3.9 Advertising revenue 137.8 133.2 4.6 3.5 Sundry revenue 60.5 59.0 1.5 2.5 Total revenue from sales and services (1) 310.8 300.5 10.3 3.4 EBITDA 44.7 32.1 12.6 39.3

(1) Revenue from add-ons at 31 December 2018 stood at € 2.8 million, € 2.7 million of which attributable to publishing revenue (€ 3.9 million at 31 December 2017) and € 0.1 million to sundry revenue (€ 0.3 million at 31 December 2017).

Market trend

At 31 December 2018, the Spanish gross advertising sales market reported a 1.3% increase versus 2017 (i2p, Arce Media). The newspapers market fell by 6.8%, magazines dropped by 10% and supplements lost 11.5% versus 2017. The Internet segment drove the market (net of social media) and posted a 14.8% improvement (i2p, Arce Media).

At December 2018, sales performance on the newspapers market declined versus 2017. Print circulation figures for Spain up to year end (OJD) regarding the generalist newspapers market show an overall 11.2% reduction. Business newspapers dropped by 5.2%. Daily sports newspapers witnessed the same trend, with circulation down by 10.4%.

Performance

In 2018, the Group’s editorial content was strengthened with the restyling of existing titles and the launch of new products on the market.

Specifically: ̶ starting from 23 February 2018, Su Vivienda was revamped; the supplement is a trusted source for the real-estate market, out on Fridays along with the local Madrid edition of El Mundo;

37 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

̶ starting from 5 March 2018, El Mundo comes every week with the sale of the supplement Actualidad Econom- ica, the main business-economic periodical title of the Unidad Editorial group; ̶ from 19 April 2018, Marca Motor has revamped its format to meet new market needs, by investing in innovation through a new design that is fresher, neater and more dynamic, seeking a more modern look; ̶ the launch of the new MarcaClaro portal in Mexico in 2017 - was followed in January 2018 by the launch of the MarcaClaro in Colombia and, on 14 June, in Argentina, offering 45 million Argentinians a full picture on sporting events, local tournaments and competitions, as well as various international events; ̶ on 2 July 2018, the websites diariomedico.com and correofarmaceutico.com, unveiled their revamped design. The restyling was made to reorganize information and adapt it to the needs of health insiders, offering them a faster and more straightforward tool; ̶ also in July, the new puzzles magazine MásterPasatiempos was launched in an innovative format for the Spanish market. The magazine is a weekly publication on newsstands every Thursday; ̶ in July, ongoing navigation of Expansión was launched, resulting in an improvement in site navigation. This has helped multiply the number of pages viewed, contributing to the increase in the advertising base; ̶ October saw the launch of the cultural supplement ‘Esfera de Papel’, which enhances the editorial portfolio of El Mundo, with a space dedicated to current affairs, and food for thought on literature, art, music, theatre, cinema and television series.

* * *

This Report incorporates the new IFRS 15, which came into effect as from 1 January 2018. The income statement figures of 2018, therefore, cannot be directly compared with the amounts of last year. Specifically, if this new standard had not been applied, consolidated revenue in 2018 would total € 295.6 million instead of € 310.8 million, with a difference of € 15.2 million, attributable to publishing revenue of € -19.5 million, advertising revenue of € +2.8 million and sundry revenue of € +1.5 million. The adoption of the new IFRS 15 produced no effects on EBITDA.

Consolidated revenue from Unidad Editorial at 31 December 2018, amounting to € 295.6 million, taking account of the above, on a like-for-like basis with 2017, would therefore show a drop of € 4.8 million (-1.6%), with a decrease in publishing revenue of € 15.2 million, an increase in advertising revenue of € 7.4 million, and an increase in sundry revenue of € 3 million. Digital revenue in the area at 31 December 2018 accounted for 26.1% of total revenue, up by 22.9% versus 2017.

Publishing revenue at 31 December 2018 amounted to € 112.5 million. The decrease on a like-for-like basis of € 15.2 million is attributable mainly to the general drop on the newspapers market. The data published by EGM (Estudio General de Medios, latest in October) confirm Unidad Editorial’s leadership in the newspapers sector which, through its brands, reaches approximately 2.6 million readers on a daily basis, outperforming main competitors by approximately 500 thousand readers.

The average daily circulation of El Mundo in 2018, including digital copies, stood at a total of 111 thousand copies (including digital copies, OJD), dropping by 7.1% versus the same period of 2017. According to the OJD survey of the total print circulation market (December 2018), El Mundo, with an average of 56 thousand copies sold at newsstands, retains its position as the second general interest publication at national level.

The circulation of the sports daily Marca (average daily circulation of approximately 121 thousand copies, including digital copies, OJD) fell by 10.4% versus 2017. OJD figures (total print circulation) at 31 December 2018 confirm Marca’s leadership with 112 thousand average copies.

Also for Expansión, OJD figures (total print circulation) for 2018 confirm the undisputed leadership of the newspaper, with 22 thousand average copies and a better performance than the market for copies sold at newsstands. In 2018, Expansión recorded an average daily circulation of approximately 34 thousand copies, including digital copies, down by 4% versus the same period of the prior year.

As regards online activities, average monthly unique browsers (Omniture) of elmundo.es reached 54.3 million at December 2018 (+9.1% versus 2017), and average weekly unique browsers 4 million in 2018 (+12.5% versus 2017).

– 38 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

In 2018, marca.com reached 57.7 million average monthly unique browsers (+29.4% versus the same period of 2017), while average weekly unique browsers were 5.6 million, up by 19.2% versus 2017. The new MarcaClaro portal, previously launched in Mexico, was launched in Colombia in January, then in Argentina (as mentioned above), and brought significant growth in average monthly unique users in Latin Amer- ica (+65%) The average monthly unique browsers of expansión.com in 2018 reached 9.9 million, down by 5.4% versus 2017, while average weekly unique browsers were 0.6 million (-7.4% versus 2017). All three dailies recorded a significant increase in mobile access.

Advertising revenue amounted to € 137.8 million, up on a like-for-like basis by € 7.4 million (+5.6%) versus 2017, attributable mainly to the digital area, to the international development of the Marca site, and to advertising revenue from the FIFA World Cup. Total advertising revenue for online media accounts for approximately 46% of total advertising revenue and increases by 19.6% versus 2017.

Sundry revenue, amounting to € 60.5 million, increased versus the same period of the prior year (€ +3 million on a like-for-like basis), thanks mainly to the steady development of the betting activities of Marca Apuestas.

* * *

EBITDA in 2018 stood at € 44.7 million versus € 32.1 million in 2017, improving by € 12.6 million. EBITDA before non-recurring expense amounted to € 45.5 million, improving by € 12.5 million (in 2017 EBITDA before non-recurring expenses amounted to € 33 million). The effects on the margin of the decline in traditional revenue was more than offset by the growth in digital revenue and by ongoing cost containment and efficiency gains (such as the rationalization of consultancy services and collaborations, the revision of supplier fees and the efficiency of marketing expenses).

39 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

OTHER CORPORATE ACTIVITIES

Segment profile

This area 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. Add- ed 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 Corriere della Sera and the main RCS Group magazines. The Foundation increases the archive and cultural value of its assets through intense activities involving debates, conferences, publications and photographic and documentary exhibitions.

Financial highlights

2018 2017 Change % change (€/millions) Publishing revenue - 0.1 (0.1) n.a. Sundry revenue 21.5 23.0 (1.5) (6.5) Total revenue from sales and services 21.5 23.1 (1.6) (6.9) EBITDA (16.9) (17.7) 0.8 (4.5)

Performance

Revenue, amounting to € 21.5 million, decreased by € 1.6 million versus the same period in the prior year. Sun- dry revenue, consisting mainly of chargebacks to other business segments, decreased as a result of the effective 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. EBITDA came to € -16.9 million, improving versus the prior year (even net of non-recurring expense of € +1.1 million), due to the efficiencies achieved in the period for costs incurred by central functions.

– 40 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, leading national and sports newspaper titles, as well as numerous weekly and monthly magazines, including Amica, Dove, Oggi and Abitare and many supplements (weekly and monthly) linked to the two newspapers, such as La Lettura, L’Economia, 7, Buone Notizie – L’impresa del Bene, Style Magazine, Living, Libri Tutti, Corriere Innovazione, IO Donna, SportWeek, Time Out and Fuorigioco, and is also a leader in the early childhood segment with a product range encompassing print, online, e-commerce, events and fairs dedicated to such 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 renowned third-party publishers. Lastly, mention should be made of the debut in April 2018 of Solferino - i libri del Corriere della Sera.

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 19 November 2018, a merger deed was signed to incorporate RCS International Newspapers S.r.l. into RCS MediaGroup S.p.A.; the accounting and tax effects of the merger apply as from 1 January 2018, and the legal effects as from 31 December 2018. For easier comparison, the income statement and balance sheet figures of RCS MediaGroup S.p.A. for 2018 are compared versus 2017 pro-forma, which takes account of the merger of RCS International Newspapers S.r.l. as if it had occurred in 2017. Further information is found in the appropriate annexes.

Mention should be made that the financial highlights for 2018 of RCS MediaGroup S.p.A., versus those of 2017, incorporate the adoption of the new IFRS 15 and IFRS 9, which came into force as from 1 January 2018. For both of these standards, the Company opted not to restate comparative figures. Accordingly, it should be noted that: ̶ the impact of IFRS 15 on the 2018 figures resulted in an increase in net revenue of € 81.2 million (circulation revenue), offset by an increase in equivalent operating costs, without therefore affecting margins and initial equity; ̶ the impact of IFRS 9 produced a decrease in receivables of € 2.2 million, with a resulting reduction of € 1.7 million (net of the tax effect) in initial equity. As a result of the amendment of the Loan Agreement in October 2018, at the income statement level, the adoption of the above standard generated a gain of € 3 million recorded in the current year under financial income instead of being reflected as a benefit in the actual cost of the loan in future years as set out previously in IAS 39.

For further in-depth comments on the adoption of the new IFRS 15 and IFRS 9, in addition to the new IFRS 16, the latter adopted as from 2019, reference should be made to the notes to the financial statements of RCS Medi- aGroup S.p.A..

RCS MediaGroup S.p.A. closed 2018 with a net profit of € 41.9 million versus a pro-forma net profit of € +54 million in 2017. Mention should be made that 2017 had benefited from the net capital gain of € 14.9 million from the sale of the interest in Istituto Europeo di Oncologia S.r.l.; excluding this item, the net profit would be € 2.8 million higher.

41 – 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 separate Year Year Year financial 2018 % 2017 % Difference 2017 (€/millions) statements pro-forma (2) A B A-B Revenue I 583.6 100.0 500.2 100.0 83.4 500.2 Circulation revenue 321.7 55.1 237.4 47.5 84.3 237.4 Advertising revenue 243.0 41.6 241.4 48.3 1.6 241.4 Sundry publishing revenue 18.9 3.2 21.4 4.3 ( 2.5) 21.4 Operating costs II ( 357.0) ( 61.2) ( 277.7) ( 55.5) ( 79.3) ( 277.6) Personnel expense III ( 157.6) ( 27.0) ( 149.8) ( 29.9) ( 7.8) ( 149.8) Provisions for risks IV ( 4.0) ( 0.7) ( 3.7) ( 0.7) ( 0.3) ( 3.7) (Write-down)/reinstatement of V ( 2.0) ( 0.3) ( 1.8) ( 0.4) ( 0.2) ( 1.8) trade and sundry receivables EBITDA (1) 63.0 10.8 67.2 13.4 ( 4.2) 67.3 Amortization of intangible assets VI ( 10.4) ( 1.8) ( 14.2) ( 2.8) 3.8 ( 14.2) Depreciation of property, plant VII ( 6.7) ( 1.1) ( 7.8) ( 1.6) 1.1 ( 7.8) and equipment Impairment losses on VIII ( 7.4) ( 1.3) ( 3.4) ( 0.7) ( 4.0) ( 3.4) non-current assets Operating profit (loss) 38.5 6.6 41.8 8.4 ( 3.3) 41.9 Net financial income (expense) IX ( 0.9) ( 0.2) ( 7.7) ( 1.5) 6.8 ( 8.1) Other inc. exp. fin. ass. and liab. X 14.7 2.5 28.6 5.7 ( 13.9) 28.6 (Write-down)/reinstatement of receivables and other financial assets XI ( 2.4) ( 0.4) - - ( 2.4) - Profit (loss) before tax 49.9 8.6 62.7 12.5 ( 12.8) 62.4 Income tax XII ( 8.0) ( 1.4) ( 8.7) ( 1.7) 0.7 ( 8.7) Profit (loss) for the year 41.9 7.2 54.0 10.8 ( 12.1) 53.7

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

The adoption of IFRS 15 as from 1 January 2018, without restating the balances at 31 December 2017, resulted in an overall increase in net circulation revenue of € 81.2 million in 2018, offset by an increase in operating costs of the same amount. The adoption of IFRS 9 on the income statement generated a gain of € 3 million recognized in the income statement in the current year under financial income, instead of being reflected as a benefit in the actual cost of the loan for future years, as set out previously in IAS 39.

Net revenue in 2018 amounted to € 583.6 million, up by € 83.4 million versus 2017 pro-forma. Excluding from the comparison the effects of the application of the new IFRS 15, amounting to € 81.2 million in net circulation revenue in 2018, total revenue would increase by € 2.2 million. On a like-for-like basis, circulation revenue was up by 1.3%; advertising revenue increased by 0.7%, while sundry publishing revenue fell (-11.7%). With regard to circulation revenue, the € 2.2 million increase versus 2017 on a like-for-like basis, is generated by the good performance of add-on products and the development of revenue from digital subscriptions to Corriere della Sera, which offset the fall in circulation revenue. Both newspapers retained their circulation leadership in their respective market segments at December 2018 (ADS January-December 2018).

Publishing revenue from magazines, again on a like-for-like basis, grew slightly (€ +0.1 million versus 2017 pro-forma), with an increase in newsstands circulation of Oggi, Abitare and Amica, offset by the drop in revenue from add-on sales.

Advertising revenue totaled € 243.0 million, up by € 1.6 million versus 2017 pro-forma. Online media grew by approximately € 3.4 million, while newspapers increased by approximately € 0.3 million and events by € 0.3 million, offset by the decline in magazines of approximately € 3.1 million.

Sundry publishing revenue amounted to € 18.9 million, down by € 2.5 million versus 2017 pro-forma. The change is due mainly to lower revenue from direct marketing activities, as well as lower chargebacks for ser-

– 42 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

vices provided to Group companies, in relation to the positive effects of the ongoing cost containment measures. Operating costs increased by € 79.3 million to € 357 million (€ 277.7 million in 2017 pro-forma). Excluding Reference to from the comparison the effects of the application of the new IFRS 15, amounting to € 81.2 million in costs for the separate Year Year Year financial 2018 % 2017 % Difference 2017 services in 2018, total operating costs would fall by € 1.9 million, as a result of ongoing efficiency gains. (€/millions) statements pro-forma (2) A B A-B Personnel expense came to € 157.6 million, up by € 7.8 million versus 2017 pro-forma (€ 149.8 million), and Revenue I 583.6 100.0 500.2 100.0 83.4 500.2 includes non-recurring expense of € 1.1 million (net non-recurring income of € 0.5 million in 2017 pro-forma). Excluding the effect of non-recurring items, personnel expense would increase by € 6.2 million, as a result main- Circulation revenue 321.7 55.1 237.4 47.5 84.3 237.4 ly of the non-application in 2018 of solidarity arrangements in force for employees in 2017. Advertising revenue 243.0 41.6 241.4 48.3 1.6 241.4 Sundry publishing revenue 18.9 3.2 21.4 4.3 ( 2.5) 21.4 Taking into account the above effects, EBITDA came to a positive € 63 million, down by € 4.2 million versus Operating costs II ( 357.0) ( 61.2) ( 277.7) ( 55.5) ( 79.3) ( 277.6) 2017 pro-forma (a positive € 67.2 million). Excluding the effect of non-recurring items (net expense of € 1.1 million in 2018 and net expense of € 0.1 million in 2017 pro-forma), EBITDA would drop by € 3.2 million, as Personnel expense III ( 157.6) ( 27.0) ( 149.8) ( 29.9) ( 7.8) ( 149.8) a result of increased personnel expense, partly offset by the overall increase in net revenue (on a like-for-like Provisions for risks IV ( 4.0) ( 0.7) ( 3.7) ( 0.7) ( 0.3) ( 3.7) basis) and the ongoing efficiency gains. (Write-down)/reinstatement of V ( 2.0) ( 0.3) ( 1.8) ( 0.4) ( 0.2) ( 1.8) trade and sundry receivables Operating profit of € 38.5 million (profit of € 41.8 million in 2017) includes amortization and depreciation of EBITDA (1) 63.0 10.8 67.2 13.4 ( 4.2) 67.3 € 17.1 million, down by € 4.9 million versus € 22 million in 2017 pro-forma and impairment losses on intangible assets of € 7.4 million (€ 3.4 million in 2017 pro-forma). The impairment loss refers to the Sfera goodwill. Amortization of intangible assets VI ( 10.4) ( 1.8) ( 14.2) ( 2.8) 3.8 ( 14.2) Please refer to the specific notes in the financial statements of RCS MediaGroup S.p.A. for the measurement of Depreciation of property, plant VII ( 6.7) ( 1.1) ( 7.8) ( 1.6) 1.1 ( 7.8) intangible assets, including goodwill. and equipment Impairment losses on Net financial expense amounted to € 0.9 million, down by € 6.8 million (€ 7.7 million in 2017 pro-forma). The VIII ( 7.4) ( 1.3) ( 3.4) ( 0.7) ( 4.0) ( 3.4) non-current assets improvement is due mainly to lower interest expense as a result of the reduction in average debt, to the lower Operating profit (loss) 38.5 6.6 41.8 8.4 ( 3.3) 41.9 spread, and to the lower negative impact of hedging derivatives. Following the merger by incorporation of the subsidiary RCS International Newspapers S.r.l., the total net finan- Net financial income (expense) IX ( 0.9) ( 0.2) ( 7.7) ( 1.5) 6.8 ( 8.1) cial expense of RCS MediaGroup S.p.A. in 2017 pro-forma (net expense of € 7.7 million) versus end 2017 (net Other inc. exp. fin. ass. and liab. X 14.7 2.5 28.6 5.7 ( 13.9) 28.6 expense of € 8.1 million) fell by € 0.4 million due to financial income from Unidad Editorial SA, previously held (Write-down)/reinstatement of by RCS International Newspapers S.r.l. receivables and other financial assets XI ( 2.4) ( 0.4) - - ( 2.4) - Profit (loss) before tax 49.9 8.6 62.7 12.5 ( 12.8) 62.4 Net income from financial assets amounted to € 14.7 million (income of € 28.6 million in 2017 pro-forma) and Income tax XII ( 8.0) ( 1.4) ( 8.7) ( 1.7) 0.7 ( 8.7) refers mainly to dividends received totaling € 15.6 million (€ 12.7 million in 2017 pro-forma) and income from the liquidation of the investee Emittenti Titoli S.p.A. for € 1.4 million, partly offset by the write-down of a sub- Profit (loss) for the year 41.9 7.2 54.0 10.8 ( 12.1) 53.7 sidiary for € 2.2 million. Mention should be made that 2017 had benefited from the capital gain from the sale of the interest held in Istituto Europeo di Oncologia S.r.l. (€ 14.9 million net of ancillary sales expense). Please refer to the specific notes in the financial statements of RCS MediaGroup S.p.A. for the measurement of investments.

Income tax in 2018 reported a net expense of € 8 million (net expense of € 8.7 million in 2017 pro-forma), due mainly to the use of deferred tax assets (€ 6.7 million) and to the IRAP provision for the year (€ 3.5 million).

43 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

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

Reference to the separate 31 December 31 December 31 December financial 2018 % 2017 % 2017 statements pro-forma (€/millions) (1) Property, plant and equipment XIII 40.8 8.79 45.7 9.33 45.7 Intangible assets XIV 25.5 5.49 37.5 7.65 37.5 Investment property XV 2.7 0.58 2.8 0.57 2.8 Non-current financial assets and XVI 448.9 96.70 461.5 94.20 472.0 other assets Non-current assets 517.9 111.57 547.5 111.76 558.0 Inventory XVII 13.8 2.97 10.7 2.18 10.7 Trade receivables XVIII 155.7 33.54 166.6 34.01 166.6 Trade payables XIX ( 125.5) ( 27.04) ( 136.3) ( 27.82) ( 136.3) Other assets/liabilities XX ( 33.0) ( 7.11) ( 31.9) ( 6.51) ( 31.9) Net working capital 11.0 2.37 9.1 1.86 9.1 Employee benefits XXI ( 30.5) ( 6.57) ( 31.7) ( 6.47) ( 31.7) Provisions for risks and charges XXII ( 33.5) ( 7.22) ( 34.4) ( 7.02) ( 34.4) Deferred tax liabilities XXIII ( 0.7) ( 0.15) ( 0.6) ( 0.12) ( 0.6) Net capital employed 464.2 100.00 489.9 100.00 500.4 Equity XXIV 451.3 97.22 410.5 83.79 410.2 Net financial debt (liquidity) (2) XXV 12.9 2.78 79.4 16.21 90.2 Total sources of financing 464.2 100.00 489.9 100.00 500.4

(1) These references relate to the corresponding captions in the statement of financial position in the separate financial statements. (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 28 July 2006 excludes non-current financial assets. At 31 December 2018, it amounted to € 12.9 million (€ 79.4 million at 31 December 2017 pro-forma).

Non-current assets decreased from € 547.5 million at 31 December 2017 pro-forma to € 517.9 million at 31 December 2018. The reduction of € 29.6 million is due mainly to the change in property, plant and equipment and intangible assets (€ -16.9 million, of which € 17.1 million from depreciation and amortization, € 7.6 million from capital expenditure in the year, and € 7.4 million from the impairment of Sfera goodwill), in addition to the decrease in deferred tax assets (€ 10.5 million) and the dynamics in non-current financial assets. With regard to change in investments, mention should be made, on the one hand, of the increase in the carrying amount of the investment in Sfera Editores Mexico S.A. (€ 0.6 million), following waiver of part of the receivables due from the company, in addition to the increase in the book value of the investee Trovolavoro S.r.l. (€ 0.7 million) and, on the other, as a result of the mentioned merger, of the recording of the book value of Unidad Editorial S.A. and the derecognition of the investment in RCS International Newspapers S.r.l., whose net effect shows a reduction of € 10.5 million. Regarding the measurement of investments, mention should be made of the write-downs in the income statement totaling € 2.2 million, in order to align the carrying amounts of certain investees with their respective fair value. Please refer for further details to the specific notes in the financial statements of RCS MediaGroup S.p.A..

Net working capital at 31 December 2018 came to a positive € 11 million (a positive € 9.1 million at 31 Decem- ber 2017 pro-forma). The increase of € +1.9 million relates mainly to lower trade payables (€ 10.8 million) following lower operating costs, and partly to payables to agents with the relevant advances paid. Trade receivables decreased by € 10.9 million, due to improved DSO, in addition to closure of a number of positions under dispute. Other assets and liabilities vary by a total of approximately € 1.1 million.

Provisions for risks and charges decreased by € 0.9 million, from € 34.4 million at 31 December 2017 pro-forma, to € 33.5 million at 31 December 2018. The change is broken down into provisions for the year, mainly for legal disputes and personnel expense, more than offset by uses, primarily relating to the progress of corporate restructuring activities. Additionally, there were a number of releases of portions of excess provisions and reclassifica-

– 44 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

tions to “payables to employees” for transactions with employees to settle. A provision for returns to receive was also set up regarding the estimated returns related to the Solferino activities (€ 1.3 million). Reference to 31 December 31 December 31 December Net capital employed amounted to € 464.2 million, down by € 25.7 million versus 31 December 2017 pro-forma the separate (€ 489.9 million), as a result of the abovementioned effects. financial 2018 % 2017 % 2017 statements pro-forma Equity increased from € 410.5 million at 31 December 2017 pro-forma to € 451.3 million at 31 December 2018. (€/millions) (1) The change is related mainly to profit for the year, amounting to € 41.9 million, and partly to the negative effects Property, plant and equipment XIII 40.8 8.79 45.7 9.33 45.7 from the adoption of the new IFRS 9 (€ -1.7 million). Intangible assets XIV 25.5 5.49 37.5 7.65 37.5 Investment property XV 2.7 0.58 2.8 0.57 2.8 The net financial debt of RCS MediaGroup S.p.A. stood at € 12.9 million at 31 December 2018, improving by € 66.5 million versus 31 December 2017 pro-forma. Mention should be made of the significant contribution from Non-current financial assets and XVI 448.9 96.70 461.5 94.20 472.0 ordinary operations, in addition to the collection of dividends of € 15.6 million and the positive effect arising other assets from the recording of the loan receivable from Unidad Editorial of € 10.8 million, previously held by RCS Inter- Non-current assets 517.9 111.57 547.5 111.76 558.0 national Newspapers. Outlays for non-recurring expense and outflows for capital expenditure, instead, went in Inventory XVII 13.8 2.97 10.7 2.18 10.7 the opposite direction. Trade receivables XVIII 155.7 33.54 166.6 34.01 166.6 Trade payables XIX ( 125.5) ( 27.04) ( 136.3) ( 27.82) ( 136.3) Other assets/liabilities XX ( 33.0) ( 7.11) ( 31.9) ( 6.51) ( 31.9) Net working capital 11.0 2.37 9.1 1.86 9.1 Employee benefits XXI ( 30.5) ( 6.57) ( 31.7) ( 6.47) ( 31.7) Provisions for risks and charges XXII ( 33.5) ( 7.22) ( 34.4) ( 7.02) ( 34.4) Deferred tax liabilities XXIII ( 0.7) ( 0.15) ( 0.6) ( 0.12) ( 0.6) Net capital employed 464.2 100.00 489.9 100.00 500.4 Equity XXIV 451.3 97.22 410.5 83.79 410.2 Net financial debt (liquidity) (2) XXV 12.9 2.78 79.4 16.21 90.2 Total sources of financing 464.2 100.00 489.9 100.00 500.4

45 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

BUSINESS OUTLOOK

Against a persistently uncertain background, with the main relevant markets in decline (except for online advertising), in 2018 the Group again achieved a strong improvement in its results versus the prior year and achieved its targets on margins and gradual reduction of financial debt.

In consideration of the actions already implemented and those planned to develop products and revenue, as well as for the ongoing pursuit of operating efficiency, given the absence of unforeseeable events at this time and without considering the effects of the different accounting presentation arising from the adoption of the new IFRS 16 as from 1 January 20191, the Group believes that it can confirm its target of achieving, also for 2019, operating margins and cash flows basically in line with those achieved in 2018, with a further significant reduction in net financial debt.

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

(1) Explained in Note 10 of this Annual Report.

– 46 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

ALTERNATIVE PERFORMANCE MEASURES

In order to provide a clearer picture of the financial performance of the RCS Group, besides of the conventional financial measures required by IFRS, a number of alternative performance measures are shown that should, however, not be considered substitutes of those adopted by IFRS. In accordance with CESR/05-178b recommenda- tion published on 3 November 2005, the methods used for building the main alternative performance measures that Management considers useful for monitoring the Group’s performance are shown below:

EBITDA: to be understood as earnings before interest, tax, amortization/depreciation and impairment losses on non-current assets. It includes the share of profits and losses of equity-accounted investees, since associates and joint ventures held are considered operational with respect to the activities of the RCS Group. The measure is used by the RCS Group as a target to monitor internal management, and in public presentations (to financial analysts and investors). It serves as a unit of measurement to evaluate the operational performance of the RCS Group and of RCS MediaGroup S.p.A..

EBITDA before non-recurring income/expense: to be understood as EBITDA as specified above before components of income (positive and/or negative) deriving from events or transactions, the occurrence of which is non-recurring, or deriving from transactions or events that are unlikely to occur frequently in the normal course of business.

EBIT: to be understood as the Result before tax, gross of “Financial Expense and Income” and “Other gains (losses) on financial assets/liabilities”.

Net Financial Position (or net financial debt): this is a valid measure of the financial structure of the RCS Group. It is calculated as current and non-current loans and borrowings less cash and cash equivalents, and current and non-current financial assets recognized for derivatives. Net financial debt as set out by CONSOB in its Communication DEM/6064293 dated 28 July 2006 excludes non-current financial assets. Non-current financial assets relating to derivatives at 31 December 2018 and 31 December 2017 amounted to zero; the RCS Group financial ratio at 31 December 2018 and 31 December 2017, therefore, matches the net financial debt as set out by the abovementioned CONSOB Communication.

47 – DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

INFORMATION ON ONGOING DISPUTES

RCS Sport Events

Regarding the above events, reference should be made to the previous Annual Reports published in the years from 31 December 2013 to 31 December 2017. Updates on the various events are reported below:

(i) With regard to civil action brought against certain defendants in the current criminal proceedings, at the hearings held on 9 and 16 June 2017, the President of the formation of the Court informed that he had been assigned to another task and, as the defendants’ attorneys had failed to reach an agreement on continuing the pre-trial work carried out so far, the trial inquiry had to be resumed from the beginning due to the changed formation of the Court. 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 hearings have been set and various witnesses have been heard. The next hearing is set for 19 March 2019.

(ii) With regard to the writ of summons served on 1 August 2014 by which RCS Sport S.p.A. had lodged liability actions pursuant to articles 2393 and 2396 of the Italian Civil Code against the former Chief Executive Officer and former General Manager, at the end of February 2018, a settlement agreement was reached on the ruling relating to these actions, with payment of the amount of € 2.6 million by the insurance company 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) With regard to the appeal against the redundancies ordered, on 28 May 2018, the Court of Appeal of Milan ruled on the appeal filed by the former Chief Executive Officer, partly reversing the first instance ruling and ordering RCS to pay the sum of approximately € 282 thousand as fixed indemnity and over approximately € 21 thousand applied to post-employment benefits. RCS appealed to the Court of Cassation against the ruling. On 27 March 2018, the Court of Appeal of Milan dismissed the appeal filed by the former General Manager and sentenced to reimburse the costs of the instance paid in the amount of € 7 thousand plus general expenses and legal fees. The former employee appealed to the Court of Cassation against the ruling.

(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 case was adjourned to the hearing of 21 March 2019.

Property complex in via Solferino

With regard to the property located in Via Solferino, the Company is a party to a dispute concerning the transaction, negotiated and closed in 2013, on the sale by the Company to the speculative real-estate fund “Delphine” of the properties located in Via Solferino 28, Via San Marco 21, and Via Balzan 3 in Milan (collectively, the “Prop- erty”), and their simultaneous lease to RCS (the “Transaction”).

The dispute involves two separate proceedings, namely: an arbitration pending in Italy and a lawsuit pending in New York.

Arbitration in Italy: on 9 November 2018 the Company - after a thorough review carried out with the help of consultants - filed a request for arbitration with the Milan Chamber of Arbitration, by which it requested, inter alia, a declaration of nullity of the contracts through which the Transaction was completed, an order to Delphine to return the Property and the rents in the meantime paid by the Company, as well as to pay damages. On 9 Janu- ary 2019, the Delphine fund, through its asset management company Kryalos SGR S.p.A., appeared in the arbitration with a Statement of Defense challenging the jurisdiction and/or competence of the Arbitration Panel and the grounds of the Company’s claims, and filed a liability claim pursuant to art. 96 of the Italian Code of Civil Procedure. The constitution of the Arbitration Panel is currently underway.

Lawsuit in New York: On 20 November 2018, the Company received a complaint before the NY Supreme Court from the Delphine fund, from its parent Sforza Holdco S.à.r.l., from Blackstone Real Estate Advisory L.P., and

– 48 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

from eleven entities indicated as indirect shareholders of Sforza HoldCo S.à r.l.. The plaintiffs argue that the Company has acted unlawfully and in breach of its obligations (specifically, for challenging the ownership of the Property and interfering in the sale negotiations allegedly underway with a third party), and request to declare the validity of the contracts by means of which the Transaction was completed, and an order to the Company to pay damages, which are not quantified but generally indicated as exceeding USD 500,000. The Company appeared in the proceedings requesting to “dismiss” the case even before opening the trial, on the grounds of a lack of jurisdiction of the NY Supreme Court; alternatively, the Company has requested a stay of the case in New York, pending the outcome of the Arbitration in Italy, as the latter is the only body competent to decide on the validity or invalidity of the Transaction. The Company has also requested to dismiss the case on the grounds that the plaintiffs’ claims are unfounded in law. The discussion phase (written and oral) on the motion to dismiss the case filed by the company is currently underway. Based on the advice of its legal consultants, the Company considered that the recognition criteria for a provision are not met.

* * *

With regard to the contract for the purchase of RCS Libri S.p.A., commented on in the 2017 and 2016 Annual Reports, and to the earn-out established therein, it should be noted that the required procedures for verifying the existence (or less) of the conditions for payment of the earn-out and, in such case, for its determination, have been put in place and are still in progress, as set out in the sale contract.

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 31 December 2018, a total of 4,542,474 treasury shares were held (105,214 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., corresponding to an average carrying amount of € 5.9 per share and representing 0.87% of the total share capital.

Shares of parent companies

At 31 December 2018, no shares in parent companies were held, either directly or through trust companies or intermediaries. No shares of parent companies were purchased or sold during the year, either directly or through a trust company or third party.

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 2018, 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 12 March 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.

Significant events during the year

Reference should be made to Note 5 for a list of the significant events in the year.

Significant events after year end

Reference should be made to Note 6 for a list of the significant events after year end.

Provisions of articles 15 (ex 36) and 18 (ex 39) of the CONSOB Market Regulations

With regard to compliance with articles 15 (ex 36) and 18 (ex 39) of the CONSOB Market Regulation, as amended by CONSOB Resolution no. 20249 of 28 December 2017, relating to 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. 15 (none of them qualify as individually material for the purposes of the CONSOB definition), that the conditions contained in art. 15, par. 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 24 February 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 24 February 1998, is also published by the required deadlines on the Company website www.rcsmediagroup.it in the Governance Section.

– 50 DIRECTORS’ REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

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

As of 7 August 2012, the RCS MediaGroup S.p.A. Board of Directors, pursuant to art. 3 of CONSOB resolution no. 18079 of 20 January 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.

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 Consolidated 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 company’s business.

In consideration of the above, the Company’s Board of Directors deems, also on the basis of a previous opinion provided by independent experts and acknowledged by the Board, 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 Execu- tive 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, 18 March 2019

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

PROPOSED RESOLUTION

Dear Shareholders, we submit for your approval the separate financial statements as at and for the year ended 31 December 2018, 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 € 41,929,972.73, and the accompanying Report on Operations, as well as the proposal to allocate, taking into particular account the provisions of art. 23, par. 1, of the By-laws, the above profit for the year as follows:

̶ to the Shareholders, as a dividend, the amount of € 0.06 for each of the ordinary shares outstanding on the ex-dividend date, therefore excluding the treasury shares held at that date; ̶ to carry forward the residual profit for the year.

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 Deloitte & Touche S.p.A.; ̶ have examined the separate financial statements as at and for the year ended 31 December 2018 presented by the Board of Directors, which show profit for the year of € 41,929,972.73;

and hereby resolve

I. to approve:

a) the report on operations; b) the separate financial statements as at and for the year ended 31 December 2018 presented by the Board of Directors, which show profit for the year of € 41,929,972.73, as a whole and in their individual parts, together with the proposed accruals and allocations; c) the allocation of net profit for the year of € 41,929,972.73 as follows: b) ̶ to the Shareholders, as a dividend, the amount of € 0.06 for each of the ordinary shares outstanding on the ex-dividend date, therefore excluding the treasury shares held at that date; b) ̶ to carry forward the residual profit for the year.

II. to pay the above dividend per share as from 22 May 2019 with ex-dividend date (coupon no. 2) on 20 May 2019 and payment eligibility date, pursuant to art. 83-terdecies of the TUF: 21 May 2019.

Milan, 18 March 2019

On behalf of the Board of Directors:

Chairman and Chief Executive Officer Urbano Cairo (signed on the original)

– 52 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

Income statement (*)

Notes At 31 December (€/millions) 2018 2017 I Revenue from sales 15 975.6 895.8 II Increase in internal work capitalized - - II Changes in work in progress, finished and semi-finished products 39 0.3 (0.3) II Raw materials and services 17 (553.2) (493.1) III Personnel expense 18 (264.7) (258.1) II Other operating revenue and income 19 19.8 20.9 II Sundry operating expense 20 (16.1) (18.9) II Profit (loss) from accounting elimination - - of trade and sundry receivables (1) IV Provisions 51 (5.4) (6.5) V Impairment losses on trade and sundry receivables (1) - (3.7) V (Write-down)/reinstatement of trade and sundry receivables (1) 21 (3.0) - VI Share of income (expense) from equity-accounted investees 22 2.0 2.1 VII Amortization of intangible assets 23 (19.6) (25.3) VIII Depreciation of property, plant and equipment 23 (11.5) (14.3) IX Depreciation of investment property 23 (0.6) (0.6) X Impairment losses on non-current assets 23 (8.1) (2.4) Operating profit (loss) 115.5 95.6 XI Interest income calculated using the effective interest method (1) 24 0.3 - XI Financial income 24 3.9 1.3 XI Financial expense 24 (18.3) (25.7) XII Other gains (losses) on financial assets/liabilities 25 1.5 16.2 XII Profit (loss) from accounting elimination of receivables - - and other financial assets (1) XII (Write-down)/reinstatement of receivables and other financial assets (1) 26 (2.4) - Profit (loss) before tax 100.5 87.4 XIII Income tax 27 (15.2) (16.5) Profit (loss) from continuing operations 85.3 70.9 XIV Profit (loss) from assets held for sale and discontinued operations - - Profit (loss) for the year 85.3 70.9

Attributable to: XV Profit (loss) attributable to non-controlling interests 28 0.1 (0.2) Profit (loss) attributable to the owners of the parent 85.2 71.1 Profit (loss) for the year 85.3 70.9

Basic earnings (losses) per share: continuing operations 29 0.16 0.14 Diluted earnings (losses) per share: continuing operations 29 0.16 0.14 Basic earnings (losses) per share: assets held for sale and discontinued operations 29 - - Diluted earnings (losses) per share: assets held for sale and discontinued operations 29 - -

(*) In accordance with CONSOB Resolution no. 15519 of 27 July 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. (1) Following the application of IFRS 9 as from 1 January 2018 and taking into account the fact that the Group has availed itself of the exemption of not recalculating prior-years’ comparative information relating to changes in classification and assessment, these items are not directly comparable in 2018 and 2017 as shown above.

The notes form an integral part of these financial statements.

55 – CONSOLIDATED FINANCIAL STATEMENTS

Statement of comprehensive income

At 31 December Notes (€/millions) 2018 2017 Profit (loss) for the year 85.3 70.9

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 - - Reclassification of gains (losses) on foreign currency translation of foreign operations to profit or loss - - Gains (losses) on cash flow hedges 49 ( 1.5) ( 0.2) Reclassification of gains (losses) on cash flow hedges to profit or loss 49 1.1 3.6 Share of comprehensive income (expense) of equity-accounted investees - - Income tax on other comprehensive income 49 0.1 ( 0.9)

Other comprehensive income/(expense) that will not be subsequently reclassified to profit/(loss) for the year: Actuarial (loss)/gain on defined benefit plans 49 0.5 0.1 Actuarial (loss)/gain on defined benefit plans relating to equity-accounted investees - - Gains (losses) from the valuation at fair value of other equity instruments 49 ( 1.5) - Income tax on other comprehensive income 49 ( 0.1) - Other comprehensive income (expense) (1.4) 2.6

Total comprehensive income (expense) 83.9 73.5

Comprehensive income (expense) attributable to: non-controlling interests 0.1 (0.2) owners of the parent 83.8 73.7

Total comprehensive income (expense) 83.9 73.5

The notes form an integral part of these financial statements.

– 56 CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position (*)

At 31 December (€/millions) Notes 31 December 2018 31 December 2017 Notes (€/millions) 2018 2017 ASSETS Profit (loss) for the year 85.3 70.9 XVII Property, plant and equipment 31 65.4 73.8 XVIII Investment property 32 20.1 20.7 XVI Intangible assets 33 369.4 383.9 Other comprehensive income (expense): XIX Investments in associates and joint ventures 34 38.9 42.8 XIX Other non-current equity instruments 35 2.1 3.0 Other comprehensive income/(expense) that will subsequently be reclassified to XXXIII Financial assets recognized for derivatives 36 - - profit/(loss) for the year: XIX Non-current financial receivables 37 2.2 3.7 Gains (losses) on foreign currency translation of foreign operations - - XIX Other non-current assets 38 15.0 15.3 Reclassification of gains (losses) on foreign currency translation of foreign - - XIX Deferred tax assets 27 95.9 106.6 operations to profit or loss Total non-current assets 609.0 649.8 Gains (losses) on cash flow hedges 49 ( 1.5) ( 0.2) XX Inventory 39 19.6 15.9 Reclassification of gains (losses) on cash flow hedges to profit or loss 49 1.1 3.6 XXI Trade receivables 40 212.0 240.3 Share of comprehensive income (expense) of equity-accounted investees - - XXIII Sundry receivables and other current assets 41 25.9 27.0 XXIII Current tax assets 27 1.7 3.1 Income tax on other comprehensive income 49 0.1 ( 0.9) XXXIII Financial assets recognized for derivatives 36 - - XXXIV Current financial receivables 42 1.4 0.9 Other comprehensive income/(expense) that will not be subsequently XXXIV Cash and cash equivalents 42 12.5 15.6 reclassified to profit/(loss) for the year: Total current assets 273.1 302.8 Actuarial (loss)/gain on defined benefit plans 49 0.5 0.1 XXVII Non-current assets held for sale - - Actuarial (loss)/gain on defined benefit plans relating to equity-accounted TOTAL ASSETS 882.1 952.6 investees - - EQUITY AND LIABILITIES Gains (losses) from the valuation at fair value of other equity instruments 49 ( 1.5) - XXVIII Share capital 43 270.0 475.1 Income tax on other comprehensive income 49 ( 0.1) - XXVIII Treasury shares 46 (26.9) (27.1) Other comprehensive income (expense) (1.4) 2.6 XXVIII Reserves 44/45/46/47 (4.0) (14.4) XXVIII Retained earnings/losses carried forward (71.1) (334.5) Total comprehensive income (expense) 83.9 73.5 XXVIII Profit (loss) for the year 85.2 71.1 Total equity attributable to the owners of the 253.2 170.2 parent XXVIII Non-controlling interests 1.3 1.3 Total 254.5 171.5 Comprehensive income (expense) attributable to: XXIX Non-current financial payables and liabilities 42 141.6 235.8 non-controlling interests 0.1 (0.2) XXXII Financial liabilities recognized for derivatives 36 1.0 0.1 owners of the parent 83.8 73.7 XXVI Employee benefits 50 36.9 38.4 XXIV Provisions for risks and charges 51 16.2 14.9 XXV Deferred tax liabilities 27 51.5 55.4 Total comprehensive income (expense) 83.9 73.5 XXIII Other non-current liabilities 52 0.9 0.9 Total non-current liabilities 248.1 345.5 XXX Payables to banks 42 13.6 16.8 XXX Current financial payables 42 45.2 50.2 XXXI Financial liabilities recognized for derivatives 36 0.1 1.0 XXIII Current tax liabilities 26 2.1 0.9 XXII Trade payables 53 204.7 236.3 XXIV Current portion of provisions for risks and charges 51 31.4 35.5 XXIII Sundry payables and other current liabilities 54 82.4 94.9 Total current liabilities 379.5 435.6 XXVII Liabilities relating to assets held for sale - - TOTAL EQUITY AND LIABILITIES 882.1 952.6

(*) In accordance with CONSOB Resolution 15519 of 27 July 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 financial statements.

57 – CONSOLIDATED FINANCIAL STATEMENTS

Statement of cash flows (*)

(€/millions) Notes 2018 2017 A) Cash flows from (used in) operations Profit (loss) before tax from continuing operations 100.5 87.4 Amortization, depreciation and impairment losses 23 39.8 42.6 (Gains) losses and other non-monetary items 55 (1.5) (14.9) (Gains) losses of equity-accounted investees 22 (2.0) (2.1) Dividends from equity-accounted investees 34 5.9 7.1 Impairment of non-current financial assets 26 2.4 - Net financial income (expense) 24 14.1 24.4 - of which with related parties 16 (0.1) 1.0 Increase (decrease) in employee benefits and provisions for risks and charges 56 (3.6) (7.1) Changes in working capital 57 (24.7) (38.9) - of which with related parties 16 (4.3) (1.8) Income tax paid (4.4) (0.7) Total 126.5 97.8 B) Cash flows from investing activities Capital expenditure in property, plant and equipment and intangible assets 58 (17.8) (19.1) Proceeds from sale of equity investments 59 0.2 18.1 Total (17.6) (1.0) Free cash flow (A+B) 108.9 96.8 C) Cash flows used in financing activities Net change in loans and borrowings and other financial assets 60 (94.2) (48.7) - of which with related parties 16 2.5 (20.4) Net financial interest received (paid) 61 (14.5) (26.6) - of which with related parties 16 0.1 (1.0) Change in equity reserves 62 (0.1) (2.5) Total (108.8) (77.8) Net increase (decrease) in cash and cash equivalents (A+B+C) 0.1 19.0 Opening cash and cash equivalents (1.2) (20.2) Closing cash and cash equivalents (1.1) (1.2) Increase (decrease) for the year 0.1 19.0

ADDITIONAL DISCLOSURES OF THE STATEMENT OF CASH FLOWS Opening cash and cash equivalents consisting of: (1.2) (20.2) Cash and cash equivalents 15.6 18.7 Current bank loans and overdrafts (16.8) (38.9) Closing cash and cash equivalents (1.1) (1.2) Cash and cash equivalents 12.5 15.6 Current bank loans and overdrafts (13.6) (16.8) Increase (decrease) for the year 0.1 19.0

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

The notes form an integral part of these financial statements.

– 58 CONSOLIDATED FINANCIAL STATEMENTS ------0.3 83.9 73.5 (2.4) (0.1) (1.1) 254.5 171.5 170.7 100.4 Equity ------0.1 1.3 1.3 1.3 4.4 (2.9) (0.1) (0.2) Equity interests attributable to non-controlling ------0.5 0.3 83.8 73.7 96.0 (1.1) 253.2 170.2 169.4 Equity the parent the parent the awners of attributable to ------3.5 85.2 85.2 71.1 71.1 71.1 (3.5) (71.1) for the year Profit (loss) - - - - 3.5 0.3 71,1 19.1 (0.2) 63,.8 110.4 (0.1) (1.1) (71.1) (**) (334.5) (337.9) (335.3) forward Retained earnings/ loses carried ------0.1 2.6 (1.4) (2.3) (3.6) (0.9) (0.9) Other Note 47 reserves ------0.5 Equity Note 46 (143.0) (143.5) (143.0) (143.0) transaction ------87.3 87.3 reserve Note 45 Optional - - *) ------0.2 (26.9) (27.1) (27.1) (27.1) Note 46 Treasury Treasury shares ( ------54.0 54.0 19.1 Legal 19.1 19.1 reserve Note 45 (19.1) ------Share 110.4 110.4 110.4 reserve Note 44 premium (110.4) ------Share 475.1 475.1 270.0 475.1 capital Note 43 (205.1) Equity transaction Other movements Other movements Balance at 1/1/2018 Balance at 31/12/2016 April 2017: of 27 Meeting resolution for the year ended 31.12.2016 as per Shareholders’ Allocation of the result - to retained earnings (losses carried forward) comprehensive income (expense) Total Balance at 31/12/2017 from application of IFRS 9 Gross effects from application of IFRS 9 effects Tax April 2018: Meeting of 26 Shareholders’ Resolution of Ordinary - allocation of the 2017 result to retained earnings (losses carried forward) - use of share premium reserve April 2018: Meeting of 26 Shareholders’ Resolution of Extraordinary - reduction of the share capital Dividends paid to non-controlling interests comprehensive income (expense) Total Balance at 31/12/2018 - use of legal reserve (€/millions) Statement of changes in equity (1) (1) Comments on the availability and possible distribution of equity reserves (under art. 2427.7-bis of the Italian Civil Code) are provided in the additional statement of changes in equity in the separate financial statements of RCS MediaGroup S.p.A.. by incorporation of the latter with RCS MediaGroup S.p.A. At 31 December 2018, it includes 105,214 shares made available to the minority shareholders of RCS Investimenti S.p.A. following merger (*) (**) Inclusive of € 2.8 million in unavailable retained earnings to be allocated accordance with the By-laws force subsidiary RCS Sport S.p.A.

59 – CONSOLIDATED FINANCIAL STATEMENTS

Income statement pursuant to CONSOB Resolution no. 15519 of 27 July 2006

At 31 December Notes (€/millions) 2018 2017 I Revenue from sales 15 975.6 895.8 - of which with related parties 16 284.3 209.9 II Increase in internal work capitalized - - II Changes in work in progress, finished and semi-finished products 39 0.3 ( 0.3) II Raw materials and services 17 ( 553.2) ( 493.1) - of which with related parties 16 ( 114.1) ( 44.5) - of which non-recurring 30 - ( 1.3) III Personnel expense 18 ( 264.7) ( 258.1) - of which with related parties 16 ( 4.4) ( 3.8) - of which non-recurring 30 ( 1.8) ( 0.7) II Other operating revenue and income 19 19.8 20.9 - of which with related parties 16 2.5 2.3 - of which non-recurring 30 2.6 0.2 II Sundry operating expense 20 ( 16.1) ( 18.9) II Profit (loss) from accounting elimination of trade - - and sundry receivables (1) IV Provisions 51 ( 5.4) ( 6.5) V Impairment losses on trade and sundry receivables (1) 21 - ( 3.7) V (Write-down)/reinstatement of sundry trade receivables (1) ( 3.0) - VI Share of profits of equity-accounted investees 22 2.0 2.1 - of which non-recurring 30 ( 0.6) - VII Amortization of intangible assets 23 ( 19.6) ( 25.3) VIII Depreciation of property, plant and equipment 23 ( 11.5) ( 14.3) IX Depreciation of investment property 23 ( 0.6) ( 0.6) X Impairment losses on non-current assets 23 ( 8.1) ( 2.4) Operating profit (loss) 115.5 95.6 XI Interest income calculated using the effective interest method (1) 24 0.3 - XI Financial income 24 3.9 1.3 - of which with related parties 16 0.1 - XI Financial expense 24 ( 18.3) ( 25.7) - of which with related parties 16 - ( 1.0) XII Other gains (losses) on financial assets/liabilities 25 1.5 16.2 - of which with related parties 16 - ( 1.0) Profit (loss) from accounting elimination of receivables XII and other financial assets (1) - - (Write-down)/reinstatement of receivables XII and other financial assets (1) 26 ( 2.4) - Profit (loss) before tax 100.5 87.4 XIII Income tax 27 ( 15.2) ( 16.5) Profit (loss) from continuing operations 85.3 70.9 XIV Profit (loss) from assets held for sale and discontinued operations - - - Profit (loss) for the year 85.3 70.9 Attributable to: XV Profit (loss) attributable to non-controlling interests 28 0.1 ( 0.2) Profit (loss) attributable to the owners of the parent 85.2 71.1 Profit (loss) for the year 85.3 70.9 Basic earnings (losses) per share: continuing operations 29 0.16 0.14 Diluted earnings (losses) per share: continuing operations 29 0.16 0.14 Basic earnings (losses) per share: assets held for sale and discontinued operations 29 - - Diluted earnings (losses) per share: assets held for sale and discontinued operations 29 - -

(1) Following the application of IFRS 9 as from 1 January 2018 and taking into account the fact that the Group has availed itself of the exemption of not recalculating prior-years’ comparative information relating to changes in classification and assessment, these items are not directly comparable in 2018 and 2017 as shown above.

– 60 CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position pursuant to CONSOB Resolution no. 15519 of 27 July 2006

(€/millions) Notes 31 December 2018 31 December 2017 ASSETS XVII Property, plant and equipment 31 65.4 73.8 XVIII Investment property 32 20.1 20.7 XVI Intangible assets 33 369.4 383.9 XIX Investments in associates and joint ventures 34 38.9 42.8 XIX Other non-current equity instruments 35 2.1 3.0 XXXIII Financial assets recognized for derivatives 36 - - XIX Non-current financial receivables 37 2.2 3.7 XIX Other non-current assets 38 15.0 15.3 XIX Deferred tax assets 27 95.9 106.6 Total non-current assets 609.0 649.8 XX Inventory 39 19.6 15.9 XXI Trade receivables 40 212.0 240.3 - of which with related parties 16 22.5 19.8 XXIII Sundry receivables and other current assets 41 25.9 27.0 XXIII Current tax assets 27 1.7 3.1 XXXIII Financial assets recognized for derivatives 36 - - XXXIV Current financial receivables 42 1.4 0.9 XXXIV Cash and cash equivalents 42 12.5 15.6 Total current assets 273.1 302.8 XXVII Non-current assets held for sale - - TOTAL ASSETS 882.1 952.6

EQUITY AND LIABILITIES XXVIII Share capital 43 270.0 475.1 XXVIII Treasury shares 46 (26.9) (27.1) XXVIII Reserves 44/45/46/47 (4.0) (14.4) XXVIII Retained earnings/losses carried forward (71.1) (334.5) XXVIII Profit (loss) for the year 85.2 71.1 Total equity attributable to the owners of the parent 253.2 170.2 XXVIII Non-controlling interests 1.3 1.3 Total 254.5 171.5 XXIX Non-current financial payables and liabilities 42 141.6 235.8 XXXII Financial liabilities recognized for derivatives 36 1.0 0.1 XXVI Employee benefits 50 36.9 38.4 XXIV Provisions for risks and charges 51 16.2 14.9 XXV Deferred tax liabilities 27 51.5 55.4 XXIII Other non-current liabilities 52 0.9 0.9 Total non-current liabilities 248.1 345.5 XXX Payables to banks 42 13.6 16.8 XXX Current financial payables 42 45.2 50.2 - of which with related parties 16 6.8 4.3 XXXI Financial liabilities recognized for derivatives 36 0.1 1.0 XXIII Current tax liabilities 26 2.1 0.9 XXII Trade payables 53 204.7 236.3 - of which with related parties 16 15.4 16.1 XXIV Current portion of provisions for risks and charges 51 31.4 35.5 XXIII Sundry payables and other current liabilities 54 82.4 94.9 - of which with related parties 16 1.8 2.7 Total current liabilities 379.5 435.6 XXVII Liabilities relating to assets held for sale - - TOTAL EQUITY AND LIABILITIES 882.1 952.6

61 –

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FORMAT, CONTENT AND OTHER INFORMATION ON THE 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 Angelo Rizzoli 8, Milan, and has been registered at number 12086540155 in the Milan Company Register since 6 March 1997 (ISIN: IT0004931496). RCS MediaGroup is an international multimedia publishing group that operates in daily newspapers, magazines, books, new media and digital and satellite TV, organizes highly important global sporting events and is among the leading operators in advertising sales and distribution of publishing products in Italy and Spain. It is also present in the radio segment through the Unidad Editorial Group. The Group’s principal activities are described in Note 15 “Operating segments”. The main direct subsidiary of RCS MediaGroup S.p.A. is Unidad Editorial S.A., which operates predominantly in the Spanish market. At 31 December 2018, the consolidated financial statements included 48 direct and indirect subsidiaries consolidated on a line-by-line basis (51 at 31 December 2017). For additional details on equity investments, please refer to the attachment “List of the Group equity investments at 31 December 2018”. The consolidated financial statements of RCS MediaGroup S.p.A. as at and for the year ended 31 December 2018 were approved by the Board of Directors on 18 March 2019 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. 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, Milan.

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 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 31 December 2018 was consolidated. As from 2006, the consolidated companies adopted the International Finan- cial 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. Deloitte & Touche S.p.A. carries out the statutory audit of the consolidated financial statements. The presentation currency of these condensed interim 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; ̶ 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.

65 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

With regard to CONSOB Resolution no. 15519 of 27 July 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 31 December 2017 are as follows.

In October 2018, RCS Eventi Sportivi S.r.l. was incorporated; its share capital is 100% owned by RCS Media- Group S.p.A. and is therefore consolidated on a line-by-line basis. In December, a partial demerger was agreed in favor of RCS Eventi Sportivi S.r.l. by RCS Sport S.p.A.. The effects of the demerger vis-à-vis third parties, as well as the accounting and tax effects, run from 1 January 2019; additionally, as from such date, RCS Eventi Sportivi S.r.l. changed its name to RCS Sport&Events S.r.l..

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

Planet Sfera S.l. and Gold 5 S.r.l., previously included in the scope of consolidation as equity-accounted investees, have left the scope of consolidation.

Mention should additionally be made of the signing on 19 November 2018 of the deed on the merger by incorporation of RCS International Newspapers S.r.l. (former RCS International Newspapers B.V.) into RCS Media- Group S.p.A.. The accounting and tax effects of the merger apply as from 1 January 2018, and the legal effects as from 31 December 2018.

Lastly, Rey Sol S.L. and Unidad Editorial Información Regional S.L. (previously consolidated on a line-by-line basis) were merged by incorporation into Editora De Medios De Valencia Alicante Y Castellon S.L., and Fabri- press S.A. (consolidated at equity) was merged by incorporation into Bermont Impresión S.L..

5 ▪ Significant events during the year

On 26 April, the shareholders of RCS MediaGroup S.p.A. met and:

► in ordinary session:

► ̶ approved the Financial Statements for the year ended 31 December 2017, which closed with a profit of € 53,686,184.36, and the reduction of prior years’ losses carried forward from € 247,108,344.04 to € 63,807,006.27 by using the above profit for the year, the share premium reserve of € 110,405,136.84, the merger reserve of € 130,389.61 and the legal reserve of € 19,079,626.96;

► ̶ appointed the Board of Statutory Auditors for 2018-2020 and established their fees; the composition is as follows: Enrico Maria Colombo (Chairman), drawn from the minority list submitted by Di.Vi. Finanziar- ia di Diego Della Valle & C. S.r.l., holding 2.775% of the share capital; Marco Moroni and Paola Tagliav- ini (Standing Auditors), drawn from the majority list submitted by Cairo Communication S.p.A., holding 59.693% of the share capital; Piera Tula (Alternate Auditor), drawn from the list submitted by Di.Vi. Finan- ziaria di Diego Della Valle & C. S.r.l.; Guido Croci and Maria Pia Maspes (Alternate Auditors), drawn from the majority list submitted by Cairo Communication S.p.A.;

► ̶ appointed Deloitte & Touche S.p.A. as the Independent Auditors for 2018-2026 and established their fees;

► ̶ expressed a favourable vote on Section One of the Remuneration Report prepared by the Board of Directors in accordance with the provisions of art. 123-ter, par. 6, of Legislative Decree no. 58/1998 and the related implementing provisions issued by CONSOB;

► in extraordinary session:

► ̶ reduced the share capital to cover the losses carried forward resulting from the financial statements for the year ended 31 December 2017 (in the residual amount of € 63,807,006.27, following use of profit for 2017 and reserves as described above), from € 475,134,602.10 to € 411,327,595.83;

– 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

► ̶ reduced the share capital further from € 411,327,595.83 to € 270,000,000.00, using the amount of € 141,327,595.83 therefore 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.

● On 30 May 2018 and subsequently on 29 September 2018, RCS MediaGroup announced the new composition of its share capital, following the coming into effect of the resolution adopted by the Shareholders’ Meeting of 26 April 2018 (filed with the Company Register on 30 May 2018) - Extraordinary Session.

● The composition of the share capital at 29 September 2018 is shown below, indicating the previous share capital.

current share capital previous share capital Par value Par value Euro no. shares per unit Euro no. shares per unit

With no Total 270,000,000.00 521,864,957 411,327,595.83 521,864,957 With no of which: par value par value

Ordinary 521,864,957 With no With no Shares par value 521,864,957 par value

● On 27 June 2018, the Board of Directors of RCS MediaGroup S.p.A., chaired by Urbano Cairo, met and resolved, on the prior favourable opinion of the Board of Statutory Auditors, on the appointment of Roberto Bonalumi as Financial Reporting Manager pursuant to art. 154-bis of the TUF.

● On 7 August 2018, RCS MediaGroup S.p.A. announced that, on 6 August 2018, CONSOB had notified the Company of the revocation of the periodic disclosure obligation of additional information on a quarterly basis pursuant to art. 114 of Legislative Decree no. 58/98 (the so-called “Grey List Obligations”), in effect since 27 May 2013. Therefore, starting with the Interim Management Statement at 30 September 2018, the Company no longer publishes the paragraph “Additional information required by CONSOB pursuant to art. 114, paragraph 5 of Legislative Decree 58/1998, of 27 May 2013”.

● On 10 October 2018, RCS MediaGroup S.p.A. signed an Amending Agreement with the pool of banks to the existing Loan Agreement. The main terms and conditions of the Amending Agreement are: ● ̶ the restructuring of the loan, with a reduction in the Amortizing Term Credit Line A from the residual € 166.3 million to € 141.3 million, and a concurrent increase in the Revolving Credit Line from € 100 million to € 125 million; ● ̶ 12-month extended duration of the loan with resulting postponement of the final due date from 31 December 2022 to 31 December 2023; ● ̶ amendment of the repayment plan of the amortizing term credit line, with repayment of € 16.3 million at 31 December 2018 followed by ten half-year instalments of € 12.5 million each; ● ̶ a reduction in the spread charged on both credit lines as from 10 October 2018 and then re-determined from time to time in respect of a margin grid determined by the leverage ratio (NFP/EBITDA), which is more favourable than the original level; ● ̶ with particular regard to the Revolving Line: lower commission on undrawn amounts, elimination of annual clean down clause, and introduction of a commission on drawn down amounts applied only if certain pre-set drawdown levels are exceeded.

● “Information on ongoing disputes” includes a description of the dispute relating to the property complex in Via Solferino.

6 ▪ Significant events after year end

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

67 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7 ▪ Consolidation methods

Subsidiaries indicated in the “List of the Group equity investments at 31 December 2018” 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, by virtue of its relationship with the entity. it has control over its relevant activities, is exposed to variable returns, it has rights to those returns 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 31 December 2018.

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 the owners of the parent. Goodwill arising on line-by-line consolidation was recognized without exercising the full goodwill option or without recognizing goodwill of non-controlling interests.

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, taking account of the material amounts, 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 regard 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

– 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

tional Financial Reporting Standards (IFRS), all the International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Standards Interpretations Committee (IFRS IC, formerly IFRIC), previously known as Standing Interpretations Committee (SIC). Specifically, it should be noted that the IFRS have been applied consistently to all the periods presented in this document, except for the points mentioned in paragraph 9.

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 6 February 2009, it is reported that the consolidated financial statements of the RCS Group at 31 December 2018 have been prepared on a going concern basis.

With regard to CONSOB communication no. DEM/11070007 of 5 August 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.

In 2018, the RCS Group benefited from special rates for the amount of € 108,123, pursuant to art. 28 of Law no. 416 of 5 August 1981 “Regulations governing publishers and publishing benefits” relating to certain dedicated telephone lines. Pursuant to art. 1 par. 125 to 129 of Law no. 124 of 4 August 2017, with regard to the obligations to publish grants, contributions, paid assignments and, in any case, economic benefits of any kind received from the PA, and to art. 3-quater, par. 2, of Decree Law no. 135/2018 (Simplification Decree), it should be noted that the Allo- cating Bodies are required to publish the contributions in the National Aids Register, available at: www.rna.gov. it/sites/PortaleRNA/it_US/transparency in the field of State aid and de minimis aid. It should also be noted that amounts relating to commercial transactions carried out during the year that involve a consideration have not been taken into account.

The financial statements have been prepared in accordance with the conventional historical cost method, except for a number of financial assets and liabilities, including derivative instruments, which are measured at fair value.

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

Revenue

Revenue is recognized in the income statement when the criteria set out in IFRS 15 are met: ̶ revenue from the sale of goods is considered to have been earned and is recognized gross of the distribution premiums at the time of the transfer of ownership, which conventionally coincides: ̶ on the publication date for newspapers and magazines, recorded at the value reasonably estimated on the basis of a consignment contract, ̶ and the shipment date for book publications, recorded net of reasonably estimated returns; ̶ revenue from the sale of magazine subscriptions is recognized on the basis of the magazines published and distributed during the period; ̶ revenue from the sale of advertising space on traditional media is recognized according to the issue date of the publications; ̶ advertising revenue generated by digital operations is recognized at the time of the broadcasting or publication of the message which normally (banner) coincides with the publication date; ̶ revenue from the sponsorship of sporting events and from the organization of events is recognized at the date of the event, taking into account the short time horizon of such events; ̶ 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.

Revenue is shown net of returns, discounts and allowances.

69 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Costs

Costs and other operating expense 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. Costs are shown net of returns, discounts and allowances.

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 is recognized using the effective interest method.

Financial income and expense are shown in Note 24 in accordance with the categories defined in IFRS 9 and in the manners set out by IFRS 7.

Income tax

Tax for the year corresponds to the sum of current, deferred and prepaid tax.

Current tax is recorded and determined on the basis of a realistic estimate of taxable income in accordance with current country tax regulations, and taking into account any applicable exemptions and tax receivables due if any. 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 expense 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. The value of deferred tax assets recognized in the financial statements is reviewed annually.

Deferred tax is 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. In the absence of stock option plans for employees or other issued instruments with potentially dilutive effects, there are no dilutive effects associated with the assignment of options for the subscription of 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 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.

– 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Property, plant and equipment

Property, plant and equipment are assets recognized in the financial statements as they satisfy the requirement of producing probable future economic benefits for the Group, and of having a reliably estimated cost.

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. The useful life and the amortization criteria applied are reviewed on a regular basis and where change is deemed necessary, the amortization rate is restated in accordance with the prospective method.

Improvement expenditure is recorded as an asset 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.

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 and classified as other operating revenue and income or sundry operating expense.

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. 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 reliably estimated and can be recovered through the associated expected future economic benefits. Transfers to investment property are made when, and only when, there is a change in use indicated by events

71 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

such as: the end of owner-occupation, the commencement of an operating lease to another party or the completion 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

Intangible assets are resources that are clearly identifiable and controllable by the Group, from which it expects future economic benefits. These are recorded at purchase cost if acquired separately, and are capitalized at fair value at the date of acquisition if acquired through business combinations.

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.

The useful life and the amortization criteria applied are reviewed on a regular basis and where a material change compared to previous circumstances is found, the asset can be transferred from indefinite to finite useful life or vice versa and, for assets with finite useful lives, the amortization rate can be modified in accordance with the prospective method. The Group holds that there is a trigger event when an asset with an indefinite useful life is classified as an asset with a finite life in light of the aforementioned review.

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 control 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 and prepaid tax is also recognized on adjustments to carrying amounts to bring it in line with that value.

The very complexity of applying the acquisition method means that the standard provides for an initial, provi- sional 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.

– 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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; ̶ 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.

The amount of non-controlling interests can be calculated as the minority’s share of the fair value referred to in point b) or, if the full goodwill option is applied, as the minority’s share of the total fair value of the company inferable from the listing of the acquired company, also taking into account any majority bonuses paid to the RCS Group. If, at the acquisition date, the fair value of the acquiree cannot be inferred from a price quoted on an active stock market, other valuation techniques will be used in line with the provisions of international accounting standards. The full goodwill option can also be applied for a single aggregate without the need to extend the option to all the other aggregates recorded in the financial statements. At 31 December 2018, RCS Group goodwill was determined without applying the full goodwill option. 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), then there is no goodwill and this excess is immediately recognized in profit or loss as non-recurring income.

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 assess recoverability 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. Impairment losses on goodwill are recognized directly in profit and loss and are not reversable.

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 is allocated to a cash-generating unit (or groups of cash-generating units) and part of the 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 1 January 2004 and 31 December 2008 (prior to the early application date of the IFRS 3 2008 Revised) 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.

73 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Impairment of non-financial assets

The RCS Group assesses the existence of impairment (impairment tests) on assets recorded (tangible and intangible assets and equity investments) at each balance sheet date. In the case of goodwill, other intangible assets with an indefinite life and intangible assets not yet available for use, the Group makes this assessment at least annually, even in the absence of impairment indicators, and in any case during the year whenever such indicators of impairment exist. In the case of tangible assets as well as equity investments and intangible assets with a finite useful life, the recoverable value is assessed whenever trigger events arise from the periodic analysis carried out at each reporting date.

The recoverability of the carrying amounts is tested by comparing them with the higher of fair value net of disposal costs and value in use. For the purpose of the impairment test, the book value of the CGUs undergoing test consists of net capital employed (intended as equity plus net financial position), increased by goodwill and allocated titles.

The fair value is determined based on the market price of the asset, or of an identical asset, traded on an active market, net of disposal costs. In the absence of a market listing, reference may be made to a binding sales agreement, or to the price of the most recent transaction with similar characteristics. In the absence of market value, estimates are used based on data available on the market.

If the recoverable value determined above is lower than the value of the asset recorded in the financial statements, the asset would be immediately adjusted and aligned with the recoverable value by recording a write- down in the income statement. If the impairment of an asset other than goodwill is subsequently reduced or no longer exists, the book value of the asset is restored until the new estimate of its recoverable value has been made and up to the limit of the value at which the asset was first recognized in the financial statements. The reversal of the impairment loss is also recorded in the income statement.

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.

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 “Share of income (expense) from 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 statement of comprehensive income.

– 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 investment, but to the entire carrying amount of the investment. Accordingly, any reversal of that impairment loss is recognized in full to the extent that the recoverable amount of the investment subsequently increases as determined by impairment testing.

Inventory

Inventory is measured at the lower of purchase or production cost (inclusive of any directly attributable expenditure and net of trade discounts and allowances) and its estimated realizable value as deduced from market trends. The purchase cost is calculated using the weighted average cost method. Inventory is adjusted to its realizable value by taking into account market prices and costs to sell. The adjustment of the inventory recorded to the estimated net realizable value is made by recognizing accruals directly deducted from the assets.

Financial assets

After initial recognition, financial assets are measured in accordance with their classification within one of the following categories. More specifically: ̶ “Receivables and other financial assets” 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 and recognized at their estimated realizable value (fair value) by means of the allowance for impairment 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 (expected losses). 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 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. ̶ “Other non-current equity instruments (ex available for sale)” are initially recognized at cost (fair value of the initial consideration given in exchange) increased by any directly attributable transaction costs, as the Compa- ny generally chooses to measure the instrument at fair value with changes recognized in other comprehensive income. As the RCS Group does not trade equities, on initial recognition, it has adopted the option of presenting subsequent changes in the fair value of the investment among other comprehensive income. Accordingly, only dividends are recognized in the income statement (unless they clearly represent a refund of the investment). Changes in fair value and any gains or losses on disposal of the investment are recorded in the statement of comprehensive income and are never recorded in the statement of income. As this option is final and can be exercised for each investment, any exceptions at the initial recognition stage will be shown in the comment on this item. All the investments in equity instruments must be measured at fair value. 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

75 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

in recent transactions between independent parties in instruments that are substantially the same, or using other valuation techniques, such as income valuations or based on discounted cash flow analysis. However, in a few circumstances only, cost may represent an adequate estimate of fair value if, for example, the latest information available to measure fair value is insufficient, or if there is a wide range of possible fair value measurements. Cost is never the best estimate of fair value for investments in listed equity instruments. As the RCS Group does not trade equities, “Other non-current equity instruments” are investments in equity instruments below 20% in which the RCS Group does not exercise significant influence. ̶ “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. At 31 December 2018, the RCS Group did not hold any financial assets, which are initially recognized at fair value.

Derivative financial instruments

In accordance with the provisions of IFRS 9, the RCS Group has availed itself of the option to continue to apply the methods and requirements established for hedge accounting by IAS 39, previously in force, and thus define the hedge effectiveness relationship relating to the derivative financial instrument. Specifically, financial instruments are accounted for based on the hedge accounting methods adopted by the Group, 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. Pro- spectively 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 “Administration and Finance” 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

They are stated at nominal amount.

For the purposes of classifying financial instruments according to the criteria set out by IFRS 9 as required by IFRS 7 and reported in Note 13, cash and cash equivalents have been classified for credit risk purposes under

– 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

“Financial assets at amortized cost”, while in the consolidated statement of cash flows, cash and cash equivalents, as defined above, are shown net of bank overdrafts.

Payables and other liabilities

Financial payables and liabilities are initially recognized at fair value, which is basically the amount cashed in, less any related transaction costs. Management determines upon initial recognition how financial liabilities are to be classified, as identified in Note 13, in accordance with IFRS 9 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.

Subsequent to initial recognition, financial liabilities are measured on the basis of their classification in one of the categories under IFRS 9. Specifically, it should be noted that the RCS Group classifies liabilities in the amortized cost category, except for derivative instruments, for which reference should be made to the specific paragraph.

“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.

With regard to the modification of the contractual terms of a financial liability, the Group assesses when such a modification can be considered as “substantial”, resulting in a derecognition of the financial liability in the accounts. If the change is not substantial (a “modification”), then the financial liability is not derecognized and the Group recognizes the gain or loss deriving from this change through profit and loss.

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

“Payables and other 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 at their original cost. 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 1 January 2007 (and not yet paid out at the reporting date), while amounts accruing thereafter are treated as a defined contribution plan; the relating accrued benefits are paid to the pension funds. 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, while cost components related to work performance and net financial expense are recognized in the income statement. The actuarial valuation, based on financial and demographic assumptions, is carried out with the help of external professional actuaries.

Provisions for risks and charges

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”.

77 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, and whose book value will therefore be recovered mainly through a sale transaction rather than through continuous use. These items are valued at the lower of the net book value to which these assets and liabilities were recorded and the fair value less the foreseeable costs of disposal. From the date on which such assets are classified under held-for-sale non-current assets, the relating depreciation and amortization is suspended. 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 end of the reporting period. 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.

9 ▪ Accounting standards, amendments and interpretations which came into force as from 1 January 2018

IFRS 15 - Revenue from Contracts with Customers

The standard, published by the IASB in May 2014, amended in April 2016 and approved by the European Com- mission in September 2016, introduces a general model to determine whether, when and to what extent revenue is recognized. Specifically, the standard establishes a new model for the recognition of revenue, applied to all contracts stipulated with customers except for those falling within the application of other IAS/IFRS standards as leases, insurance contracts and financial instruments. The key steps in the accounting of revenue based on this new model are: ̶ identification of the contract with the customer; ̶ identification of the performance obligations contained in the contract; ̶ pricing; ̶ price allocation based on the performance obligations included in the contract; ̶ the criteria for the recognition of revenue when the entity meets each performance obligation.

The standard replaces the recognition criteria set out in IAS 18 - Revenue, in IAS 11 - Construction Contracts and in IFRIC 13 - Customer Loyalty Programmes, in IFRIC 15 - Agreements for the Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC-31 Revenue - Barter Transactions Involving Advertis- ing Services. The Group adopted IFRS 15 Revenue from contracts with customers as from 1 January 2018, using the cumulative effect approach to avoid restating financial years shown in the comparative information and to recognize the effects of the application of the new standard in initial equity for the financial year of first-time application of IFRS 15. The analysis conducted on the effects of the first-time application of IFRS 15 on the consolidated

– 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 1 January 2018. The difference refers to both distribution and to organization and advertising related to Sporting Events, as well as to certain advertising sales contracts. Distribution is carried out mainly by companies outside the scope of consolidation, acting as agents with respect to RCS Group companies. The relating distribution premiums, previously recorded as a decrease in gross revenue, have been reclassified, with the introduction of IFRS 15, among RCS Group costs. The sale of publishing products is, therefore, presented gross of such item; furthermore, non-deductible VAT is brought as a direct decrease in revenue, with an overall effect that increases the amount classified under revenue by € 106 million at 31 December 2018. With regard to organization and advertising related to Sporting Events, as well as certain advertising sales contracts for third-party publishers and the distribution of third-party publishing products, under the new IFRS standard, the RCS Group companies involved have been recognized as agents; therefore, revenue has been netted out to express on such activities only the revenue item achieved by RCS (for an overall € 29.7 million at 31 December 2018). In accordance with the provisions of the cumulative effect approach, it should be noted that the impact on the figures for 2018 amounts to an overall increase of € 76.4 million in net revenue. Specifically, the change is attributable to higher publishing revenue of € 100.7 million (composed of € +106 million as commented above related to adjustments to distribution premiums and the reclassification to lower revenue of non-deductible VAT, and of € -5.3 million related to the distribution of third-party publishing products), lower advertising revenue of € 11.5 million and lower sundry revenue of € 12.8 million. These changes did not affect the margin and initial equity.

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 requirements for the classification and measurement of financial instruments, including a new model for calculating impairment of financial assets that also covers expected losses, and new general requirements for hedge transactions. In addition, it includes provisions for the recognition and derecognition of financial instruments in line with the current IAS 39 and new indications on the rescheduling of loan agreements. With the exception of hedge accounting, retrospective application of the standard is required, while it is not compulsory to provide comparative information. Elements that have already been derecognized at the date of first-time application are excluded from retrospective application. As regards hedge accounting, the standard is generally applied prospectively, with a few limited exceptions. In this context, however, an entity may continue applying the provisions of IAS 39.

The Group adopted IFRS 9 Financial instruments as from 1 January, 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 the carrying amounts of financial assets and liabilities arising from the adoption of IFRS 9 are recognized in retained earnings as of 1 January 2018. Additionally, with regard to hedge accounting, the Group uses the option of continuing to adopt the provisions of IAS 39.

The effect on initial equity produced a reduction of € 0.8 million (net of the tax effect) as a result of a reduction in receivables of € 1.1 million, with no significant changes in the income statement figures for 2018. Specifi- cally, the adjustment reducing retained earnings refers to the recognition of additional, and possible, losses due to impairment of financial assets (mainly trade receivables) 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 area to highlight any possible signs of future default. On the basis of these assessments, the relevant impairment percentages for each rating class were identified referring to Trade receivables, Other receivables, Financial receivables and Cash. These percentages represent the point of view of the Group regarding expected losses over the next 12 months.

79 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

change recognized through profit and loss. Specifically, the gross carrying amount of the financial liability must be recalculated as the present value of the renegotiated cash flows discounted at the original effective interest rate. On 10 October 2018, RCS MediaGroup S.p.A. signed an amending agreement with the pool of banks to the existing Loan Agreement at better terms, as explained in the section “Significant events during the year”. The renegotiation does not imply a derecognition of the financial liability as it is not “substantive”. The effect of the changes calculated as described above generated a gain of € 3 million recognized in the income statement in the current year under financial income, instead of being reflected as a benefit in the actual cost of the loan for future years, as set out previously in IAS 39.

IFRS 9 also introduces new provisions for the classification and measurement of financial assets based on the business model under which they are managed, taking account of the characteristics of their cash flows. IFRS 9 classifies financial assets into three main categories: amortized cost, fair value recognized through profit/(loss) (FVTPL) for the year, fair value recognized in other components of comprehensive income (FVOCI). The categories set out in IAS 39, i.e. assets held to maturity, loans and receivables and available-for-sale assets, are derecognized. Based on the new classification criteria, investments in equity instruments with a fair value of € 3 million at 31 December 2017 and classified as available-for-sale assets, are now classified under “Other non-current equity instruments”. For each equity instrument, the RCS Group has decided whether measurement at fair value should be recorded in the income statement (FVTPL) or in the statement of comprehensive income (FVOCI). Such option exercised for each equity instrument is final. At 31 December 2018, the amount recognized in the comprehensive income statement resulting from the measurement of Other non-current equity instruments was a net loss of € -1.5 million. This amount, prior to the adoption of IFRS 9, would have been recorded directly in the income statement for the year.

The table below shows a reconciliation between the financial items classified and measured in accordance with IAS 39 and IFRS 9:

Classification Amount Categories of IAS 39 IFRS 9 Change financial instruments IAS 39 IFRS 9 31/12/2017 31/12/2018

Non-current financial assets: Other non-current equity Available for sale financial assets FVOCI 3.0 2.9 (0.1) instruments Other non-current equity Available for sale financial assets FVTPL - 0.1 0.1 instruments Non-current financial receivables Loans and receivables Amortized cost 3.7 3.7 - Other non-current assets Loans and receivables Amortized cost 2.1 2.1 -

Current financial assets: Trade receivables Loans and receivables Amortized cost 272.6 271.5 (1.1) Sundry receivables Loans and receivables Amortized cost 13.7 13.7 - and other current assets Current financial receivables Loans and receivables Amortized cost 0.9 0.9 - Cash and cash equivalents Loans and receivables Amortized cost 15.6 15.6 -

Non-current financial liabilities: Non-current financial payables Other financial liabilities Amortized cost 235.8 235.8 - and liabilities

Current financial liabilities: Payables to banks Other financial liabilities Amortized cost 16.8 16.8 - Current financial payables Other financial liabilities Amortized cost 50.2 50.2 - Trade payables Other financial liabilities Amortized cost 236.3 236.3 - Sundry payables and other Other financial liabilities Amortized cost 25.8 25.8 - non-current liabilities

Fair value Fair value Hedging derivatives 1.1 1.1 - - hedging instruments - hedging instruments Details on the composition of the classes identified are found in Note 14 to this Annual Report.

– 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The introduction of IFRS 9 also entailed changes to the information to be provided in application of IFRS 7 with particular regard to Credit risk and Financial instruments: Disclosures, as commented on in Note 13 and Note 14, respectively to this Annual Report. These amendments have not been applied to the comparative information provided for 2017, as required by the amended IFRS 7. The remaining information required has not been substantially amended. With regard to the provisions of the Decree of the Ministry of the Economy and Finance of 10 January 2018, it should be noted that held-for-trading financial assets (as set out in Appendix A of IFRS 9, points a) and b) are equal to zero.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

In December 2016, the IASB published the interpretation “IFRIC 22 Foreign currency transactions and advance consideration” approved by the European Commission in March 2018. The interpretation aims to provide guidance on how an entity should determine the date of a transaction and, therefore, the exchange rate to use in the event of foreign currency transactions where payment is made or received in advance. The adoption of this interpretation had an immaterial effect on the RCS Group’s net profit for 2018.

Amendment to IAS 40 - Investment property: Change in use of investment property

In December 2016, the IASB published the document “Amendment to IAS 40 - Investment Property: Change in use of investment property” approved by the European Commission in March 2018. The amendments clarify when a company is authorized to change the qualification of a property that was not an “investment property” as such or vice versa. 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 new provisions had no Classification Amount Categories of impact on the Annual Report of the RCS Group at 31 December 2018. IAS 39 IFRS 9 Change financial instruments IAS 39 IFRS 9 31/12/2017 31/12/2018 Amendment to IFRS 2 - Classification and measurement of share-based payment transactions

Non-current financial assets: In June 2016, the IASB published the amendments to IFRS 2 Classification and Measurement of Share-based Other non-current equity Available for sale financial assets FVOCI 3.0 2.9 (0.1) Payment Transactions, approved by the European Commission in February 2018. These amendments aim to instruments clarify the accounting of some types of share-based payment transactions. At 31 December 2018, the RCS Group Other non-current equity Available for sale financial assets FVTPL - 0.1 0.1 instruments had no transactions in place attributable to such types. Non-current financial receivables Loans and receivables Amortized cost 3.7 3.7 - Improvements to IFRSs: 2014-2016 Cycle Other non-current assets Loans and receivables Amortized cost 2.1 2.1 -

Current financial assets: In December 2016, the IASB published the document “Improvements to IFRS: 2014-2016 Cycle” approved by the European Commission in February 2018. The main amendments regard: Trade receivables Loans and receivables Amortized cost 272.6 271.5 (1.1) Sundry receivables ̶ IFRS 1 – First-time Adoption of International Financial Reporting Standards - The amendments eliminate Loans and receivables Amortized cost 13.7 13.7 - and other current assets some exemptions set forth in IFRS 1, as the benefit of said exemptions is now believed to have been super- Current financial receivables Loans and receivables Amortized cost 0.9 0.9 - seded. Cash and cash equivalents Loans and receivables Amortized cost 15.6 15.6 - ̶ IFRS 12 – Disclosure of Interests in Other Entities - The amendment clarifies the scope of application of IFRS Non-current financial liabilities: 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 amend- Non-current financial payables Other financial liabilities Amortized cost 235.8 235.8 - and liabilities ment aims to standardize the disclosures required by IFRS 5 and IFRS 12. ̶ IAS 28 – Investments in Associates and Joint Ventures - The amendment clarifies that the election to measure Current financial liabilities: at fair value through profit or loss (rather than at equity) an investment in an associate or a joint venture that is Payables to banks Other financial liabilities Amortized cost 16.8 16.8 - held by an entity that is a venture capital organization, or other qualifying entity, is available for each invest- Current financial payables Other financial liabilities Amortized cost 50.2 50.2 - ment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. Trade payables Other financial liabilities Amortized cost 236.3 236.3 - Sundry payables and other Other financial liabilities Amortized cost 25.8 25.8 - non-current liabilities These improvements had no effects on the Annual Report of the RCS Group.

Fair value Fair value Hedging derivatives 1.1 1.1 - - hedging instruments - hedging instruments

81 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10 ▪ Accounting standards, amendments and interpretations approved by the EU, not yet mandatorily applicable, and not adopted in advance by 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 lessee, 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 in financial liabilities. The standard provides the possibility of not recognizing contracts as leases that involve low-value assets (i.e. leases relating to assets with a value of less than USD 5,000) 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 from 1 January 2019; early application is allowed. First-time application allows use of the full retrospective method (with restatement of comparative information) or the modified retrospective method (with the cumulative effect of the adoption of IFRS 16 recognized as an adjustment to the opening balance of retained earnings at 1 January 2019, without restatement of comparative information). The RCS Group will apply the standard as from 1 January 2019.

The RCS Group has completed its review of the contracts potentially affected by this standard in both Italy and Spain. There are approximately 700 such contracts, mainly signed in Italy and attributable to approximately 30 different companies. Of these contracts, approximately 200 can be classified as short term or low value leases; the option for these contracts was not to apply the recognition and measurement provisions under IFRS 16.

Short-term leases refer mainly to the classes of assets Motor Vehicles and Real Estate (for lease of apartments or offices). Low value leases refer mainly to: printers, computers and other electronic devices. For such contracts, the introduction of IFRS 16 will not imply the recognition of the financial liability of the lease and the relating right of use, but lease payments will be recognized in the income statement for the duration of the respective contracts.

The remaining contracts relate mainly to the rental of real estate and company cars used by employees. Lastly, a number of minor contracts (both in terms of amounts, duration and number of contracts) refer to operating leases of plant and machinery, furniture and office machinery. In carrying out its analyses, the RCS Group has identified the components of the contracts or the contracts themselves, the lease of which can be traced back to a service contract or a licence concession, excluding them from the scope of IFRS 16. No sale and leaseback transactions were identified. Sublease contracts have been identified for properties in use. The RCS Group, as a lessor of real estate to third parties, has identified these contracts as operating leases. The RCS Group, as lessee, will adopt the abovementioned modified retrospective method. In particular, the Group will record, with regard to the lease contracts previously classified as operating: ̶ a financial liability, equal to the present value of the remaining future payments at the transition date, discounted using for each contract the incremental borrowing rate applicable at the transition date; ̶ a right of use equal to the amount of the financial liability at the transition date, net of any accrued income and prepaid expenses relating to the lease and recorded in the statement of financial position at the balance sheet date of these financial statements; ̶ assessments are underway, restricted to certain property rental contracts, regarding the possible valuation (as an exception to the transition method generally applied by the Group) of the right of use, by applying discounting from the effective date of the contracts, with the same IBR used in calculating the financial liability. This expected accounting treatment (known as cherry picking) at 1 January 2019 would have a

– 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

decreasing impact on shareholders’ equity as a result of the difference emerging between the right of use, calculated in this way, and the financial liability. The estimated impact is approximately € 16 million. The financial liability emerging from the application of the modified retrospective method was discounted using an IBR (Incremental Borrowing Rate) consistent with the maturity of the underlying contracts. The different IBRs range from approximately 1% to approximately 2.5%. In applying the lease accounting method, Management carefully assessed the definition of the lease term or the duration of the contracts, identifying the non-cancellable period of the lease and integrating it to take account of any options, the exercise of which is reasonably certain.

The leases recorded in the financial statements at 31 December 2018 in application of IAS 17, were reviewed to ascertain whether by applying the new provisions of IFRS 16 they should have been subject to changes in their duration or any service obligation components included in the contracts, concluding that, in the manner presented in the financial statements at 31 December 2018, these leases will not be subject to changes in treatment in 2019.

The estimated financial liability resulting from the application of IFRS 16, calculated as explained above, amounted to € 189 million at 1 January 2019. The amount includes the effects of the lease of the real-estate complex in Via Solferino, without prejudice to the comments in the section on “Information on ongoing disputes”. The table below shows the estimated impacts of the adoption of IFRS 16 at the transition date, without taking into account the ongoing assessments of the possible application of cherry picking:

Impacts at transition date (€/millions) 1 January 2019 ASSETS Usage rights property 181 Usage rights plant and machinery - Usage rights machinery - Usage rights motor vehicles 7 Usage rights other goods 1 Total non-current assets 189 TOTAL ASSETS 189

EQUITY AND LIABILITIES Retained earnings - Total equity attributable to the owners of the parent - Financial liabilities from non-current leases 166 Total non-current liabilities 166 Financial liabilities from current leases 23 Total current liabilities 23 TOTAL EQUITY AND LIABILITIES 189

It should be noted that the estimated effects of the adoption of IFRS 16 as commented above, may be subject to change up to the presentation of the first consolidated financial statements of the Group, which include the date of first-time application, also in light of guidelines that may arise at a later time on certain situations that are more exposed to the interpretations of the standard, as well as for the implementation of the IT solutions identified in support of the business processes involved.

As required by ESMA’s Public Statement of 26 October 2018, a reconciliation is given below of operating lease commitments, the amount of which is shown in Note 63 of this Annual Report, under IAS 17, and the emerging liability under IFRS 16.

83 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of (€/millions) lease commitments Operating lease commitments at 31 December 2018 252 Lease payment commitments - renewal options 10 Reduction for exemption Short term lease (1) Reduction for exemption Low value assets - Reduction for non-IFRS 16 services included in lease contracts (service components) - Increase due to variable items of lease payments - Others (1) (49) Gross value of liabilities deriving from leases at 1 January 2019 - first-time application of IFRS 16 212 Discounting (23) Liabilities arising from leases at 1 January 2019 - first-time application of IFRS 16 189 Present value of finance leases at 31 December 2018 ex IAS 17 4 Liabilities arising from leases at 1 January 2019 193 (1) These refer to lease payments relating to contracts not covered by IFRS 16.

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 compensation” endorsed by the European Commission in March 2018. To clarify the classification of certain financial assets that can be repaid early on the application of IFRS 9, these amendments allow the measurement at amortized cost or at fair value through other comprehensive income (OCI) of financial assets with prepayment features through “negative compensation”. The amendments apply to financial periods beginning on or after 1 Jan- uary 2019.

IFRIC 23 - Uncertainty over Income Tax Treatments

The interpretation IFRIC 23 - Uncertainty over income tax treatments, published by the IASB in June 2017, was endorsed in October 2018. This interpretation clarifies how to apply the recognition and measurement requirements of IAS 12 when there is uncertainty over income tax treatments. In this case, the entity shall recognize and measure its current or deferred tax asset or liability by applying the requirements of IAS 12 on the basis of taxable profit (tax loss), values for tax purposes, unused tax losses, unused tax credits or tax rates according to the tax treatment determined by applying this Interpretation. The entity shall decide whether to consider each uncertain tax treatment separately or in combination with one or more uncertain tax treatments. In assessing uncertain tax treatment, the entity shall presume that the taxation authority, during the audit, will control the amounts it has the right to examine and that it will be fully aware of all relevant information. The entity shall determine whether the uncertain tax treatment is likely to be accepted by the taxation authority. If the entity concludes that the taxation authority will likely accept the uncertain tax treatment, it shall determine taxable profit (tax loss), values for tax purposes, unused tax losses, unused tax credits or tax rates according to the tax treatment applied or expected to be applied in its tax return.

If the entity concludes that the taxation authority will unlikely accept uncertain tax treatment, it shall report the effect of uncertainty for each uncertain tax treatment using either of the following two methods: a) the most likely amount method, or b) the expected value method, namely the sum of the different amounts of a range of possible outcomes weighted by their probability of occurrence.

The new interpretation applies as of January 1, 2019, but early application is allowed.

– 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11 ▪ Accounting standards, amendments and interpretations yet to be endorsed by the EU and applicable from financial periods after 1 January 2018

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 assignment 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. With a further adjustment in December 2015, the IASB cancelled the previous date of first-time application set for 1 January 2016, deciding to determine it at a later date.

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 1 January 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 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. ̶ 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 1 January 2019. Early application is allowed.

Amendment to IAS 19 - Plan Amendment, Curtailment or Settlement

In February 2018, the IASB published the amendments to IAS 19 “Plan Amendment, Curtailment or Settle- ment” to clarify how current service cost and net interest are determined when a change occurs in the defined benefit plan.

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

Amendment to IAS 1 and IAS 8 - Definition of Material

In October 2018, the IASB published the amendment Definition of Material (Amendments to IAS 1 and IAS 8) which aims to clarify the definition of “material” in order to assist entities in assessing the significance of information to include in financial statements. The amendments will apply as of 1 January 2020. However, early application is allowed.

85 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Amendment to IFRS 3 - Definition of a Business

In October 2018, the IASB published Definition of a Business (Amendments to IFRS 3) with the aim of helping to determine whether a transaction is an acquisition of a business or group of businesses that does not meet the business definition of IFRS 3. The amendments will apply to acquisitions after 1 January 2020. Early application is allowed.

12 ▪ Main decisions when applying accounting standards and 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. Howev- er, 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 in the face of a turbulent 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 years may have a different outcome to those forecasted at 31 December 2018, causing significant adjustments to the carrying amounts of assets and liabilities, amongst which, due to their materiality, goodwill and other intangible assets with indefinite useful life.

In order to determine whether there are impairment losses on goodwill and on the other assets with indefinite useful life, it is necessary to estimate the value in use of the cash-generating unit (CGU) to which assets are allocated, or the value of use of the other assets with indefinite useful life. The determination of value in use involves estimating the cash flows that the Company expects to produce, 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, which in turn are significantly influenced by the performance of the publishing market and the more general macroeconomic context.

Projections are also used when determining the estimated revenue generated through consignment contracts (newspapers and magazines), the estimated provisions for risks and charges and legal disputes, returns to receive (books), allowances for impairment and other allowances for write-downs, particularly for estimates on inventory, depreciation and amortization, and employee benefits. Estimates are also required to assess the recoverability of deferred tax.

– 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13 ▪ Financial Instruments: disclosures

As required by IFRS 7, the following table shows the carrying amounts of items included in each category identified by IFRS 9.

The carrying amount generally coincides with the measurement at amortized cost of the financial assets/liabilities, except for derivative instruments and other equity instruments measured at fair value. For fair value, reference should be made to the notes to the individual items.

Statement of financial position

Carrying Carrying Categories of financial instruments Notes amount at amount at 31/12/2018 31/12/2017 FINANCIAL ASSETS Financial assets measured at amortized cost Non-current financial receivables 37 2.2 3.7 Other non-current assets 38 2.0 2.1 Trade receivables (1) (2) 40 212.0 272.6 Sundry receivables and other current assets 41 12.7 13.7 Current financial receivables 42 1.4 0.9 Cash and cash equivalents 42 12.5 15.6 Financial assets at fair value through profit or loss Non-hedging derivatives - - Other non-current equity instruments - - Financial assets at fair value through the comprehensive income statement Other non-current equity instruments 35 2.1 - Hedging derivatives - - Available-for-sale financial assets (1) Equity investments 35 - 3.0 Total 244.9 311.6

FINANCIAL LIABILITIES Liabilities at amortized cost Non-current financial payables and liabilities 42 141.6 235.8 Other non-current liabilities - - Payables to banks 42 13.6 16.8 Current financial payables 42 45.2 50.2 Trade payables 53 204.7 236.3 Sundry payables and other current liabilities 54 24.0 25.8 Financial liabilities at fair value through profit or loss Non-hedging derivatives - - Financial liabilities at fair value through the comprehensive income statement Hedging derivatives 42 1.1 1.1 Total 430.2 566.0 (1) Following the application of IFRS 9 as from 1 January 2018 and taking into account the fact that the Group has availed itself of the exemption of not recalculating prior-years’ comparative information relating to changes in classification and assessment, these items are not directly comparable in 2018 and 2017 as shown above. (2) As from 2018, the presentation of trade receivables for the purposes of IFRS 7, limited to consignment contracts, is made net of the expected returns. In 2018, this led to a decrease of € 29.8 million in the accounting presentation of trade receivables for the purposes of the notes in application of IFRS 7. Net of this change, trade receivables would amount to € 241.8 million instead of € 212 million.

The following are classified under “Financial assets”: ̶ financial assets measured at fair value through profit or loss; ̶ financial assets measured at fair value through the comprehensive income statement; ̶ financial assets measured at amortized cost, including: ̶ ̶ trade receivables;

87 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

̶ ̶ sundry receivables which, for the purposes of this presentation, excluded: tax receivables, receivables from social security institutions, advances to authors, receivables for state grants and prepaid expenses; ̶ ̶ other non-current assets which, for the purposes of this presentation, excluded: the payment of an advance on post-employment benefits; ̶ ̶ current and non-current financial receivables; ̶ ̶ cash and cash equivalents;

The following are classified under “Financial liabilities”: ̶ financial liabilities measured at amortized cost, including: ̶ ̶ trade payables ̶ ̶ sundry payables, which for the purposes of this presentation excluded: payables to the tax authorities, payables to social security institutions, deferred income and payables for untaken holiday entitlement; ̶ ̶ current and non-current financial payables; ̶ ̶ hedging and non-hedging derivatives. Reference should be made to the following paragraph “Information on derivative financial instruments” for details of these assets/liabilities; ̶ financial liabilities measured at fair value through profit or loss; ̶ financial liabilities measured at fair value through the comprehensive income statement.

The item Financial assets measured at fair value through other comprehensive income includes Other equity instruments as the Group has taken the option to measure the instrument at fair value through other comprehensive income.

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. For assets whose recoverable amount corresponds to the fair value net of cost of sales, the fair value hierarchy disclosure on Intangible assets is presented in Note 33.

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.

– 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

At 31 December 2017 and 2018, assets and liabilities have been classified in accordance with the fair value hierarchy as follows.

Hierarchy of fair value measurement for categories Notes Level 1 Level 2 Level 3 Total of financial instruments at 31 December 2018 FINANCIAL ASSETS Financial assets measured at fair value through the comprehensive income statement Other equity instruments (former AFS) 35 0.6 - 1.5 2.1 Total 0.6 - 1.5 2.1 FINANCIAL LIABILITIES Financial liabilities measured at fair value through the comprehensive income statement Hedging derivatives 36 - 1.1 - 1.1 Total - 1.1 - 1.1

Hierarchy of fair value measurement for categories Notes Level 1 Level 2 Level 3 Total of financial instruments at 31 December 2017 FINANCIAL ASSETS Financial assets measured at fair value through profit or loss Available-for-sale financial assets (AFS) 35 - - 3.0 3.0 Total - - 3.0 3.0 FINANCIAL LIABILITIES Financial liabilities measured at fair value through the comprehensive income statement Hedging derivatives 36 - 1.1 - 1.1 Total - 1.1 - 1.1

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

Balance at 31/12/2017 3.0 Gains/(losses) recognized in profit or loss - Increases/purchases/capital increases 0.7 Decreases/disposals (0.1) Gains/(losses) recognized as other comprehensive income (1.8) Transfers to/from level 3 (0.3) Balance at 31/12/2018 1.5

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 2018 and 2017. 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.

89 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The table below shows the effect on profit or loss and equity for IFRS 9 financial instruments.

Notes 31/12/2018

Net gains/(net losses) on financial assets or liabilities measured at fair value in profit or loss Other equity instruments of which dividends - of which gains/(losses) from changes in fair value - of which gains/(losses) from accounting elimination 25 1.5

Net gains/(net losses) recognized on financial liabilities measured at amortized cost Financial liabilities of which gains/(losses) from accounting elimination 24 (2.5) of which gains/(losses) from renegotiation 24 3.0

Net gains/(net losses) recognized on financial assets measured at amortized cost Impairment losses on trade and sundry receivables, including reversal 21 (3.0) Gains (losses) from the accounting elimination of trade and sundry receivables (amortized cost) - Gains (losses) from the accounting elimination of receivables - and other financial assets at amortized cost Impairment losses on receivables and other financial assets, including reversal 26 (2.4)

Net gains/(net losses) recognized on investments in equity instruments measured at fair value recorded in the comprehensive income statement Other equity instruments of which dividends - of which gains/(losses) from changes in fair value 35 (1.5) of which gains/(losses) from accounting elimination -

Net gains/(net losses) on cash flow hedge derivatives Hedging derivatives of which profit/(loss) through the comprehensive income statement (*) 36 (0.4) of which profit (loss) through profit or loss 24 (1.2)

Interest income/expense at the effective interest rate, accrued on financial assets/ liabilities not at FVTPL Interest income on Receivables/loans at amortized cost 24 0.3 Interest expense on Financial liabilities at amortized cost 24 (6.4)

Expenses and fees not included in effective interest rate relating to financial assets Receivables/loans at amortized cost - Derivatives through FVOCI - relating to financial liabilities Financial liabilities at amortized cost 24 (1.9) Derivatives through FVOCI -

(*) Figures are shown without considering tax effects.

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

– 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The effect on profit or loss and equity for IAS 39 financial instruments according to the tables used until 31 December 2017 is shown below:

Notes 31/12/2017

Net gains/losses recognized on financial instruments Held-for-trading financial assets/liabilities - Hedging derivatives of which gains/losses recognized in equity (*) 36 3.4 of which gains/losses recognized in profit or loss (3.6) Gains/losses on loans and receivables (1.4)

Interest income/expense (at internal rate of return) accrued on financial assets/liabilities not at FVTPL Interest income on Loans/receivables 0.7 Interest expense on Financial liabilities at amortized cost (12.6)

Interest income accrued on impaired financial instruments Loans/receivables 0.1

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

(*) Figures are shown without considering tax effects.

14 ▪ Management of capital and financial risks

The Group manages its capital structure and financial risks in accordance with the assets 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 targets, policies and procedures in 2018 from the year ended 31 December, 2017.

The Loan concluded in August 2017 was renegotiated on 10 October 2018. The main terms and conditions of this Amending Agreement are: ̶ the restructuring of the loan, with a reduction in Credit Line A from the residual € 166.3 million to € 141.3 million, and a concurrent increase in the Revolving Credit Line from € 100 million to € 125 million; ̶ 12-month extended duration of the loan with resulting postponement of the final due date from 31 December 2022 to 31 December 2023; ̶ amendment of the repayment plan of Credit Line A, with repayment of € 16.3 million at 31 December 2018 followed by ten half-year instalments of € 12.5 million each; ̶ a reduction in the spread charged on both credit lines as from 10 October 2018 and then re-determined from time to time in respect of a margin grid determined by the leverage ratio (NFP/EBITDA), which is more favourable than the original level; ̶ with regard to the Revolving Credit Line: lower commission on undrawn amounts, elimination of annual clean down clause, and introduction of a commission on drawn down amounts applied only if certain pre-set levels are exceeded.

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 its businesses. The various financial risks to which the RCS Group is exposed are commented on below.

91 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Interest rate risk

Interest rate risk refers to the risk of possible higher financial expense caused by an adverse, unexpected fluctuation 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 “Administration and Finance” department within the 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 “Administration and Finance” 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.

At 31 December 2018, approximately 83% of loans and borrowings, including finance lease liabilities, were at a contractually fixed rate, or transformed to such via interest rate swaps (IRS) (79% at 31 December 2017).

At 31 December 2018, the hedging objective was pursued using IRSs 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. Mention should be made that a number of new IRS hedging contracts for a further € 40 million were concluded in February 2018, with a residual duration of just under 4 years at a rate of 0.454%.

RCS has complied with Regulation (EU) no. 648/2012 on OTC (over the counter) derivatives ever since it came into force in Italy and in all European countries (the EMIR Regulation); the Regulation introduces 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 regulatory 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. This sensitivity analysis was performed assuming a parallel 1% increase/decrease in the relevant interest rate curves by individual currency.

Increase/ Sensitivity analysis of interest Impact on profit Underlying Decrease in underlying Impact on equity rate risk on floating rate items or loss interest rates 2018 (192.8) 1% (0.2) 3.2 2017 (288.8) 1% (1.3) 3.7

2018 (192.8) -1% 0.1 (3.3) 2017 (288.8) -1% 0.3 (3.8)

At 31 December 2018, the Group held floating-rate debt financial instruments. The use of interest rate derivatives, transforming liabilities from floating rate to fixed rate, should be noted.

– 92 NOTES TO THE CONSOLIDATED 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 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 € 170 million at 31 December 2018 (€ 243.8 million in 2017) and refer solely to Interest Rate Swaps, as in 2017.

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 31 December 2018 revealed that an increase in interest rates, as shown in the table above, would cause a potential expense of € 0.2 million in the income statement (expense of € 1.3 million in 2017) and an increase of € 3.2 million in equity (€ 3.7 million in 2017). A decrease in interest rates, which takes account of contractual provisions, if any, on the application of negative rates, gave rise to potential income below € 0.1 million in the income statement (€ 0.3 million income in 2017) and a decrease of € 3.3 million in equity (€ 3.8 million in 2017).

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.

Exposure to currency risk refers mainly to: certain trade and financial positions in United Arab Emirates dirhams referring in particular to RCS Sport and Events 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; ̶ exchange rate risk is managed by the “Administration and Finance” department within the established operating limits; this department draws up strategies for hedging the exposure identified and presents them for top management approval; ̶ using derivatives for speculative purposes it is not permitted, in other words, it is not in line with the stated objective; ̶ the “Administration and Finance” 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 31 December 2018, 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.

Lastly, as regards the exposure to the dirham, the net payable position is € 8.1 million. A 10% appreciation of the euro against the dirham would have produced a consolidated profit of approximately € 0.8 million (loss of € 0.1 million in 2017 with a net receivable position of € 1.2 million).

93 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

If the dirham, the franc and the dollar 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 pos- sibly 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.

The renegotiation of the loan on 10 October 2018, described above, which entailed an identical split of the amounts of the two credit lines, increased the company’s flexibility in managing liquidity risk. The additional flexibility is due to: ̶ from the optimal management of any available funds in relation to the requirements highlighted from time to time based on the seasonal nature of operations; ̶ the possible use of different forms of short and medium/long-term financing.

Liquidity analysis The following tables present the maturity analysis of the RCS Group’s financial and trade assets and liabilities at 31 December 2018 and 31 December 2017, 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.

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.

2018

Analysis of balances reported Contractual due date (interest and principal) at the end of 2018 (1) on 0-6 6 months- 1-2 2-5 over Total demand months 1 year years years 5 years Financial assets Trade receivables - third parties 45.5 142.2 2.2 - - - 189.9 Intragroup trade receivables 6.4 15.7 - - - - 22.1 Sundry receivables and other assets (trade or financial) 14.1 1.4 0.6 1.1 0.8 0.3 18.4 Intragroup financial receivables ------Hedging derivatives ------Cash and cash equivalents 12.5 - - - - - 12.5 Total financial assets 78.5 159.3 2.8 1.1 0.8 0.3 242.9

Financial liabilities Trade payables to third parties 100.1 88.6 0.2 - - - 188.9 Intragroup payables 8.7 7.1 - - - - 15.8 Financial payables to third parties (including leases) 13.6 26.3 15.9 26.8 124.5 - 207.1 Intragroup financial payables 6.8 - - - - - 6.8 Sundry payables (trade or financial) 23.9 0.1 - - - - 24.0 Hedging derivatives - 0.3 0.2 0.3 0.2 - 1.1 Committed credit facilities ------Total financial liabilities 153.1 122.4 16.3 27.1 124.7 0.0 443.6

(1) These figures include forecast interest not yet accrued at 31 December 2018 and, therefore, are not reconcilable with those reported in the statement of financial position.

– 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 on Total demand months 1 year years years 5 years Financial assets Trade receivables from third parties (2) 60.0 163.4 2.0 - - - 225.4 Intragroup trade receivables (2) 27.8 19.4 - - - - 47.2 Sundry receivables and other assets (trade or financial) 15.7 0.5 0.5 0.7 1.6 1.6 20.7 Intragroup financial receivables ------Hedging derivatives ------Cash and cash equivalents 15.6 - - - - - 15.6 Total financial assets 119.1 183.3 2.5 0.7 1.6 1.6 309.0

Financial liabilities Trade payables to third parties 115.9 103.4 - - - - 219.3 Intragroup payables 7.1 9.9 - - - - 17.0 Financial payables to third parties (including leases) 16.8 34.8 18.3 33.3 227.8 - 330.9 Intragroup financial payables 4.3 - - - - - 4.3 Sundry 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 169.8 149.2 18.4 33.3 227.7 0.0 598.4

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

Analysis of balances reported Credit risk Contractual due date (interest and principal) at the end of 2018 (1) on 0-6 6 months- 1-2 2-5 over Credit risk can be defined as the possibility that one party to a financial instrument will cause a financial loss by Total demand months 1 year years years 5 years failing to discharge an obligation. Financial assets Trade receivables - third parties 45.5 142.2 2.2 - - - 189.9 The figures for 2018 include the effects of the adoption of IFRS 9 and are expressed in accordance with the new methods set out in IFRS 7 (amended following the introduction of IFRS 9). The Group has availed itself of the Intragroup trade receivables 6.4 15.7 - - - - 22.1 option under IFRS 9 to not remeasure prior years’ comparative information, only restating the credit risk tables Sundry receivables and other assets relating to the previous year for the sake of completeness. (trade or financial) 14.1 1.4 0.6 1.1 0.8 0.3 18.4 Intragroup financial receivables ------Overall, the tables are not directly comparable as the allowance for impairment of trade receivables was deter- Hedging derivatives ------mined in 2018 using the expected credit losses (ECL) method (in application of IFRS 9) instead of the incurred Cash and cash equivalents 12.5 - - - - - 12.5 loss method used in 2017 (€ +1.2 million at 31 December 2018), and revenue accounted for from consignment Total financial assets 78.5 159.3 2.8 1.1 0.8 0.3 242.9 contracts used by the Group in the sale of dailies and magazines is recognized at reasonably estimated value or net of the expected returns (for the purposes of recognition in accordance with IFRS 7). Financial liabilities Trade payables to third parties 100.1 88.6 0.2 - - - 188.9 Taking into account the above, the Group’s exposure to credit risk is broken down by business unit as follows: Intragroup payables 8.7 7.1 - - - - 15.8 Carrying amount at Carrying amount at Credit risk concentration by business area 31/12/2018 (1) % 31/12/2017 % Financial payables to third parties 13.6 26.3 15.9 26.8 124.5 - 207.1 (including leases) Newspapers Italy 39.2 16.1% 65.9 22.5% Intragroup financial payables 6.8 - - - - - 6.8 Magazines Italy 14.5 6.0% 21.3 7.3% Sundry payables (trade or financial) 23.9 0.1 - - - - 24.0 Advertising and Sport 117.9 48.6% 131.4 44.8% Hedging derivatives - 0.3 0.2 0.3 0.2 - 1.1 Unidad Editorial 60.0 24.7% 68.3 23.3% Committed credit facilities ------Other Corporate Activities 11.2 4.6% 6.1 2.1% Total financial liabilities 153.1 122.4 16.3 27.1 124.7 0.0 443.6 Total 242.8 100% 293.0 100% (1) As from 2018, the concentration of credit risk includes cash and cash equivalents; additionally, the presentation of trade receivables for the purposes of IFRS 7, limited to consignment contracts, is made net of the expected returns. In 2018, this led to a decrease of € 29.8 million in the accounting presentation of trade receivables for the purposes of the notes in application of IFRS 7.

95 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 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 of financial assets.

The table below provides information on the credit quality of financial assets, according to the new IFRS 9 format, as well as maximum credit exposure:

Non-current Sundry Trade Current Other non-cur- financial receivables and Cash and cash receivables financial rent assets Total Rating receivables other current equivalents (1) receivables 12 months ECL lifetime ECL assets Rating A (low risk) 44.3 - 0.2 0.1 0.6 6.0 51.2 Rating B (medium risk) 153.8 - - - - - 153.8 Rating C (high risk) 21.6 - - - - - 21.6 Rating Z (not rated) (2) 24.8 5.6 1.2 1.9 22.4 6.5 62.4 Total gross amount 244.5 5.6 1.4 2.0 23.0 12.5 289.0

Impairment loss (32.5) (3.4) - - (10.3) - (46.2)

Net total 212.0 2.2 1.4 2.0 12.7 12.5 242.8

Collateral (and other credit risk 0.4 - - - - - 0.4 mitigation tools)

(1) As from 2018, the presentation of trade receivables for the purposes of IFRS 7, limited to consignment contracts, is made net of the expected returns. In 2018, this led to a decrease of € 29.8 million in the accounting presentation of trade receivables for the purposes of the notes in application of IFRS 7. Net of this change, trade receivables would amount to € 241.8 million instead of € 212 million. (2) 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 allowance for impairment of trade receivables at 31 December 2018 amounted to € 32.5 million (€ 31.4 million at 31 December 2017), which is commented on in Note 40.

The allowance for impairment of trade receivables as at 31 December 2018 came to 13.3% of gross trade receivables. Net of the above discontinuities, the percentage of the allowance for impairment in 2018 would be 11.4% (10.3% at 31 December 2017).

The table below shows the impairment percentages applied at 31 December 2018 to trade receivables based on past due age range.

Not 31-60 61-90 91-180 181-360 361-540 541-720 Rating (*) overdue 1- 30 days days days days days days days >720 days Rating A (low risk) 0.13% 3% 6% 8% 10% 20% 30% 40% 50% Rating B (medium risk) 0.55% 5% 8% 10% 12% 30% 40% 50% 60% Rating C (high risk) 1.72% 8% 10% 12% 15% 40% 60% 70% 80% Rating E (public entities) 1.45% 1% 1% 1% 2% 5% 10% 20% 30% Rating Z (not rated) 1.12% 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.

The financial assets that were written off during the reporting period and are still subject to enforcement proceedings totaled € 0.5 million, relating entirely to trade receivables.

* * *

– 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As mentioned, the Group has availed itself of the exemption of not recalculating prior-years’ comparative information relating to changes in classification and assessment; credit risk information is therefore provided on the basis of IFRS 9 only for 2018. For this reason, and with regard to the treatment of returns related to consignment contracts (as stated in Note 1 of the Concentration of Credit Risk table), the credit risk tables for the prior year which are provided for the sake of completeness, are not directly comparable.

The format of the tables as at 31 December 2017 essentially derives from the incurred losses impairment meth- odology, which excluded receivables without signs of default and therefore the information was focused on receivables past due:

Carrying amount at 31/12/2017 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 financial receivables 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 financial receivables 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

(1) Trade receivables are stated gross of valuation reserves.

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

Carrying amount at 31/12/2017 Current Non-current Rating portion portion Total % Rating A (low risk) 46.3 - 46.3 22.6% Rating B (medium risk) 97.6 - 97.6 47.7% Rating C (high risk) 6.9 - 6.9 3.4% Rating Z (not rated) 47.9 5.8 53.7 26.3% Total 198.7 5.8 204.5 100.0%

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

Loans and receivables Loans and receivables past due & not impaired Total not past due & not 91-180 181-360 past due & not impaired 30 days 31-60 days 61-90 days days days >361 impaired 2017 204.5 8.2 3.5 2.1 4.1 3.9 5.7 27.5

Price risk

The Group is not exposed to significant price risks from financial instruments that fall within the scope of application of IFRS 9.

15 ▪ Operating segments

In application of IFRS 8, the following tables show information by operating segment. RCS has identified its various operating segments subject to disclosure, based on the elements used by Management to make its operating decisions, or based on internal reporting that is regularly reviewed by Management of the highest operating decision-making level for the purpose of allocating resources to the different operating segments and for the purpose of performance analyses. The segment statement of financial position figures, in particular those for total assets for each segment subject

97 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 1 January 2010. The Group used a combination of factors in identifying the areas subject to disclosure, including the goods and services offered by the operating segment and the geographic area. Each segment has its own structures and managers.

The operating segments at 31 December 2018 are therefore: Newspapers Italy, Magazines Italy, Advertising and Sport, Unidad Editorial and Other Corporate Activities. The products and services, from which each area 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 aggregation criteria for setting up these areas are the same as those adopted in 2017.

The accounting policies used for presenting the figures of reportable segments are consistent with those adopted for preparing these consolidated financial statements. Transactions between the different segments refer mostly 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 transferred and/or the services provided.

Figures at 31 December 2018

Other reconciliation Operating segments items Adverti- Other Newspa- Magazines Unidad Eliminations / sing and Corporate Total pers Italy Italy Editorial adjustments (€/millions) Sport Activities Publishing revenue 285.2 36.5 - 112.5 - (1.9) 432.3 Advertising revenue 157.6 45.4 253.1 137.8 - (188.1) 405.8 Sundry publishing revenue 15.8 14.0 47.9 60.5 21.5 (22.2) 137.5 Segment revenue 458.6 95.9 301.0 310.8 21.5 (212.2) 975.6 Intersegment revenue (151.7) (38.3) (0.3) (2.0) (19.9) Revenue 306.9 57.6 300.7 308.8 1.6 975.6 Segment operating profit (loss) 71.1 2.4 32.5 37.8 (28.3) - 115.5 - Share of profits (losses) 1.6 0.2 - 0.2 - 2.0 of equity-accounted investees Financial income (expense) (14.1) Other gains (losses) on financial assets/ (0.9) liabilities - of which dividends from non-current - equity investments Profit (loss) before tax 100.5 Income tax (15.2) Profit (loss) from continuing operations 85.3 Profit (loss) from assets held for sale and - discontinued operations Profit (loss) for the year 85.3 Profit (loss) for the year attributable to (0.1) non-controlling interests Profit (loss) for the year attributable to 85.2 the owners of the parent

– 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Figures at 31 December 2017

Other reconciliation Operating segments items Adverti- Other Newspa- Magazines Unidad Eliminations / sing and Corporate Total pers Italy Italy Editorial adjustments (€/millions) Sport 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 Sundry publishing 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 Financial income (expense) (24.4) Other gains (losses) on financial assets/ 16.2 liabilities - of which dividends - from non-current equity investments Profit (loss) before tax 87.4 Income tax (16.5) Profit (loss) from continuing operations 70.9 Profit (loss) from assets held for sale and - discontinued operations Profit (loss) for the year 70.9 Profit (loss) for the year attributable to 0.2 non-controlling interests Profit (loss) for the year attributable to 71.1 the owners of the parent

Impairment losses on non-current assets are explained in Note 23. At 31 December 2018, they amounted to € 8.1 million (€ 2.4 million at 31 December 2017) and refer for € 7.3 million to the goodwill of Sfera, written down following the results of the impairment test, and for € 0.8 million to the goodwill of the subsidiary RCS Digital Ventures S.r.l., also written down as a result of impairment testing.

Information by geographic area

2018 Italy Spain Other countries Total Revenue 651.0 316.4 8.2 975.6

2017 Italy Spain Other countries Total Revenue 566.6 306.5 22.7 895.8

Information about major customers

No revenue was earned in 2018 from a single customer not belonging to the Group that amounted to more than 10% of the Group’s total revenue.

99 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16 ▪ Related party transactions

As required also by CONSOB Communication pursuant to art. 114, paragraph 5 of Italian Legislative Decree no. 58/98, protocol number 13046378 of 27 May 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 12 March 2010 and subsequent amendments, on 10 November 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 1 January 2014 and subsequently effective as from 1 October 2015. The latest amendments came into force on 4 August 2017. 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 Proce- dure, 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.

The ultimate parent of the Group is U.T. Communications S.p.A., the de facto parent of Cairo Communication S.p.A., which became, in turn, the direct controlling entity of RCS MediaGroup S.p.A.. At 31 December 2018, 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 31 December 2018 is also included - 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 (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, the key managers of the Group have been identified as: the Directors, Statutory Auditors, the Chief Executive Officer, the Financial Reporting Manager and the other key management personnel of RCS Media- Group S.p.A. and of the parent Cairo Communication Cairo Communication S.p.A., as shown in the relevant remuneration reports.

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.

Current Sundry payables Financial-related transactions Trade financial Trade and other current Commitments receivables payables payables liabilities Parents 0.3 - 0.2 - - Jointly controlled companies 19.8 6.8 1.9 - - Associates - - 11.2 - 0.6 Supplementary pension fund for executives - - - - - Other group companies (1) 1.3 - 2.1 - - Other related parties (2) 1.1 - - 1.8 4.4 Total 22.5 6.8 15.4 1.8 5.0 Total RCS Group 212.0 45.2 204.7 82.4 48.9 Related party % of the RCS Group total 10.6% 15.0% 7.5% 2.2% 10.2%

(1) Include the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A. (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.

– 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Other operating Revenue Raw Personel Financial Income-related transactions from sales materials expense revenue and income and services income Parents 0.0 (0.3) - 0.8 - Jointly controlled companies (1) 279.2 (85.9) - 1.0 0.1 Associates 1.7 (21.1) - - - Supplementary pension fund for executives - - (0.4) - - Other group companies (2) 1.3 (3.2) - 0.7 - Other related parties (3) 2.1 (3.6) (4.0) - - Total 284.3 (114.1) (4.4) 2.5 0.1 Total RCS Group 975.6 (553.2) (264.7) 19.8 3.9 Related party % of the RCS Group total 29.1% 20.6% 1.7% 12.6% 2.6%

(1) Revenue from sales (publishing revenue) to customers of € 284.3 million generated through the distribution of m-dis Distribuzione Media S.p.A. was restated under IFRS 15. (2) Include the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A. (3) 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.

Net change in loans and Statement of cash flows Changes borrowings and Net financial income Net financial in working capital other financial assets (expense) interest paid Related parties (4.3) 2.5 (0.1) 0.1 Reported total (24.7) (94.2) 14.1 (14.5)

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 € 0.3 million, other operating income of € 0.8 million, trade receivables of € 0.3 million and, lastly, trade payables of € 0.2 million. They relate mainly to income for the rent of office space, for the chargebacks of RCS personnel that perform operating activities at the Cairo Group, as well as costs for the use 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 achieved revenue from sales of € 279.2 million (restated in accordance with IFRS 15); the Group also incurred costs for the consumption of materials and services of € 85.9 million (these restated too in accordance with IFRS 15), other operating revenue and income of € 1 million, trade receivables of € 19.8 million, current financial payables of € 6.8 million and trade payables of € 1.9 million.

The most significant trade transactions between associates concerned the Bermont group companies, responsible for the printing of Unidad Editorial’s newspapers (total of: € 11.2 million in trade payables, € 1.7 million in revenue from sales and € 20.4 million in consumption of materials and services).

Income and financial-related transactions with “Other affiliates” refer to transactions with Cairo Group companies (specifically: consumption of raw materials and services for € 3.2 million, revenue from sales and other revenue and operating income of € 2 million, trade receivables of € 1.3 million and € 2.1 million in trade payables). Revenue and other operating income refer mainly to the sale of advertising spaces, organization of events, as well as to revenue from chargebacks of RCS personnel that perform operating activities at the Cairo group; the costs incurred concern mainly the purchase of advertising spaces on the La7.it website as part of the advertising concession acquired, as well as advertising for the promotion of RCS Group initiatives.

Transactions with “Other related parties”, apart from including compensation for key management personnel as commented on below, include revenue from sales of € 2.1 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 2018, 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 come to a tax rate

101 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 the 2018 tax year, 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. Editoriale del Mez- zogiorno S.r.l. and RCS Sports & Events S.r.l. and Mybeautybox S.r.l. Group tax consolidation for VAT purposes. In 2018, 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 € 2.9 million. RCS MediaGroup S.p.A. transferred net tax liabilities totalling € 17.8 million to the RCS Group VAT consolidation for 2018.

* * *

Information is provided below in aggregate form concerning the fees for the key managers, as identified above:

Sundry payables Service Personnel and other costs expence current liabilities Board of Directors (3.4) - 1.5 Board of Statutory Auditors (0.2) - 0.2 Key management personnel - (4.0) 0.1 Total related parties (3.6) (4.0) 1.8 Total RCS Group (553.2) (264.7) 82.4 Related party % of the RCS Group total 0.7% 1.5% 2.2% “Personnel expense” includes € 4 million in remuneration paid to key management personnel. Personnel expense referring to related parties accounted for 1.5% of total personnel expense. There were also commitments to key management personnel, in which regard reference should be made to the Remuneration Report (Section II - First Part) published on the website www.rcsmediagroup.it, as well as commitments to other related parties as further described in Note 63 to this Annual Report.

17 ▪ Raw materials and services

These amount to € 553.2 million and consist of € 116.3 million in costs for raw and ancillary materials, consumables and goods, € 383.9 million in costs for services, and € 53 million in rentals and leases. Mention should be made that in 2018 the item does not include non-recurring expense (€ 1.3 million in the prior year, of which € 1 million in costs for services and € 0.3 million in rentals and lease). 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 2018 2017 Change Paper consumption 57.1 54.3 2.8 Purchase of finished products 29.9 14.7 15.2 Purchase of other materials 16.8 16.8 0.0 Purchase of advertising space 12.4 21.9 (9.5) Increase in provision for inventory write-down 0.1 0.7 (0.6) Total 116.3 108.4 7.9

The item amounted to € 116.3 million, up by € 7.9 million versus 31 December 2017. Excluding from the comparison the effects of the application of IFRS 15 equal to € 14 million (resulting from the accounting presentation of higher purchases of finished products for € 19.7 million and lower purchases of advertising space for € 5.7 million), the item would show a decrease of € 6.1 million. This change was due mainly to the negative effect of higher costs from paper consumption (€ +2.8 million) incurred mainly by Newspapers Italy following the price increase in 2018 and for the launch of new publishing products, offset by lower costs, on a like-for-like basis, for the purchase of finished products (€ -4.5 million) and for the purchase of advertising space (€ -3.8 million). The decrease in the purchase of finished products is due to the Unidad Editorial area as a result of the reduction in the

– 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

purchase of add-on and promotional products; the decrease in the purchase of advertising space refers mainly to the Advertising and Sport area following completion of a number of advisory activities. Allocation to the provision for inventory also decreased, by € 0.6 million.

Service costs

Description 2018 2017 Change Subcontracted work 74.1 78.2 (4.1) Advertising, promotions, merchandising 33.8 43.1 (9.3) Transport costs 119.7 40.8 78.9 Sundry services 48.1 56.0 (7.9) Freelance staff and reporters 34.9 37.4 (2.5) Professional and consulting fees 19.7 26.8 (7.1) Commission expense 19.2 16.0 3.2 Sundry payables Post, telephone and telegraph 4.3 6.4 (2.1) Service Personnel and other costs expence current liabilities Travel and accommodation 8.1 9.7 (1.6) Board of Directors (3.4) - 1.5 Maintenance and refurbishing 8.4 9.2 (0.8) Board of Statutory Auditors (0.2) - 0.2 Energy and power 8.1 7.2 0.9 Key management personnel - (4.0) 0.1 Directors' and statutory auditors' fees 3.8 2.8 1.0 Total related parties (3.6) (4.0) 1.8 Insurance 1.7 1.5 0.2 Total RCS Group (553.2) (264.7) 82.4 Total 383.9 335.1 48.8 Related party % of the RCS Group total 0.7% 1.5% 2.2% The item amounted to € 383.9 million, up by € 48.8 million versus 31 December 2017. Excluding from the comparison both the effects on the accounting presentation resulting from the application of IFRS 15, equal to € 67.7 million, and non-recurring expense of € 1 million, the item would show a decrease of € 18 million (-5.4% versus 31 December 2017). Different types of expenses contribute to this change. On a like-for-like basis, advertising, promotion and merchandising expenses were down by € 6.1 million, professional and consulting services by € 6.8 million and distribution costs by € 6 million. Advertising, promotions and merchandising expense decreased mainly in Unidad Editorial and in the Newspapers Italy area as a result of the cost savings actions on advertising and the efficiencies achieved on marketing investments. Professional and consulting fees fall mainly in Other Corporate Activities and other activities (€ -4.1 million), Unidad Editorial (€ -1.2 million) and Advertising and Sport, as a result of the ongoing cost-curbing initiatives across all the Group functions, particularly information technology, including through the reduction in consulting and services from third parties. Lastly, the decrease in distribution costs (€ -6 million) is attributable to the Unidad Editorial area (€ -3.4 million), also following renewal of the distribution contract for publishing products, and to the Newspapers Italy area (€ -2.6 million), due to the reduction in the volume of publishing products distributed and to the implementation of cost-saving policies.

At 31 December 2018, there were no non-recurring expenses in the costs for services (€ 1 million at 31 Decem- ber 2017).

Rentals and leases

Rentals and leases amounted to € 53 million, up by € 3.4 million versus 31 December 2017 (considering non-recurring expense of € 0.3 million in 2017, the increase was € 3.7 million). These mainly include 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 rental of buildings. The increase of € 3.4 million in this item is attributable to the Unidad Editorial area for higher costs incurred in the acquisition of rights, in particular for the subsidiary Unidad Editorial Juegos S.A. (€ +1.8 million) and for higher outlays on rental expense (€ +1.6 million).

18 ▪ Personnel expense

Personnel expense amounted to € 264.7 million (€ 258.1 million at 31 December 2017), up by € 6.6 million, including non-recurring income and expense of € 1.8 million (non-recurring expense and income of € 0.7 million in the prior year). Non-recurring expense refers to the restructuring action underway across the Group, specifically involving Other Corporate Activities and Magazines Italy. Excluding such expense, the comparison would show a net increase of € 5.5 million, attributable mostly to Newspapers Italy, whose personnel expense

103 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

increased as a result mainly of the non-application in 2018 of solidarity arrangements in force for employees in 2017, and of an increase in average headcount aimed at developing digital assets and strengthening the publishing portfolio.

Description 2018 2017 Change Wages and salaries 193.6 186.5 7.1 Social security charges 60.4 58.6 1.8 Employee benefits 11.5 10.8 0.7 Other expense and income (0.8) 2.2 (3.0) Total 264.7 258.1 6.6

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

Category 2018 2017 Change Managers/white collars 1,780 1,829 (49) Journalists 1,297 1,325 (28) Blue collars 233 236 (3) Total 3,310 3,390 (80)

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

19 ▪ Other operating revenue and income

Description 2018 2017 Change Cost recharges 4.3 5.7 (1.4) Grants relating to income 1.4 0.9 0.5 Ordinary release of provision for risks 3.3 4.0 (0.7) Rental income 3.0 2.6 0.4 Sale of returns, leftovers and sundry materials 2.6 3.9 (1.3) Ordinary release of allowance for impairment (1) - 0.3 (0.3) Other revenue 5.2 3.5 1.7 Total 19.8 20.9 (1.1)

(1) As from 2018, following application of IFRS 9, the ordinary release of the allowance for impairment has been reclassified to “Write-downs and reversals of trade and sundry receivables”.

This item decreased by € 1.1 million versus the prior year, due, inter alia, to lower cost recoveries (€ -1.4 million) attributable to Unidad Editorial and Magazines Italy, and to lower revenue from the sale of returns, leftovers and sundry materials (€ -1.3 million) in Newspapers Italy and Unidad Editorial. Conversely, the reporting period saw an increase in “Other revenue” of € 1.7 million, which includes € 2.6 million in non-recurring income from insurance compensation obtained by RCS Sport (as commented on in “Information on ongoing disputes” in this Annual Report).

20 ▪ Sundry operating expense

This is detailed as follows:

Description 2018 2017 Change Other operating expense 7.8 6.9 0.9 VAT paid by the Publisher (1) - 4.8 (4.8) Tax charges 6.4 5.1 1.3 Contest prizes 1.9 2.1 (0.2) Total 16.1 18.9 (2.8) (1) As from 2018, following application of IFRS 15, VAT paid by the publisher has been reclassified as a direct reduction in revenue from sales.

– 104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Sundry operating expense, amounting to € 16.1 million, decreased by € 2.8 million versus the prior year, due mainly to the application of IFRS 15, which led to the reclassification of VAT paid by the publisher (€ -4.8 million) as a direct reduction in revenue from sales. Conversely, tax increased by € 1.3 million, mainly in the Uni- dad Editorial area.

“Other operating expense” includes profits passed back to co-publishers activities developed by the Newspapers Italy area (up by € 1 million), as well as membership fees, contributions, costs for entertaining, gifts, settlement costs, fines and penalties.

21 ▪ (Write-down) and reinstatement of trade and sundry receivables

The item amounted to € 3 million (€ 3.7 million at 31 December 2017), down by € 0.7 million versus the pri- or year, and refers in full to the write-down of trade receivables. As from 2018, as a result of the application of IFRS 9, the reversals of the allowance for impairment of trade and sundry receivables are also classified under this item. The change is due mainly to the decrease in write-downs made by the Unidad Editorial group (€ -0.8 million).

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

Description 2018 2017 Change Share of profit of equity-accounted investees 2.1 2.1 0.0 Share of loss of equity-accounted investees (0.1) - (0.1) Total 2.0 2.1 (0.1)

The share of profit of equity-accounted investees amounted to € 2 million (down by € 0.1 million versus the pri- or year), and includes the pro-rata profit of m-dis Distribuzione Media S.p.A. (€ 1.8 million, up by € 0.5 million versus 2017) and its investees (zero overall and down by € 0.5 million versus the prior year), and the profit from the Spanish group Corporation Bermont (€ 0.2 million), including non-recurring expense of € 0.6 million.

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

These amounted to € 39.8 million, down by € 2.8 million versus the prior-year figure of € 42.6 million. This item includes the main types of amortization and depreciation and impairment losses:

Description 2018 2017 Change Amortization of intangible assets 19.6 25.3 (5.7) Depreciation of property, plant and equipment 11.5 14.3 (2.8) Depreciation of investment property 0.6 0.6 0.0 Impairment losses on non-current assets 8.1 2.4 5.7 Total 39.8 42.6 (2.8)

The decrease is attributable to both lower amortization of intangible assets (€ -5.7 million) and to the decrease in depreciation of property, plant and equipment (€ -2.8 million), while fixed asset impairment increased from € 2.4 million at 31 December 2017 to € 8.1 million at 31 December 2018.

The decrease of € 5.7 million in amortization of intangible assets is attributable, for € 3.7 million, to Other Cor- porate Activities, due to the end of the useful life on software licences and developmental enhancements under “concessions, licenses and trademarks”, in addition to € 1.8 million in lower amortization of the subsidiary Digi- cast S.p.A. (included in Newspapers Italy) following review of the useful life of a number of rights made in the prior year.

Depreciation of property, plant and equipment decreased by € 2.8 million, attributable to the Unidad Editorial area (€ -1.3 million), due to the end of the useful life of furniture, furnishings and equipment at the Avenida de San Luis site, to the Newspapers Italy area (€ -0.8 million), due to the end of the useful life of printing plant and machinery and, lastly, to the Other Corporate Activities area (€ -0.6 million), due to the end of the useful life of PCs, notebooks, servers and smartphones. Depreciation of investment property was in line with 2017.

105 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Write-downs, amounting to € 8.1 million, refer for € 7.3 million to the goodwill of Sfera, written down following the results of the impairment test, and for € 0.8 million to the goodwill of the subsidiary RCS Digital Ventures S.r.l., as commented on in Note 33.

24 ▪ Financial income and expense

Description of financial income 2018 2017 Change Interest income on bank deposits - - - Interest income on non-current receivables - - - Interest income on current receivables 0.3 0.2 0.1 Interest income calculated using the effective interest method (IFRS 9) 0.3 Exchange rate gains 0.6 0.4 0.2 Gains on derivatives - - Current sundry financial income 3.3 0.7 2.6 Total financial income (IFRS 9) 3.9 Total financial income (IAS 39) (1) - 1.3 -

Description of financial expense 2018 2017 Change Interest expense on finance leases - - - Exchange rate losses (0.8) (0.9) 0.1 Interest expense to banks (0.2) (0.3) 0.1 Interest expense on loans (6.2) (11.4) 5.2 Losses on derivatives (1.2) (3.6) 2.4 Sundry financial expense (9.9) (9.5) (0.4) Total financial expense (18.3) (25.7) 7.4 Net financial (expense) income (14.1) (24.4) 10.3

(1) The application of the new IFRS 9 has resulted in the recognition through profit or loss of a compulsory Interest income item calculated with the interest income method, previously included in the line Financial income (IAS 39). Accordingly, in 2018, the line Financial Income (formerly IAS 39) was replaced by the following two lines: Interest income calculated using the interest income method (IFRS 9) and financial income (IFRS 9).

Net financial expense amounted to € 14.1 million, down by € 10.3 million versus € 24.4 million in 2017. The improvement was due to lower net interest expense on bank loans (€ -5.3 million), as a result of the decrease in average debt and a more favourable spread, in particular following the renegotiations of the Loan Agreement in August 2017 and October 2018. Additionally, financial expense from interest rate risk hedging derivatives decreased by € 2.4 million and bank charges fell. With regard to the renegotiation in 2017 of the Loan Agreement, as part also of the first-time application of IFRS 9, a thorough review was conducted on the many previous contractual renegotiations, starting from the initial signing on 14 June 2013 and taking into account the ensuing partial repayments. The analyses carried out, also in light of the new IFRS 9, taking into account both quantitative and qualitative factors, resulted in the classification of the effects of the renegotiation dated August 2017 as an extinguishment (rather than a modification), leading to the recognition of an expense of approximately € 2.5 million under financial expense for 2018. On 10 October 2018, RCS MediaGroup S.p.A. signed an Amending Agreement to the existing Loan Agreement at further better terms (as explained in the section “Significant events during the year”). The effect of the changes calculated by applying the new IFRS 9, as explained in Note 9 of this Annual Report, determined, with regard to Credit Line A (amortizing term), a gain of € 3 million recognized in the income statement under financial income, instead of being reflected as a benefit in the actual cost of the loan for future years, as set out previously in IAS 39.

– 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

Description 2018 2017 Change Gains on sale of equity investments - 15.2 (15.2) Impairment losses on financial assets - (0.3) 0.3 Other 1.5 1.3 0.2 Total 1.5 16.2 (14.7)

Other gains (losses) on financial assets/liabilities came to a positive € 1.5 million at 31 December 2018, generated by the gain from the liquidation of Emittenti Titoli S.p.A.. In 2017, the item had amounted to € 16.2 million, relating mainly to capital gains earned.

26 ▪ (Write-down) reinstatement of receivables and other financial assets

The item, amounting to € 2.4 million, includes the write-down of financial receivables. In the prior year, the item was included in Other gains (losses) on financial assets/liabilities and reclassified here following application of the new IFRS 9.

27 ▪ Income tax

Income tax recognized in the income statement is as follows:

Description 2018 2017 Change Current tax: (5.1) (4.7) (0.4) - Income tax 0.0 (0.3) 0.3 - IRAP (Italian regional business tax) (5.1) (4.4) (0.7) Deferred tax income/expense: (10.1) (11.8) 1.7 - Income (14.1) (12.8) (1.3) - Expense 4.0 1.0 3.0 Total tax (15.2) (16.5) 1.3

Tax in 2018 ended with a negative balance of € -15.2 million (€ -16.5 million at 31 December 2017), due to the tax charge of € 12.3 million relating to the companies participating in the national tax consolidation scheme, to IRAP of € 5.1 million, IRES of € 0.3 million of companies outside national tax consolidation, and negative consolidation adjustments of € 2.9 million. The charge was partly offset by the release of net tax of € 5.4 million relating to the Unidad Editorial group.

The change in tax versus 31 December 2017 shows a positive € 1.3 million, commented on in the table that reconciles the actual tax charge recorded in the financial statements with the theoretical tax charge shown below.

The increase in IRAP of € 0.7 million is due mainly to the improved results reported by RCS MediaGroup S.p.A..

Current tax assets and current tax liabilities are analyzed below:

Description 2018 2017 Change Current tax assets 1.7 3.1 (1.4) Current tax liabilities (2.1) (0.9) (1.2) Total (0.4) 2.2 (2.6)

Current tax assets, net of liabilities, decreased by € 2.6 million versus the prior year, attributable mainly to RCS MediaGroup S.p.A..

107 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

Recognized in profit or loss under the item tax Recognized Reclassifica- 31/12/2017 deferred in equity tions 31/12/2018 tax income/ current expense Deferred tax assets -Carry forward tax losses 42.3 (7.1) 2.0 - (2.1) 35.1 -Allowances for impairment of assets 2.8 - 0.3 - 3.1 -Provisions for risks and charges 6.7 0.4 - - (0.1) 7.0 -Costs with deferred deductibility 0.5 0.2 - - - 0.7 -Deferred tax arising from tax transparency criteria 1.4 - - - - 1.4 -Property, plant and equipment and intangible assets 5.4 (0.5) - - 0.1 5.0 -Measurement of derivatives 0.1 - - 0.1 - 0.2 -Interest expense 27.9 (7.0) - - 6.2 27.1 -Other 19.5 (0.1) - (0.1) (3.0) 16.3 Total deferred tax assets 106.6 (14.1) 2.0 0.3 1.1 95.9 Deferred tax liabilities -Property, plant and equipment and intangible assets (55.0) 4.0 - - (0.1) (51.1) -Other (0.4) - - - - (0.4) Total deferred tax liabilities (55.4) 4.0 - - (0.1) (51.5) Net total 51.2 (10.1) 2.0 0.3 1.0 44.4

Deferred tax assets are accounted for on the basis of expected taxable income in future years and amount to € 95.9 million, of which € 38.2 million relating mainly to RCS MediaGroup S.p.A. and € 57.7 million to the Uni- dad Editorial group. With particular regard to deferred tax assets relating to the Unidad Editorial group, recognition and recoverability of the value at 31 December 2018 was measured on the basis of the estimated taxable income obtainable from the 2019-2023 plan approved, and extrapolating from the plan the basis of calculation of the projections for subsequent years. Additionally, the amount of tax losses carried forward for which no deferred tax assets have been recorded is significant.

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:

2018 2017 Profit (loss) before tax 100.5 87.4 Theoretical income tax 24.1 20.9 Net effect of permanent differences (1) (10.7) (8.2) Effect of using tax losses (0.9) (0.9) Net effect of temporary deductible and taxable differences (10.2) (11.4) Tax relating to prior years (2.3) (0.1) Current tax 0.0 0.3 IRES - deferred tax 10.5 11.8 Income tax reported in the financial statements, excluding current and deferred IRAP 10.5 12.1 IRAP - current tax 5.1 4.4 IRAP - deferred tax (0.4) - Income tax reported in the financial statements (current and deferred) 15.2 16.5

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

– 108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 2018 and 2017) to profit (loss) before tax.

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:

2018 2017 Unidad Editorial S.a. 0.1 (0.2) Hotelyo SA (0.1) (0.1) Sfera France 0.1 0.1 Total 0.1 (0.2)

29 ▪ Earnings per share

31 December 2018 31 December 2017 Profit (loss) for the year from continuing operations attributable to the owners of the parent (€ millions) 85.2 71.1 Profit (loss) for the year from assets held for sale and discontinued operations (€ millions) 0.0 0.0 No. of ordinary shares 521,864,957 521,864,957 No. of treasury shares (weighted average) (4,548,982) (4,548,982) No. of outstanding ordinary shares (weighted average) 517,315,975 517,315,975 Basic earnings (losses) per share: continuing operations (Euro) 0.16 0.14 Diluted earnings per share: continuing operations (Euro) 0.16 0.14 Basic earnings (losses) per share: assets held for sale and discontinued operations (Euro) 0.00 0.00 Diluted earnings per share: assets held for sale and discontinued operations (Euro) 0.00 0.00

30 ▪ Non-recurring income (expense)

In accordance with CONSOB Resolution no. 15519, the main components of income (positive and/or negative) deriving from events or transactions, the occurrence of which is non-recurring, or deriving from transactions or events that are unlikely to occur frequently in the normal course of business, are shown below.

Non-recurring Non-recurring % of reported expense income Total Reported total total Personnel expense (4.0) 2.2 (1.8) (264.7) 1% Other operating revenue and income - 2.6 2.6 19.8 13% Share of profits of equity-accounted investees (0.6) (0.6) 2.0 (30%) Total (expense)/income (4.6) 4.8 0.2

Non-recurring expense recognized under “Personnel expense” amounted to € 4 million, whereas non-recurring income (€ 2.2 million) was generated by the releases of payables and provisions previously allocated to cover staff restructuring plans and now consumed. Non-recurring income relating to “Other operating revenue and income” amounted to € 2.6 million, arising from insurance compensation obtained following a dispute settlement agreement, as commented in “Information on ongoing disputes” of this Annual Report.

109 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Non-recurring expense related to “Share of income (expense) from equity-accounted investees” (€ 0.6 million) refers to the Unidad Editorial area, specifically to the Corporacion Bermont group, which handles the printing activities of the publishing products of the Spanish subsidiary.

Net non-recurring expense totaled € 1.8 million at 31 December 2017.

31 ▪ Property, plant and equipment

Movements in the year were as follows:

Assets Descriptions Leased Leased Equip- Other under Land Buildings buildings Plant plant ment assets con- Total struction Cost 5.8 16.5 31.6 145.8 54.5 6.3 113.2 0.1 373.8 Reversals of impairment losses ------Impairment losses - (4.8) - (21.3) (3.7) (1.0) (0.7) - (31.5) Historical cost at 31/12/2017 5.8 11.7 31.6 124.5 50.8 5.3 112.5 0.1 342.3 Additions - - - 1.7 - 0.1 1.3 - 3.1 Reversals of impairment losses ------Impairment losses ------Sales/Disposals - (0.1) - (6.5) - (0.3) (0.7) - (7.6) Other movements - (0.2) 0.2 - - - 0.1 (0.1) - Historical cost at 31/12/2018 5.8 11.4 31.8 119.7 50.8 5.1 113.2 - 337.8 Acc. deprecation at 31/12/2017 - (4.5) (21.3) (102.7) (29.5) (4.9) (105.6) - (268.5) Depreciation - (0.5) (1.3) (4.4) (2.3) (0.3) (2.7) - (11.5) Sales/Disposals - 0.1 - 6.5 - 0.3 0.7 - 7.6 Other movements - 0.2 (0.2) ------Acc. deprecation at 31/12/2018 - (4.7) (22.8) (100.6) (31.8) (4.9) (107.6) - (272.4) Net balance at 31/12/2017 5.8 7.2 10.3 21.8 21.3 0.4 6.9 0.1 73.8 Additions - - - 1.7 - 0.1 1.3 - 3.1 Reversals of impairment losses ------Impairment losses ------Sales/Disposals ------Depreciation - (0.5) (1.3) (4.4) (2.3) (0.3) (2.7) - (11.5) Other movements ------0.1 (0.1) - Net balance at 31/12/2018 5.8 6.7 9.0 19.1 19.0 0.2 5.6 - 65.4

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 2% to 20% Plant from 5% to 20% Equipment from 12% to 25% Other assets from 7% to 50% No borrowing costs have been capitalized.

Land and buildings

Buildings (€ 6.7 million at 31 December 2018) and land (€ 5.8 million) refer mostly to owned civil and industrial properties, specifically to the industrial complex in Pessano con Bornago. Leased buildings (€ 9 million) refer to improvements to the leased offices in Via Rizzoli and Via Solferino and to other industrial buildings not owned by the company (specifically the printing plants in Rome and Padua).

– 110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The decrease of € 1.8 million in the value of the buildings, of leased real estate and land, is entirely attributable to depreciation booked in the year.

Plant

This item amounted to € 38.1 million (€ 43.1 million at 31 December 2017), of which € 19 million refers to leased assets, including printing presses and other machinery used primarily to print newspapers and magazines. The decrease of € 5 million is attributable to depreciation in the year of € 6.7 million for new capital expenditure of € 1.7 million made mainly in the Newspapers Italy printing plants for the Pessano con Bornago, Padua and Rome facilities.

Other assets

This item declined by € 1.3 million to € 5.6 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 € 1.3 million, offset by decreases due to depreciation of € 2.7 million. Capital expenditure is attributable to Other Corporate Activities (€ 0.9 million) and to the Unidad Edi- torial group (€ 0.4 million), and refers to the purchase of IT equipment such as PCs, servers, notebooks, smartphones and tablets.

Assets under construction

This item shows a zero balance (€ 0.1 million at 31 December 2017).

32 ▪ Investment property

Net balance at 31/12/2017 20.7 Additions - Reversals of impairment losses - Impairment losses - Alienazioni - Depreciation (0.6) Other movements - Net balance at 31/12/2018 20.1

This item, totaling € 20.1 million, relates to the Unidad Editorial group for € 17.5 million and RCS MediaGroup S.p.A. for € 2.6 million. It refers to industrial buildings currently not used in the cities of Madrid (Meco Indus- trial Park - Torrejon de Ardoz), Turin (via Reiss Romoli) and Piacenza (via Don Minzoni).

111 – 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 Other licenses, Goodwill Description property trademarks development intangible trademarks Goodwill arising on Total rights and similar and advances assets and similar consolidation rights rights Historical cost at 31/12/2017 34.1 309.7 1.5 8.5 456.0 23.2 34.6 867.6 Additions - acquired 1.3 11.0 0.9 - - - - 13.2 Additions - internally generated ------Decreases - (1.1) - - - - - (1.1) Impairment losses/Reversals of - - - - - (7.3) (0.8) (8.1) impairment losses Other movements - 1.5 (1.5) - - - - - Historical cost at 31/12/2018 35.4 321.1 0.9 8.5 456.0 15.9 33.8 871.6 Acc. amortization at 31/12/2017 (32.3) (270.5) - (8.5) (151.2) - (21.2) (483.7) Amortization (2.1) (17.5) - - - - - (19.6) Decreases - 1.1 - - - - - 1.1 Other movements ------Acc. amortization at 31/12/2018 (34.4) (286.9) - (8.5) (151.2) - (21.2) (502.2) Net balance at 31/12/2017 1.8 39.2 1.5 - 304.8 23.2 13.4 383.9 Additions 1.3 11.0 0.9 - - - - 13.2 Additions-internally generated ------Decreases ------Amortization (2.1) (17.5) - - - - - (19.6) Impairment losses/Reversals of impairment losses - - - - - (7.3) (0.8) (8.1) Other movements - 1.5 (1.5) - - - - - Net balance at 31/12/2018 1.0 34.2 0.9 - 304.8 15.9 12.6 369.4

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 million (€ 1.8 million at 31 December 2017), down by € 0.8 million as a result of amortization of € 2.1 million, partly offset by new capital expenditure of € 1.3 million. Capital expenditure is attributable to the television activities of the Newspapers Italy area, and of the subsidiary Digicast S.p.A. in particular. (€ 0.9 million) for the purchase of rights for producing audiovisual material broadcast on the satellite channels Caccia and Pesca and the Unidad Editorial group (€ 0.4 million) for the purchase of literary rights.

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.

– 112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Finite useful life The item amounted to € 34.2 million, down by € 5 million versus 31 December 2017. The change includes amortization of € 17.5 million, only partly offset by new capital expenditure of € 11 million and positive reclassifications from assets under development of € 1.5 million. Most of the capital expenditure refers to the Other Corporate activities area (€ 5.3 million) and regards 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 digital advertising and e-commerce projects were also developed, as well as new editorial systems to support the Group’s publications. New capital expenditure was made also in the Unidad Editorial area (€ 3.9 million) for the purchase of software licenses and the development of digital projects, and in the Newspapers Italy area, in particular for the subsidiary Digicast S.p.A. (€ 1.4 million), for the acquisition of television broadcasting and dubbing rights used on Lei, Dove, Caccia and Pesca.

Indefinite useful life This item amounted to € 304.8 million at 31 December 2018 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 licence 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, the daily sports newspaper Marca, and the business newspaper Expansiòn (totaling € 181.6 million) are classified in this item.

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.

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. In partnership with Claro, a company operating in the communications sector in Latin America, the new Marca portal was launched in 2017 in Mexico, followed by portals in Colom- bia and Argentina (in January and June 2018, respectively).

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 from the financial, business, and legislative worlds.

When these assets were recorded in the financial statements, they gave rise to deferred tax liabilities. In the case of assets with indefinite life, this tax will be released in the future if the asset is sold or impaired. The tax rates used are always revised to reflect the latest tax rate in force in the country concerned.

Assets under development and advances

The item amounted to € 0.9 million, down overall by € 0.6 million versus 31 December 2017. Capital expenditure in the year amounted to € 0.9 million, of which € 0.5 million attributable to the Unidad Editorial group for the development of information technology and digital projects, € 0.3 million to Other Corporate Activities for software projects currently under development, and € 0.1 million to the subsidiary Digicast S.p.A. for the purchase of rights to be used for the Caccia and Pesca channels. The increases were more than offset by the negative reclassification of concessions, licenses and trademarks of € 1.5 million relating to capital expenditure made by the Unidad Editorial area and by Other Corporate Activities and completed during the year under review.

Goodwill

This item, amounting to € 15.9 million, decreased by € 7.3 million due to the write-down of the goodwill in Sfera (Childhood Magazines) following the results of the impairment test. This item also includes, along with the previously mentioned goodwill related to Sfera, the goodwill of RCS Produzione Padova S.p.A..

113 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Goodwill arising on consolidation

This item, amounting to € 12.6 million at 31 December 2018, was down by € 0.8 million, due to the write-down of goodwill in the subsidiary RCS Digital Ventures S.r.l. following the results of the impairment test. 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. Specifically, 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, lastly, of RCS Digital Ventures S.r.l. as mentioned (€ 1.1 million following the write-down made at 31 December 2018).

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.

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

Goodwill arising on Goodwill Concessions, licenses and Segments CGU consolidation trademarks 31/12/2018 31/12/2017 31/12/2018 31/12/2017 31/12/2018 31/12/2017 Newspapers Italy RCS Produzioni Padova - - 2.4 2.4 - - Ed. del Mezzogiorno 2.1 2.1 - - - - RCS Digilal Ventures 1.1 1.9 - - - - Unidad Editorial Unidad Editorial 9.4 9.4 - - 304.8 304.8 Magazines Italy Sfera - - 13.5 20.8 - - Total 12.6 13.4 15.9 23.2 304.8 304.8

Goodwill has been measured at the higher of fair value and value in use. Management has carried out its tests at 31 December 2018 using 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 Doc- ument no. 4 of the coordination board between Bank of Italy, CONSOB and Isvap of 3 March 2010, in the document published by ESMA on 28 October 2014, the Public Statement “European common enforcement priorities for 2014 financial statements”, as well as in CONSOB Communication no. 3907 of 19 January 2015).

The recoverable amount of each asset with indefinite useful life and of goodwill is calculated by estimating future cash flows generated by use of the assets over time, using a discount rate that reflects the specific risks. For goodwill and assets with 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 value of the cash generating unit to which each is attributed.

The table below shows for, each cash-generating unit, the principal assumptions used for the purposes of the impairment test:

Method of calculating Expected Average discount rate Years of explicit terminal value growth rate net of taxation CGU forecast of yield adopted “g” WACC 31/12/2018 31/12/2017 31/12/2018 31/12/2017 2018/2017 31/12/2018 31/12/2017 Unidad Editorial 5 years 5 years perpetuity perpetuity 0 8.00% 8.12% Sfera 3 years 3 years perpetuity perpetuity 0 8.09% 7.61% Ed. del Mezzogiorno 3 years 3 years perpetuity perpetuity 0 8.11% 7.59% RCS Digital Ventures 3 years 3 years perpetuity perpetuity 0 8.11% 7.59% RCS Produzioni Padova 3 years 3 years perpetuity perpetuity 0 8.11% 7.59%

– 114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The breakdown of group assets into cash-generating units and their identification criteria did not undergo any changes with respect to the financial statements at 31 December 2017. 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, 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 unit is between 3 and 5 years.

The change in the discount rate used for the impairment test shows, versus 31 December 2017, a decrease of 12 basis points for the CGU Unidad Editorial and an increase of 52 basis points for the remaining CGUs. These opposing trends are due mainly to the change in the risk-free rate (long-term government bond rates), which increased in Italy and decreased in Spain. 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 specu- lation 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.

At 31 December 2018, explicit cash flows were developed on the basis of the plans approved by the Board of Directors, adjusted, if necessary, only to ensure that they meet the requirements established by IAS 36. The impairment tests were approved by the respective Boards of Directors independently and in advance of the approval of the consolidated financial statements of the RCS Group.

* * *

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 elements: ̶ the cost of risk capital determined as the return on risk-free assets, summed with the product obtained by mul- tiplying the Beta and the risk premium, plus the Firm Specific Risk Premium; ̶ the cost of debt.

The entity’s cost of debt is determined using the 10-year swap rate (one year’s average) plus the spread on debt. For RCS the spread was inferred by analyzing the available market data for a basket of companies with rat- ings consistent with those indicated by the Italian Valuation Organization (Credit Rating Spread for Italy BBB Damodaran and for Spain BB Damodaran). The spread shows an increase for Italian cash generating units and a decrease for Unidad Editorial.

The financial structure (Debt/Equity) used has been defined on the basis of the comparable companies analysis, using the average median data of the financial structure of the reference sample (S&P Capital IQ) with a larger equity component versus 2017.

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

115 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

* * *

The impairment test of the intangible assets of the Unidad Editorial cash-generating unit is of particular importance, with intangible assets amounting to € 335.5 million (of which € 314.2 million with indefinite life (€ 336 million in the prior year, of which € 314.2 million with indefinite life). They represent approximately 90.8% of the Group’s total intangible assets (87.5% in the prior year). 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 (Banco Espana) and to the expected trends in the Unidad Editorial group’s markets of operation, namely Media and Publishing and Internet (I2P PWC), supplemented with specific business assumptions formulated by the management of Unidad Edito- rial, including in relation to the positioning and specificity of Unidad Editorial products.

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 2019-2023 for the valuation. Cash flows for the first year of the explicit forecast period correspond to the 2019 budget data approved by Board of Directors of Unidad Editorial on 28 February 2019. Cash flows for the remaining years of the explicit forecast (2020-2023) were developed on the basis of the Unidad Editorial plan approved by the Board of Directors of Unidad Editorial on 12 March 2019. The estimate of the terminal value takes account of a normalized EBITDA.

In the explicit forecasts, the decrease in print circulation is expected to be offset by rising revenue from the increase in revenue from digital versions, plus the gradual increase in advertising revenue, in line with the expectations of an economic recovery in the country and the advertising market, by leveraging on Unidad Editorial’s competitive advantages in the market, and on the launch of digital initiatives. The actions already taken at the impairment test date will continue in order to reduce costs and generate efficiencies.

EBITDA is expected to increase beginning from the first year of the explicit forecast, driven mainly by the growth of digital revenue and by the continuation of the effective cost-recovery plan.

The discounted cash flow method applied to the carrying amount of the cash-generating unit confirms by far the carrying amount.

Sensitivity analyses were carried out, as an integral part of the measurements of Unidad Editorial, showing the change in the excess recoverable amount with respect to the carrying amount which would have been generated with changes in the WACC and the g rate.

Even a significant increase in the WACC (e.g. by over 3% percentage points) would not require impairment.

As suggested by the ESMA, which on 28 October 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.

Even a 15% negative change over all the explicit forecast years would not require impairment.

* * *

Unidad Editorial’s publications were measured, in the same way as at 31 December 2017, using the Unlevered Discounted Cash Flow method and using the financial parameters (WACC and g rate) applied to the Unidad Edi- torial CGU.

The outcome of the impairment test performed on the titles resulted in a value in use that is greater than the carrying amount of the individual publications.

– 116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Even though the value in use is greater than the carrying amount of the individual publications, based on the following observations: ̶ the turnaround of Spanish operations is still underway, and the growth in profitability, which depends to a large extent on digital activities, will have to be reconfirmed and measured over the next few years; ̶ the yields on Spanish government bonds are particularly low, so a reversal in the trend could even have a significant impact on the amounts recoverable by the titles; ̶ 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 are still characterized by moderate uncertainty, especially as regards the trend in print circulation and therefore advertising sales; ̶ the recoverable value of publications is sensitive to changes in margins and interest rates; ̶ digital publishing is a continually-evolving market and its future trends are still hard to predict; the Group decided not to recognize, in this financial year, an impairment reversal for the publications subject to the test, which had been written down in prior financial years.

* * *

The Sfera cash-generating unit has intangible assets for a total amount of € 13.9 million, equal to 3.8% of the Group’s total (including € 13.5 million in goodwill). The WACC of 8.09% 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 in the 2019-2021 period, a slight increase in sales from traditional activities (printing, boxed sets and trade shows), with plans to extend the target to customers falling outside the Childhood segment, and an increase in digital revenue determined by customers’ increasingly greater focus on this channel. Revenue from direct marketing activities, although expected to gradually recover, were declined versus the 2017 plan, which takes account of the introduction of regulations that impact heavily on the segment. Recovery actions will continue on all costs over the period of the plan. The impairment test led to a write-down of € 7.3 million.

The remaining cash-generating units subject to the impairment test accounted for 1.6% of RCS’s total intangible assets and totaled € 5.8 million, of which € 5.6 million for goodwill. The results of the impairment tests performed showed a recoverable value lower than the carrying value only for the RCS Digital Ventures CGU (whose goodwill was therefore written down by € 0.8 million), while all other CGUs showed recoverable values higher than their carrying values.

34 ▪ Investments in associates and joint ventures

Investments in associates and joint ventures at 31 December 2018 total € 38.9 million (€ 42.8 million at 31 December 2017).

Movements in the year were as follows:

Investments in joint Investments in Notes ventures associates Total Balance at 31/12/2017 5.6 37.2 42.8 Share of profit of equity-accounted investees 22 1.9 0.2 2.1 Share of loss of equity-accounted investees 22 (0.1) - (0.1) Acquisitions/to cover losses - - - Transfers/liquidations - - - Other movements - - - Dividends distributed (1.6) (4.3) (5.9) Balance at 31/12/2018 5.8 33.1 38.9

Investments in joint ventures at 31 December 2018, totaling € 5.8 million (€ 5.6 million at 31 December 2017),

117 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

were measured at equity and mainly include the investment in m-dis Distribuzione Media S.p.A. and its subsidiaries. This item increased due to profit for the year of € 1.8 million, partly offset by the effect of the dividend distribution by m-dis Distribuzione Media S.p.A..

Investments in associates at 31 December 2018, totaling € 33.1 million (€ 37.2 million at 31 December 2017), were measured at equity and mainly include the investment in the Corporacion Bermont group. The decrease is attributable specifically to the effects of the distribution of dividends of € 4.3 million by Corporacion Bermont. The positive result generated mainly by the investee Corporacion Bermont includes non-recurring expense of € 0.6 million.

Figures at 31 December 2018 for the joint ventures and associates are shown below:

Total current Total non-current Total current Total non-current 2018 Total equity assets assets liabilities liabilities Joint Ventures (1) 138.7 9.7 126.0 3.3 19.1 Associates (1) 20.8 77.9 8.5 1.6 88.6

Profit (loss) Other Total Total Operating Profit/(loss) 2018 from continuing comprehensive comprehensive revenue costs for the year operations income (expense) income (expense) Joint Ventures (1) 296.9 (291.2) 4.7 4.7 0.0 4.7 Associates (1) 42.8 (34.7) 0.5 0.5 0.0 0.5

Figures taken from financial statements currently in the approval phase.

35 ▪ Other non-current equity instruments

At 31 December 2018, Other non-current equity instruments amounted to € 2.1 million (following exercise of the option under IFRS 9 not to restate the comparative balances at 31 December 2017) versus € 3 million in Available-for-sale assets recognized at 31 December 2017.

The item include securities and investments in companies which are not subsidiaries, associates or held for trading. At 31 December 2018, these amounted to € 2.1 million and included, among the most significant amounts, € 0.6 million relating to Ansa Società Cooperativa (€ 0.2 million at 31 December 2017), € 0.4 million relating to Immo- biliare Editrice Giornali S.r.l. (€ 0.1 million at 31 December 2017), € 0.4 million relating to H-Farm S.p.A. (€ 0.2 million at 31 December 2017), € 0.2 million relating to Digital Magics S.p.A. (€ 0.1 million at 31 December 2017).

The decrease of € 0.9 million in this item versus 31 December 2017 is due for € 1.5 million to the net negative change in fair value recognized in other comprehensive income, for € 0.7 million to the subscription of the share capital increase of an investee, partly offset by the liquidation of Emittenti Titoli S.p.A., the gains of which were recognized in the income statement.

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.

31 December 2018 31 December 2017 Notes Assets Liabilities Assets Liabilities Interest Rate Swap for cash flow hedges - (1.0) - (0.1) Non-current - (1.0) - (0.1) Interest Rate Swap for cash flow hedges - (0.1) - (1.0) Current - (0.1) - (1.0) Total 13 - (1.1) - (1.1)

– 118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Interest rate derivative notional amounts mature as follows:

Notional Description amount Parameter Rate 0-6 6 months- 1-2 2-5 over outstanding months 1 year years years 5 years IRS 170.0 Euribor 3M 0.182% (40.0) (40.0) (50.0) (40.0) - Total 170.0 (40.0) (40.0) (50.0) (40.0) -

The notional amount of interest rate swaps at 31 December 2018 is € 170 million (hedging derivatives totaled € 243.8 million at 31 December 2017).

The average contractual fixed interest rate of the interest rate swaps for the entire length of the contracts is 0.182%; 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 2018. In February 2018, new IRS hedging contracts were signed for € 40 million, with a duration of approximately 4 years and a rate of 0.454%.

At 31 December 2018, 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 in Hedged item Type of Hedged risk comprehensive income hedge 31/12/2018 31/12/2017 Change (1) NFP hedge IRS Interest rate risk (1.1) (1.1) (0.4) Total (1.1) (1.1) (0.4)

(1) Figures are shown gross of tax effects

The total net financial debt at year end is broken down by currency as follows:

31/12/2018 31/12/2017 Euro (193.5) (293.0) US dollar 0.3 0.3 British pound (0.0) 0.1 Swiss franc 0.3 0.2 United Arab Emirates dirham 5.1 4.3 Mexican peso 0.3 0.6 Total (187.6) (287.4)

119 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 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) + hedging gains 0.2 - hedging losses (1.7) - hedging losses to profit or loss (0.6) + hedging gains to profit or loss 1.7 Balance at 31 December 2018 (1) (1.1)

(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 hedging reserve reflects hedges of expected cash flows relating to underlying loans, whose payments and related effect on profit or loss fall in the periods set out below. 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.

31 December 2018

Expected 1-2 2-5 over Actual impact of underlying flows cash flows 1 year years years 5 years Interest rate risk (4.6) (2.0) (1.2) (1.4) Expected outflows for floating-rate interest Total (4.6) (2.0) (1.2) (1.4) -

31 December 2017

Expected 1-2 2-5 over Actual impact of underlying flows cash flows 1 year years years 5 years Interest rate risk (9.2) (5.2) (2.7) (1.4) Expected outflows for floating-rate interest Total (9.2) (5.2) (2.7) (1.4) -

– 120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

37 ▪ Non-current financial receivables

The item amounted to € 2.2 million, decreasing by € 1.5 million versus the prior year, due mainly to the write- down of a receivable, partly offset by higher financial receivables from the Spanish Unidad Editorial group.

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 Description carrying Change 31/12/2018 31/12/2017 31/12/2018 31/12/2017 amount fair value Non-current loans to third parties 5.4 4.5 2.2 3.7 0.9 (1.5) Allowance for impairment of financial receivables (3.2) (0.8) - - (2.4) 0.0 Non-current loans to associates 0.2 0.2 Allowance for impairment of financial receivables from associates (0.2) (0.2) Total 2.2 3.7 2.2 3.7 (1.5) (1.5)

The table below shows changes in the allowance for impairment of financial receivables, estimated according to the lifetime expected credit losses method:

Allowance for impairment of financial receivables

Balance at 31/12/2017 0.8 Effects of application of IFRS 9 - Opening balance 1/1/2018 0.8 Reclassification 0.2 (Write-down)/reinstatement of financial receivables 2.4 Closing balance 31/12/2018 3.4

38 ▪ Other non-current assets

The item amounted to € 15 million, decreasing by € 0.3 million versus the prior year.

Description 31/12/2018 31/12/2017 Change Guarantee deposits receivable 1.9 2.0 (0.1) Term bank deposits 0.1 0.1 - Non-current prepayments 0.3 0.5 (0.2) Non-current tax receivables 12.7 12.7 - Total 15.0 15.3 (0.3)

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 IFRS 7.

Carrying amount Description Change 31/12/2018 31/12/2017 Guarantee deposits receivable 1.9 2.0 (0.1) Term bank deposits 0.1 0.1 - Total 2.0 2.1 (0.1)

The carrying amount of these assets reflects their fair value.

121 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

39 ▪ Inventory

The table below shows inventory by type along with the provisions made to adjust their cost to market values:

Gross balance at Allowance for Net balance at Description 31/12/2018 impairment 31/12/2018 Raw and ancillary materials and consumables 16.7 0.5 16.2 Work in progress 1.8 - 1.8 Finished products 1.9 0.3 1.6 Total 20.4 0.8 19.6

Gross balance at Allowance for Net balance at Description 31/12/2017 impairment 31/12/2017 Change Raw and ancillary materials and consumables 13.0 0.4 12.6 3.6 Work in progress 1.7 - 1.7 0.1 Finished products 2.0 0.4 1.6 0.0 Total 16.7 0.8 15.9 3.7

This item increased by € 3.7 million versus 31 December 2017, due mainly to the inventory of paper, ink and other consumables. The main inventory refers to paper, of which RCS MediaGroup S.p.A. accounted for € 2.9 million and Unidad Editorial for € 0.7 million, as a result of the launch of new print publishing initiatives and the increase in the price of paper in 2018 in both Italy and Spain. Inventory of work in progress was up slightly, attributable mainly to Newspapers Italy. Inventory of finished goods was steady.

Details of inventory by business sector are provided below:

Raw and ancillary Work in progress Description materials and semi-finished Finished Inventory and consumables products products at 31/12/2018 Newspapers Italy 10.7 1.6 0.1 12.4 Magazines Italy 2.7 0.2 0.2 3.1 Unidad Editorial 2.8 - 1.3 4.1 Total 16.2 1.8 1.6 19.6

“Change in inventory” in the income statement is broken down as follows:

Description 2018 2017 Change

Change in work in progress 0.1 (0.3) 0.4 Change in finished products (1) - (0.5) 0.5 Raw and ancillary materials and consumables (1) 3.6 (0.7) 4.3 Total changes in finished and semi-finished products 3.7 (1.5) 5.2

1) These amounts are classified under raw and ancillary materials, consumables and goods.

– 122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

40 ▪ Trade receivables

Trade receivables are broken down as follows:

Description 31/12/2018 31/12/2017 Change Receivables from customers 222.3 251.2 (28.9) Allowance for impairment (32.4) (31.4) (1.0) Net receivables from customers 189.9 219.8 (29.9) Intragroup trade receivables 22.2 20.5 1.7 Allowance for impairment of receivables from Group companies (0.1) - (0.1) Gross balance at Allowance for Net balance at Net receivables from other Group companies 22.1 20.5 1.6 Description 31/12/2017 impairment 31/12/2017 Change Total 212.0 240.3 (28.3) Raw and ancillary materials and consumables 13.0 0.4 12.6 3.6 Work in progress 1.7 - 1.7 0.1 “Receivables from customers” and “Intragroup receivables” are shown net of expected returns (of newspapers Finished products 2.0 0.4 1.6 0.0 and magazines) amounting to € 29.8 million (€ 32.3 million in expected returns in the prior year). The net carry- Total 16.7 0.8 15.9 3.7 ing amount of these assets reflects their fair value.

Receivables due from Group companies relate mainly to transactions with the associate m-dis Distribuzione Media S.p.A..

For an explanation of credit risk, see Note 14.

Trade receivables totaled € 212 million and were down by € 28.3 million versus € 240.3 million at 31 December 2017. The decrease in trade receivables touches all areas of activity. In particular there was a drop of: ̶ € 10.7 million attributable to Advertising and Sport, as a result of the strong recovery of past dues (€ -3.9 million), and the reduction in average collection time; ̶ € 9.6 million, attributable to Unidad Editorial, as a result of improved collection time and the reduction of legal disputes (€ -1.7 million); ̶ € 4.2 million relating to Newspapers Italy, as a result of the recovery of a number of significant positions and offsetting with counterparties for € 2.3 million; ̶ € 3.4 million in Magazines Italy, thanks to reduced collection time (with DSO strongly improving) and to the recovery of past dues.

The adoption of IFRS 9 Financial Instruments resulted in the application of the expected credit loss model, replacing the incurred credit loss model provided for by IAS 39, with a consequent increase in the allowance for impairment of trade receivables of € 1.1 million at 1 January 2018.

The table below shows changes in the allowance for impairment of trade receivables:

Allowance for impairment of trade receivables Opening balance 1/1/2017 43.4 Provisions 3.6 Utilizations (15.3) Release of allowance for impairment (0.3) Closing balance 31/12/2017 31.4 Effects of application of IFRS 9 1.1 Opening balance 1/1/2018 32.5 Utilization (3.0) Net effect of first-time application of IFRS 9 0.1 (Write-down)/reinstatement of trade receivables 2.9 Closing balance 31/12/2018 32.5

123 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The allowance for impairment of trade receivables remained substantially stable, with an increase of € 1.2 million in 2018, due mainly to the effects of the application of IFRS 9, while the use and allocation to the allowance were almost equal, due also to the lesser need to cover disputed receivables.

As from 2018, following the adoption of IFRS 15 Revenue from Contracts with Customers, trade receivables reflect the estimated value of revenue, carefully analyzed in particular for consignment contracts. In 2018, this led to a decrease of € 29.8 million in the accounting presentation of receivables from customers for the purposes of the notes in application of IFRS 7. Prior to application of IFRS 15, these receivables would have amounted to € 241.8 million instead of € 212 million. The carrying amount of these assets reflects their fair value.

Carrying amount Description Change 31/12/2018 31/12/2017 Receivables from customers 222.3 256.8 (34.5) Receivables from associates 20.3 45.0 (24.7) Receivables from affiliates 1.9 2.2 (0.3) Allowance for impairment of trade receivables (32.5) (31.4) (1.1) Total 212.0 272.6 (60.6)

41 ▪ Sundry receivables and other current assets

Description 31/12/2018 31/12/2017 Change Advances to agents 10.6 12.4 (1.8) Allowance for impairment of advances to agents (1.3) (1.3) - Net advances to agents 9.3 11.1 (1.8) Sundry receivables 5.2 4.7 0.5 Allowance for impairment of sundry receivables (5.0) (4.3) (0.7) Net sundry receivables 0.2 0.4 (0.2) Advances to suppliers 6.4 5.2 1.2 Allowance for impairment of advances to suppliers (4.0) (4.0) - Net advances to suppliers 2.4 1.2 1.2 Advances to authors 0.6 - 0.6 Advances to employees 0.7 0.9 (0.2) Advances to freelance staff 0.1 0.1 - Tax receivables 1.3 1.6 (0.3) Receivables from social security institutions 1.9 3.3 (1.4) Government grants - - - Prepayments 9.1 8.4 0.7 Release rights for book returns from customers 0.3 - 0.3 Total 25.9 27.0 (1.1)

Sundry receivables and other current assets decreased by € 1.1 million versus 31 December 2017. The decrease in this item is explained by lower advances to agents (€ -1.8 million) and lower receivables from social security institutions (€ -1.4 million), associated with the releases of special lay-off fund advances that ended on 31 December 2017. Advances to suppliers (€ +1.2 million), prepaid expenses (€ +0.7 million) and advances to authors (€ +0.6 million) for books published by Solferino, instead, went in the opposite direction.

– 124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The table below shows changes in the allowance for impairment:

Receivables under Allowance for impairment IFRS 7 Opening balance 31/12/2017 9.6 Effects of application of IFRS 9 - Opening balance 1/1/2018 9.6 Reclassification 0.7 (Write-down)/reinstatement of sundry receivables 0.0 Closing balance 31/12/2018 10.3

The following items are shown in Note 13 (as required by IFRS 7). Tax receivables, receivables from social security institutions (€ 3.2 million in total), prepayments (€ 9.1 million), advances to authors and release rights for book returns from customers totaling € 0.9 million have not been considered for the purposes of IFRS 7 in 2018.

Carrying amount Description Change 31/12/2018 31/12/2017 Net advances to agents 9.3 11.1 (1.8) Net sundry receivables 0.2 0.4 (0.2) Description 31/12/2018 31/12/2017 Change Net advances to suppliers 2.4 1.2 1.2 Advances to agents 10.6 12.4 (1.8) Advances to employees 0.7 0.9 (0.2) Allowance for impairment of advances to agents (1.3) (1.3) - Advances to freelance staff 0.1 0.1 - Net advances to agents 9.3 11.1 (1.8) Total 12.7 13.7 (1.0) Sundry receivables 5.2 4.7 0.5 The carrying amount of these assets reflects their fair value. Allowance for impairment of sundry receivables (5.0) (4.3) (0.7) Net sundry receivables 0.2 0.4 (0.2) 42 ▪ Total net financial debt Advances to suppliers 6.4 5.2 1.2 Details of the net financial debt are provided below at carrying amount and fair value. Allowance for impairment of advances to suppliers (4.0) (4.0) - Net advances to suppliers 2.4 1.2 1.2 Comparison of carrying amount vs. fair value Advances to authors 0.6 - 0.6 Advances to employees 0.7 0.9 (0.2) Carrying amount Fair Value Advances to freelance staff 0.1 0.1 - 31/12/2018 31/12/2017 31/12/2018 31/12/2017 Tax receivables 1.3 1.6 (0.3) Financial assets Receivables from social security institutions 1.9 3.3 (1.4) Cash and cash equivalents 12.5 15.6 12.5 15.6 Government grants - - - Other financial assets - - - - Prepayments 9.1 8.4 0.7 Financial receivables 1.4 0.9 1.4 0.9 Total FINANCIAL ASSETS 13.9 16.5 13.9 16.5 Release rights for book returns from customers 0.3 - 0.3 Financial liabilities Total 25.9 27.0 (1.1) Current payables to banks - loans (47.5) (57.1) (47.5) (57.1) Other financial liabilities (6.8) (4.3) (6.8) (4.3) Loans: Fixed rate loans (0.2) (0.8) (0.2) (0.8) Non-current floating rate loans (141.6) (231.2) (141.6) (231.2) Current and non-current financial liabilities recognized for derivatives (1.1) (1.1) (1.1) (1.1) Floating rate finance lease payables (4.3) (9.4) (4.3) (9.2) Fixed rate finance lease payables Total FINANCIAL LIABILITIES (201.5) (303.9) (201.5) (303.7) Net Financial Debt (1) (187.6) (287.4) (187.6) (287.2)

(1) For the definition of Net Financial Debt, reference should be made to the paragraph “Alternative Performance Measures” in thisAnnual Report.

125 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The improvement of approximately € 100 million in net financial debt was attributable to the strong contribution of ordinary operations for € 118.7 million, including dividends cashed in for € 5.9 million. This effect was only partly offset by outlays for technical capital expenditure made during the year (€ 12.6 million), as well as by the amount paid for non-recurring expense, mainly recognized in prior years (€ 6.4 million).

The Loan Agreement concluded in August 2017 was renegotiated on 10 October 2018. The main terms and conditions of this Amending Agreement are: ̶ the restructuring of the loan, with a reduction in Credit Line A (Amortizing Term) from the residual € 166.3 million (at last 10 October) to € 141.3 million, and a concurrent increase in the Revolving Credit Line from € 100 million to € 125 million; ̶ a 12-month extended duration of the loan with resulting postponement of the final due date from 31 Decem- ber 2022 to 31 December 2023; ̶ amendment of the repayment plan of Credit Line A (Amortizing Term), with repayment of € 16.3 million at 31 December 2018 followed by ten half-year instalments of € 12.5 million each; ̶ a reduction in the spread charged on both credit lines as from 10 October 2018 and then re-determined from time to time in respect of a margin grid determined by the leverage ratio (NFP/EBITDA), which is more favourable than the original level; ̶ with particular regard to the Revolving Credit Line: lower commission on undrawn amounts, elimination of annual clean down clause, and introduction of a commission on drawn down amounts applied only if certain pre-set levels are exceeded.

At 31 December 2018, Credit Line A (amortizing term) amounted to € 125 million and the Revolving Credit Line was drawn down for € 45 million.

The above Loan Agreement envisages a single covenant for 31 December 2018 based on a maximum leverage ratio (NFD/EBITDA) at 3.25x (3.00x for 31 December of the years after 2018). At 31 December 2018, the leverage ratio was approximately 1.2x (down further from 2.05x at 31 December 2017). The table below shows the carrying amount at 31 December 2018, 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 FIXED RATE months 1 years years years years years 5 years Total Loans - (0.2) - - - - (0.2) Total liabilities - (0.2) - - - - - (0.2) Financial receivables 0.5 0.5 1.0 0.7 - - - 2.6 Total assets 0.5 0.5 1.0 0.7 - - - 2.6 Total fixed rate 0.5 0.3 1.0 0.7 - - - 2.4 0-6 6 months- 1-2 2-3 3-4 4-5 over FLOATING RATE months 1 years years years years years 5 years Total Loans (23.0) (12.5) (25.0) (25.0) (25.0) (70.0) - (180.5) Other borrowing positions (6.8) ------(6.8) Bank overdrafts (13.6) ------(13.6) Leases (2.2) (2.1) (0.0) - - - - (4.3) Total liabilities (45.5) (14.6) (25.0) (25.0) (25.0) (70.0) - (205.2) Cash and cash equivalents 12.5 ------12.5 Other lending positions 0.4 - 0.1 - 0.1 - 0.3 1.0 Total assets 12.9 - 0.1 - 0.1 - 0.3 13.5 Total floating rate (32.6) (14.6) (24.9) (25.0) (24.9) (70.0) 0.3 (191.7)

The amounts shown in this table, unlike those reported in total net financial debt, exclude the fair value of derivatives (€ -1.1 million), the deferral from the effect of debt being accounted for using the amortized cost method (€ +5 million), and include the interest-bearing portion of non-current financial receivables (€ 2.2 million).

– 126 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The average annual rate on financial positions at 31 December 2018 is 0.7% for the return on investments and 2.6% 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-amortization 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.

31/12/2018 31/12/2017 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 one year 4.3 - 4.3 5.1 - 5.1 - due within five years - - - 4.4 0.1 4.3 - due beyond five years ------Total 4.3 - 4.3 9.5 0.1 9.4

The fair value of finance lease payables contracted by the Group is € 4.3 million.

43 ▪ Share capital

The share capital at 31 December 2018 was € 270 million (€ 475.1 million at 31 December 2017). During the year, interventions were made on the share capital of RCS MediaGroup S.p.A. (following the resolution of the Shareholders’ Meeting of 26 April 2018), for which reference should be made to the comments in the paragraph “Significant events in the reporting period” in this Annual Report. The share capital is divided into 521,864,957 ordinary shares with no par value. At 31 December 2018, a total of 4,542,474 ordinary treasury shares were held (105,214 of which made available to the minorities of RCS Inves- timenti S.p.A. following the merger by incorporation of the latter with RCS MediaGroup S.p.A. in December 2017), worth € 26.9 million, corresponding to an average carrying amount of € 5.9 per ordinary share and representing 0.87% of the total share capital.

Outstanding Ordinary Number of shares issued ordinary shares treasury shares Total At 31/12/2017 517,289,843 4,575,114 521,864,957 Shares granted in exchange following merger by 32,640 (32,640) incorporation of RCS Investimenti S.p.A. At 31/12/2018 517,322,483 4,542,474 521,864,957

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.

RCS MediaGroup S.p.A. did not distribute dividends in 2018 and 2017.

44 ▪ Share premium reserve

The share premium reserve at 31 December 2018 was zero (€ 110.4 million at 31 December 2017), following the abovementioned share capital interventions.

127 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

45 ▪ Legal reserve and voluntary reserve

At 31 December 2018, the legal reserve amounted to € 54 million. During the year, it was zeroed as a result of the abovementioned interventions on share capital and subsequently replenished for an amount equal to a fifth of the new share capital. This reserve 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. The voluntary reserve of € 87.3 million was formed during the year as a result of the above-mentioned interventions on share capital and is an available reserve.

46 ▪ Treasury shares and equity transactions

The treasury shares reserve amounted to € 26.9 million (€ 27.1 million at 31 December 2017) and is deducted from the Company’s equity. The change is due to the allocation of RCS MediaGroup S.p.A.’s treasury shares to the minority shareholders of RCS Investimenti following the merger by incorporation in the prior year. Equity transaction reserve: this 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 stated in Group equity for a total of € 143 million (unchanged versus the prior year).

47 ▪ Other reserves

Description 31/12/2018 31/12/2017 Change Fair value reserve - (0.3) 0.3 Cash flow hedge reserve (0.8) (0.6) (0.2) Financial receivables reserve at FVOCI (1.5) - (1.5) Total (2.3) (0.9) (1.4)

“Other reserves” includes: ̶ the valuation reserve at 31 December 2018 was almost zero. In 2017, it came to a negative € 0.3 million and mainly included the translation reserve, used to record exchange rate differences arising on the translation of foreign subsidiaries’ financial statements into Euro and the recognition of actuarial gains and losses within the process to discount post-employment benefits. ̶ the cash flow hedge reserve has a negative balance of € 0.8 million (negative € 0.6 million at 31 December 2017) 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 € 0.3 million (€ 0.2 million at 31 December 2017). ̶ the financial assets reserve measured at fair value through other comprehensive income (OCI) came to € -1.5 million and was set up in 2018 following the measurement of “Other non-current equity instruments” as required by the new IFRS 9.

48 ▪ Dividends paid

Dividends of € 0.1 million were paid to minority shareholders of subsidiaries in 2018.

Dividends paid in the year 31/12/2018 31/12/2017 Dividends paid to non-controlling interests 0.1 0.0 Total 0.1 0.0

– 128 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

49 ▪ Tax effect of other consolidated comprehensive income

The tax effect of profits and losses included in other comprehensive income is as follows:

At 31 December 2018 At 31 December 2017 Tax Tax Other comprehensive income (expense): Gross benefit/ Net Gross benefit/ Net amount (expense) amount amount (expense) amount

Reclassifiable to profit (loss) for the year: Gains (losses) on foreign currency translation of foreign operations ------Gains (losses) on cash flow hedges ( 0.4) 0.1 ( 0.3) 3.4 (0.9) 2.5 Share of comprehensive income (expense) of equity-accounted investees ------

Not reclassifiable to profit or loss: Actuarial (loss)/gain on defined benefit plans 0.5 ( 0.1) 0.4 0.1 - 0.1 Gains (losses) from the FVOCI measurement of equity instruments (1.5) - (1.5) - - - Other comprehensive income (expense) (1.4) 0.0 (1.4) 3.5 (0.9) 2.6

50 ▪ Employee benefits

These include the actuarial amount of benefits for employees following termination of the employment relationship.

Provisions in income statement Actuarial gains/ Personnel Financial (losses) recognized Description Balance at Current expense from expense Utiliza- in statement Balance at 31/12/2017 service cost actuarial (income) tions of comprehensive 31/12/2018 calculations income Provisions for post-employment 37.7 1.0 (0.8) 0.5 (1.7) (0.5) 36.2 benefits Provisions for post-employment 0.7 - - - - - 0.7 benefits for executives Total 38.4 1.0 (0.8) 0.5 (1.7) (0.5) 36.9

Post-employment benefits of € 36.2 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.

These provisions have been valued with the assistance of independent actuaries.

129 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The amounts recognized in 2017 in respect of the above post-employment benefits are as follows:

2017 Description Personnel expense Financial Current from actuarial expense Total service cost calculations (income) Provisions for post-employment benefits 1.0 (0.7) 0.5 0.8 Provisions for post-employment benefits for executives - - - - Total 1.0 (0.7) 0.5 0.8

The table below shows the actuarial assumptions used by the Group’s main companies for the calculation:

Description 2018 2017 Discount rates 1.6% 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 2018 + 0.5% - 0.5% Post-employment benefits 36.2 34.8 37.6 Post-employment benefits for executives 0.7 0.7 0.7 Total 36.9 35.5 38.3

51 ▪ Provisions for risks and charges

Movements in the year were as follows:

Other Balance at Provi- provisions Utiliza- Reclassifica- Balance at 31/12/2017 sions (1) personnel tions Releases (3) tions 31/12/2018 expense (2) Non-current: Provision for legal disputes 5.9 2.9 - (0.5) (0.9) (1.3) 6.1 Other provisions for risks and charges 9.0 0.3 1.5 - (0.1) (0.6) 10.1 Total non-current 14.9 3.2 1.5 (0.5) (1.0) (1.9) 16.2 Current: Provision for legal disputes 9.2 1.2 - (1.9) (1.1) 0.7 8.1 Other provisions for risks and charges 26.3 1.0 1.1 (3.9) (3.8) 0.5 21.2 Provision for returns to receive from books - 2.1 - - - - 2.1 Total current 35.5 4.3 1.1 (5.8) (4.9) 1.2 31.4 Total provisions for risks 50.4 7.5 2.6 (6.3) (5.9) (0.7) 47.6

(1) Includes € 2.1 million in returns to receive for books. (2) Includes provisions classified under personnel expense. (3) Includes € 2.6 million in non-recurring releases on personnel.

– 130 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Increases include provisions for legal disputes of € 4.1 million, personnel expense of € 2.6 million, of which non-recurring expense amounting to € 1.5 million as a result of ongoing reorganization, in addition to € 2.1 million set aside for estimated returns to receive from books sold, and € 1.3 million in provisions relating to miscellaneous risks.

Utilizations and releases relate mainly to staff exits (€ 3.9 million) from the progress of the restructuring plans in the Newspapers Italy and Magazines Italy areas, and to the definition at the national level of contract renewals for certain categories of workers, as well as the conclusion of legal disputes (€ 4.4 million, of which € 2 million for litigation won or settled). Additionally, the Unidad Editorial area made use of provisions for prior year risks for a total of € 2.3 million.

Reclassifications, totaling € 0.7 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.

* * *

“Other provisions for risks and charges” at 31 December 2018 amounted to € 31.3 million. The main components of this item are: ̶ € 13.4 million in provisions for personnel expense, mainly for personnel departures and terminations of employment; ̶ € 15.9 million in provisions for risks, attributable mainly to the Other Corporate Activities area and to the Advertising and Sport area; ̶ € 2 million in provisions for agents’ termination indemnities, payable to agents at the end of their mandate.

The returns to receive provision represents the estimated returns reasonably expected on the sale of books.

The legal disputes provision refers to probable charges resulting from disputes with third parties and other legal fees. At 31 December 2018, 47% of the outstanding disputes regarded civil lawsuits in Italy, 23% were work-related, and approximately 12% regarded publishing activities. The remainder is attributable mainly to the Span- ish group, Unidad Editorial.

* * * Other In compliance with IFRS, the non-current portion of provisions for risks has been discounted to take account Balance at Provi- provisions Utiliza- Releases (3) Reclassifica- Balance at 31/12/2017 sions (1) personnel tions tions 31/12/2018 of the effect of the time value of money, using a rate of approximately 0.35% for the specific provision for expense (2) risks, approximately 0.70% for the legal disputes provision, and 1.55% for the provision for agents’ termination Non-current: indemnities, diversifying them based on their average financial duration. Provision for legal disputes 5.9 2.9 - (0.5) (0.9) (1.3) 6.1 Other provisions for risks and The following table shows the results of the sensitivity analysis of the discount rate risk assuming a parallel charges 9.0 0.3 1.5 - (0.1) (0.6) 10.1 change of +/- 0.5%. Total non-current 14.9 3.2 1.5 (0.5) (1.0) (1.9) 16.2 Sensitivity analysis of discount rate Basic rate 2018 + 0.5% - 0.5% Current: Non-current provision for legal disputes 0.70% 6.1 5.9 6.3 Provision for legal disputes 9.2 1.2 - (1.9) (1.1) 0.7 8.1 Provision for agents’ termination indemnities 1.55% 1.4 1.4 1.4 Other provisions for risks and charges 26.3 1.0 1.1 (3.9) (3.8) 0.5 21.2 Non-current provision for sundry risks 0.35% 8.7 8.7 8.8 Provision for returns to receive Total 16.2 16.0 16.5 from books - 2.1 - - - - 2.1 Total current 35.5 4.3 1.1 (5.8) (4.9) 1.2 31.4 For the sake of full disclosure, please refer also to the comment on “Information on ongoing disputes” in the Total provisions for risks 50.4 7.5 2.6 (6.3) (5.9) (0.7) 47.6 Report on Operations of the RCS Group in this Annual Report. 52 ▪ Other non-current liabilities

The item, unchanged versus the prior year and totaling € 0.9 million, includes a tax liability as a portion of a non-current tax asset booked following an IRES reimbursement request. This item does not include non-current financial liabilities. In application of IFRS 7 requirements, tax liabilities were not included.

131 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

53 ▪ Trade payables

Description Notes 31/12/2018 31/12/2017 Change Payables to suppliers 156.9 183.4 (26.5) Payables to authors 0.3 - 0.3 Payables to agents 17.1 19.3 (2.2) Payables to collaborators 7.4 7.4 - Payables to parents 0.2 0.4 (0.2) Payables to associates and joint ventures 13.1 14.9 (1.8) Payables to associates 2.5 1.7 0.8 Advances from subscribers 6.9 8.4 (1.5) Advances from customers 0.3 0.8 (0.5) Total 13 204.7 236.3 (31.6)

Trade payables decreased across almost all items by an overall € 31.6 million versus 31 December 2017.

The decrease in payables to suppliers of € 26.5 million is attributable primarily to the Spanish group Unidad Edi- torial (€ -11 million), the Newspapers Italy area (€ -7.7 million), the Advertising and Sport area (€ -4.8 million), and is the result of a different payment trend and a decrease in operational costs due to efficiency initiatives.

Payables to agents decreased by € 2.2 million, offset against advances paid to the agents and relate primarily to the Advertising and Sport areas. Lower payables to associates (€ -1.8 million) refer to the Unidad Editorial group and relate to transactions with the Bermont group. Payables to affiliates (€ +0.8 million) mainly include transactions with Cairo Group companies. The item Payables to authors (€ +0.3 million) is attributable to the new Solferino activity.

The carrying amount of trade payables reflects their fair value, also in accordance with the application of IFRS 7.

54 ▪ Sundry payables and other current liabilities

Description 31/12/2018 31/12/2017 Change Payables to employees 30.2 32.2 (2.0) Tax payables 12.8 12.7 0.1 Payables to social security institutions 12.9 12.9 - Deferred income 19.3 28.7 (9.4) Sundry payables 6.7 7.9 (1.2) Security deposits received 0.5 0.5 - Total 82.4 94.9 (12.5)

This item decreased by € 12.5 million versus the prior year, due mainly to the fall in deferred income (€ -9.4 million), payables to employees (€ -2 million) and sundry payables (€ -1.2 million).

The decrease in deferred income (€ -9.4 million) was attributable, for € 6.8 million, to the Sport area due to fewer sporting events organized in the first months of 2019 versus the prior year, and to Newspapers Italy (€ -1.3 million), due to the different publishing schedule of add-on products for the first months of 2019 versus the pri- or year.

Payables to employees decreased by € 2 million, due mainly to lower payables for untaken holiday entitlement.

The following items are shown in Note 13 (as required by IFRS 7). The carrying amount of these liabilities reflects their fair value.

– 132 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Carrying amount Description Change 31/12/2018 31/12/2017 Payables to employees 16.9 17.4 (0.5) Sundry payables 6.6 7.9 (1.3) Security deposits received 0.5 0.5 0.0 Total 24.0 25.8 (1.8)

Tax liabilities and payables to social security institutions (€ 25.7 million) have not been included. Payables to employees differ from those reported in the financial statements because IFRS 7 ignores both untaken holiday entitlement (€ 13.4 million) and deferred income (€ 19.3 million).

55 ▪ Gains (losses) and other non-monetary items adjusted in the statement of cash flows

Details of the item which adjusts cash flows from operations, reported in the statement of cash flows, are provided below:

Description Notes 31/12/2018 31/12/2017 Other (gains) losses on financial assets/liabilities 25 (1.5) 0.3 (Gains) losses on sale of equity investments - (15.2) Total 25 (1.5) (14.9)

This item refers to the gain from the liquidation of Emittenti Titoli S.p.A., which was collected in the prior year

56 ▪ 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 (see Note 51).

Reclassifica- Actuarial Descriptions Notes 31/12/2017 31/12/2018 tions gains/losses Discounting Change Employee benefits 50 38.4 36.9 - 0.5 (0.5) (1.5) Provisions for risks and charges 51 50.4 47.6 0.7 - (2.1) Total 88.8 84.5 0.7 0.5 (0.5) (3.6)

57 ▪ Changes in working capital reported in the statement of cash flows

Description 31/12/2018 31/12/2017 Change in working capital (15.8) (26.9) Adjustments to capital expenditure for cash outflows (3.6) (4.2) Reclassification of provisions (0.7) (3.2) Impact first-time of application of IFRS 9 (1.1) - Adjustments for non-monetary changes (3.5) (4.6) Total (24.7) (38.9)

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 was also 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.

133 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

58 ▪ Capital expenditure in property, plant and equipment and intangible assets reported in the statement of cash flows

This refers to capital expenditure made in 2018 (€ 16.3 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 cash flows is reconciled with the expenditure in the statement of financial position at 31 December 2018 as follows:

Description Notes 31/12/2018 31/12/2017 Capital expenditure in property, plant and equipment 31 (3.1) (1.1) Capital expenditure in intangible assets 33 (13.2) (17.2) Total (16.3) (18.3) Adjustments to capital expenditure for cash outflows (1.5) (0.8) Total (17.8) (19.1)

59 ▪ Proceeds from the sale of equity investments reported in the statement of cash flows

The item, amounting to € 0.2 million, includes the proceeds from the disposal of Planet Sfera Sa, as well as the cash in from the liquidation balance of Emittenti Titoli S.p.A..

60 ▪ 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 the net financial debt is shown below:

Description Note 31/12/2018 31/12/2017 Change in net financial debt 42 (99.8) (78.7) Change in cash and cash equivalents 0.1 19.0 Change in derivatives (0.3) 3.4 Adjustments to investments for lease principal 5.1 5.0 Non-monetary change in results of financing activities 0.9 2.6 Other non-monetary changes (0.2) - Total (94.2) (48.7)

61 ▪ Net financial interest received/paid reported in the statement of cash flows

The item, amounting to € 14.5 million, was adjusted to include the outlays relating to the expense incurred to amend the loan agreement. These expenses are accounted for using the effective interest rate method. This item also excludes items without any monetary consequences during the year, related to discounts in application of IFRS.

62 ▪ Change in equity reserves reported in the statement of cash flows

This item refers to dividends paid to non-controlling interests (€ 0.1 million).

63 ▪ Commitments

The principal guarantees given are listed below. Trends in the main guarantees given in 2018 are as follows: ̶ Sureties and endorsements provided amounted to € 41.5 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.), Marsilio S.p.A. and Librerie Rizzoli S.r.l. and in favour of the Italian Tax Authorities for VAT credits relating to 2015, for which RCS MediaGroup S.p.A. is jointly obligated.

– 134 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

̶ Other guarantees amounted to € 3 million, down by € 13 million versus 31 December 2017. The decrease relates to the termination of the guarantee for VAT credits for 2014. The item includes the indemnity issued to Agenzia per lo Sviluppo dell’Editoria and to SIAE for reimbursements received. This item also includes € 0.6 million in other guarantees with related parties. ̶ Commitments amounted to € 4.4 million. The item includes existing and potential contractual commitments relating to personnel, which refer solely to agreements in force at 31 December 2018, subject to contractual clauses at that date under the exclusive control of RCS. These commitments are entered into with related parties for the entire amount. For additional information regarding the commitments to 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..

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 practices and conditions.

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 due by the Group at the reporting date for non-cancellable operating leases is as follows:

Minimum lease payments 31/12/2018 31/12/2017 Future operating lease payments: - due within one year 28.5 29.2 - due within five years 98.5 112.0 - due beyond five years 125.4 139.2 Total 252.4 280.4

Expected future collections from property sub-leases amount to € 11.6 million, mainly attributable to RCS Media Group S.p.A..

64 ▪ Information required by art. 149-duodecies of the CONSOB Issuer Regulations

The table below, prepared in accordance with art. 149-duodecies of the CONSOB Issuer Regulations, reports the fees earned in 2018 for audit and other services provided by the independent auditors and members of their network.

Party performing the service Recipient Fees paid in 2018 Audit Deloitte & Touche S.p.A. RCS MediaGroup S.p.A. 0.4 Deloitte & Touche S.p.A. Subsidiaries 0.5 Attestation services (1) Deloitte & Touche S.p.A. 0.0 Other services (1) Deloitte & Touche S.p.A. 0.0 Total 0.9

(1) Attestation services refer to the Consolidated Non-Financial Statement (€ 19 thousand); Other services refer to consulting for a Spanish subsidiary (€ 26 thousand).

135 – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

65 ▪ Events after year end

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 Financial Report.

Milan, 18 March 2019

On behalf of the Board of Directors:

Charmain and Chief Executives Officer

Urbano Cairo (signed on the original)

– 136 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF THE FINANCIAL REPORTING MANAGER AND THE CHIEF EXECUTIVE OFFICER

Statement on the consolidated financial statements pursuant to art. 81-ter of CONSOB Regulation no. 11971 dated 14 May 1999 as subsequently amended and supplemented

̶ the adequacy in relation to the company’s characteristics and ̶ the effective application, of the administrative and accounting procedures in preparing the 2018 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 31 December 2018 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 31 December 2018: 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 19 July 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 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, 18 March 2019

Chairmain and Chief Executive Officer Financial Reporting Manager Urbano Cairo Roberto Bonalumi

(signed on the original) (signed on the original)

137 –

SEPARATE FINANCIAL STATEMENTS FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Income statement (^)

2017 (€) Notes 2018 pro-forma 2017 I Revenue from sales 12 583,569,361 500,134,329 500,134,329 Circulation revenue 321,663,139 237,382,911 237,382,911 - of which with related parties 13 279,949,712 204,029,187 204,029,187 Advertising revenue 243,049,045 241,396,612 241,396,612 - of which with related parties 13 3,107,522 3,348,624 3,348,624 Sundry publishing revenue 18,857,177 21,354,806 21,354,806 - of which with related parties 13 8,399,762 7,891,995 7,891,995 II Changes in work in progress, finished and semi-finished products 14 649,440 ( 492,150) ( 492,150) II Raw materials and services 15 ( 374,359,856) ( 289,861,801) ( 289,812,940) Raw materials and goods ( 81,902,765) ( 77,399,924) ( 77,399,924) - of which with related parties 13 ( 23,312,293) ( 22,590,039) ( 22,590,039) Service costs ( 255,770,751) ( 175,782,638) ( 175,733,777) - of which with related parties 13 ( 127,673,623) ( 49,320,995) ( 49,320,995) - of which non-recurring 26 - ( 248,998) ( 248,998) Rentals and leases ( 36,686,340) ( 36,679,239) ( 36,679,239) - of which with related parties 13 ( 10,461) ( 5,889) ( 5,889) - of which non-recurring - ( 322,800) ( 322,800) III Personnel expense 16 ( 157,595,937) ( 149,813,704) ( 149,813,704) - of which with related parties 13 ( 3,375,024) ( 2,810,359) ( 2,810,359) - of which non-recurring 26 ( 1,121,556) 498,814 498,814 II Other operating revenue and income 17 23,760,380 24,202,372 24,202,372 - of which with related parties 13 11,312,994 10,157,437 10,157,437 II Sundry operating expense 18 ( 7,114,620) ( 11,342,310) ( 11,342,310) - of which with related parties 13 ( 22,344) ( 54,949) ( 54,949) IV Provisions 19 ( 3,965,729) ( 3,739,805) ( 3,739,805) (Write-down)/reinstatement of trade and V sundry receivables 20 ( 2,019,788) ( 1,800,718) ( 1,800,718) VI Amortization of intangible assets 21 ( 10,364,363) ( 14,274,513) ( 14,274,513) Depreciation of property, plant and equip- VII ment 21 ( 6,729,002) ( 7,762,694) ( 7,762,694) VIII Impairment losses on non-current assets 21 ( 7,414,000) ( 3,435,028) ( 3,435,028) Operating profit (loss) 38,415,886 41,813,978 41,862,839 Interest income calculated using the effec- IX tive interest method 22 7,623,867 10,592,316 10,218,108 - of which with related parties 13 7,523,376 10,347,733 9,973,525 IX Interest and other financial income 22 3,248,545 394,698 394,698 - of which with related parties 13 389 36 36 IX Financial expense 22 ( 11,725,055) ( 18,717,431) ( 18,717,431) - of which with related parties 13 ( 539,234) ( 1,525,814) ( 1,525,814) X Other gains (losses) on financial assets/ liabilities 23 14,773,099 28,655,771 28,655,771 - of which with related parties 13 13,353,374 11,489,036 11,489,036 (Write-down)/reinstatement of receivables 24 XI and other financial assets ( 2,378,968) ( 15,250) ( 15,250) - of which with related parties 13 ( 18,965) ( 15,250) ( 15,250) Profit (loss) before tax 49,957,374 62,724,082 62,398,735 XII Income tax 25 ( 8,027,401) ( 8,712,551) ( 8,712,551) Profit/(loss) for the year 41,929,973 54,011,531 53,686,184 (^) Also pursuant to CONSOB Resolution no. 15519 of 27 July 2006.

The pro-forma figures for 2017 presented for comparative purposes to retroactively reflect the effects of the merger of RCS International Newspapers S.r.l. as if it had taken place in 2017, are not subject to audit by the Independent Auditors. Further information is found in the appropriate annexes and in the introduction.

The notes form an integral part of these financial statements.

141 – SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Statement of comprehensive income

2017 (€) Notes 2018 2017 pro-forma Profit (loss) for the year 38 41,929,973 54,011,531 53,686,184

Other comprehensive income (expense):

► will be subsequently reclassified to profit/(loss) for the year

Gains (losses) on cash flow hedges ( 1,475,317) ( 231,735) ( 231,735)

Fair value measurement of financial assets - - - Reclassification of gains (losses) on cash flow hedges to profit or loss 1,135,346 3,595,714 3,595,714 Tax effect on cash flow hedges 81,593 ( 807,355) ( 807,355) Reclassification of fair value gains (losses) on available for sale financial assets to profit or loss 81,593 ( 807,355) ( 807,355)

► will not be subsequently reclassified to profit/(loss) for the year

Actuarial (loss)/gain on defined benefit plans 518,884 89,562 89,562

Tax effect on actuarial valuation defined benefit plans ( 124,532) ( 21,495) ( 21,495) Gains (losses) from the valuation at fair value of other equity instruments 408,228 - -

Total other comprehensive income (expense) 544,202 2,624,691 2,624,691

Total comprehensive income (expense) 42,474,175 56,636,222 56,310,875

The notes form an integral part of these financial statements.

– 142 SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Statement of financial position (^)

31 December 2017 Notes 31 December 2018 31 December 2017 (€) pro-forma ASSETS XIII Property, plant and equipment 27 40,830,545 45,708,782 45,708,782 XV Investment property 28 2,745,162 2,759,222 2,759,222 XIV Intangible assets 29 25,502,905 37,477,778 37,477,778 XVI Equity investments at cost 30 397,329,721 398,177,658 408,668,429 - of which with related parties 13 397,329,721 398,177,658 408,668,429 XVI Other non-current equity instruments 31 1,601,184 560,664 560,664 XVI Non-current financial receivables 32 571,286 2,772,066 2,772,066 XVI Other non-current assets 33 13,522,720 13,704,897 13,704,897 XVI Deferred tax assets 25 35,814,947 46,310,699 46,310,699 Total non-current assets 517,918,470 547,471,766 557,962,537 XVII Inventory 34 13,784,690 10,654,535 10,654,535 XVIII Trade receivables 35 155,721,186 166,553,039 166,553,039 - of which with related parties 13 32,500,308 31,646,424 31,646,424 XX Sundry receivables and other current assets 36 18,891,729 21,420,426 21,420,426 - of which with related parties 13 100,791 26,202 26,202 XX Current tax assets 25 2,861,313 4,516,713 4,516,713 - of which with related parties 13 1,723,457 2,117,563 2,117,563 XXV Current financial receivables 37 269,522,489 281,132,818 270,331,661 - of which with related parties 13 269,232,980 280,685,837 269,884,680 XXV Cash and cash equivalents 37 380,914 692,900 679,005 Total current assets 461,162,321 484,970,431 474,155,379 TOTAL ASSETS 979,080,791 1,032,442,197 1,032,117,916 EQUITY AND LIABILITIES Share capital 38 270,000,000 475,134,602 475,134,602 Reserves 38 141,005,199 128,423,209 128,445,225 Treasury shares 38 ( 26,956,842) ( 27,150,528) ( 27,150,528) Retained earnings/losses carried forward 38 25,281,366 ( 219,957,816) ( 219,957,816) Profit (loss) for the year 38 41,929,973 54,011,531 53,686,184 XXIV Total equity 451,259,696 410,460,998 410,157,667 XXV Non-current financial payables 37 141,580,587 233,325,736 233,325,736 XXV Financial liabilities recognized for derivatives 37 997,834 88,620 88,620 XXI Employee benefits 39 30,515,238 31,694,903 31,694,903 XXII Provisions for risks and charges 40 10,259,054 9,530,105 9,530,105 XXIII Deferred tax liabilities 25 669,289 606,253 606,253 XX Sundry payables and other non-current liabilities 41 1,790,443 1,790,443 1,790,443 - of which with related parties 13 877,397 877,397 877,397 Total non-current liabilities 185,812,445 277,036,060 277,036,060 XXV Payables to banks 37 13,336,918 16,772,980 16,772,980 XXV Current financial payables 37 126,820,786 110,049,365 110,049,365 - of which with related parties 13 91,272,440 69,624,652 69,624,652 XXV Financial liabilities recognized for derivatives 37 68,784 963,125 963,125 XX Current tax liabilities 25 4,026,203 4,800,810 4,800,810 - of which with related parties 13 2,273,380 4,369,510 4,369,510 XIX Trade payables 42 125,498,593 136,357,316 136,336,366 - of which with related parties 13 14,695,601 10,705,459 10,705,459 Current portion of provisions for risks and XXII 40 23,194,688 24,816,943 24,816,943 charges XX Sundry payables and other current liabilities 43 49,062,678 51,184,600 51,184,600 - of which with related parties 13 1,943,936 2,436,628 2,436,628 Total current liabilities 342,008,650 344,945,139 344,924,189 TOTAL EQUITY AND LIABILITIES 979,080,791 1,032,442,197 1,032,117,916 (^) Also pursuant to CONSOB Resolution no. 15519 of 27 July 2006.

The notes form an integral part of these financial statements. 143 – SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Statement of cash flows (^)

2017 Notes 2018 2017 (€/millions) pro-forma A) Cash flows from (used in) operations Profit (loss) before tax from continuing operations 50.0 62.7 62.4 Amortization, depreciation and impairment losses 21 24.5 25.5 25.5 (Gains) losses and other non-monetary items 23 ( 1.4) ( 15.1) ( 15.1) Write-downs/reversals of net fixed assets 24 4.6 0.4 0.4 - of which with related parties 13 2.2 0.1 0.1 Net financial income (expense) including dividend income 22-23 ( 14.8) ( 4.5) ( 4.5) - of which with related parties 13 ( 22.6) ( 21.4) ( 21.1) Decrease in provisions 44 ( 2.0) ( 6.2) ( 6.2) Changes in working capital 45 ( 4.4) ( 38.5) ( 38.5) - of which with related parties 13 ( 2.1) 3.4 3.4 Income tax (paid) received 25 3.6 12.2 12.2 Total 60.1 36.5 36.2 B) Cash flows from investing activities Acquisition of equity investments (net of dividends received) 46 14.8 9.8 9.8 - of which with related parties 13 14.2 9.8 9.8 Capital expenditure in property, plant and equipment 47 ( 7.5) ( 8.1) ( 8.1) and intangible assets Proceeds from the sale of equity investments - 20.3 20.3 Proceeds from the sale of property, plant and equipment - 0.1 0.1 and intangible assets Other changes - 0.2 0.2 Total 7.3 22.3 22.3 Free cash flow (A+B) 67.4 58.8 58.5 C) Cash flows used in financing activities Net change in financial payables and other financial assets 48 ( 63.8) ( 25.8) ( 25.5) - of which with related parties 13 32.3 14.8 15.1 Financial interest collected/paid 49 ( 0.5) ( 11.3) ( 11.3) - of which with related parties 13 7.0 8.8 8.4 Total ( 64.3) ( 37.1) ( 36.8) Net increase (decrease) in cash and cash equivalents (A+B+C) 3.1 21.7 21.7 Opening cash and cash equivalents ( 16.1) ( 37.8) ( 37.8) Closing cash and cash equivalents ( 13.0) ( 16.1) ( 16.1) Increase (decrease) for the year 3.1 21.7 21.7

ADDITIONAL DISCLOSURES OF THE STATEMENT OF CASH FLOWS (€/millions) Opening cash and cash equivalents consisting of: ( 16.1) ( 37.8) ( 37.8) Cash and cash equivalents 0.7 1.1 1.1 Current payables to banks ( 16.8) ( 38.9) ( 38.9) Closing cash and cash equivalents ( 13.0) ( 16.1) ( 16.1) Cash and cash equivalents 0.4 0.7 0.7 Current payables to banks ( 13.4) ( 16.8) ( 16.8) Increase (decrease) for the year 3.1 21.7 21.7

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

The notes form an integral part of these financial statements.

– 144 SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A. ------0.3 42.5 ( 1.7) Equity 410.5 410.2 451.3 0.3 41.9 53.7 54.0 41.9 ( 0.3) (53.7) N ote 3 8 for the year for Profit (loss) Profit 27.1 27.1 26.9 ( 0.2) to cover N ote 3 8 earnings Retained treasury shares treasury 0.1 53.7 19.1 63.8 ( 1.7) ( 1.7) 110.4 110.4 forward N ote 3 8 earnings/ Retained ( 247.1) ( 247.1) losses carried - - reserve 87.3 87.3 N ote 3 8 Optional 0.1 0.1 0.3 0.3 reserve Merger Merger ( 0.1) N ote 3 8 0.5 ( 0.6) ( 0.6) ( 0.1) N ote 3 8 Actuarial valuation of post-employ - ment benefits reserve N ote 3 8 Hedging ( 0.5) ( 0.5) ( 0.3) ( 0.8) - - 0.4 0.4 FVOCI N ote 3 8 Financial reserve at reserve receivables receivables 0.2 shares N ote 3 8 Treasury Treasury ( 27.1) ( 27.1) ( 26.9) 19.1 19.1 54.0 54.0 Legal reserve N ote 3 8 ( 19.1) - Share reserve 110.4 110.4 110.4 110.4 N ote 3 8 premium premium ( 110.4) Share Share capital N ote 38 475.1 475.1 270.0 ( 63.8) ( 54.0) ( 87.3) Statement of changes in equity (€/millions) Balance at 31/12/2017 The notes form an integral part of these financial statements. found in are details Further investee. for 2017 of the result the to attributable are Newspapers S.r.l. of RCS International by incorporation merger of the effects The (*) the appropriate annexes. Effects of the merger of RCS Intern. Newspapers S.r.l. of RCS Intern. Newspapers S.r.l. of the merger Effects in pro-forma 2017 (*) Allocation of net profit at 31.12.2017 of RCS MediaGroup S.p.A.: - use of reserve to partly cover prior years’ losses - use of reserve to partly cover prior years’ Total comprehensive income (expense) Total Balance at 31/12/2017 pro-forma - use of sh. pr. res. to partly cover prior years’ losses res. to partly cover prior years’ - use of sh. pr. - use of merger reserve to partly cover prior years’ - use of merger losses Balance at 31/12/2018 - use of legal reserve to partly cover prior years’ losses - use of legal reserve to partly cover prior years’ - reduction of share capital to cover residual prior losses years’ - reduction of share capital to replenish the legal reserve - reduction of share capital to establish the available reserve - transfer of adjustments for merger of - transfer of adjustments for merger RCS International Newspapers S.r.l. - exchange of treasury shares for former RCS Investimenti shares - application of IFRS 9 on receivables

145 – SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

The following statement shows the availability and possible 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 270.0 B - - - Share premium reserve - - - - Legal reserve 54.0 B - - - Treasury shares (26.9) - - - Hedging reserve (0.8) - - - Actuarial valuation of post-employment benefits (0.1) - - - Optional reserve 87.3 A,B,C 84.7 - - Merger reserve 0.3 A,B,C 0.3 - - Financial receivables reserve at FVOCI 0.4 - - - Prior-years’ retained earnings 26.9 Effects of application of IFRS 9 (1.7) - - - Profit (loss) for the year 41.9 A,B,C 41.9 - - Total 451.3 126.9 - -

Key: A. for share capital increase B. to cover loses C. dividends

– 146 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. (hereinafter also “the Company”) as at and for the year ended 31 December 2018 were approved and authorized for publication by the Board of Directors on 18 March 2019, and will be submitted for approval by the shareholders in the Shareholders’ Meeting.

RCS MediaGroup S.p.A., in addition to managing and coordinating its subsidiaries, offering centralized services and financial management, carries out its activities within the main publishing and advertising operations of the RCS Group.

The entity which prepares the consolidated financial statements of the largest body of entities, of which the Company forms part as a subsidiary is U.T. Communications S.p.A., with registered office in Via Monte- napoleone 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 Company 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 2018 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 financial statements have been audited by Deloitte & Touche S.p.A. pursuant to Legislative Decree no. 39 of 27 January 2010 and Regulation (EU) no. 537/214. The assignment has been awarded for a period of nine financial years (2018 - 2026), pursuant to art. 17, par. 1 of the above Decree. 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 shown in these notes are stated in Euro.

3 ▪ Reporting formats

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 regard to CONSOB Resolution no. 15519 of 27 July 2006, significant related party transactions and non-recurring items have been reported separately on the face of the financial statement schedules.

4 ▪ Basis of preparation - use of going concern assumption in preparing the separate financial statements

The 2018 separate financial statements of RCS MediaGroup S.p.A. have been prepared on a going concern basis, as detailed in the Directors’ Report on Operations.

149 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

5 ▪ Accounting policies

These financial statements, prepared in accordance with the provisions of CONSOB Resolution no. 11971/1999 as subsequently amended, including in particular those introduced by Resolutions no. 14990 of 14 April 2005 and no. 15519 of 27 July 2006, contain the financial statements and explanatory notes of the parent company RCS MediaGroup S.p.A., prepared in accordance with the IFRS international accounting standards issued by the IASB (International Accounting Standards Board) and adopted by the Europe- an Union. The term IFRS encompasses all the International Financial Reporting Standards (IFRS), all the International Accounting Standards (IAS) and all the interpretations of the International Financial Report- ing Standards Interpretations Committee (IFRS IC, formerly IFRIC), previously known as Standing Inter- pretations Committee (SIC). Specifically, it should be noted that the IFRS have been applied consistently to all the periods presented in this document.

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 6 February 2009, mention should be made that RCS MediaGroup S.p.A.’s separate financial statements at 31 December 2018 have been prepared on a going concern basis.

With regard to CONSOB communication no. DEM/11070007 of 5 August 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.

In 2018, RCS MediaGroup S.p.A. benefited from special rates for the amount of € 85,849, pursuant to art. 28 of Law no. 416 of 5 August 1981 “Regulations governing publishers and publishing benefits” relating to certain dedicated telephone lines. Pursuant to art. 1 par. 125 to 129 of Law no. 124 of 4 August 2017, with regard to the obligations to publish grants, contributions, paid assignments and, in any case, economic benefits of any kind received from the PA, and to art. 3-quater, par. 2, of Decree Law no. 135/2018 (Simplification Decree), it should be noted that the Allocating Bodies are required to publish the contributions in the National Aids Register, available at: https://www.rna.gov.it/sites/PortaleRNA/it_IT/trasparenza on government aid and de minimis aid. It should also be noted that amounts relating to commercial transactions carried out during the year that involve a consideration have not been taken into account. The financial statements have been prepared in accordance with the conventional historical cost method, except for a number of financial assets and liabilities, including derivative instruments, which are measured at fair value.

This section summarizes the most important accounting policies adopted by RCS MediaGroup S.p.A..

Revenue

Revenue is recognized in the income statement when the criteria set out in IFRS 15 are met. Specifically: ̶ revenue from the sale of goods is considered to have been earned and is recognized gross of the distribution premiums at the time of the transfer of ownership, which conventionally coincides: ̶ ̶ with the publication date for newspapers and magazines, recorded at the value reasonably estimated on the basis of a consignment contract, ̶ ̶ and the shipment date for book publications, recorded net of reasonably estimated returns; ̶ ̶ revenue from the sale of magazine subscriptions is recognized on the basis of the magazines published and distributed during the period. ̶ ̶ revenue from the sale of advertising space on traditional media is recognized according to the issue date of the publications; ̶ ̶ advertising revenue generated by digital operations is recognized at the time of the broadcasting or publication of the message which normally (banner) coincides with the publication date; ̶ ̶ 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;

– 150 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

̶ ̶ dividends are recognized on the payable, i.e. the date of the shareholders’ resolution for allocation; ̶ ̶ revenue is shown net of returns, discounts and allowances.

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 is recognized using the effective interest method. Financial income and expense are shown in Note 11 in accordance with the categories defined in IFRS 9 and in the manners set out by IFRS 7.

Income tax

Income tax corresponds to the sum of deferred and prepaid tax. Current tax is recorded and determined on the basis of a realistic estimate of taxable income in accordance with current tax regulations. The charge or income relating to current income tax for the year is determined using the tax rules currently in force. RCS MediaGroup S.p.A. has made an Italian group tax election, as allowed by Legislative Decree no. 344 dated 12 December 2003. Under the scheme, an entity may determine a single tax base by adding up the income and losses of all the participating companies. Mention should be additionally be made that 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. The value of deferred tax assets recognized in the financial statements is reviewed annually.

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 assets recognized in the financial statements as they satisfy the requirement of producing probable future economic benefits for the Company, and of having a reliably estimated cost.

151 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

These are recorded in the financial statements at purchase cost (including ancillary expense), if acquired separately, or at production cost (including direct and indirect production expense), if produced internally, or at fair value at the date of acquisition if acquired through business combinations. They are systematically depreciated (except for the land component) 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 less 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. The useful life and the amortization criteria applied are reviewed on a regular basis and where change is deemed necessary, the amortization rate is restated in accordance with the prospective method. Improvement expenditure is recorded as an asset 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.

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. 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 reliably estimated and can be recovered through the associated expected future economic benefits. 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 completion 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

Intangible assets are resources that are clearly identifiable and controllable by the Company, from which it expects future economic benefits. These are recorded at purchase cost if acquired separately, and are capitalized at fair value at the date of acquisition if acquired through business combinations.

– 152 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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 recoverable amount is lower than the carrying amount, the asset is impaired accordingly. The useful life and the amortization criteria applied are reviewed on a regular basis and where a material change compared to previous circumstances is found, the asset can be transferred from indefinite to finite useful life or vice versa and, for assets with finite useful lives, the amortization rate can be modified in accordance with the prospective method. The Company holds that there is a trigger event when an asset with indefinite useful life is classified as an asset with finite useful life in light of the aforementioned review. 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 control such goods, or in the case of the supply of services, when the Group receives the services.

Impairment of non-financial assets

The Company assesses the existence of impairment (impairment tests) on assets recorded in the balance sheet (tangible and intangible assets and equity investments) at each balance sheet date. In the case of goodwill, other intangible assets with indefinite life and intangible assets not yet available for use, the Company makes this assessment at least annually, even in the absence of impairment indicators, and in any case during the year whenever such indicators of impairment exist. In the case of tangible assets as well as equity investments and intangible assets with finite useful life, the recoverable value is assessed whenever trigger events arise from the periodic analysis carried out at each reporting date. The recoverability of the carrying amounts is tested by comparing them with the higher of fair value net of disposal costs and value in use. For the purpose of the impairment test, the book value of the CGUs undergoing test consists of net capital employed, i.e. equity adjusted by the net financial position. The fair value is determined based on the market price of the asset, or of an identical asset, traded on an active market, net of disposal costs. In the absence of a market listing, reference may be made to a binding sales agreement, or to the price of the most recent transaction with similar characteristics. In the absence of market value, estimates are used based on data available on the market.

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 Company’s organizational structure and business, as the smallest groups of assets that generate independent cash inflows from continuing use of the relevant groups of assets, or groups of cash generating units, which benefit from combination synergies. If the recoverable value determined above is lower than the value of the asset recorded in the financial statements, the asset would be immediately adjusted and aligned with the recoverable value by recording a write- down in the income statement. If the impairment of an asset other than goodwill is subsequently reduced or no longer exists, the carrying amount of the asset is restored until the new estimate of its recoverable value has been made and up to the limit of the value at which the asset was first recognized in the financial statements. The reversal of the impairment loss is also recorded in the Income Statement.

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

153 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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 income statement in the period in which it is identified.

Inventory

Financial assets

Receivables (with the exception of trade receivables) and other financial assets are initially recognized at fair value plus (only for financial assets measured at fair value through profit or loss) any purchase-related costs. As an exception to the general rule, trade receivables on initial recognition are measured at the price set stablished in the transaction. Management determines upon initial recognition how financial assets are to be classified, identified in Note 11 in accordance with IFRS 9 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: ̶ “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 and recognized at their estimated realizable value (fair value) by means of the allowance for impairment 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 (expected losses). ̶ 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. ̶ 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. ̶ Other non-current equity instruments (ex available for sale) are initially recognized at cost (fair value of the initial consideration given in exchange) increased by any directly attributable transaction costs, as the Compa- ny generally chooses to measure the instrument at fair value with changes recognized in other comprehensive income. As the Company does not trade equities, on initial recognition, it has adopted the option of presenting subsequent changes in the fair value of the investment among other comprehensive income. Accordingly, only dividends are recognized in the income statement (unless they clearly represent a refund of the investment). Changes in fair value and any gains or losses on disposal of the investment are recorded in the statement of comprehensive income and are never recorded in the statement of income. As this option is final and can be exercised for each investment, any exceptions at the initial recognition stage will be shown in the comment on this item. At 31 December 2018, there were no exceptions. ̶ All the investments in equity instruments must be measured at fair value. ̶ 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 other valuation techniques, such as income valuations or based on discounted cash flow analysis. ̶ However, in a few circumstances only, cost may represent an adequate estimate of fair value if, for example, the latest information available to measure fair value is insufficient, or if there is a wide range of possible fair value measurements. Cost is never the best estimate of fair value for investments in listed equity instruments.

– 154 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

̶ As the Company does not trade equities, Other non-current equity instruments are investments in equity instruments below 20% in which the Company does not exercise significant influence. ̶ “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. At 31 December 2018, the Company did not hold any financial assets, which are initially recognized at fair value.

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 the provisions of IFRS 9, the Company has availed itself of the option to continue to apply the methods and requirements established for hedge accounting by IAS 39, previously in force, and thus define the hedge effectiveness relationship relating to the derivative financial instrument. Specifically, financial instruments are accounted for based on the hedge accounting methods adopted by the Company, 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. Pro- spectively 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 “Administration and Finance” 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 financial investments carried out as part of the treasury management function which have a short-term maturity, are highly liq- uid and subject to an insignificant risk of changing value. They are stated at nominal amount. For the purposes of classifying financial instruments according to the criteria set out by IFRS 9 as required by IFRS 7 and reported in Note 11, cash and cash equivalents have been classified for credit risk purposes under Financial assets at amortized cost, while in the statement of cash flows, cash and cash equivalents, as defined above, are shown net of bank overdrafts.

Payables and other liabilities

Financial payables and liabilities 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 11, in accordance with IFRS 9 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. Subsequent to initial recognition, financial liabilities are measured on the basis of their classification in one of the categories under IFRS 9. Specifically, it should be noted that the Company classifies liabilities in the amor-

155 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

tized cost category, except for derivative instruments, for which reference should be made to the specific paragraph. “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. With regard to the modification of the contractual terms of a financial liability, the Company assesses when such a modification can be considered as “substantial”, resulting in a derecognition of the financial liability in the accounts. If the change is not substantial (a “modification”), then the financial liability is not derecognized and the Company recognizes the gain or loss deriving from this change through profit and loss.

Financial liabilities expressed in foreign currencies are translated at closing rates, and the gains or losses from their translation are recognized in the income statement. “Payables and other 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 at their original cost. Gains and losses arising on any subsequent sales are recognized as changes in equity.

Employee benefits

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

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, and whose book value will be recovered mainly through a sale transaction rather than through continuous use. 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. From the date on which such assets are classified under held-for-sale non-current assets, the relating depreciation and amortization is suspended. Any losses arising from this measurement are recognized in “Profit (loss) from assets held for sale and discontinued operations”.

– 156 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

6 ▪ Accounting standards, amendments and interpretations which came into force as from 1 January 2018

IFRS 15 - Revenue from Contracts with Customers

The standard, published by the IASB in May 2014, amended in April 2016 and approved by the European Commission in September 2016, introduces a general model to determine whether, when and to what extent revenue is recognized. Specifically, the standard establishes a new model for the recognition of revenue, applied to all contracts stipulated with customers except for those falling within the application of other IAS/IFRS standards as leases, insurance contracts and financial instruments. The key steps in the accounting of revenue based on this new model are: ̶ identification of the contract with the customer; ̶ identification of the performance obligations contained in the contract; ̶ pricing; ̶ price allocation based on the performance obligations included in the contract; ̶ the criteria for the recognition of revenue when the entity meets each performance obligation.

The standard replaces the recognition criteria set out in IAS 18 - Revenue, in IAS 11 - Construction Con- tracts and in IFRIC 13 - Customer Loyalty Programmes, in IFRIC 15 - Agreements for the Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC-31 Revenue - Barter Transactions Involving Advertising Services.

The Company adopted IFRS 15 Revenue from contracts with customers as from 1 January 2018, using the cumulative effect approach to avoid restating financial years shown in the comparative information and to recognize the effects of the application of the new standard in initial equity for the financial year of first- time application of IFRS 15. 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 presentation of costs/revenue due to the effect of the assessment of the entity acting on its own behalf or as a representative, but nevertheless without consequences on the Company’s equity as at January 1, 2018. This different presentation relates to distribution activities, which are mainly carried out externally. The relating distribution premiums, previously recorded as a decrease in gross revenue, have been reclassified, with the introduction of IFRS 15, among the Company’s costs. The sale of publishing products is, therefore, presented gross of such item; furthermore, non-deductible VAT is brought as a direct decrease in revenue, with an overall effect that increases the amount classified under revenue by € 81.2 million at 31 December 2018. In accordance with the provisions of the cumulative effect approach, it should be noted that the impact on the figures for 2018 amounts to an overall increase of € 81.2 million in the presentation of net revenue. Spe- cifically, the change is attributable to higher circulation revenue of € 81.2 million (comprising € 86.4 million as commented above related to adjustments to distribution premiums and € -5.2 million to lower revenue for non-deductible VAT). These changes did not affect the margin and initial equity.

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 requirements for the classification and measurement of financial instruments, including a new model for calculating impairment of financial assets that also covers expected losses, and new general requirements for hedge transactions. In addition, it includes provisions for the recognition and derecognition of financial instruments in line with the current IAS 39 and new indications on the rescheduling of loan agreements. With the exception of hedge accounting, retrospective application of the standard is required, while it is not compulsory to provide comparative information. Elements that have already been derecognized at the date of first-time application are excluded from retrospective application. As regards hedge accounting, the standard is generally applied prospectively, with a few limited exceptions. In this context, however, an entity may continue applying the provisions of IAS 39.

The Company adopted IFRS 9 Financial instruments as from 1 January, 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 the carrying amounts of financial assets and liabilities arising

157 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

from the adoption of IFRS 9 are recognized in retained earnings as of 1 January 2018. Additionally, with regard to hedge accounting, the Company uses the option of continuing to adopt the provisions of IAS 39.

The effect on initial equity produced a reduction of € 1.7 million (net of the tax effect) as a result of a reduction in receivables of € 2.2 million, with no significant changes in the income statement figures for 2018. Specifi- cally, 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 area to highlight any possible signs of future default. On the basis of these assessments, the relevant impairment percentages for each rating class were identified referring to Trade receivables, Other receivables, Financial receivables and Cash. These percentages represent the point of view of the Company regarding expected losses over the next 12 months.

With regard to the modification of the contractual terms of a financial liability or part thereof, both currently under IFRS 9 and previously under IAS 39, the definition of when such a modification can be considered as “substantial” is unequivocal, therefore resulting in a derecognition of the financial liability in the accounts. However, if the change is not of a substantial nature and therefore the financial liability is not derecognized, the accounting treatment of these changes differs from the accounting treatment in force prior to the adoption of IFRS 9, as the gross value of the financial liability must currently be recalculated and the gain or loss from that change recognized through profit and loss. Specifically, the gross carrying amount of the financial liability must be recalculated as the present value of the renegotiated cash flows discounted at the original effective interest rate. On 10 October 2018, RCS MediaGroup S.p.A. signed an amending agreement with the pool of banks to the existing Loan Agreement at better terms, as explained in the section “Significant events during the year”. The renegotiation does not imply a derecognition of the financial liability as it is not “substantive”. The effect of the changes calculated as described above generated a gain of € 3 million recognized in the income statement in the current year under financial income, instead of being reflected as a benefit in the actual cost of the loan for future years, as set out previously in IAS 39.

IFRS 9 also introduces new provisions for the classification and measurement of financial assets based on the business model under which they are managed, taking account of the characteristics of their cash flows. IFRS 9 classifies financial assets into three main categories: amortized cost, fair value recognized through profit/(loss) (FVTPL) for the year, fair value recognized in other components of comprehensive income (FVOCI). The categories set out in IAS 39, i.e. assets held to maturity, loans and receivables and available-for-sale assets, are derecognized. Based on the new classification criteria, investments in equity instruments with a fair value of € 0.6 million at 31 December 2017 and classified as available-for-sale assets, are now classified under “Other non-current equity instruments”. For each equity instrument, the Company has decided whether measurement at fair value should be recorded in the income statement (FVTPL) or in the statement of comprehensive income (FVOCI). Such option exercised for each equity instrument is final. At 31 December 2018, the amount recognized in the comprehensive income statement resulting from the measurement of Other non-recurring equity instruments was a net profit of € 0.4 million. This amount, prior to the adoption of IFRS 9, would have been recorded directly in the income statement for the year.

– 158 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The table below shows a reconciliation between the financial items classified and measured in accordance with IAS 39 and IFRS 9:

Classification Amount Categories of financial instruments Change IAS 39 IFRS 9 IAS 39 IFRS 9 31/12/2017 01/01/2018 Non-current financial assets: Other non-current equity instruments. Available-for-sale FVOCI 0.5 0.5 financial assets Other non-current equity instruments. Available-for-sale FVTPL 0.6 0.1 (0.5) financial assets Non-current financial receivables Loans and receivables Amortized cost 2.8 2.8 0 Other non-current assets Loans and receivables Amortized cost 13.7 13.7 0

Current financial assets: Trade receivables Loans and receivables Amortized cost 166.6 165.8 (0.8) Sundry receivables and other current assets Loans and receivables Amortized cost 21.4 21.4 0 Current financial receivables Loans and receivables Amortized cost 281.1 279.7 (1.4) Cash and cash equivalents Loans and receivables Amortized cost 0.7 0.7 0

Non-current financial liabilities: Non-current financial payables Other financial liabilities Amortized cost 233.3 233.3 0 and liabilities

Current financial liabilities: Payables to banks Other financial liabilities Amortized cost 16.8 16.8 0 Current financial payables Other financial liabilities Amortized cost 110.0 110.0 0 Trade payables Other financial liabilities Amortized cost 136.4 136.4 0 Sundry payables Other financial liabilities Amortized cost 53.0 53.0 0 and other non-current liabilities

Hedging derivatives Fair value - hedging Fair value - hedging 1.1 1.1 0 instruments instruments

Details on the composition of the classes identified are found in Note 11 to these Financial Statements.

With regard to the provisions of the Decree of the Ministry of the Economy and Finance of 10 January 2018, it should be noted that held-for-trading financial assets (as set out in Appendix A of IFRS 9, points a) and b) are equal to zero.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

In December 2016, the IASB published the interpretation “IFRIC 22 Foreign currency transactions and advance consideration” approved by the European Commission in March 2018. The interpretation aims to provide guidance on how an entity should determine the date of a transaction and, therefore, the exchange rate to use in the event of foreign currency transactions where payment is made or received in advance. The adoption of this interpretation had an immaterial effect on the Company’s net profit for 2018.

159 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Amendment to IAS 40 - Investment property: Change in use of investment property

In December 2016, the IASB published the document “Amendment to IAS 40 - Investment Property: Change in use of investment property” approved by the European Commission in March 2018. The amendments clarify when a company is authorized to change the qualification of a property that was not an “investment property” as such or vice versa. 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 new provisions had no impact on the Company’s financial statements at 31 December 2018.

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, approved by the European Commission in February 2018. These amendments aim to clarify the accounting of some types of share-based payment transactions. At 31 December 2018, the Company had no transactions in place attributable to such types.

Improvements to IFRSs: 2014-2016 Cycle

In December 2016, the IASB published the document “Improvements to IFRS: 2014-2016 Cycle” approved by the European Commission in February 2018. 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. ̶ 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. ̶ IAS 28 - Investments in Associates and Joint Ventures - The amendment clarifies that the election to measure at fair value through profit or loss (rather than at equity) an investment in an associate or a joint venture that is held by an entity that is a venture capital organization, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition.

These improvements had no effects on the Company’s separate financial statements.

7 ▪ Accounting standards, amendments and interpretations approved by the EU, not yet mandatorily applicable, and not adopted in advance by the Company

IFRS 16 – Leases

In January 2016, the IASB published “IFRS 16 – Leases”. The new standard, endorsed by the European Commission in October 2017, establishes a new single model of recognition and measurement of leases for the lessee, 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 in financial liabilities. The standard provides the possibility of not recognizing contracts as leases that involve low-value assets (i.e. leases relating to assets with a value of less than USD 5,000) 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 from 1 January 2019; early application is allowed. First-time application allows use of

– 160 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

the full retrospective method (with restatement of comparative information) or the modified retrospective method (with the cumulative effect of the adoption of IFRS 16 recognized as an adjustment to the opening balance of retained earnings at 1 January 2019, without restatement of comparative information). The Company will apply the standard as from 1 January 2019.

The Company has completed its review of the contracts potentially affected by this standard. There are approximately 600 such contracts, mainly signed in Italy and attributable to approximately 50 different parties. Of these contracts, approximately 180 can be classified as short term or low value leases; the option for these contracts was not to apply the recognition and measurement provisions under IFRS 16. Short-term leases refer mainly to the classes of assets: Motor Vehicles and Real Estate (for lease of apartments or offices).

For such contracts, the introduction of IFRS 16 will not imply the recognition of the financial liability of the lease and the relating right of use, but lease payments will be recognized in the income statement on a straight-line basis for the duration of the respective contracts.

The remaining contracts relate mainly to the rental of real estate and company cars used by employees. Lastly, a number of minor contracts (both in terms of amounts, duration and number of contracts) refer to operating leases of plant and machinery, furniture and office machinery. In carrying out its analyses, the Company has identified the components of the contracts or the contracts themselves, the lease of which can be traced back to a service contract or a licence concession, and has applied the provisions of IFRS 15 to these cases, excluding them from the scope of IFRS 16. No sale and leaseback transactions were identified. Sublease contracts have been identified for properties in use. The Company, as a lessor of real estate to third parties, has identified these contracts as operating leases. The Company, as lessee, will adopt the abovementioned modified retrospective method. Specifically, the Company will record, with regard to the lease contracts previously classified as operating: ̶ a financial liability, equal to the present value of the remaining future payments at the transition date, discounted using for each contract the incremental borrowing rate applicable at the transition date; ̶ a right of use equal to the amount of the financial liability at the transition date, net of any accrued income and prepaid expenses relating to the lease and recorded in the statement of financial position at the balance sheet date of these financial statements; ̶ assessments are underway, restricted to certain property rental contracts, regarding the possible valuation (as an exception to the transition method generally applied by the Company) of the right of use, by applying discounting from the effective date of the contracts, with the same IBR used in calculating the financial liability. This accounting treatment (known as cherry picking) at 1 January 2019 would have a decreasing impact on equity as a result of the difference emerging between the right of use, so calculated, and the financial liability. The estimated impact is approximately € 11 million.

The financial liability emerging from the application of the modified retrospective method was discounted using an IBR (Incremental Borrowing Rate) consistent with the maturity of the underlying contracts. The different IBRs range from approximately 1% to approximately 2.5%. In applying the lease accounting method, Management carefully assessed the definition of the lease term or the duration of the contracts, identifying the non-cancellable period of the lease and integrating it to take account of any extension or termination options, the exercise of which is reasonably certain. The leases recorded in the financial statements at 31 December 2018 in application of IAS 17, were reviewed to ascertain whether by applying the new provisions of IFRS 16 they should have been subject to changes in their duration or any service obligation components included in the contracts, concluding that, in the manner presented in the financial statements at 31 December 2018, these leases will not be subject to changes in treatment in 2019.

The estimated financial liability resulting from the application of IFRS 16, calculated as explained above, amounted to € 163 million at 1 January 2019. The amount includes the effects of the lease of the property complex in Via Solferino, without prejudice to the comments in the section on “Information on ongoing disputes” in the Directors’ Report on Operations.

161 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The table below shows the estimated impacts of the adoption of IFRS 16 at the transition date, without taking into account the ongoing assessments of the possible application of cherry picking:

Impacts at transition date (€/millions) 1 January 2019 ASSETS Usage rights property 156 Usage rights plant and machinery 1 Usage rights motor vehicles 6 Total non-current assets 163 TOTAL ASSETS 163

EQUITY AND LIABILITIES Retained earnings Total equity - Financial liabilities from non-current leases 145 Total non-current liabilities 145 Financial liabilities from current leases 18 Total current liabilities 18 TOTAL EQUITY AND LIABILITIES 163

It should be noted that the estimated effects of the adoption of IFRS 16 as commented above, may be subject to change up to the presentation of the Company’s first financial statements, which include the date of first-time application, also in light of guidelines that may arise at a later time on certain situations that are more exposed to the interpretations of the standard, as well as for the implementation of the IT solutions identified in support of the business processes involved.

As required by ESMA’s Public Statement of 26 October 2018, a reconciliation is given below of operating lease commitments, the amount of which is shown in Note 50 of these Financial Statements, under IAS 17, and the emerging liability under IFRS 16.

Reconciliation of (€/millions) lease commitments Operating lease commitments at 31 December 2018 227 Lease payment commitments - renewal options 7 Reduction for exemption Short term leases 1 Reduction for exemption Low value assets - Reduction for non-IFRS 16 services included in lease contracts (service components) - Increase due to variable items of lease payments - Other changes (*) 49 Gross value of liabilities deriving from leases at 1 January 2019 - first-time application of IFRS 16 184 Discounting 21 Liabilities arising from leases at 1 January 2019 - first-time application of IFRS 16 163 Present value of finance leases at 31 December 2018 ex IAS 17 2 Liabilities arising from leases at 1 January 2019 165

(*) refer to lease payments outside IFRS 16

– 162 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Amendment to IFRS 9 - Financial Instruments: Prepayment features with negative compensation

IFRIC 23 - Uncertainty over Income Tax Treatments

The new interpretation applies as of 1 January 2019, but early application is allowed.

8 ▪ Accounting standards, amendments and interpretations yet to be endorsed by the EU and applicable from financial periods after 1 January 2018

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 assignment 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. With a further adjustment in December 2015, the IASB cancelled the previous date of first-time application set for 1 January 2016, deciding to determine it at a later date.

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 1 January 2019.

163 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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. ̶ 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 1 January 2019. Early application is allowed.

Amendment to IAS 19 - Plan Amendment, Curtailment or Settlement

In February 2018, the IASB published the amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” to clarify how current service cost and net interest are determined when a change occurs in the defined benefit plan. The amendments apply to financial periods beginning on or after 1 January 2019. Early application is allowed.

Amendment to IAS 1 and IAS 8 - Definition of Material

Amendment to IFRS 3 - Definition of a Business

9 ▪ Main decisions when applying accounting standards and 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. Owing to the persisting negative trend of the main markets of operation of the Company, and in the face of a turbulent 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 years may have a different outcome to those forecasted at 31 December 2018, 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 assets under evaluation, 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), and the assumptions about expected cash flows, which in turn are significantly influenced by the performance of the publishing market and the more general macroeconomic context.

– 164 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Projections are also used when determining returns to receive, provisions for risks and charges, and other allowances for write-downs, particularly for inventory, depreciation and amortization, and employee benefits. Signif- icant estimates are also required to assess the recoverability of deferred tax.

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 targets, policies and procedures in 2018 from the year ended 31 December, 2017. The Loan concluded in August 2017 was renegotiated on 10 October 2018. The main terms and conditions of this Amending Agreement are: ̶ the restructuring of the loan, with a reduction in Credit Line A from the residual € 166.3 million (at last 10 October) to € 141.3 million, and a concurrent increase in the Revolving Credit Line from € 100 million to € 125 million; ̶ 12-month extended duration of the loan with resulting postponement of the final due date from 31 December 2022 to 31 December 2023; ̶ amendment of the repayment plan of Credit Line A, with repayment of € 16.3 million at 31 December 2018 followed by ten half-year instalments of € 12.5 million each; ̶ a reduction in the spread charged on both credit lines as from 10 October 2018 and then re-determined from time to time in respect of a margin grid determined by the leverage ratio (NFP/EBITDA), which is more favourable than the original level; ̶ with particular regard to the Revolving Line: lower commission on undrawn amounts, elimination of annual clean down clause, and introduction of a commission on drawn down amounts applied only if certain pre-set levels are exceeded.

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..

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.

Interest rate risk

Interest rate risk refers to the risk of possible higher financial expense caused by an adverse, unexpected fluctuation 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 “Administration and Finance” department within the 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 “Administration and Finance” 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.

At 31 December 2018, approximately 59% of Company loans and borrowings, including finance lease liabili-

165 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

ties, were at a contractually fixed rate, or transformed to such via interest rate swaps (IRS) (67% at 31 December 2017). Hedging, at Group level, was approximately 83% (79% at 31 December 2017). At 31 December 2018, 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. Mention should be made that a number of new IRS hedging contracts for € 40 million were concluded in February 2018, with a residual duration of just under four years at a fixed rate of 0.454%. RCS has complied with Regulation (EU) no. 648/2012 on OTC (over the counter) derivatives ever since it came into force in Italy and in all European countries (the EMIR Regulation); the Regulation introduces 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 regulatory authorities. 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 of interest rate risk on floating rate items Increase/decrease in Impact Underlying underlying interest rates on profit or loss Impact on equity (€/millions) 2018 (17.3) 1% 1.3 (3.2) 2017 pro-forma (81.2) 1% 0.6 (3.7)

2018 (17.3) -1% (1.8) (3.3) 2017 pro-forma (81.2) -1% (2.0) (3.8)

The Company held exclusively floating-rate financial instruments at 31 December 2018. 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 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 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 € 170 million at 31 December 2018 (€ 243.8 million in 2017) 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 31 December 2018 revealed that an increase in interest rates would produce a potential income of € 1.3 million in the income statement (expense of € 0.6 million in 2017 pro-forma) and an increase of € 3.2 million in equity (€ 3.7 million in 2017 pro-forma). A decrease in interest rates would produce potential losses of € 1.8 million in the income statement (€ 2.0 million losses in 2017 pro-forma) and a decrease of € 3.3 million in equity (€ 3.8 million in 2017 pro-forma).

Mention should be made that the centralized treasury service provided by RCS MediaGroup has financial receivables with the Group companies; this has an effect on the sensitivity results, also with regard to the hedges on the Group’s financial exposure.

– 166 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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 pos- sibly 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.

The renegotiation of 10 October 2018, described above, which entailed an identical split of the amounts of the two credit lines, increased the company’s flexibility in managing liquidity risk. The additional flexibility is due to: ̶ from the optimal management of any available funds in relation to the requirements highlighted from time to time based on the seasonal nature of operations; ̶ the possible use of different forms of short and medium/long-term financing.

Liquidity analysis

The following tables show the maturity analysis of the Company’s financial and trade assets and liabilities at 31 December 2018 and 31 December 2017 pro-forma, based on undiscounted contractually agreed payments (including principal and interest even if not matured at the reporting date).

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.

Analysis of balances reported at the end of 2018 Contractual due date (interest and principal) on 0-6 6 months- 1-2 2-5 over (€/millions) demand months 1 year years years 5 years Total Financial assets Trade receivables to third parties 20.3 103.3 1.6 - - - 125.2 Intragroup trade receivables 14.5 17.5 - - - - 32.0 Sundry receivables (trade or financial) 10.5 0.8 - 0.1 0.1 0.4 11.9 Intragroup loan assets for overdrafts 3.2 273.1 - - - - 276.3 Cash and cash equivalents 0.4 - - - - - 0.4 Total financial assets 48.9 394.7 1.6 0.1 0.1 0.4 445.8

Financial liabilities Trade payables to third parties (74.4) (35.9) - - - - (110.3) Financial payables (with leases) (13.3) (24.7) (14.5) (26.7) (124.5) - (203.7) Intragroup trade payables (9.0) (5.8) (0.3) - - - (15.1) Sundry payables (trade or financial) (14.8) - - - - - (14.8) Intercompany financial payables - (66.8) (24.5) - - - (91.3) Hedging derivatives - (0.3) (0.2) (0.4) (0.2) - (1.1) Total financial liabilities (111.5) (133.5) (39.5) (27.1) (124.7) - (436.3)

167 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Analysis of balances reported at the end of 2017 pro-forma (1) Contractual due date (interest and principal) on 0-6 6 months- 1-2 2-5 over (€/millions) demand months 1 year years years 5 years Total Financial assets Trade receivables - third parties (2) 25.8 107.8 1.5 - - - 135.1 Intragroup trade receivables (2) 40.0 103.3 - - - - 143.3 Sundry receivables (trade or financial) 12.7 0.2 0.2 0.3 1.0 1.6 16.0 Intragroup financial receivables 14.9 267.6 - - - - 282.5 Cash and cash equivalents 0.7 - - - - - 0.7 Total financial assets 94.1 478.9 1.7 0.3 1.0 1.6 577.6

Financial liabilities Trade payables to third parties (83.6) (41.1) - - - - (124.7) Financial payables (with leases) (16.8) (31.9) (15.6) (30.8) - (322.8) Intragroup financial payables (35.9) - - - - - (35.9) Intragroup trade payables (0.2) (11.5) - - - - (11.7) Sundry payables (trade or financial) (16.6) - - - - - (16.6) Intercompany financial payables - (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) - (546.6) (1) These figures include forecast interest not yet accrued at 31 December 2016 and, therefore, not reconcilable with those reported in the statement of financial position. (2) Trade receivables are stated gross of expected product returns.

– 168 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Credit risk

Credit risk can be defined as the possibility that one party to a financial instrument will cause a financial loss by failing to discharge an obligation.

The figures for 2018 include the effects of the adoption of IFRS 9 and are expressed in accordance with the new methods set out in IFRS 7 (amended following the introduction of IFRS 9). The Company has availed itself of the option under IFRS 9 to not re-calculate prior years’ comparative information, only restating the credit risk tables relating to the prior year for the sake of completeness.

Overall, the tables are not directly comparable as the allowance for impairment of trade receivables was determined in 2018 using the expected credit losses (ECL) method (in application of IFRS 9) instead of the incurred loss method used in 2017 (€ +0.7 million at 31 December 2018), and revenue recognized relating to consignment contracts used by the Group is recognized at reasonably estimated value or net of the provision for returns (for the purposes of recognition in accordance with IFRS 7).

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. Additionally, there are loans to group companies as part of the Group’s centralized treasury management.

Trade receivables are recognized in the financial statements after deducting impairment losses and returns to receive.

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 accu- rately 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. The table below provides information on the credit quality of financial assets, according to the new IFRS 9 format, as well as maximum credit exposure:

Non-current Other non-cur- Sundry Trade financial Current rent assets receivables and Cash and cash Rating receivables receivables financial 12 months other current equivalents Total (1) lifetime ECL receivables ECL assets Rating A (low risk) 20.9 20.9 Rating B (medium risk) 127.2 127.2 Rating C (high risk) 14.5 14.5 Rating Z (not rated) 2.2 4.0 270.9 0.6 16.8 0.4 294.9 Total 164.8 4.0 270.9 0.6 16.8 0.4 457.5 gross receivables Allowance (9.1) (3.4) (1.4) 0.0 (6.4) 0.0 (20.3) for impairment Total net receivables 155.7 0.6 269.5 0.6 10.4 0.4 437.2

(1) As from 2018, the presentation of trade receivables for the purposes of IFRS 7, limited to consignment contracts, is made net of the provision for returns. In 2018, this led to a decrease of € 27.5 million in the accounting presentation of trade receivables for the purposes of the notes in application of IFRS 7. Net of this change, trade receivables would have amounted to € 183.2 million instead of € 155.7 million.

The allowance for impairment of trade receivables at 31 December 2018 amounted to € 9.1 million (€ 8.7 million at 31 December 2017), which is commented on in Note 35. The allowance for impairment of trade receivables at 31 December 2018 came to 5.5% of gross trade receivables. Net of the above discontinuities, the percentage of the allowance for impairment in 2018 would have been 5.1% (5.0% at 31 December 2017).

169 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Net current financial receivables amounted to € 269.5 million (€ 281.1 million at 31 December 2017) and refer mainly to financial assets with companies of the RCS Group.

Receivables decreased versus the prior year, in particular net trade receivables decreased by € 10.9 million, due mainly to the strong recovery of past dues (approximately € 9 million) and litigation (€ 0.9 million).

The table below shows the impairment percentages applied at 31 December 2018 to loans and receivables based on past due age range.

Not 1- 30 31-60 61-90 91-180 181-360 361-540 541-720 over Rating overdue days days days days days days days 720 days Rating A (low risk) 0.13% 3% 6% 8% 10% 20% 30% 40% 50% Rating B (medium risk) 0.55% 5% 8% 10% 12% 30% 40% 50% 60% Rating C (high risk) 1.72% 8% 10% 12% 15% 40% 60% 70% 80% Rating E (public entities) 1.45% 1% 1% 1% 2% 5% 10% 20% 30% Rating Z (not rated) 1.12% 6% 8% 10% 12% 30% 40% 50% 60%

As mentioned, the Company has availed itself of the exemption of not recalculating prior-years’ comparative information relating to changes in classification and assessment; credit risk information is therefore provided on the basis of IFRS 9 only for 2018. For this reason, and with regard to the treatment of returns related to consignment contracts (as stated in Note 1 of the Concentration of Credit Risk table), the credit risk tables for the prior year which are provided for the sake of completeness, are not directly comparable.

The format of the tables at 31 December 2017 derives essentially from the incurred losses impairment method- ology, which excluded receivables without signs of default and therefore the information was focused on receivables past due:

Carrying amount at 31/12/2017 - pro-forma Not past due & Past due & Past due & Allowance for (€/millions) not impaired not impaired impaired impairment Total Trade receivables (1) 126.2 10.9 65.9 (8.7) 194.3 Sundry receivables and other current assets 11.9 - 6.4 (6.4) 11.9 Current financial receivables 281.1 - - - 281.1 Current portion 419.2 10.9 72.3 (15.1) 487.3 Non-current financial receivables 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 422.6 10.9 73.3 (16.1) 490.7

(1) For IFRS 7 purposes, trade receivables are stated gross of expected product returns (€ 27.7 million).

Current trade receivables and financial assets, not past due and not impaired at 31 December 2017 pro-forma are summarized in the following table, on the basis of the credit rating assigned by the Company to individual debtors.

Rating Carrying amount at 31/12/2017 - pro-forma Current Non-current (€/millions) portion portion Total Rating A (low risk) 15.2 - 15.2 Rating B (medium risk) 81.7 - 81.7 Rating C (high risk) 7.2 - 7.2 Rating Z (not rated) 315.1 3.4 318.5 Total 419.2 3.4 422.6

– 170 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

It should be noted that the category of receivables with a Z rating refers mostly to financial receivables from RCS Group companies and, to a lesser extent, to receivables from public entities and mass market customers.

The maturity of loans and receivables reported in the financial statements at 31 December 2017 pro-forma is shown below.

Loans and receivables ageing Loans and recei- Total past due & vables not past due 30 31-60 61-90 91-180 181-360 over not impaired (€/millions) & not impaired days days days days days 361 2017 pro-forma 422.6 3.1 0.2 0.9 1.5 1.7 3.5 10.9 2017 411.8 3.1 0.2 0.9 1.5 1.7 3.5 10.9

Price risk

RCS MediaGroup S.p.A. is not exposed to significant price risks related to financial instruments included in the scope of application of IFRS 9.

11 ▪ Financial instruments: disclosures

As required by IFRS 7, the following table shows the carrying amounts of items included in each category identified by IFRS 9.

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.

Carrying amount Notes 31/12/2017 (€/millions) 31/12/2018 pro-forma FINANCIAL ASSETS Financial assets at fair value through the comprehensive income statement Other equity instruments - equity investments 30 1.6 0.6 Financial assets measured at amortized cost Trade receivables 35 155.7 194.3 Current financial receivables 37 269.5 281.1 Cash and cash equivalents 37 0.4 0.7 Sundry receivables and other current assets 36 10.4 11.9 Non-current financial receivables 32 0.6 2.8 Sundry receivables and other current assets 36 0.6 0.6 TOTAL FINANCIAL ASSETS 438.8 492.0

FINANCIAL LIABILITIES Liabilities at amortized cost Trade payables 42 125.4 136.4 Payables to banks 37 13.3 16.8 Current financial payables 37 126.8 110.0 Non-current financial payables 37 141.6 233.3 Sundry payables and other current liabilities 43 14.9 16.6 Financial liabilities at fair value through the comprehensive income statement Current financial payables (hedging derivatives) 37 0.1 0.9 Non-current financial payables (hedging derivatives) 37 1.0 0.1 TOTAL FINANCIAL LIABILITIES 423.1 514.1

171 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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: Level 1: Quoted prices (unadjusted) in active markets for identical assets and 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 31 December 2018, assets and liabilities have been classified according to the fair value hierarchy as follows.

(€/millions) Notes Level 1 Level 2 Level 3 Total FINANCIAL ASSETS Financial assets at fair value through the comprehensive income statement - - - - Other non-current equity instruments Equity investments 30 0.4 - 1.2 1.6 Hedging derivatives - - - - TOTAL FINANCIAL ASSETS 0.4 - 1.2 1.6

FINANCIAL LIABILITIES Hedging derivatives 37 - 1.1 - 1.1 TOTAL FINANCIAL LIABILITIES - 1.1 - 1.1

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

Gains/(losses) Balance at recognized Additions/ Decreases/ Gains and losses recognised as Transfers to/ Balance at 31/12/2017 in profit or loss purchases sales other comprehensive income from level 3 31/12/2018 0.6 - 0.7 (0.1) - - 1.2

– 172 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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

The table shows the effect on profit or loss and the statement of financial position of financial instruments classified in accordance with IFRS 9, and so not directly reconcilable with the classification contained in the financial statements.

2017 (€/millions) Notes 2018 pro-forma Net gains/losses recognized on financial instruments 15.7 27.7

Held-for-trading financial assets/liabilities - - - Hedging derivatives 22 (1.4) (1.0) - of which gains recognized in equity (0.3) 2.6 - of which profit/(losses) recognized in income statement (1.1) (3.6) Gains/(losses) on other equity instruments 23 17.1 28.7 - of which dividends from equity investments 15.6 12.6

- of which expense on equity investments - - - - of which gains from disposals on equity investments - 14.9 - of which sundry income on equity investments 1.5 1.2

Gains/(losses) on loans and receivables 22 - - - Interest income/expense (at internal rate of return) accrued on financial assets/liabilities not at FVTPL 1.0 (2.2) Interest income on 22 7.6 10.6 - loans/receivables 7.6 10.6 Interest expense on 22 (6.6) (12.8) - financial liabilities (6.6) (12.8) Expenses and fees not included in effective interest rate (0.9) (1.0) relating to financial assets 22 (0.9) (1.0) - loans/receivables (0.9) (1.0) Allowances for impairment of financial assets (4.4) (1.9) - Loans/receivables 20 (4.4) (1.7) - Other equity instruments (former AFS) 23 - (0.2)

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

Description 2018 2017 pro-forma Change 2017 Circulation revenue 321.7 237.4 84.3 237.4 Advertising revenue 243.0 241.4 1.6 241.4 Sundry publishing revenue 18.9 21.4 (2.5) 21.4 Total 583.6 500.2 83.4 500.2

With regard to circulation revenue, the € 2.2 million increase versus 2017 on a like-for-like basis, is generated by the good performance of add-on products and the development of revenue from digital subscriptions to Corriere

173 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

della Sera, which offset the fall in circulation revenue. Both newspapers retained their circulation leadership in their respective market segments at December 2018 (ADS January-December 2018). Publishing revenue from magazines, again on a like-for-like basis, grew slightly (€ +0.1 million versus 2017 pro-forma), with an increase in newsstands circulation of Oggi, Abitare and Amica, offset by the drop in revenue from add-on sales.

Sundry publishing revenue amounted to € 18.9 million, down by € 2.5 million versus 2017 pro-forma. The change is due mainly to lower revenue from direct marketing activities.

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 12 March 2010 and subsequent amendments, on 10 November 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 1 January 2014 and subsequently effective as from 1 October 2015. The latest amendments came into force on 4 August 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. Effective from July 2016, the ultimate parent of the Group is U.T. Communications S.p.A., the de facto parent of Cairo Communication S.p.A., which became, in turn, the direct controlling entity of RCS MediaGroup S.p.A.. At 31 December 2018, 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 31 December 2018 is also included - 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.

The following table shows the amount and proportion of related party transactions and balances included in each relevant heading of the statement of financial position and income statement.

Sundry receivables Equity investments Trade Current financial and other current Current tax assets at cost receivables receivables assets Parents - 0.3 - - - Subsidiaries 389.2 10.1 0.1 1.7 269.2 Associates 8.1 19.8 - - - Other group companies - 1.2 - - - Other related parties (1) - 1.1 - - - Total related parties 397.3 32.5 0.1 1.7 269.2 Reported total 397.3 155.7 18.9 2.9 269.5 % of reported total 100.00% 20.87% 0.53% 58.62% 99.89%

– 174 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Sundry payables Sundry payables Current financial Current tax Commit- and other non-cur- Trade payables and other current payables liabilities ments rent liabilities liabilities Parent - - - 0.1 - - Subsidiaries 0.9 84.5 2.3 10.9 0.1 20.1 Associates - 6.8 - 1.9 - - Other group companies - - - 1.8 - - Other related parties (1) - - - - 1.8 2.1 Total related parties 0.9 91.3 2.3 14.7 1.9 22.2 Reported total 1.8 126.8 4.0 125.5 49.1 45.5 % of reported total 50.00% 72.00% 57.50% 11.71% 3.87% 48.79%

Interest income Other gains Raw ma- Other opera- Personnel calculated using Financial (losses) on Revenue terials and ting revenue expense effective interest expense financial assets/ services and income method liabilities Parents - ( 0.3) - 0.8 - - - Subsidiaries 8.9 ( 58.2) - 8.8 7.4 ( 0.5) 11.8 Associates 279.2 ( 86.0) - 1.0 0.1 - 1.6 Other group companies 1.3 ( 2.9) - 0.7 - - - Supplementary pension fund - ( 0.4) - - - - for executives Sub-holdings and their parents ------Other related parties (1) 2.0 ( 3.6) ( 3.0) - - - - Total related parties 291.4 ( 151.0) ( 3.4) 11.3 7.5 ( 0.5) 13.4 Reported total 583.6 ( 374.3) ( 157.6) 23.8 7.6 ( 11.7) 14.8 % of reported total 49.93% 40.34% 2.16% 47.48% 98.68% 4.27% 90.54%

(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.

Transactions with parents include revenue of € 0.8 million, costs for services of € 0.3 million, trade receivables of € 0.3 million and trade payables of € 0.1 million. These amounts mainly refer to the purchase and sale of advertising space made between the Company and Cairo Communication S.p.A..

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

175 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Ventures S.r.l., Trovolavoro S.r.l., Unidad Editorial S.A. and Editoriale del Mezzogiorno S.r.l., as well as from Cairo group companies (La7 S.p.A.).

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 newsstands 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, the Financial Reporting Manager and the Key management personnel of RCS MediaGroup S.p.A. and of the parent Cairo Communication S.p.A., details of whose remuneration in the various forms received are provided in the following table.

Sundry payables Service Personnel and other current Commitments costs expense liabilities Board of Directors - fees 3.4 - 1.5 - Board of Statutory Auditors - fees 0.2 - 0.2 - Key management personnel - 3.0 0.1 2.1 Total related parties 3.6 3.0 1.8 2.1 Reported total 255.8 157.6 49.1 % of reported total 1.41% 1.90% 3.67%

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.

Group tax consolidation for IRES purposes In 2018, 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, which allows a tax burden to be determined 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.

Group tax consolidation for VAT purposes. In 2018, 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 € 2.9 million. RCS MediaGroup S.p.A. transferred net tax liabilities totaling € 17.8 million to the RCS Group VAT consolidation for 2018.

14 ▪ Changes in work in progress, finished and semi-finished products

The change in inventory amounted to € 0.6 million and related mainly to inventory of finished goods (€ +0.3 million) from the “Solferino” stock, and to work in progress (€ +0.2 million), attributable mainly to a different publishing plan for add-on products.

2017 Description 2018 pro-forma Change 2017 Change in inventory of work in progress 0.2 (0.4) 0.6 (0.4) Change in finished products 0.3 - 0.3 - Allocation to provision for finished products 0.1 (0.1) 0.2 (0.1) Total 0.6 (0.5) 1.1 (0.5)

– 176 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

15 ▪ Raw materials and services

Raw materials and goods

2017 Description 2018 pro-forma Change 2017 Purchase of paper 47.2 40.2 7.0 40.2 Purchase of advertising space 21.3 21.5 (0.2) 21.5 Purchase of finished products 11.6 11.7 (0.1) 11.7 Purchase of other materials 4.3 3.9 0.4 3.9 Change in raw and ancillary materials and goods (2.6) 0.1 (2.7) 0.1 Allocation to provision for inventory 0.1 - 0.1 - Total 81.9 77.4 4.5 77.4

The increase of € 4.5 million versus the prior year pro-forma is due mainly to increased costs for the purchase of paper (€ +7 million), related both to increased procurement and to the higher price of paper. Additionally, the reporting period recorded greater purchases of other materials (€ 0.4 million) as a result of the different publishing plan for add-on products. Conversely, the change in inventory linked to the increase in paper product inventory.

Service costs

2017 Description 2018 pro-forma Change 2017 Distribution costs 98.4 13.4 85.0 13.4 Subcontracted work 62.6 63.0 ( 0.4) 63.0 Freelance staff and reporters 22.5 22.3 0.2 22.3 Promotional and advertising expenses 18.2 18.1 0.1 18.1 Commission expense and other sales costs 12.3 12.1 0.2 12.1 Professional and consulting fees 7.9 12.8 ( 4.9) 12.7 Sundry service costs 5.7 5.8 ( 0.1) 5.8 Travel and accommodation 3.9 3.8 0.1 3.8 Utilities 3.7 3.0 0.7 3.0 Postal expenses 3.7 5.8 ( 2.1) 5.8 Directors' and statutory auditors' fees 3.6 2.6 1.0 2.6 Maintenance 3.1 3.3 ( 0.2) 3.3 Market survey services 2.0 2.3 ( 0.3) 2.3 IT services 2.0 - 2.0 - News agencies 1.9 2.5 ( 0.6) 2.5 Personnel services 1.6 1.9 ( 0.3) 1.9 Services of seconded personnel 1.3 1.8 ( 0.5) 1.8 Insurance 1.1 1.0 0.1 1.0 Bank expenses and fees 0.3 0.3 - 0.3 Total 255.8 175.8 80.0 175.7

An overall increase of € 80 million was registered in costs for services versus 2017 pro-forma. Excluding from Description 2018 2017 Change 2017 pro-forma the comparison the presentation effects of the application of the new IFRS 15, amounting to € 86.4 million for Change in inventory of work in progress 0.2 (0.4) 0.6 (0.4) distribution costs in 2018, total costs for services would drop by € 6.4 million, as a result of ongoing efficiency Change in finished products 0.3 - 0.3 - gains, in particular expenses for professional and consultancy services and postal expenses. It should be noted that IT services, amounting to € 2 million in 2018, were previously classified under the item Allocation to provision for finished products 0.1 (0.1) 0.2 (0.1) “professional and consulting services” as technical consultancy. Total 0.6 (0.5) 1.1 (0.5) In compliance with Legislative Decree no. 39/2010, the fees for the statutory audit of these financial statements total € 0.4 million (€ 0.4 million in 2017 pro-forma).

177 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Rentals and leases

2017 Description 2018 pro-forma Change 2017 Rentals 18.8 18.7 0.1 18.7 Fees 11.6 10.2 1.4 10.2 Leases 6.3 7.8 (1.5) 7.8 Total 36.7 36.7 - 36.7

These amounted to € 36.7 million and include fees for the operating leases, relating mainly to the facilities in Via Rizzoli and Via Solferino (for the latter, subject to the comments made in “Information on ongoing disputes” in the Directors’ Report on Operations) in Milan, as well as to the plants in Rome and Padua. They also include royalties recognized for sales of add-on products bundled with Corriere della Sera and La Gazzetta dello Sport and for the acquisition of photography rights for the Magazines area. The most significant changes concern, on the one hand, the € 1.4 million increase in “Rights”, related to the different publishing plan for add-on products and, on the other hand, the € 1.5 million reduction in lease costs, due mainly to lower operating leases for motor vehicles.

– 178 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

16 ▪ Personnel expense

2017 Description 2018 pro-forma Change 2017 Wages and salaries 111.8 104.4 7.4 104.4 Social security charges 36.1 34.0 2.1 34.0 Employee benefits 9.0 8.5 0.5 8.5 Other costs/recoveries (0.4) 3.4 (3.8) 3.4 Non-recurring expense (income) 1.1 (0.5) 1.6 (0.5) Total 157.6 149.8 7.8 149.8

Personnel expense amounted to € 157.6 million, up by € 7.8 million versus 2017 pro-forma, comprising net non-recurring expense of € 1.1 million (net non-recurring income of € 0.5 million in 2017 pro-forma). Exclud- ing the effect of non-recurring items, personnel expense would increase by € 6.2 million, as a result mainly of the non-application in 2018 of solidarity arrangements in force for employees in 2017.

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

2017 Category 2018 pro-forma Change 2017 Executives, middle managers and white collars 882 895 (13) 895 Publication editors and journalists 654 652 2 652 Blue collars 49 46 3 46 Total 1,585 1,593 (8) 1,593

The average number of employees fell by 8 versus 2017. The trend in the workforce was marked by efficiency initiatives, partly offset by increases and stabilizations aimed at developing the editorial offer, digital assets and new businesses, management of staff turnover and transfers from other Group companies.

17 ▪ Other revenue and income

2017 Description 2018 pro-forma Change 2017 Rental income 5.8 5.4 0.4 5.4 Cost recharges 5.4 7.8 (2.4) 7.8 Sale of returns, leftovers and sundry materials 4.4 3.2 1.2 3.2 Revenue for chargeback of personnel expense 2.7 2.0 0.7 2.0 Ordinary release of provisions for risks 2.3 2.1 0.2 2.1 Grants relating to income 1.3 0.9 0.4 0.9 Other revenue 1.0 1.3 (0.3) 1.3 Co-publication income 0.8 1.5 (0.7) 1.5 Total 23.7 24.2 (0.5) 24.2

“Other revenue and income” amounted to € 23.7 million, basically in line with 2017 pro-forma (€ 24.2 million). The change of € -0.5 million is due mainly to lower recoveries of costs, referring partly to recovery of paper and other services from subsidiaries, and partly to recovery of sundry costs, down thanks to ongoing efficiency actions.

179 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

18 ▪ Sundry operating expense

2017 Description 2018 pro-forma Change 2017 Other operating expense 4.8 4.7 0.1 4.7 Tax charges 1.1 6.3 (5.2) 6.3 Co-publication expense 1.2 0.3 0.,9 0.3 Total 7.1 11.3 (4.2) 11.3

“Sundry operating expense” amounted to € 7.1 million, down by € 4.2 million versus 2017 pro-forma. The change is due mainly to tax (€ -5.2 million), of which € 4.7 million refers to non-deductible VAT in 2017 related to circulation revenue which, following the adoption of the new IFRS 15, is recognized as of 2018 as a reduction in revenue. Therefore, excluding the effects deriving from the application of IFRS 15, sundry operating expense would increase by € 0.5 million, due to higher co-publishing costs as a result of the different publishing plan for add-on products.

19 ▪ Provisions

Provisions totaled € 3.9 million (€ 3.7 million in 2017 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 (€ 3.7 million), and provisions for supplementary agents’ indemnity of € 0.2 million.

20 ▪ (Write-down)/reinstatement of trade and sundry receivables

The item amounts to € 2 million and reflects provisions made for default risks on trade receivables. Prior year pro-forma impairment losses on receivables totaled € 1.8 million. Following application of the new IFRS 9, the write-down of receivables increased moderately by a total of € 0.1 million.

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

2017 Description 2018 pro-forma Change 2017 Amortization of intangible assets 10.4 14.3 (3.9) 14.3 Depreciation of property, plant and equipment 6.7 7.8 (1.1) 7.8 Impairment losses on non-current assets 7.4 3.4 4.0 3.4 Total 24.5 25.5 (1.0) 25.5

Amortization and depreciation of intangible assets and property, plant and equipment totaled € 17.1 million (€ 22.1 million in 2017 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 € 7.4 million (€ 3.4 million in 2017 pro-forma), and refer to the Sfera goodwill, partly written down following the impairment test performed at the end of the year. Fur- ther details are found in Note 29.

– 180 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

22 ▪ Financial income (expense)

2017 Description 2018 pro-forma Change 2017 Interest on non-current receivables from third parties - 0.1 ( 0.1) 0.1 Interest on current intragroup receivables 7.5 10.4 ( 2.9) 10.0 Interest income on other current receivables 0.1 0.1 - 0.1 Total interest income calc. using effective interest method 7.6 10.6 ( 3.0) 10.2 Current sundry financial income 3,0 - 3,0 - Interest income on tax assets 0,1 - 0,1 - Income on discounting to present value 0.1 0.4 ( 0.3) 0.4 Total financial income other than previous 3.2 0.4 2.8 0.4 Exchange rate losses - ( 0.1) 0.1 ( 0.1) Interest expense on bank loans and overdrafts ( 0.1) ( 0.3) 0.2 ( 0.3) Interest expense on non-current loans ( 5.9) ( 11.0) 5.1 ( 11.0) Interest expense on current loans ( 0.1) ( 0.2) 0.1 ( 0.2) Interest payable to Group companies ( 0.5) ( 0.5) - ( 0.5) Losses on derivatives ( 1.1) ( 3.6) 2.5 ( 3.6) Sundry financial expense ( 3.5) ( 2.4) ( 1.1) ( 2.4) Expense on discounting to present value ( 0.5) ( 0.6) 0.1 ( 0.6) Total financial expense ( 11.7) ( 18.7) 7.0 ( 18.7) Total financial income (expense) ( 0.9) ( 7.7) 6.8 ( 8.1)

Net financial expense amounted to € 0.9 million, down by € 6.8 million (€ 7.7 million in 2017 pro-forma). The improvement is due mainly to lower interest expense as a result of the reduction in average debt, and to the positive effect of a lower spread and to a less negative effect of hedging derivatives.

With regard to the renegotiation in 2017 of the Loan Agreement, as part also of the first-time application of IFRS 9, a thorough review was conducted on the many previous contractual renegotiations, starting from the initial signing on 14 June 2013 and taking into account the ensuing partial repayments. The analyses carried out, also in light of the new IFRS 9, taking into account both quantitative and qualitative factors, resulted in the classification of the effects of the renegotiation dated August 2017 as an extinguishment (rather than a modification) leading to the recognition of an expense of approximately € 2.5 million under financial expense for 2018. On 10 October 2018, RCS MediaGroup S.p.A. signed an Amending Agreement to the existing Loan Agreement at further better terms (as explained in the section “Significant events during the year”). The effect of the changes calculated as described above generated a gain of € 3 million recognized in the income statement in the current year under financial income, instead of being reflected in the actual cost of the loan for future years, as set out previously in IAS 39.

Mention should lastly be made that following the merger by incorporation of the subsidiary RCS International Newspapers S.r.l., the total net financial expense of RCS MediaGroup S.p.A. in 2017 pro-forma (net expense of € 7.7 million) versus end 2017 (net expense of € 8.1 million) fell by €0.4 million due to financial income from Unidad Editorial SA, previously held by RCS International Newspapers S.r.l.

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

2017 Description 2018 pro-forma Change 2017 Dividends 15.6 12.6 3.0 12.6 Impairment losses (2.2) (0.4) (1.8) (0.4) Gains from sale of equity investment - 15.2 (15.2) 15.2 Other gains (losses) on financial assets/liabilities 1.4 1.2 0.2 1.2 Total 14.8 28.6 (13.8) 28.6

181 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Dividends received amounted to € 15.6 million (€ 12.6 million in 2017 pro-forma), from the following investees: RCS Sport S.p.A. (€ 13 million), RCS Produzioni S.p.A. (€ 0.3 million), RCS Produzioni Milano S.p.A. (€ 0.4 million), RCS Produzioni Padova S.p.A. (€ 0.3 million), and m-dis Distribuzione Media S.p.A. (€ 1.6 million).

Impairment losses totaling € 2.2 million (€ 0.4 million in 2017 pro-forma) refer essentially to the write-down of the investment in RCS Digital Ventures S.r.l., in order to align the carrying amount with its equity value at 31 December 2018 following the impairment test.

Other net gains from financial assets totaling € 1.4 million (€ +1.2 million in 2017 pro-forma) refer to income from the liquidation of the investee Emittenti Titoli.

24 ▪ (Write-down)/reinstatement of receivables and other financial assets

These amount to € -2.4 million and refer to the partial write-down of a loan granted to a third-party company.

25 ▪ Income tax

Tax recognized in the income statement in application of current tax rates (24% for IRES and 5.57% for IRAP) is as follows:

2017 Desciption 2018 pro-forma Change 2017 Prior years’ tax: 2.3 0.1 2.2 0.1 - IRES (Italian corporate income tax) 2.3 0.1 2.2 0.1 Current tax: (3.5) (2.1) (1.4) (2.1) - IRES (Italian corporate income tax) - 1.1 (1.1) 1.1 - IRAP (Italian regional business tax) (3.5) (3.2) (0.3) (3.2) Deferred tax income/expense: (6.8) (6.7) (0.1) (6.7) - Income (6.7) (6.7) - (6.7) - Expense (0.1) - (0.1) - Total tax (8.0) (8.7) 0.7 (8.7)

Income tax in 2018 reported a net expense of € 8 million, due mainly to the use of deferred tax assets (€ 6.7 million) and to the IRAP provision for the year (€ 3.5 million).

Current tax assets and current tax liabilities are analyzed below:

Balance at Description Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 Current tax assets 2.9 4.5 (1.6) 4.5 Current tax liabilities (4.0) (4.8) 0.8 (4.8) Total current tax liabilities net of assets (1.1) (0.3) (0.8) (0.3)

Current tax liabilities net of assets, amounting to € 1.1 million, increased by € 0.8 million, due mainly to higher IRES payable to the tax authorities (€ 1.3 million), the use of excess IRES receivables (€ 0.7 million), the IRAP payable for the year, net of advance payments, amounting to €0.3 million, and the collection of tax receivables (€ 0.2 million), partly offset by lower payables to companies participating in the tax consolidation scheme (€ 1.7 million).

– 182 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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

Recognized in Recognized in Other 31/12/2017 profit or loss equity changes 31/12/2018 Deferred tax assets - Carry forward tax losses 17.3 - - (4.3) 13.0 - Allowances for impairment of assets 2.3 0.2 0.5 - 3.0 - Provisions for risks and charges 5.5 0.4 - - 5.9 - Costs with deferred deductibility 0.5 0.1 - - 0.6 - Actuarial valuation of employee benefits 0.4 (0.1) (0.1) - 0.2 - Deferred tax arising from tax transparency criteria 1.4 - - - 1.4 - Property, plant and equipment and intangible assets 4.3 (0.2) - - 4.1 - Interest expense pursuant to Art. 96 14.3 (7.0) - - 7.3 - Measurement of derivatives 0.1 - 0.1 - 0.2 - Expense for share capital increase and share conversion 0.2 (0.1) - - 0.1 Total deferred tax assets 46.3 (6.7) 0.5 (4.3) 35.8 Deferred tax liabilities - Property, plant and equipment and intangible assets (0.2) (0.1) - - (0.3) - 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) (0.1) - - (0.7) Net total 45.7 (6.8) 0.5 (4.3) 35.1

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.

The effective tax charge reported in the financial statements is reconciled to the theoretical tax charge as follows:

2017 2018 pro-forma 2017 Profit (loss) before tax 50.0 62.7 62.4 Theoretical income tax 12.0 15.0 15.0 Net effect of permanent differences (8.4) (9.6) (9.6) Effect of temporary taxable differences 3.3 2.7 2.7 Effect of temporary deductible differences (7.0) (9.2) (9.2) Tax relating to prior years IRES (2.2) (0.1) (0.1) IRES - Current tax (2.3) (1.2) (1.2) IRES - deferred tax 7.3 6.7 6.7 Income tax reported in the financial statements, excluding current and deferred IRAP 5.0 5.5 5.5 IRAP - current tax 3.5 3.2 3.2 IRAP - deferred tax (0.5) - - Income tax reported in the financial statements (current and deferred) 8.0 8.7 8.7 The effect of the permanent differences of € -8.4 million on tax refers mainly to the benefits gained from the use of the “ACE” (Support for Economic Growth) of € -4.2 million, the benefit deriving from offsetting interest expense with the operating results of the other companies in the tax consolidation (€ -3.4 million) and dividends (€ -3.6 million), partly reduced by the impairment on Sfera goodwill (€ 1.8 million).

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.

183 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

26 ▪ Non-recurring income (expense)

Rentals and Personnel Description Service costs leases expense Total Non-recurring expense - - (3.1) (3.1) Non-recurring income - - 2.0 2.0 Net non-recurring expense - - (1.1) (1.1) Reported total (255.8) (36.7) (157.6) (450.1) % of reported total - - 0.7% 0.2%

Non-recurring expense and income amounted to a total of € 1.1 million and refer to: ̶ personnel expense totaling € 1.1 million, relating to ongoing corporate reorganization processes, partly offset by releases of debt and provisions previously allocated as non-recurring expense and associated with staff restructuring plans launched in prior years.

Net non-recurring expense totaled € 0.1 million at 31 December 2017.

27 ▪ Property, plant and equipment

Movements in the year were as follows:

Leased Leased Other Assets under Description Land Buildings Plant Equipment Total buildings plant assets construction Cost 5.8 16.3 30.9 83.1 22.4 1.9 69.4 0.1 229.9 Impairment losses - (4.8) - (10.9) (3.5) - - - (19.2) Historical cost at 31/12/2017 5.8 11.5 30.9 72.2 18.9 1.9 69.4 0.1 210.7 Historical cost at 31/12/2017 5.8 11.5 30.9 72.2 18.9 1.9 69.4 0.1 210.7 pro-forma Additions - - - 0.9 - - 0.8 - 1.7 Decreases - - - (6.0) - - (0.3) - (6.3) Other movements ------0.1 (0.1) - Historical cost at 31/12/2018 5.8 11.5 30.9 67.1 18.9 1.9 70.0 - 206.1 Acc. depreciation at 31/12/2017 - (4.4) (20.7) (59.9) (11.8) (1.6) (66.6) - (165.0) Acc. depreciation at 31/12/2017 - (4.4) (20.7) (59.9) (11.8) (1.6) (66.6) - (165.0) pro-forma Depreciation - (0.5) (1.2) (2.4) (0.9) (0.2) (1.5) - (6.7) Decreases - - - 6.1 - - 0.3 - 6.4 Acc. depreciation at 31/12/2018 - (4.9) (21.9) (56.2) (12.7) (1.8) (67.8) - (165.3) Net balance at 31/12/2017 pro-forma 5.8 7.1 10.2 12.3 7.1 0.3 2.8 0.1 45.7 Additions - - - 0.9 - - 0.8 - 1.7 Decrementi - (0.5) (1.2) (2.4) (0.9) (0.2) (1.5) - (6.7) Other movements ------0.1 (0.1) - Net balance at 31/12/2018 5.8 6.6 9.0 10.9 6.2 0.1 2.2 - 40.8

Land is not depreciated.

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.

– 184 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

“Property, plant and equipment”, amounting to € 40.8 million, decreased by € 4.9 million versus 31 December 2017 pro-forma, due mainly to the depreciation charge in the year (€ 6.7 million), partly offset by increases (€ 1.7 million) relating mainly to a number of improvements to plant and the purchase of other assets. “Other movements” refer entirely to reclassifications to assets under construction and the other categories of non-current assets subject to amortization and depreciation. 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 (€ 5.8 million) and the buildings located in Via Rizzoli and Via Cefalù, Milan; the decrease by € 0.5 million versus 31 December 2017 pro-forma relates to the depreciation charge in 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 of € 1.2 million versus 31 December 2017 pro-forma reflects the depreciation charge in the year.

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 versus 31 December 2017 pro-forma, amounting to € 2.5 million, is attributable, on the one hand, to the depreciation charge for the year (a total of € 3.5 million) and, on the other, to the increase (€ 0.9 million) relating to the renovation of the shipping, packaging and folding plants at the Padua and Rome facilities.

Other assets

This item mostly contains furniture and furnishings for € 0.9 million and electronic machinery for € 1.3 million. Versus 31 December 2017 pro-forma, the item increased by € 0.8 million, due mainly to the purchase of new personal computers, notebooks, tablets, servers and mobile phones, in addition to depreciation of € 1.5 million.

185 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

28 ▪ 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 31/12/2017 2.3 2.4 4.7 Historical cost at 31/12/2017 pro-forma 2.3 2.4 4.7 Additions - - - Decreases - - - Historical cost at 31/12/2018 2.3 2.4 4.7 Acc. depreciation at 31/12/2017 - (2.0) (2.0) Acc. depreciation at 31/12/2017 pro-forma - (2.0) (2.0) Depreciation - - - Acc. depreciation at 31/12/2018 - (2.0) (2.0) Net balance at 31/12/2017 pro-forma 2.3 0.4 2.7 Additions - - - Decreases - - - Depreciation - - - Net balance at 31/12/2018 2.3 0.4 2.7

29 ▪ Intangible assets

Movements in the year were as follows:

Finite useful lif Indefinite useful life Concessions, Description licenses, Assets under Total trademarks and development and Other intangible assets similar rights advances Cost 252.7 0.6 45.5 298.8 Impairment losses (7.6) - (24.5) (32.1) Historical cost at 31/12/2017 245.1 0.6 21.0 266.7 Historical cost at 31/12/2017 pro-forma 245.1 0.6 21.0 266.7 Additions 5.4 0.4 - 5.8 Impairment losses - - (7.4) (7.4) Other movements 0.6 (0.6) - - Historical cost at 31/12/2018 251.1 0.4 13.6 265.1 Acc. amortization at 31/12/2017 (229.2) - - (229.2) Acc. amortization at 31/12/2017 pro-forma (229.2) - - (229.2) Amortization (10.4) - - (10.4) Decreases - - - - Acc. amortization at 31/12/2018 (239.6) - - (239.6) Net balance at 31/12/2017 pro-forma 15.9 0.6 21.0 37.5 Additions 5.4 0.4 - 5.8 Impairment losses - - (7.4) (7.4) Amortization (10.4) - - (10.4) Other movements 0.6 (0.6) - - Net balance at 31/12/2018 11.5 0.4 13.6 25.5

– 186 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Intangible assets with finite useful lives are amortized over their useful lives, estimated as follows:

Patents 5 years Concessions, licenses and trademarks from 3 to 5 years Other intangible assets 5 years

Concessions, licenses, trademarks and similar rights

This caption primarily includes software application licenses and related consulting for enhancements (carrying amount € 11.5 million). The increases by € 5.4 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 € 10.4 million. Mention should be made of € 0.6 million in reclassifications for capital- izations in the year.

Other intangible assets

The item includes solely goodwill relating to the Sfera (€ 13.6 million) cash generating unit. This goodwill was partly written down by € 7.4 million following the impairment test carried out at the end of the year.

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 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 regard to the average value of a sample of comparable companies; the risk premium is equal to the historical additional return required on equity of a virtuous country over the government bonds (the method used by Practitioners - Consensus di mercato), 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. For RCS the spread was inferred by analyzing the available market data for a basket of companies with rat- ings consistent with those indicated by the Italian Valuation Organization (Credit Rating Spread for Italy BBB Damodaran and for Spain BB Damodaran). The spread shows an increase for Italian cash generating units and a decrease for Unidad Editorial. The financial structure (Debt/Equity) used has been defined on the basis of the comparable companies analysis, using the average median data of the financial structure of the reference sample (S&P Capital IQ) with a larger equity component versus 2017. 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.

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 segment (€ 13.6 million) were: WACC of

187 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

8.09% 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 in the 2019-2021 period, a slight increase in sales from traditional activities (printing, boxed sets and trade shows), with plans to extend the target to customers falling outside the Childhood segment, and an increase in digital revenue determined by customers’ increasingly greater focus on this channel. Revenue from direct marketing activities, although expected to gradually recover, were declined versus the 2017 plan, which takes account of the introduction of regulations that impact heavily on the segment. Recovery actions will continue on all costs over the period of the plan. The impairment test resulted in a write-down of € 7.4 million.

30 ▪ Equity investments at cost

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 31/12/2017 400.6 8.1 408.7 Effects of the merger of RCS International Newspaper S.r.l. (10.5) - (10.5) Balance at 31/12/2017 pro-forma 390.1 8.1 398.2 Additions 1.3 - 1.3 Impairment losses (2.2) - (2.2) Balance at 31/12/2018 389.2 8.1 397.3

In “Subsidiaries”, the change in the pro-forma balances at 31 December 2017 versus the amounts at 31 Decem- ber 2017 refers, on the one hand, to the elimination of the carrying amount of the investment in RCS Interna- tional Newspapers S.r.l (€257.1 million) and, on the other, to the recording, due to direct holding, of the carrying amount of the investee Unidad Editorial SA (€ 246.6 million), following the aforementioned merger. Further details are found in the appropriate annexes.

The increases in 2018 refer mainly to: ̶ payments totaling € 0.7 million to cover losses for Trovolavoro S.r.l. made in March and December 2018; ̶ the increase in the carrying amount of Sfera Editores Mexico of € 0.6 million following partial waiver of trade receivables from the investee to cover losses.

Mention should be made that in October 2018, € 10,000 was paid for the incorporation of RCS Eventi Sportivi S.r.l., now RCS Sports & Events S.r.l.. This company is part of a project for the partial and proportional demerger of the investee RCS Sport S.p.A., effective from 1 January 2019.

Impairment losses totaling € 2.2 million refer essentially to the investment in RCS Digital Ventures S.r.l. in order to align the carrying amount with its equity value following the impairment test.

Regarding the assessment of equity investments, with evidence indicating impairment, impairment tests were carried out to assess the recoverability of the carrying amounts recorded in the balance sheet.

Particular importance is attached to the test conducted on the investee Unidad Editorial SA, with the direct ownership of a 99.99% interest following the aforesaid merger by incorporation of RCS International Newspapers S.r.l. Therefore, the carrying amount of Unidad Editorial SA represents approximately 84% of the total carrying amounts of equity investments held. 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 2019-2023 for the valuation. Cash flows for the first year of the explicit forecast period correspond to the 2019 budget data approved by Board of Directors of Unidad Editorial on 28 February 2019. Cash flows for the remaining years of the explicit forecast (2020-2023) were developed on the basis of the Unidad Editorial plan approved by the Board of Directors of Unidad Editorial on 12 March 2019. The estimate of the terminal value takes account of a normalized EBITDA.

– 188 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Regarding the explicit forecasts provided and the analyses conducted and ratios used 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 € 19 million higher than the carrying amounts booked in RCS MediaGroup S.p.A.

The results of the impairment tests performed on the investees Trovolavoro S.r.l. and Editoriale del Mezzogior- no S.r.l. confirmed the recoverability of the book values, while for RCS Digital Ventures S.r.l. the test led to a write-down of € 2.2 million.

The impairment tests were approved by the Board of Directors of RCS MediaGroup S.p.A. independently and in advance of the approval of these financial statements.

31 ▪ Other non-current equity instruments

Balance at Balance at Balance at Description 31/12/2017 Change 31/12/2018 31/12/2017 pro-forma Ansa S.r.l. 0.6 0.2 0.4 0.2 H-Farm S.p.A. 0.4 0.2 0.2 0.2 Immobiliare Editori Giornali S.r.l. 0.4 0.1 0.3 0.1 Cefriel S.c.a.r.l. 0.2 - 0.2 - SportPesa Italy S.r.l. - - - - Emittenti Titoli S.p.A. in liquidation - 0.1 (0.1) 0.1 Total 1.6 0.6 1.0 0.6

IFRS 9, which is discussed in point 6 of the notes to the financial statements, introduces new provisions on the classification and measurement of financial assets based on the business model under which they are managed, taking account of the characteristics of their cash flows. Based on the new classification criteria, investments in equity instruments with a fair value of € 0.6 million at 31 December 2017 and classified as “available-for-sale assets”, are now classified under “Other non-current equity instruments”. For each equity instrument, the Company has decided whether measurement at fair value should be recorded in the income statement (FVTPL) or in the statement of comprehensive income (FVOCI). Equity investments at 31 December 2018 are measured through comprehensive income, with the exception of equity investments in liquidation, recognized through profit or loss. Therefore, the measurement of equity investments at 31 December 2018 resulted in a net positive change in the comprehensive income statement of € 0.4 million, resulting from the revaluation of the investees Ansa S.r.l., H-Farm S.p.A., Immobiliare Editori Giornali S.r.l. and Cefriel S.c. a r.l. (for a total of € 1.1 million), net of the write-down of SportPesa Italy S.r.l. (for € 0.7 million), following the increase in the value of the investment for the same amount.

32 ▪ Non-current financial receivables

Non-current financial receivables, amounting to € 0.6 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 € 2.8 million. The change versus 31 December 2017 is due mainly to the write-down of the existing loan (for € 2.4 million).

189 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

33 ▪ Other non-current assets

Balance at Description Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 Security deposits given 0.5 0.5 - 0.5 Term bank deposits 0.1 0.1 - 0.1 Non-current prepayments 0.3 0.4 ( 0.1) 0.4 Non-current tax assets 12.6 12.7 ( 0.1) 12.7 Total 13.5 13.7 ( 0.2) 13.7

Other non-current assets amounted to € 13.5 million (€ 13.7 million at 31 December 2017 pro-forma). The change refers mainly to the portion of non-current prepayments of certain multi-year insurance policies.

34 ▪ Inventory

The table below shows inventory 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 31/12/2017 Gross balances 9.4 1.6 0.5 11.5 Allowance for impairment (0.4) (0.4) (0.8) Net balance at 31-12-2017 9.0 1.6 0.1 10.7 31/12/2018 Gross balances 12.4 1.8 0.4 14.6 Allowance for impairment (0.5) (0.3) (0.8) Net balance at 31-12-2018 11.9 1.8 0.1 13.8 Change 2.9 0.2 - 3.1

The increase in inventory versus the end of the prior year (€ 3.1 million) is due mainly to raw, ancillary and consum- able materials (€ +2.9 million). The allowance for impairment of inventory remained unchanged at € 0.8 million. Mention should be made that net inventory of finished products relating to the new “Solferino” book business amounted to € 0.1 million.

35 ▪ Trade receivables

Trade receivables are broken down as follows:

Balance at Description Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 Receivables from customers 134.2 143.9 ( 9.7) 143.9 Expected returns ( 1.5) ( 1.0) ( 0.5) ( 1.0) Allowance for impairment ( 9.0) ( 8.7) ( 0.3) ( 8.7) Receivables from customers - net amounts 123.7 134.2 ( 10.5) 134.2 Receivables from subsidiaries 10.1 12.1 ( 2.0) 12.1 Receivables from associates 46.5 45.9 0.6 45.9 Receivables from parents 0.3 0.7 ( 0.4) 0.7 Receivables from other Group companies 1.2 0.3 0.9 0.3 Expected returns from Group companies ( 26.0) ( 26.7) 0.7 ( 26.7) Allowance for impairment trade receivables from Group companies ( 0.1) - ( 0.1) - Intragroup receivables - net amount 32.0 32.3 ( 0.3) 32.3 Total 155.7 166.5 ( 10.8) 166.5

– 190 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Trade receivables at 31 December 2018 amounted to € 155.7 million, down by € 10.8 million versus 31 Decem- ber 2017 pro-forma. The decrease is due mainly to lower receivables from customers (€ 10.5 million) and, to a lesser extent, to lower receivables from Group companies (€ 0.3 million). The decrease in receivables from customers is attributable mainly to improved DSO, in addition to closure of a number of positions under dispute.

€ 2.4 million of the allowance for impairment of receivables from customers was used and was increased by € 2.7 million to adjust to the risk of these receivables at the end of the year.

Mention should be made that the introduction of IFRS 9 has led to a review of the approach to measuring receivables, as further illustrated in Note 4 above, and the movements in the allowance for impairment of trade receivables under first-time application of said standard, the impact of which has been recognized in equity (€ 0.8 million).

Allowance for impairment of trade receivables Opening balance 1/1/2017 (11.7) Provisions (1.6) Utilizations 4.5 Release of allowance for impairment 0.1 Closing balance 31/12/2017 (8.7) Effects of application IFR 9 (0.8) Opening balance 1/1/2018 (9.5) Utilizations 2.4 Net re-measurement of provision for write-down (2.0) Closing balance 31/12/2018 (9.1)

191 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

36 ▪ Sundry receivables and other current assets

Balance at Descrizione Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 Tax receivables 0.1 0.6 ( 0.5) 0.6 Receivables from social security institutions 1.3 2.7 ( 1.4) 2.7 Receivables from employees 0.4 0.7 ( 0.3) 0.7 Sundry receivables 0.5 0.6 ( 0.1) 0.6 Allowance for impairment of sundry receivables ( 0.4) ( 0.4) - ( 0.4) Net sundry receivables 0.1 0.2 ( 0.1) 0.2 Sundry receivables from subsidiaries 0.1 - 0.1 - Sundry receivables from associates 0.7 0.7 - 0.7 Allowance for impairment sundry receivables from Group companies ( 0.7) ( 0.7) - ( 0.7) Sundry receivables from Group companies - net 0.1 - 0.1 - Total sundry receivables 2.0 4.2 ( 2.2) 4.2 Advances to suppliers 5.6 4.5 1.1 4.5 Allowance for impairment suppliers ( 4.0) ( 4.0) - ( 4.0) Net advances to suppliers 1.6 0.5 1.1 0.5 Advances to authors 0.7 - 0.7 - Allowance for impairment of author advances ( 0.1) - ( 0.1) - Net author advances 0.6 - 0.6 - Advances to freelance staff 0.1 0.1 - 0.1 Advances to agents 9.4 11.6 ( 2.2) 11.6 Allowance for impairment of agent advances ( 1.2) ( 1.2) - ( 1.2) Net advances to agents 8.2 10.4 ( 2.2) 10.4 Prepayments 6.3 6.2 0.1 6.2 Release rights for book returns from customers 0.1 - 0.1 - Total other current assets 16.9 17.2 ( 0.3) 17.2 Total 18.9 21.4 ( 2.5) 21.4

Sundry receivables and other current assets decreased by a total of € 2.5 million versus 31 December 2017 pro-forma, due mainly to the decrease in advances to agents (€ 2.2 million), as a result of the final balance of commissions, which also led to a reduction in the related payables to agents, of the decrease in receivables from social security institutions (€ 1.4 million), and of the decrease in tax receivables. Conversely, the reporting period recorded an increase in advances to suppliers (€ 1.1 million) and advances to authors (€ 0.6 million).

For IFRS 7 purposes, tax receivables, receivables from social security institutions, and prepayments are not considered, hence, sundry receivables and current assets at 31 December 2018 would total € 11.2 million (€ 11.9 million at 31 December 2017 pro-forma). The carrying amount of these assets for IFRS 7 purposes reflects their fair value.

– 192 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

37 ▪ Net financial debt

Balance at Financial assets and liabilities recognized for derivatives Descrizione Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 The item includes derivative financial instruments. Such instruments are recognized as financial assets or finan- Tax receivables 0.1 0.6 ( 0.5) 0.6 cial liabilities at fair value. Receivables from social security institutions 1.3 2.7 ( 1.4) 2.7 Receivables from employees 0.4 0.7 ( 0.3) 0.7 The main types within this category are shown below. Sundry receivables 0.5 0.6 ( 0.1) 0.6 31 December 2018 31 December 2017 Allowance for impairment of sundry receivables ( 0.4) ( 0.4) - ( 0.4) Net sundry receivables 0.1 0.2 ( 0.1) 0.2 Assets Liabilities Assets Liabilities Sundry receivables from subsidiaries 0.1 - 0.1 - Interest Rate Swap for hedging cash flows - 1,0 - 0,1 Sundry receivables from associates 0.7 0.7 - 0.7 Non-current - 1,0 - 0,1 Allowance for impairment sundry receivables Interest Rate Swap for hedging cash flows - 0,1 - 1,0 from Group companies ( 0.7) ( 0.7) - ( 0.7) Current - 0,1 - 1,0 Sundry receivables from Group companies - net 0.1 - 0.1 - Total 1,1 - 1,1 Total sundry receivables 2.0 4.2 ( 2.2) 4.2 Advances to suppliers 5.6 4.5 1.1 4.5 The instruments related to interest rate risk (Interest Rate Swaps) have been taken out for hedging purposes and Allowance for impairment suppliers ( 4.0) ( 4.0) - ( 4.0) are submitted to the so-called effectiveness test to check that they meet the specific IFRS conditions for hedge Net advances to suppliers 1.6 0.5 1.1 0.5 accounting. The effectiveness test was carried out on the derivatives of RCS MediaGroup S.p.A. considering the debt expo- Advances to authors 0.7 - 0.7 - sure of the medium/long-term loan. Allowance for impairment of author advances ( 0.1) - ( 0.1) - Net author advances 0.6 - 0.6 - Details of the net financial debt are provided below at carrying amount and fair value. Advances to freelance staff 0.1 0.1 - 0.1 Advances to agents 9.4 11.6 ( 2.2) 11.6 Comparison of carrying amount vs. fair value Allowance for impairment of agent advances ( 1.2) ( 1.2) - ( 1.2) Carrying amount Fair Value Net advances to agents 8.2 10.4 ( 2.2) 10.4 31/12/2018 31/12/2017 31/12/2018 31/12/2017 Prepayments 6.3 6.2 0.1 6.2 pro-forma pro-forma Release rights for book returns from customers 0.1 - 0.1 - Current financial assets Cash and cash equivalents 0.4 0.7 0.4 0.7 Total other current assets 16.9 17.2 ( 0.3) 17.2 Other financial assets 4.6 14.9 4.6 14.9 Total 18.9 21.4 ( 2.5) 21.4 Current financial receivables 264.9 266.2 264.9 266.2 Total FINANCIAL ASSETS 269.9 281.8 269.9 281.8 Financial liabilities Payables to banks - short-term loans (46.8) (54.7) (46.8) (54.7) Current financial payables (91.2) (69.6) (91.2) (69.6) Financial payables IAS 17 - leases (2.1) (4.6) (2.1) (4.5) Non-current financial payables (141.6) (231.2) (141.6) (231.2) Financial liabilities recognized for derivatives (1.1) (1.1) (1.1) (1.1) Total FINANCIAL LIABILITIES (282.8) (361.2) (282.8) (361.1) Total net financial debt (1) (12.9) (79.4) (12.9) (79.3) Net financial debt with related parties 177.9 177.9 - - % of the reported total > 100% > 100%

(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 defined by CONSOB in its Communication DEM/6064293 dated 28 July 2006 excludes non-current financial assets, therefore, the value amounted to € 12.9 million (€ 79.4 million at 31 December 2017 pro-forma).

The net financial debt of RCS MediaGroup S.p.A. stood at € 12.9 million at 31 December 2018, improving by € 66.5 million versus 31 December 2017 pro-forma. Mention should be made of the significant contribution from ordinary operations, in addition to the collection of dividends totaling € 15.6 million, only partly offset by outlays for technical capital expenditure made during the year, as well as by the amount paid for non-recurring expense, mainly recognized in prior years. Additionally, mention should be made of the value of the loan receivable from Unidad Editorial of € 10.8 million, previously held by RCS International Newspapers.

193 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

On 10 October 2018, an Amending Agreement was signed to the Loan Agreement concluded on 4 August 2017.

The main terms and conditions of the agreement are, inter alia: ̶ the restructuring of the loan, with a reduction in Credit Line A from the residual € 166.3 million (at last 10 October) to € 141.3 million, and a concurrent increase in the Revolving Credit Line from € 100 million to € 125 million; ̶ 12-month extended duration of the loan with resulting postponement of the final due date from 31 December 2022 to 31 December 2023; ̶ amendment of the repayment plan of Credit Line A, with repayment of € 16.3 million at 31 December 2018 followed by ten half-year instalments of € 12.5 million each; ̶ a reduction in the spread charged on both credit lines as from 10 October 2018 and then re-determined from time to time in respect of a margin grid determined by the leverage ratio (NFP/EBITDA), which is more favourable than the original level; ̶ with particular regard to the Revolving Line: lower commission on undrawn amounts, elimination of annual clean down clause, and introduction of a commission on drawn down amounts applied only if certain pre-set levels are exceeded.

Financial Assets (€ 269.9 million) may be analyzed as follows: ̶ bank deposits and current accounts amounting to € 0.4 million (value at 31 December 2017 pro-forma: € 0.7 million); ̶ loans and asset positions in intra-group current accounts relating to RCS Group companies amounting to € 269.2 million (pro-forma amount at 31 December 2017: € 280.7 million); ̶ financial receivables amounting to € 0.3 million (€ 0.4 million at 31 December 2017 pro-forma).

Financial liabilities (€ 282.8 million) may be analyzed as follows: ̶ current payables to banks amounting to € 46.8 million (value at 31 December 2017 pro-forma: € 54.7 million), € 13.3 million of which for bank overdrafts and € 33.5 million for a bank loan; ̶ non-current payables to banks of € 141.6 million (value at 31 December 2017 pro-forma: € 231.2 million); ̶ loans payable and liability positions in intra-group current accounts relating to RCS Group companies amounting to € 91.3 million (pro-forma amount at 31 December 2017: € 69.6 million); ̶ lease liabilities of € 2.1 million (value at 31 December 2017 pro-forma: € 4.6 million), down as a result of the repayment of principal amounts as per the repayment plan; ̶ financial liabilities recognized for derivatives totaling € 1.1 million (value at 31 December 2017 pro-forma: € 1.1 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; ̶ 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.

– 194 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The breakdown of the net financial debt by currency is as follows:

31/12/2017 Currency 31/12/2018 pro-forma 31/12/2017 Eur (13.4) (80.0) (90.8) US Dollar 0.2 0.3 0.3 British pound - 0.1 0.1 Swiss francs 0.3 0.2 0.2 Total net financial debt (12.9) (79.4) (90.2)

The table below analyzes the carrying amount at 31 December 2018, broken down by maturity, of the Compa- ny’s financial instruments that are exposed to interest rate risk:

0-6 6 months- 1-2 2-3 3-4 4-5 over FIXED RATE months 1 year years years years years 5 years Total TOTAL fixed rate ------0-6 6 months- 1-2 2-3 3-4 4-5 over FLOATING RATE months 1 year years years years years 5 years Total Loans (1) (22.6) (12.5) (25.0) (25.0) (25.0) (70.0) - (180.1) Intercompany loans (91.2) ------(91.2) Leases (1.1) (1.0) - - - - - (2.1) Bank overdrafts (13.3) ------(13.3) Total liabilities (128.2) (13.5) (25.0) (25.0) (25.0) (70.0) - (286.7) Cash and cash equivalents 0.4 ------0.4 Intercompany loans 269.2 ------269.2 Other lending positions 0.3 - 0.1 - 0.1 - 0.3 0.8 Total assets 269.9 - 0.1 - 0.1 - 0.3 270.4 TOTAL floating rate 141.7 (13.5) (24.9) (25.0) (24.9) (70.0) 0.3 (16.3)

(1) The debt exposure has been hedged with interest rate derivatives (Interest Rate Swaps) totaling € 170 million (€ 243.8 million at 31 December 2017 pro-forma).

The amounts shown in this table, unlike those reported in total net financial debt, exclude the fair value of derivatives (€ -1.1 million), the effect of debt being accounted for using the amortized cost method (€ +5 million), and include the interest-bearing portion of non-current financial receivables (€0.6 million).

The use of derivatives on interest rates allows for the transformation of floating-rate liabilities into fixed-rate liabilities.

Mention should be made that the hedging strategy is implemented at a Group financial exposure level.

Interest rate derivatives mature as follows at 31 December 2018:

Notional Parameter 0-6 6 months- 1-2 2-5 over 5 Description value range % months 1 year years years years Cash flow hedge 3-month from floating to fixed 170.0 Euribor 0.182 (40.0) (40.0) (50.0) (40.0) - IRS 170.0 (40.0) (40.0) (50.0) (40.0) -

The disclosures required by IFRS 7 in relation to the cash flow hedges are provided below:

Fair Value Hedged item Type Hedged risk Amount in of hedge 31/12/18 31/12/17 equity Loan hedge IRS Interest rate risk (1.1) (1.1) (0.3) Total (1.1) (1.1) (0.3)

195 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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.

Opening balance (0.7) + hedging gains 0.1 - hedging losses (1.6) - hedging losses to profit or loss (0.6) + hedging gains to profit or loss 1.7 Closing balance (1.1)

Mention should be made that the figures presented in the tables above for the hedging reserve are shown gross of their tax effects, which amounted to € 0.3 million at 31 December 2018.

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.

31 December 2018

Actual impact of underlying flows Total 1 1-2 1-2 over expected year years years 5 years (€/millions) cash flows Interest rate risk Expected outflows for floating-rate interest (4.6) (2.0) (1.2) (1.4) -

31 December 2017 pro-forma

Mention should be made that the Company has finance lease agreements related to plants and machinery. The primary component of capital for plant relates to printing presses.

The key data of finance lease agreements is presented below:

31/12/2018 31/12/2017 Present value Present value Minimum Minimum of minimum of minimum lease Interest lease Interest lease lease payments payments payments payments Finance lease payables: - due within one year 2.1 - 2.1 2.6 0.1 2.5 - due within five years - - - 2.1 - 2.1 - due after five years ------Total 2.1 - 2.1 4.7 0.1 4.6

The fair value of finance lease payments contracted by the Company is € 2.1 million. The average annual rate on financial positions at 31 December 2018 is 2.63% for the return on investments and 2.17% for the cost of borrowing. The cost of borrowing reflects the effect of outstanding hedging derivatives.

– 196 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

38 ▪ Share capital and reserves

The share capital is divided into 521,864,957 ordinary shares with no par value. At 31 December 2018, a total of 4,542,474 ordinary treasury shares were held (105,214 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., which took place at the end of last year), worth € 26.9 million, corresponding to an average carrying amount of € 5.9 per ordinary share and representing 0.87% of the total share capital.

Outstanding ordinary Number of shares issued shares Treasury shares Total At 31/12/2017 517,289,843 4,575,114 521,864,957 shares exchanged in 2018 32,640 (32,640) - At 31/12/2018 517,322,483 4,542,474 521,864,957

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. Following the shareholders’ resolution of 26 April 2018, the share capital was partly reduced from € 475.1 million to € 270 million, following partial coverage of prior years’ losses (€ 63.8 million) and the replenishment of the legal reserve (€ 54 million) and an available reserve (€ 87.3 million).

The nature and purpose of the equity reserves is summarized below: ̶ Share premium reserve (amount written off): 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; Following the shareholders’ resolution of 26 April 2018, the reserve was fully used to cover part of prior years’ losses. ̶ Legal reserve (€ 54 million): 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 Consol- idated 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 tax. Follow- ing the shareholders’ resolution of 26 April 2018, the reserve was fully used to cover part of the prior years’ losses and subsequently replenished through a partial reduction of the share capital. At 31 December 2018, the legal reserve amounted to one fifth of the share capital. ̶ Treasury shares (€ -26.9 million): are deducted from the Company’s equity. ̶ Hedging reserve (€ -0.8 million): 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 (€ -0.1 million) was established on 1 Jan- uary 2013 in compliance with the amendment to IAS 19. ̶ Merger reserve (€ 0.3 million): this includes the effects, with a positive value of € 0.3 million, arising from the 31/12/2018 31/12/2017 merger of RCS International Newspapers S.r.l. referring mainly to the 2017 result of the investee. Following Present value Present value Minimum Minimum the shareholders’ resolution of 26 April 2018, the previous value of the merger reserve (€ 0.1 million) was ful- of minimum of minimum lease Interest lease Interest lease lease ly used to cover part of prior years’ losses. payments payments payments payments ̶ Voluntary reserve (€ 87.3 million): this is an available reserve set up by means of a partial reduction in share Finance lease payables: capital, as per the shareholders’ resolution of 26 April 2018. - due within one year 2.1 - 2.1 2.6 0.1 2.5 ̶ Retained earnings from prior years (€ 26.9 million). - due within five years - - - 2.1 - 2.1 ̶ Effects of first-time application of IFRS 9, as further illustrated in Note 6 above (€ -1.7 million). - due after five years ------Total 2.1 - 2.1 4.7 0.1 4.6 Details of and movements during the year in the equity reserves can be found in the statement of changes in equity. 31 December 2018, net profit amounted to € 41,929,972.73.

197 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

39 ▪ Employee benefits

Balance at Discounting to Balance at Description 31/12/2017 Provisions Utilizations present value 31/12/2018 Post-employment benefits 31.1 0.6 (1.0) (0.8) 29.9 Post-employment benefits for executives 0.6 - - - 0.6 Total 31.7 0.6 (1.0) (0.8) 30.5

This item includes the actuarial value of the payable to employees. Post-employment benefits of € 29.9 million represent a type of employee remuneration, whose payment is deferred until termination of employment.

Post-employment 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:

2018 Actuarial gains/ Financial Personnel (losses) recognized in Current (income) expense from statement of Total service cost expense actuarial comprehensive calculations income Provisions for post-employment benefits 9.7 0.4 (0.6) (0.5) 9.0 Provisions for post-employment benefits for executives - - - - - Total 9.7 0.4 (0.6) (0.5) 9.0

2017 Actuarial gains/ Financial Personnel (losses) recognized in Current (income) expense from statement of Total service cost expense actuarial comprehensive calculations income Provisions for post-employment benefits 8.8 0.4 (0.5) (0.1) 8.6 Provisions for post-employment benefits for executives - - - - - Total 8.8 0.4 (0.5) (0.1) 8.6

The principal actuarial assumptions used for the calculation are as follows:

Description 2018 2017 Discount rate 1.6% 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.

Mention should be made that accruals to post-employment benefits shown in the above table in relation to 2018 include € 7.7 million referring to payments to social security funds and € 1.4 million for contributions and with- holdings required by law.

– 198 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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 2018 + 0.5% - 0.5% Post-employment benefits 29.9 28.8 31.0 Post-employment benefits for executives 0.6 0.6 0.6 Total 30.5 29.4 31.6

40 ▪ Provisions for risks and charges

Movements in the year were as follows:

Balance at Utilizations/ Discounting to Reclassifica- Balance at Description 31/12/2017 Provisions Releases present value tions 31/12/2018 Non-current: Legal disputes provision 5.3 2.8 (1.2) (0.2) (1.1) 5.6 Other provisions for risks and charges 4.3 0.9 - - (0.5) 4.7 Total non-current 9.6 3.7 (1.2) (0.2) (1.6) 10.3 Current: Legal disputes provision 4.5 1.0 (1.4) - 0.7 4.8 Other provisions for risks and charges 20.3 0.9 (4.6) - 0.5 17.1 Provision for returns to receive - 1.3 - - - 1.3 Total current 24.8 3.2 (6.0) - 1.2 23.2 total provisions for risks 34.4 6.9 (7.2) (0.2) (0.4) 33.5

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 refer mainly to the conclusion of civil actions and lawsuits.

“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.

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 € 1.6 million, of which € 0.7 million non-recurring.

“Utilizations/Releases”, in other provisions for risks and charges, refers to utilizations relating primarily to staff exits due to the continued Company reorganization plan, and to releases of excess portions allocated in prior years, € 2 million of which non-recurring. Utilizations and releases relating to provisions for legal disputes are also shown.

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 0.7%, while the rate used to discount the provision for specific risks is approximately 0.3%.

199 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

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 2018 + 0.5% - 0.5% Legal disputes provision 0.69% 5.6 5.4 5.7 Provision for agents’ termination indemnities 1.55% 1.3 1.8 1.9 Other provisions for risks and charges 0.35% 3.4 3.3 n.a. Total 10.3 10.5 n.a.

41 ▪ Sundry payables and other non-current liabilities

Sundry payables and other non-current liabilities, totaling € 1.8 million and unchanged versus 31 December 2017 pro-forma (€ 1.8 million), consist mainly of tax payables, including a payable associated with an IRES refund request, recognized under “non-current tax receivables”.

42 ▪ Trade payables

Balance at Description Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 Payables to agents 15.5 18.0 ( 2.5) 18.0 Payables to freelance staff 6.1 6.2 ( 0.1) 6.2 Payables to authors 0.3 - 0.3 - Trade payables to subsidiaries 10.9 7.7 3.2 7.7 Trade payables to associates 1.9 1.9 - 1.9 Trade payables to parents 0.1 0.4 ( 0.3) 0.4 Trade payables to affiliates 2.3 1.7 0.6 1.7 Payables to suppliers 86.0 97.1 ( 11.1) 97.0 Advances from subscribers 2.4 3.4 ( 1.0) 3.4 Total 125.5 136.4 ( 10.9) 136.3

Trade payables decreased by an overall € 10.9 million versus 31 December 2017 pro-forma. The change relates mainly to lower payables to suppliers (€ 11.1 million) following lower operating costs due to ongoing efficiency actions, and to the different dynamics of payment. Mention should also be made of the lower payables to agents (€ 2.5 million), following the offsetting against agent prepayments already made and lower advances from subscribers (€ 1 million). Conversely, the reporting period recorded an increase in payables to Group companies (totaling € 3.5 million).

The carrying amount of trade payables reflects their fair value, also in accordance with the application of IFRS 7.

43 ▪ Sundry payables and other current liabilities

Balance at Description Balance at 31/12/2017 Change Balance at 31/12/2018 pro-forma 31/12/2017 Tax payables 7.0 5.8 1.2 5.8 Payables to social security institutions 9.3 9.2 0.1 9.2 Payables to employees 19.5 21.5 ( 2.0) 21.5 Sundry payables 5.8 7.0 ( 1.2) 7.0 Security deposits received 0.1 0.1 - 0.1 Sundry payables to subsidiaries 0.1 0.2 ( 0.1) 0.2 Deferred income 7.2 7.4 ( 0.2) 7.4 Total 49.0 51.2 ( 2.2) 51.2

– 200 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

Sundry payables and other current liabilities, amounting to € 49 million, decreased by € 2.2 million versus 31 December 2017 pro-forma (€ 51.2 million), due mainly to the decrease in payables to employees (€ 2 million) arising from the decrease in holiday payables, and to lower sundry payables (€ 1.2 million), attributable mainly to the completed liquidation of Emittenti Titoli (€ 1.4 million). Conversely, the reporting period recorded higher tax payables (€ 1.2 million).

For IFRS 7 purposes, tax liabilities and payables to social security institutions, deferred income, and the payable for untaken holidays (equal to € 10.6 million at 31 December 2018 and € 12.1 million at 31 December 2017 pro-forma) are not included in payables to employees. Hence, sundry payables and other current liabilities at 31 December 2018 would total € 14.9 million (€ 15.7 million at 31 December 2017 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%.

44 ▪ Increase (decrease) in employee benefits and provisions for risks and charges

The change indicated in the statement of cash flows, amounting to € -2 million, does not include the effect of discounting in 2018.

31/12/2017 Discounting to Discounting in Description 31/12/18 pro-forma present value equity Change Employee benefits ( 30.5) ( 31.7) 0.4 ( 0.5) ( 1.1) Provisions for risks and charges ( 10.3) ( 9.5) 0.1 - 0.7 Current portion of provisions for risks and charges ( 23.2) ( 24.8) - - ( 1.6) Total ( 64.0) ( 66.0) 0.5 ( 0.5) ( 2.0)

45 ▪ Changes in working capital reported in the statement of cash flows

31/12/2017 Description 31/12/18 pro-forma Change Change in working capital ( 2.4) ( 27.7) ( 25.3) Adjustments to capital expenditure for cash outflows ( 0.2) ( 1.3) ( 1.1) Change in net income tax liabilities ( 1.0) ( 9.7) ( 8.7) Impact first-time of application of IFRS 9 ( 0.8) - 0.8 Other changes - 0.2 0.2 Total ( 4.4) ( 38.5) ( 34.1)

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 payables for collections received, which are reported separately in the statement of cash flows, in addition to the impact of the first-time adoption of IFRS 9. Balance at Balance at Balance at Description 31/12/2018 31/12/2017 Change 31/12/2017 pro-forma 46 ▪ Acquisition of equity investments net of dividends received Tax payables 7.0 5.8 1.2 5.8 Payables to social security institutions 9.3 9.2 0.1 9.2 The acquisition of equity investments totaled € 14.8 million (for comments, please refer to Note 30), net of div- Payables to employees 19.5 21.5 ( 2.0) 21.5 idends received of € 15.6 million (see Note 23). Sundry payables 5.8 7.0 ( 1.2) 7.0 47 ▪ Capital expenditure in property, plant and equipment and intangible assets Security deposits received 0.1 0.1 - 0.1 Sundry payables to subsidiaries 0.1 0.2 ( 0.1) 0.2 This refers to capital expenditure made in the year (€ 7.7 million), net of purchases not affecting cash flow, and Deferred income 7.2 7.4 ( 0.2) 7.4 including capital expenditure, which, while having been carried out in the prior year, was paid for in the current Total 49.0 51.2 ( 2.2) 51.2 year (€ 0.2 million). Capital expenditure recognized in the statement of cash flows is reconciled with the expenditure in the statement of financial position as follows:

201 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

31/12/2017 Description Notes 31/12/2018 pro-forma Capital expenditure in property, plant and equipment 27 ( 1.9) ( 0.4) Capital expenditure in intangible assets 29 ( 5.8) ( 9.0) Total ( 7.7) ( 9.4) Adjustments to capital expenditure for cash outflows 0,2 1.3 Total ( 7.5) ( 8.1)

48 ▪ 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:

31/12/2017 Description Notes 31/12/2018 pro-forma Change in net financial debt 37 ( 65.1) ( 54.4) Change in cash and cash equivalents 3.1 21.7 Non-monetary change in derivatives 0.3 0.7 Change in derivatives through equity ( 0.3) 3.4 Impact first-time of application of IFRS 9 ( 1.4) - Non-monetary change in results of financing activities ( 0.4) 2.8 Total ( 63.8) ( 25.8)

49 ▪ Financial interest received/paid

This item amounted to € 0.5 million and represents the balance of net financial expense of € 0.9 million, net of net expense related to the discounting of liabilities and risk provisions for € 0.4 million, of income on derivatives for € 0.3 million, and interest accrued in the year but paid in cash in other years, for expenses totaling € 0.3 million.

50 ▪ Commitments

The key commitments are shown below: ̶ Bank sureties given totaled € 30.9 million and are represented by sureties issued to third parties (€ 10.9 million), mainly for rental contracts and to RCS Group companies (€ 20 million), primarily for credit commitments. ̶ Insurance sureties issued to third parties, totaling € 12.2 million, include sureties of € 9.7 million 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 credits relating to 2015, for which RCS MediaGroup S.p.A. is jointly obligated. The remainder of € 2.5 million relates to sureties issued primarily for prize contests. ̶ Other guarantees given amounted to €2.4 million and refer to indemnities issued in favour of Agenzia per lo Sviluppo dell’Editoria S.r.l. and of SIAE for reimbursements received. ̶ Commitments amount to € 2.1 million and include existing and potential contractual commitments relating to personnel, which refer solely to agreements in force at 31 December 2018, subject to contractual clauses at that date under the exclusive control of RCS. These commitments are entered into with related parties for the entire amount. For additional information regarding the commitments to 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.

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.

– 202 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

The amount of outstanding lease payments still due by RCS MediaGroup S.p.A. at the reporting date for irrevo- cable operating leases is as follows:

Minimum lease payments 31/12/2018 31/12/2017 Change Future operating lease payments: - due within one year 23.5 24.1 (0.6) - due within five years 78.2 84.3 (6.1) - due after five years 125.3 139.1 (13.8) Total 227.0 247.5 (20.5)

The decrease versus 31 December 2017 is due mainly to the termination of a number of rental agreements.

The Company expects to collect a total of approximately € 16 million (approximately € 6 million of which from RCS Group companies) in the future from sub-letting the leased buildings.

51 ▪ Information required by Art. 149-duodecies of the CONSOB Issuer Regulations

The table below, prepared in accordance with Art. 149-duodecies of the CONSOB Issuer Regulations, reports the fees for 2018 for audit and other services provided, only to RCS MediaGroup S.p.A, by the Inde- pendent 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 Fees paid in 2018 (€/millions) performing the service Audit Deloitte & Touche S.p.A. 0.4 Attestation services (1) Deloitte & Touche S.p.A. 0.0 Total 0.4

(1) Attestation services refer to the Consolidated Non-Financial Statement (€ 19 thousand)

203 – NOTES TO THE SEPARATE FINANCIAL STATEMENTS

EVENTS AFTER YEAR END

For comments on the events occurred after the reporting date, please refer to the Directors’ Report on Operations.

Milan, 18 March 2019

On behalf of the Board of Directors:

Chairman and Chief Executive Officer

Urbano Cairo (signed on the original)

– 204 NOTES TO THE SEPARATE FINANCIAL STATEMENTS

STATEMENT OF THE FINANCIAL REPORTING MANAGER AND THE CHIEF EXECUTIVE OFFICER

Statement on the separate financial statements pursuant to Art. 81-ter of CONSOB Regulation no. 11971 dated 14 May 1999 as subsequently amended and supplemented

1. The undersigned, Urbano Cairo, Chairman and Chief Executive Officer, and Roberto Bonalumi, Financial Reporting Manager 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 24 February 1998: - the adequacy in relation to the company’s characteristics and - the effective application of administrative and accounting procedures in preparing the 2018 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 31 December 2018 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 31 December 2018: 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 Council dated 19 July 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 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, 18 March 2019

Chairman and Chief Executive Officer Financial Reporting Manager Urbano Cairo Roberto Bonalumi (signed on the original) (signed on the original)

205 –

ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

LIST OF RCS GROUP EQUITY INVESTMENTS

Fully consolidated companies

% Registered Business Cur- Share/Quota % by Held Company name held office segment rency capital Group by directly

Geographic area - 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 RCS Eventi Sportivi s.r.l. (1) Milan Services EUR 10,000.00 100.00 RCS Mediagroup 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 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 area - 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 1,732,345.00 98,44 Unidad Editorial Informaciòn General S.L.U. 87.23 Unidad Editorial Informaciòn General S.L.U. 11.22 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. Seville 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 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 MediaGroup S.p.A. 99.99 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 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 769,824.00 99.99 Unidad Editorial S.A. 100.00 Feria Bebe S.L. Barcelona Publishing EUR 10,000.00 60.00 Sfera Editores Espana S.L. 60.00 Sfera Direct S.L. Barcelona Publishing EUR 3,006.00 100.00 Sfera Editores Espana S.L. 100.00 Sfera Editores Espana S.L. Barcelona Publishing EUR 174,000.00 100.00 RCS Mediagroup S.p.A. 100.00

Geographic area - Other countries Publishing/Ser- Sfera Editores Mexico S.A. Colonia Anzures vices MXN 34,661,200.00 100.00 RCS Mediagroup S.p.A. 99.9997 Sfera Service S.r.l. 0.0003 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

(1) Effective from 1 January 2019, the company changed its name to RCS Sports & Events S.r.l..

209 – ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity-accounted investees

% Business Cur- Share/Quota Company name Registered office Held by held segment rency capital directly Geographic area - Italy Quibee S.r.l. Turin Digital EUR 15,873.02 RCS Digital Ventures S.r.l. 37.00 Consorzio C.S.E.D.I. 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. 29.00 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 area - Spain 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 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 del Omniprint S.A. Printing EUR 2,790,000.00 Corporacion Bermont S.L. 100.00 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 de TF Press S.L. Printing EUR 3,005.06 Corporacion Bermont S.L. 100.00 Tenerife Santa Cruz de TF Print S.A. Printing EUR 1,382,327.84 Corporacion Bermont S.L. 75.00 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 area - Other countries Inimm Due S.à.r.l. Luxembourg Real Estate EUR 240,950.00 RCS MediaGroup S.p.A. 20.00

– 210 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Companies measured at fair value

% Business Cur- Share/Quota Company name Registered office Held by held segment rency capital directly Geographic area - 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 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 en liquidation Mach 2 Libri S.p.A. in liquidation Peschiera B. Publishing EUR 646,250.00 RCS MediaGroup S.p.A 19.09 Digital Magics S.p.A. Milan Multimedia EUR 7,415,086.00 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 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. 16.67 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 area - 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, Alicante Y Medios de Azahar S.A. Castellon Services EUR 825,500.00 6.12 Castellon S.A. Palacio del Hielo S.A. Madrid Multimedia EUR 185,741.79 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 2,974,980.00 Unidad Editorial S.A. 1.50

Geographic area - Other countries Yoodeal Ltd Crowborough Digital GBP 150,000.00 RCS Digital Ventures S.r.l. 2.00

211 – 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 31.12.2018 2018 31.12.2017 2017 Swiss franc CHF 1.12690 1.15500 1.17020 1.11170 Mexican peso MXN 22.49210 22.70540 23.66120 21.32860 United Arab Emirates dirham AED 4.20500 4.33710 4.40440 4.14753

– 212 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS - - - 2.1 0.2 70.9 71.1 95.6 16.2 87.4 70.9 2017 (0.6) (2.4) (6.5) (3.7) 895.8 138.2 344.9 409.8 141.1 (25.3) (14.3) (24.4) (16.5) (491.4) (258.1)

0.0 2.0 (5) 2018 85.3 85.2 85.3 (0.1) (0.6) (8.1) (5.4) (3.0) (0.9) 115.5 975.6 155.3 432.3 405.8 137.5 100.5 (11.5) (19.6) (14.1) (15.2) (549.2) (264.7) - 1.7 0.1 0.4 2017 51.1 53.8 81.7 51.2 31.0 48.5 14.6 57.5 51.1 (3.2) (0.1) (2.4) (2.6) (5.6) (1.1) (6.4) 238.1 125.4 (65.6) (116.7) 4th quarter 0.4 0.0 0.0 (4) 33.1 53.6 33.1 31.8 38.2 35.5 33.1 (4.4) (2.8) (0.1) (8.1) (1.3) (0.3) (0.9) (2.4) (2.4) 2018 262.3 105.7 124.8 (68.0) (138.9) - - 0.2 3.1 0.4 0.0 2017 15.4 90.4 71.9 23.7 (4.3) (8.5) (4.1) (3.6) (0.2) (1.2) (6.0) (0.7) (2.5) (1.8) (4.3) 186.0 (60.8) (107.9) 3rd quarter 6.7 0.1 6.8 0.0 0.0 1.0 8.4 6.7 0.0 (3) 11.5 18.6 74.9 20.7 (4.1) (2.8) (0.2) (1.3) (3.1) (0.8) (1.7) 2018 114.1 209.7 (61.6) (128.4) - - - 1.2 0.1 29.7 56.9 86.7 29.7 51.9 44.6 39.2 29.7 2017 (8.5) (3.6) (0.2) (1.3) (6.6) (0.6) (9.5) 119.7 258.3 (64.2) (135.4) - - - 2nd quarter 1.5 (2) 39.4 62.9 39.4 58.7 54.6 49.9 39.4 (5.4) (2.8) (0.1) (0.9) (6.2) (1.2) (0.2) 2018 287.3 106.5 122.1 (68.7) (10.5) (153.4) - - - - 0.3 1.3 12.1 86.1 92.8 34.5 2017 (5.7) (8.8) (5.7) (3.8) (0.1) (0.6) (1.4) (6.4) (1.3) (7.0) (5.7) 213.4 (67.5) (131.4) - - - 1st quarter 6.1 6.0 0.8 6.8 6.1 (1) 11.2 20.2 84.0 26.3 (0.1) (5.8) (3.0) (0.2) (2.0) (4.4) (0.1) (0.7) 2018 216.3 106.0 (66.4) (128.4) Circulation revenue Circulation Advertising revenue Sundry publishing revenue

Profit (loss) before non-controlling interests interests non-controlling (loss) before Profit (€/millions) Revenue EBITDA EBITDA (Profit) loss attributable to non-controlling interests

Amortization of intangible assets Profit (loss) for the period (loss) for Profit

Depreciation of property, plant and equipment Depreciation of property,

Depreciation of investment property Operating costs Other impairment losses on non-current assets Personnel expense Operating profit (loss) Operating profit Provisions for risks Net financial income (expense) Allowance for impairment (6) Gains (losses) on financial assets/liabilities Share of profits (losses) equity-accounted investees Profit (loss) before tax (loss) before Profit Income tax Profit (loss) from continuing operations (loss) from Profit Profit (loss) from assets held for sale enue of € 26 million, lower advertising revenue 0.4 million and sundry 0.2 million. versus fourth quarter 2017, consisting of higher publishing The adoption of IFRS 15 as from 1 January 2018, without restating the balances at 31 December 2017, produced in fourth quarter 2018 an overall increase net revenue € 19.1 million (4) revenue of € 24.8 million, lower advertising 3.4 million and sundry 2.3 million. advertis lower million, 100.7 € of revenue publishing higher of consisting 2018, in million 76.4 € of revenue net in increase overall an produced 2017, December 31 at balances the restating without 2018, January 1 from as IFRS 15 of adoption The (5) The adoption of IFRS 9 resulted in an increase financial income € 3 million the 2018 statement. million and lower sundry revenue of € 12.8 million. ing revenue of € 11.5 QUARTERLY CONSOLIDATED INCOME STATEMENT CONSOLIDATED QUARTERLY revenue publishing higher of consisting 2017, quarter first versus million 8.4 € of 2018 quarter first in revenue net in increase overall an produced 2017, December 31 at balances the restating without 2018, January 1 from as 15 IFRS of adoption The (1) of € 24.9 million, lower advertising revenue 6.6 and a decrease in sundry 9.9 million. versus second quarter 2017, consisting of higher publishing in net revenue second quarter 2018 of € 23.5 million increase 2017, produced an overall at 31 December the balances The adoption of IFRS 15 as from 1 January 2018 without restating (2) revenue of € 25 million, lower advertising 1.1 and a decrease in sundry 0.4 million. rev publishing of higher 2017, consisting quarter versus third of € 25.4 million revenue in net increase 2018 an overall quarter in third 2017, produced 31 December at balances the restating of IFRS 15 as from 1 January 2018, without The adoption (3)

213 –

RELATED PARTY TRANSACTIONS

Parents Trade Current financial Trade Financial transactions receivables payables and liabilities payables Cairo Communication S.p.A. 0.3 - 0.2 U.T. Communication S.p.A. - - - Total 0.3 - 0.2

Jointly controlled companies Trade Trade Current financial Financial transactions receivables payables payables m-dis Distribuzione Media S.p.A. 19.8 1.9 5.0 MDM Milano Distribuzione Media S.r.l. - - 1.6 To-dis S.r.l. - - 0.2 Total 19.8 1.9 6.8

Sundry payables Associates Trade Trade and other current Commitments Financial transactions receivables payables liabilities Bermont Impresion S.L. (Gruppo Bermont) - 4.3 - - Recoprint Sagunto S.L.U. (Gruppo Bermont) - 1.4 - - Recoprint Dos hermanas S.L.U. (Gruppo Bermont) - 1.2 - - Bermont Catalonia S.A. (Gruppo Bermont) - 1.1 - - Recoprint Ràbade S.L.U. (Gruppo Bermont) - 1.0 - - Calprint S.l. (Gruppo Bermont) - 0.8 - 0.6 Omniprint S.A. (Gruppo Bermont) - 0.7 - - TF Print S.a. (Gruppo Bermont) - 0.6 - - Recoprint Impresiòn S.L.U. (Gruppo Bermont) - 0.1 - - Total - 11.2 - 0.6

Other affiliates (1) Trade Trade Financial transactions receivables payables Cairo group companies 1.3 2.1 Total 1.3 2.1

(1) Includes the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A.

Other related parties (1) Revenue Trade Income and financial-related transactions from sales receivables Della Valle group companies 2.0 1.1 Pirelli group companies 0.1 - Total 2.1 1.1

(1) 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.

217 – RELATED PARTY TRANSACTIONS

Parents Revenue Raw materials Other operating Income-related transactions from sales and services (expense) income Cairo Communication S.p.A. - (0.3) 0.8 U.T. Communication S.p.A. - - - Total - (0.3) 0.8

Jointly controlled companies Revenue Raw materials Other operating Other financial Income-related transactions from sales and services (expense) income income m-dis Distribuzione Media S.p.A. 279.2 (85.8) 1.0 0.1 MDM Milano Distribuzione Media S.r.l. - (0.1) - Total 279.2 (85.9) 1.0 0.1

Associates Revenue Raw materials Income-related transactions from sales and services Bermont Impresion S.L. (Gruppo Bermont) 1.6 (6.4) Recoprint Dos hermanas S.L.U. (Gruppo Bermont) - (2.8) Calprint S.l. (Gruppo Bermont) - (2.3) Recoprint Sagunto S.L.U. (Gruppo Bermont) - (2.3) Bermont Catalonia S.a. (Gruppo Bermont) - (2.0) Recoprint Rábade S.L.U. (Gruppo Bermont) - (1.9) TF Print S.A. (Gruppo Bermont) - (1.3) Omniprint S.A. (Gruppo Bermont) - (1.1) Radio Salud S.A. 0.1 (0.7) Recoprint Impresiòn S.L.U. (Gruppo Bermont) - (0.2) Total 1.7 (21.1)

Other affiliates (1) Revenue Raw materials Other operating Income-related transactions from sales and services revenue and income Cairo group companies 1.3 (3.2) 0.7 Total 1.3 (3.2) 0.7

(1) Includes the subsidiaries, associates and jointly controlled companies of Cairo Communication S.p.A. and U.T. Communication S.p.A.

Commitments and guarantees to related parties (€/millions) Parents - Associates 0.6 Other affiliates - Other related parties 4.4 Total 5.0

Personnel Supplementary pension fund for executives (FIPDIR) expense RCS Medigroup S.p.A. (0.4) Total (0.4)

– 218 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A. TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Details on Related Party Transactions at 31 December 2018

Company name Circulation Advertising Sundry Purchasing Service Rentals Personnel Other operating Sundry Interest income Financial Other gains (losses) on (Write-down)/reinstate- revenue revenue publishing costs for raw costs and leases expense revenue and income operating calculated using the expense financial assets/liabilities ment of receivables and (€/thousands) revenue materials expense effective interest method other financial assets Parents Cairo Communication S.p.A. - (15) - - 260 - - (800) - - - - - Total parents - (15) - - 260 - - (800) - - - - - Subsidiaries Trovolavoro S.r.l. - (102) (303) - 35 - - (195) - - - - - RCS Sport S.p.A. (7) (3) (1,948) - 101 3 - (798) - - 321 (13,000) - Editoriale del Mezzogiorno S.r.l. - - (482) 6,352 674 - - (311) 2 - 12 - - Sfera Editores Espana S.l. - - (315) ------Sfera Editores Mexico S.a. - - - - 4 ------RCS Edizioni Locali S.r.l. (2) - (1,318) 13,438 491 5 - (1,854) - (1) 95 - - RCS Produzioni S.p.A. - - (180) 20 6,969 - - (1,020) - (2) 8 (300) - Sfera Service S.r.l. - - (104) - 196 - - (173) - - - - - RCS Factor S.r.l. in liquidazione - - (3) - - - - (14) - - 11 - - Blei Srl In Liquidazione - - (3) - - - - (28) - - 21 31 - Digicast S.p.A. - - (222) 104 41 - - (397) - (8) 11 - 7 Unidad Editorial S.a. - - (20) 1,699 293 - - (1,293) - (7,239) - - (5) RCS Digital Ventures S.r.l. - - (121) 90 63 - - (38) 21 (14) - 2,162 1 Digital Factory S.r.l. - (288) (160) - 82 - - - - - 1 - - RCS Produzioni Padova S.p.A. - - (171) - 6,026 - - (432) - - 29 (300) - Logintegral 2000 S.a. (1,842) - - - 1,301 ------Unidad Editorial Revistas SLU - - (66) ------Consorzio Milano Marathon S.r.l. - - (10) ------23 - - Hotelyo S.A. - - (342) - 11 ------37 - RCS Produzioni Milano S.p.A. - - (365) 45 20,091 - - (1,828) - (146) - (400) (7) SSD RCS Active Team a r.l. - - (92) - - - - (62) - - 1 - - MyBeautyBox S.r.l. - - (18) - - - - (52) - - - - - RCS Sports and Events DMCC - - (499) - - - - (263) - - - - - SSD RCS Active Team S.r.l. ------(12) - - - - - Unidad Edit Inform Gen S.L.U - - - 54 ------Unidad Editorial Juegos S.A. ------(39) - - - - - Total subsidiaries (1,851) (392) (6,741) 21,802 36,380 8 - (8,809) 22 (7,411) 534 (11,771) (4) Associates M-Dis Distribuzione Media S.p.A. (278,096) - (1,062) - 85,821 - - (1,016) - (94) 3 (1,582) - To-Dis S.r.l. ------(3) 1 - - MDM Milano Distribuzione Media - - - 59 ------2 - - Inimm Due S.a.r.l. ------(15) - - (15) Quibee S.r.l. - - - - 31 ------Total associates (278,096) (0) (1,062) 59 85,852 - - (1,016) - (112) 6 (1,582) (15)

– 220 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

221 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Equity investments and changes thereto at 31 December 2018 - Income-related transactions

Supplementary pension fund for executives - - - - 17 - 360 ------Board of Directors - - - - 3,407 ------Board of Statutory Auditors - - - - 207 ------Key management personnel ------3,015 ------Gruppo Pirelli & C. S.p.A. - (46) - - 20 ------Della Valle Group - (1,996) ------Total other related parties - (2,042) - - 3,634 - 3,015 ------

Reported total (279,950) (3,108) (8,400) 23,312 127,674 10 3,375 (11,313) 22 (7,523) 539 (13,353) (19)

Equity investments and changes thereto at 31 December 2018 - Financial transactions

Company name Equity investments Sundry receivables Current Current financial Sundry payables and Current financial Current Sundry payables at cost Trade receivables and other current tax assets receivables other non-current payables tax liabilities Trade payables and other current Guarantees given (€/thousands) assets liabilities liabilities Parents Cairo Communication S.p.A. - 298 ------(89) - - Total parents - 298 ------(89) - - Subsidiaries Trovolavoro S.r.l. 1,621 255 - - - - (559) (322) (39) (1) - RCS Sport S.p.A. 19,588 2,720 91 1,549 - (97) (44,753) - (93) - 6,450 Editoriale del Mezzogiorno S.r.l. 3,595 167 - 12 - - (2,950) - (1,.907) - 6 Sfera Editores Espana S.l. 177 558 - - - - (217) - - - - Sfera Editores Mexico S.a. 1,469 289 ------RCS Edizioni Locali S.r.l. 7,669 3,064 3 - - (317) (11,311) (463) (3,718) - 10 RCS Produzioni S.p.A. 3,044 108 - 44 - (242) (1,622) - (1,051) - - Sfera Service S.r.l. 52 304 - 9 - - (91) (3) (224) - - RCS Factor S.r.l. in liquidazione 532 - - - - (19) (1,039) - - - - Blei S.r.l. In Liquidazione 2,030 22 - 6 - (133) (2,346) (52) - - - Digicast S.p.A. 1,237 132 - - - - (5,061) (467) (72) - - Unidad Editorial S.a. 334,483 715 - - 264,678 - (6,072) - (232) (4) 13,526 RCS Digital Ventures S.r.l. 1,606 120 - 13 443 - - (224) (101) (42) 60 Digital Factory S.r.l. - 283 - - - - (734) (601) (6) - -

– 222 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Reported total (279,950) (3,108) (8,400) 23,312 127,674 10 3,375 (11,313) 22 (7,523) 539 (13,353) (19)

223 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Equity investments and changes there to at 31 December 2018 - Financial transactions

Company name Equity investments Sundry receivables Current Current financial Sundry payables and Current financial Current Sundry payables at cost Trade receivables and other current tax assets receivables other non-current payables tax liabilities Trade payables and other current Guarantees given (€/thousands) assets liabilities liabilities RCS Produzioni Padova S.p.A. 2,142 53 - 54 - (70) (3,949) (141) (612) - - Logintegral 2000 S.a. - 88 ------Unidad Editorial Revistas SLU - 5 ------Consorzio Milano Marathon - 3 - - - - (2,354) - - - - Hotelyo S.A. 131 564 ------(34) - - RCS Produzioni Milano S.p.A. 9,891 229 - 37 4,112 - - - (2,778) (49) - SSD RCS Active Team a r.l. - 44 - - - - (1,299) - - - - MyBeautyBox S.r.l. - 25 1 - - - (156) - - - - RCS Sports and Events DMCC - 291 ------RCS Sports & Events S.r.l. 10 ------Unidad Editorial Juegos S.A. - 39 ------Total subsidiaries 389,277 10,080 95 1,723 269,233 (877) (84,511) (2,273) (10,867) (96) 20,052 Associates M-Dis Distribuzione Media S.p.A. 8,053 19,850 6 - - - (4,976) - (1,905) (15) - To-Dis S.r.l. ------(217) - - - - MDM Milano Distribuzione Media ------(1,569) - (7) - - Inimm Due S.a.r.l. - - (1) ------Quibee S.r.l. ------(3) - - Total associates 8,053 19,850 6 - - - (6,761) - (1,915) (15) - Other affiliates Cairo Pubblicità S.p.A. - 275 ------(700) - - Cairo Editore S.p.A. - 205 ------Torino FC S.p.A. - 62 ------LA7 S.p.A. - 476 ------(906) - - Il Trovatore S.r.l. ------(204) - - Cairo Publishing S.r.l. - 187 ------(14) - - Total other affiliates - 1,205 ------(1,824) - -

Supplementary pension fund for executives ------Board of Directors ------(1,500) - Board of Statutory Auditors ------(196) - Key management personnel ------(138) - Della Valle Group - 1,067 ------Total other related parties - 1,067 ------(1,833) -

Reported total 397,330 32,500 101 1,723 269,233 (877) (91,272) (2,273) (14,696) (1,944) 20,052

– 224 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Company name Equity investments Sundry receivables Current Current financial Sundry payables and Current financial Current Sundry payables at cost Trade receivables and other current tax assets receivables other non-current payables tax liabilities Trade payables and other current Guarantees given (€/thousands) assets liabilities liabilities RCS Produzioni Padova S.p.A. 2,142 53 - 54 - (70) (3,949) (141) (612) - - Logintegral 2000 S.a. - 88 ------Unidad Editorial Revistas SLU - 5 ------Consorzio Milano Marathon - 3 - - - - (2,354) - - - - Hotelyo S.A. 131 564 ------(34) - - RCS Produzioni Milano S.p.A. 9,891 229 - 37 4,112 - - - (2,778) (49) - SSD RCS Active Team a r.l. - 44 - - - - (1,299) - - - - MyBeautyBox S.r.l. - 25 1 - - - (156) - - - - RCS Sports and Events DMCC - 291 ------RCS Sports & Events S.r.l. 10 ------Unidad Editorial Juegos S.A. - 39 ------Total subsidiaries 389,277 10,080 95 1,723 269,233 (877) (84,511) (2,273) (10,867) (96) 20,052 Associates M-Dis Distribuzione Media S.p.A. 8,053 19,850 6 - - - (4,976) - (1,905) (15) - To-Dis S.r.l. ------(217) - - - - MDM Milano Distribuzione Media ------(1,569) - (7) - - Inimm Due S.a.r.l. - - (1) ------Quibee S.r.l. ------(3) - - Total associates 8,053 19,850 6 - - - (6,761) - (1,915) (15) - Other affiliates Cairo Pubblicità S.p.A. - 275 ------(700) - - Cairo Editore S.p.A. - 205 ------Torino FC S.p.A. - 62 ------LA7 S.p.A. - 476 ------(906) - - Il Trovatore S.r.l. ------(204) - - Cairo Publishing S.r.l. - 187 ------(14) - - Total other affiliates - 1,205 ------(1,824) - -

Reported total 397,330 32,500 101 1,723 269,233 (877) (91,272) (2,273) (14,696) (1,944) 20,052

225 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Equity investments and changes there to at 31 December 2018

Subsidiaries

Name and registered office Profit (lost) Number of Share % Carrying most recent Equity shares/ Capital held amount (€/millions) year quotas RCS Factor S.r.l. (in liquidation) - Milan At 31/12/17 0.1 - 0.9 90.00 1 0.5 At 31/12/18 0.1 (0.1) 0.8 90.00 (a) 1 0.5

RCS Digital Ventures S.r.l. - Milan At 31/12/17 0.1 0.1 0.2 100.00 1 3.7 - Impairment losses (2.2) At 31/12/18 0.1 0.0 0.2 100.00 (a) 1 1.5

Digicast S.p.A. - Milan At 31/12/17 0.2 2.2 4.9 100.00 41,000 1.2 At 31/12/18 0.2 3.0 7.8 100.00 (a) 41,000 1.2

Unidad Editorial S.a. - Madrid At 31/12/17 (consolidated value) 123.9 7.2 86.7 26.2 1.0 87.8 - Amount entered following merger by incorporation of 73.8 - 246.7 RCS International Newspapers S.r.l. At 31/12/18 (consolidated value) 123.9 21.3 106.0 99.99 (a) 1.0 334.5

Trovolavoro S.r.l. - Milan At 31/12/17 0.7 (0.3) 0.5 100.00 1 0.9 - Payment to cover losses 0.7 At 31/12/18 0.7 (0.4) 0.8 100.00 (a) 1 1.6

RCS Sport S.p.A. - Milan At 31/12/17 0.1 15.9 17.7 100.00 100,000 19.6 At 31/12/18 0.1 20.4 24.8 100.00 (a) 100,000 19.6

Editoriale del Mezzogiorno S.r.l. - Naples At 31/12/17 1.0 0.2 1.4 100.00 1 3.6 At 31/12/18 1.0 1.3 2.6 100.00 (a) 1 3.6

RCS Produzioni Padova S.p.A. - Milan At 31/12/17 0.5 0.4 2.7 100.00 500,000 2.1 At 31/12/18 0.5 0.5 2.9 100.00 (a) 500,000 2.1

RCS International Newspapers S.r.l. - Milan (former RCS International Newspapers BV - Amsterdam) At 31/12/17 6.2 0.4 257.1 100.00 62,500 257.1 - Merger by incorporation into RCS MediaGroup S.p.A. (257.1) At 31/12/18 ------

RCS Produzioni S.p.A. - Milan At 31/12/17 1.0 0.4 2.9 100.00 1,000,000 3.0 At 31/12/18 1.0 0.4 3.1 100.00 (a) 1,000,000 3.0

– 226 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Name and registered office Profit (lost) Number of Share % Carrying most recent Equity shares/ Capital held amount (€/millions) year quotas RCS Produzioni Milano S.p.A. - Milan At 31/12/17 1.0 0.6 10.6 100.00 1,000,000 9.9 At 31/12/18 1.0 0.8 11.0 100.00 (a) 1,000,000 9.9

RCS Edizioni Locali S.r.l. - Milan At 31/12/17 1.0 (0.4) 9.2 100.00 1 7.7 At 31/12/18 1.0 (0.4) 8.8 100.00 (a) 1 7.7

RCS Sports&Events S.r.l. - Milan (former RCS Eventi Sportivi S.r.l.) At 31/12/17 ------Company formation - At 31/12/18 0.0 - 0.0 100.00 (a) 1 -

Sfera Service S.r.l. - Milan At 31/12/17 0.1 - 0.2 100.00 1 0.1 At 31/12/18 0.1 0.1 0.3 100.00 (a) 1 0.1

Sfera Editores Espana S.l. - Barcelona At 31/12/17 0.2 0.1 1.1 100.00 1 0.2 At 31/12/18 0.2 0.3 1.4 100.00 (a) 1 0.2

Sfera Editores Mexico S.a. - Colonia Anzures At 31/12/17 0.9 (0.4) 0.1 99.99 205,980 0.8 - Increase 0.7 At 31/12/18 1.5 (0.4) 0.3 99.99 (a) 205,980 1.5

Hotelyo S.A. - Chiasso At 31/12/17 0.1 (0.2) 0.3 51.00 51,000 0.2 - Impairment losses - At 31/12/18 0.1 (0.1) 0.3 51.00 (a) 51,000 0.2

Blei S.r.l. in liquidation - Milan At 31/12/17 1.5 - 2.1 100.00 1 2.1 - Impairment losses 0.0 At 31/12/18 1.5 (0.0) 2.0 100.00 (a) 1 2.0

Total carrying amount of “subsidiaries” at 31/12/18 389.1

227 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Associates and joint ventures

Name and registered office Profit (lost) Number of Share % Carrying most recent Equity shares/ Capital held amount (€/millions) year quotas m-dis Distribuzione Media S.p.A. - Milan At 31/12/17 6.4 3.6 11.6 45.00 2,876,727 8.1 At 31/12/18 6.4 4.9 12.9 45.00 (a) 2,876,727 8.1

Inimm Due S.à.r.l. - Luxembourg At 31/12/17 0.2 (0.2) (0.2) 20.00 1,928 0.0 At 31/12/18 0.2 (0.3) (0.6) 20.00 (c) 1,928 0.0

Gold 5 S.r.l. (in liquidation) - Milan At 31/12/17 0.2 0.1 - 20.00 1 - - Striking off of the company from the Company - Register At 31/12/18 0.0 0.0 0.0 0.00 - -

Total carrying amount of “associates” at 31/12/2018 8.1

Other non-current equity instruments

Name and registered office Profit (lost) Number of Share % Carrying most recent Equity shares/ Capital held amount (€/millions) year quotas SportPesa Italy S.r.l. (former RCS Gaming S.r.l.) - Milan At 31/12/17 0.0 (1.4) (0.1) 25.00 1 - - Increase 0.7 - Impairment losses (0.7) At 31/12/18 - (0.8) 0.5 25.00 (b) 1 -

Immobiliare Editori Giornali S.r.l. - Rome At 31/12/17 0.8 (0.1) 5.2 7.49 1 0.1 - Fair value adjustment 0.3 At 31/12/18 0.8 (0.1) 5.1 7.49 (b) 1 0.4

Mode et Finance Société par actions simplifiée (in liquidation) - Paris At 31/12/17 7.0 (2.8) 1.1 4.62 60,980 0.0 At 31/12/18 7.0 (2.8) 1.1 4.62 (e) 60,980 -

ItaliaCamp S.r.l. - Rome At 31/12/17 0.0 0.2 0.3 3.00 1 0.0 At 31/12/18 0.0 0.2 0.6 3.00 (b) 1 -

H-Farm S.p.A. - Roncade At 31/12/17 8.9 (6.4) 37.9 0.75 673,333 0.2 - Fair value adjustment 0.2 At 31/12/18 8.9 (6.2) 24.7 0.75 (b) 673,333 0.4

Emittenti Titoli S.p.A. - Milan At 31/12/17 4.3 1.0 11.9 1.46 120,000 0.1 - Striking off of the company from (0.1) the Company Register At 31/12/18 - - - - - (0.0)

– 228 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Name and registered office Profit (lost) Number of Share % Carrying most recent Equity shares/ Capital held amount (€/millions) year quotas Mach 2 Libri S.p.A. (in liquidation) - Milan At 31/12/17 0.6 ( 4.0) 0.3 19.09 23,864 0.0 At 31/12/18 0.6 (4.0) 0.3 19.09 (d) 23,864 0.0

Vital Stream Holding Inc - Irvine, CA, USA At 31/12/16 n.a. n.a. n.a. 0.03 8,998 0.0 At 31/12/17 n.a. n.a. n.a. 0.03 8,998 0.0

Cardio Now - Encinitas, CA, USA At 31/12/16 n.a. n.a. n.a. n.a. - 0.0 At 31/12/17 n.a. n.a. n.a. n.a. - 0.0

Ansa S.r.l. - Rome At 31/12/17 10.8 (0.1) 18.1 4.38 5 0.2 - Fair value adjustment 0.4 At 31/12/18 10.8 (4.9) 13.2 4.38 (b) 5 0.6

Premium Publisher Network (Consortium) - Milan At 31/12/17 - - - 20.51 1 0.0 At 31/12/18 - - - 20.51 (c) 1 0.0

Consuledit S.c.ar.l. (in liquidation) - Milan At 31/12/17 - - - 19.55 1 0.0 At 31/12/18 - - - 19.55 (c) 1 0.0

Cefriel S.c.a.r.l. - Milan At 31/12/17 1.1 0.4 2.7 5.46 1 0.0 - Fair value adjustment 0.2 At 31/12/18 1.2 0.7 3.5 5.46 (b) 1 0.2

Consorzio Edicola Italiana - Milan At 31/12/17 0.0 0.0 0.0 16.67 1 0.0 At 31/12/18 0.0 0.0 0.0 16.67 (c) 1 0.0

Onering S.r.l. (in liquidation) - Montegrotto Terme (PD) At 31/12/17 0.0 0.0 0.0 15.00 1 0.0 - Striking off of the company from the Company Regi- 0.0 ster At 31/12/18 0.0 0.0 0.0 0.00 - 0.0

Carrying amount of "Other non-current equity instruments" at 31/12/18 1.6

Net balance of “total equity investments” at 31/12/18 398.8

(a) Forecasts refer to financial statements at 31/12/2018 (b) Figures refer to financial statements at 31/12/2017 (c) Figures refer to financial statements at 31/12/2016 (d) Figures refer to estimates at 31/08/2017 (e) Figures refer to financial statements at 31/12/2015

229 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

2017 PRO-FORMA STATEMENT

Income statement

RCS RCS RCS International MediaGroup MediaGroup (€) Newspapers (before entry) (after entry)

2017 2017 2017 pro-forma I Revenue from sales 500,134,329 - 500,134,329 Circulation revenue 237,382,911 - 237,382,911 Advertising revenue 241,396,612 - 241,396,612 Sundry publishing revenue 21,354,806 - 21,354,806 II Changes in work in progress, finished and semi-finished pro- ( 492,150) - ( 492,150) ducts II Raw materials and services ( 289,812,940) ( 48,861) ( 289,861,801) Raw materials and goods ( 77,399,924) - ( 77,399,924) Service costs ( 175,733,777) ( 48,861) ( 175,782,638) Rentals and leases ( 36,679,239) - ( 36,679,239) III Personnel expense ( 149,813,704) - ( 149,813,704) II Other operating revenue and income 24,202,372 - 24,202,372 II Sundry operating expense ( 11,342,310) - ( 11,342,310) IV Provisions ( 3,739,805) - ( 3,739,805) V Allowance for impairment ( 1,800,718) - ( 1,800,718) VI Amortization of intangible assets ( 14,274,513) - ( 14,274,513) VII Depreciation of property, plant and equipment ( 7,762,694) - ( 7,762,694) VIII Impairment losses on non-current assets ( 3,435,028) - ( 3,435,028) Operating profit (loss) 41,862,839 ( 48,861) 41,813,978 IX Financial income 10,612,806 374,208 10,987,014 IX Financial expense ( 18,717,431) - ( 18,717,431) X Other gains (losses) on financial assets/liabilities 28,640,521 - 28,640,521 Profit (loss) before tax 62,398,735 325,347 62,724,082 XI Income tax ( 8,712,551) - ( 8,712,551) Profit (loss) from continuing operations 53,686,184 325,347 54,011,531 Profit/(loss) for the year 53,686,184 325,347 54,011,531

– 230 TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

Statement of financial position

RCS RCS RCS MediaGroup International Merger entries MediaGroup (€) (before entry) Newspapers (after entry)

31 dicembre 2017 31 dicembre 2017 Carrying amounts / 31 dicembre 2017 Equity pro-forma ASSETS XII Property, plant and equipment 45,708,782 - - 45,708,782 XIV Investment property 2,759,222 - - 2,759,222 XIII Intangible assets 37,477,778 - - 37,477,778 XV Equity investments at cost 408,668,429 246,635,488 ( 257,126,259) 398,177,658 XV Available-for-sale financial assets 560,664 - - 560,664 XV Non-current financial receivables 2,772,066 - - 2,772,066 XV Other non-current assets 13,704,897 - - 13,704,897 XV Deferred tax assets 46,310,699 - - 46,310,699 Total non-current assets 557,962,537 246,635,488 ( 257,126,259) 547,471,766 XVI Inventory 10,654,535 - - 10,654,535 XVII Trade receivables 166,553,039 - - 166,553,039 XIX Sundry receivables and other current assets 21,420,426 - - 21,420,426 XIX Current tax assets 4,516,713 - - 4,516,713 XXIV Current financial receivables 270,331,661 10,801,157 - 281,132,818 XXIV Cash and cash equivalents 679,005 13,895 - 692,900 Total current assets 474,155,379 10,815,052 - 484,970,431 total assets 1,032,117,916 257,450,540 ( 257,126,259) 1,032,442,197 EQUITY AND LIABILITIES XXIII Share capital 475,134,602 6,250,000 ( 6,250,000) 475,134,602 XXIII Reserves 128,445,225 907,488,378 ( 907,510,394) 128,423,209 XXIII Treasury shares ( 27,150,528) - - ( 27,150,528) XXIII Retained earnings/losses carried forward ( 219,957,816) ( 656,634,135) 656,634,135 ( 219,957,816) XXIII Profit (loss) for the year 53,686,184 325,347 - 54,011,531 Total equity 410,157,667 257,429,590 ( 257,126,259) 410,460,998 XXIV Non-current financial payables 233,325,736 - - 233,325,736 XXIV Financial liabilities recognized for derivatives 88,620 - - 88,620 XX Employee benefits 31,694,903 - - 31,694,903 XXI Provisions for risks and charges 9,530,105 - - 9,530,105 XXII Deferred tax liabilities 606,253 - - 606,253 XIX Sundry payables and other non-current liabilities 1,790,443 - - 1,790,443 Total non-current liabilities 277,036,060 - - 277,036,060 XXIV Payables to banks 16,772,980 - - 16,772,980 XXIV Current financial payables 110,049,365 - - 110,049,365 XXIV Financial liabilities recognized for derivatives 963,125 - - 963,125 XIX Current tax liabilities 4,800,810 - - 4,800,810 XVIII Trade payables 136,336,366 20,950 - 136,357,316 XXI Current portion of provisions for risks and charges 24,816,943 - - 24,816,943 XIX Sundry payables and other current liabilities 51,184,600 - - 51,184,600 Total current liabilities 344,924,189 20,950 - 344,945,139 total equity and liabilities 1,032,117,916 257,450,540 ( 257,126,259) 1,032,442,197

231 – TABLES ATTACHED TO THE SEPARATE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

LIST OF LOCAL BRANCHES OF RCS MEDIAGROUP S.P.A. AT 31 DECEMBER 2018

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 10121 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 Viale del Risorgimento n. 10 40136 BOLOGNA Via Codignola n. 20 50018 SCANDICCI Viale dei Mille n. 9 50131 FLORENCE Lugarno delle Grazie n. 22 50122 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)

– 232 INDEPENDENT AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT

235 – INDEPENDENT AUDITORS’ REPORT

– 236 INDEPENDENT AUDITORS’ REPORT

237 – INDEPENDENT AUDITORS’ REPORT

– 238 INDEPENDENT AUDITORS’ REPORT

239 – INDEPENDENT AUDITORS’ REPORT

– 240 INDEPENDENT AUDITORS’ REPORT

241 –

INDEPENDENT AUDITORS’ REPORT ON THE SEPARATE FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT

245 – INDEPENDENT AUDITORS’ REPORT

– 246 INDEPENDENT AUDITORS’ REPORT

247 – INDEPENDENT AUDITORS’ REPORT

– 248 INDEPENDENT AUDITORS’ REPORT

249 –

REPORT BY THE BOARD OF STATUTORY AUDITORS

RCS MediaGroup S.p.A.

Via Angelo Rizzoli, 8 – 20132 Milan Share capital € 270,000,000 Company Register and Tax Code 12086540155 REA No. 1524326

Statutory Auditors’ Report to the Shareholders’ Meeting pursuant to Art. 153, of Legislative Decree no. 58 of 24 February 1998

To the Shareholders’ Meeting of RCS MediaGroup S.p.A.

Dear Shareholders, this Report refers on the activities carried out by the Board of Statutory Auditors of RCS MediaGroup S.p.A., which is in its current setup following the Shareholders' Meeting of 26.04.2018. 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 the 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 organizational 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 Deloitte & Touche S.p.A.;

253 – REPORT BY THE BOARD OF STATUTORY AUDITORS

• 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; • included in its meeting agendas the results of the quarterly audits carried out by the company appointed to perform the legally-required audit and received information on the audit plan; • 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, inter alia, describes the “fundamental issues" resulting from the statutory audit and any "significant shortcomings" found in the internal control system in relation to the financial reporting process; in line with the indications of ISA Italia 701, the report also contains a section regarding the "key aspects of the audit"; no critical issues worthy of your attention emerged from this Report; • 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; • 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 12 March 2010 as subsequently amended, compliance with the Procedure on Related Party Transactions, which the Company adopted under resolution dated 10 November 2010, recently amended by means of resolution of 30 September 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.

– 254 REPORT BY THE BOARD OF STATUTORY AUDITORS

The Board of Statutory Auditors also ascertained compliance with the criteria of independence and professionalism of its members, in accordance with the relevant legislation, and acknowledged compliance with the limit set to the holding of multiple appointments pursuant to Art. 144-tercedies of the Issuers' Regulations. 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 of Statutory Auditors also oversaw and ascertained, within the scope of its duties, the adequacy of the systems and processes that govern the production, reporting, measurement and presentation of non-financial results and information established by Legislative Decree No. 254 of 30 December 2016, in order to ensure a correct presentation of the non-financial issues referred to in the abovementioned decree.

*** The specific indications to be provided hereby are listed below, in accordance with the order prescribed by the aforementioned CONSOB Communication of 6 April 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

255 – REPORT BY THE BOARD OF STATUTORY AUDITORS

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-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 On 27 March 2019, the independent auditors Deloitte & Touche S.p.A., tasked with the statutory audit, issued the reports on the separate and consolidated financial statements at 31 December 2018 of RCS MediaGroup S.p.A. without remarks. The opinions and certifications issued in the Independent Auditors' Report show: - that the separate and consolidated financial statements of RCS MediaGroup S.p.A. provide a true and fair view of the financial position of the Company and the Group at 31 December 2018, of the results of operations and cash flows for the year in accordance with the International Financial Reporting Standards adopted by the European Union, as well as the provisions issued in implementation of art. 9 of Legislative Decree no. 38 of 28 February 2005; - consistency of the Reports on Operations and the information set out in art. 123- bis, paragraph 4, T.U.F., referred in the Report on Corporate Governance and Ownership Structure, with the separate and consolidated financial statements; 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

– 256 REPORT BY THE BOARD OF STATUTORY AUDITORS

On 10 January 2018, a shareholder sent a complaint to the Board of Statutory Auditors concerning the adjustment of the sale price of Rizzoli Libri, sold by the RCS Group to Mondadori. Following the complaint, the Board of Statutory Auditors was able to ascertain that the adjustment to the sale price was consistent with the provisions of the contractual documentation aimed at governing the transaction in question, given the lower turnover of the school textbooks division versus the 2015 Budget. In any case, the Company had prudently allocated the amount of this adjustment to the “provision for risks". On 26 February 2018, the same shareholder also sent the Board of Statutory Auditors a complaint concerning the publication of allegedly false information by "Il Corriere della Sera" regarding Commander De Falco. The Board of Statutory Auditors deemed the complaint to be outside the scope of the provisions of art. 2408 of the Italian Civil Code. Lastly, on 22 November 2018, the same shareholder also sent the Board of Statutory Auditors a complaint concerning the arbitration proceedings on the purchase and sale of the property complex located in Via Solferino (Milan), sold by the Company to an American investment fund. Specifically, by means of the above complaint, the shareholder requested to assess the legal grounds for the action taken by the Company, as well as the potential risks that could arise as a result of a possible loss and any amounts to be allocated to the "provision for risks". With regard to this matter, the Board of Statutory Auditors was able to ascertain that the Board of Directors - assisted by professionals of recognized standing - had assessed the legal grounds underlying the legal action taken in order to assert the Company's claims, and having received an opinion from its legal advisors, deemed that there was no need to set up provisions for risks, as mentioned in the Report on the Financial Statements. 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 the assignment of additional duties to the independent auditors or to connected entities and related costs The Independent Auditors Deloitte & Touche S.p.A. and the companies belonging to the Deloitte & Touche S.p.A. network, in addition to the tasks envisaged by the regulations for listed companies, have received additional assignments for services other than statutory auditing, the fees for which are shown in the annex to the financial statements as required by art. 149-duodecies of the Issuer Regulations. The services other than auditing allowed were approved in advance by the Board of Statutory Auditors, which assessed the fairness and appropriateness as per the criteria set out in EU Regulation 537/2014.

257 – REPORT BY THE BOARD OF STATUTORY AUDITORS

8. 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 responsibilities; it additionally expressed a favourable opinion on the appointment of the Financial Reporting Manager pursuant to art. 154 bis of the TUF. 9. 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 9 meetings, the Control and Risk Committee (acting also as the Related Parties Board Committee) held 8 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 11 meetings. 10. 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. 11. Observations on the adequacy of the organisational structure The Board of Statutory Auditors oversaw the adequacy of the organizational structure and has no observations to make to the Shareholders’ Meeting in this regard. 12. 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. 13. 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 31 December 2018, the statement of the Chief Executive Officer and of the Manager in charge of Financial Reporting in accordance with Art. 81-ter of CONSOB Regulation no. 11971 of 14 May 1999 as amended was duly provided.

– 258 REPORT BY THE BOARD OF STATUTORY AUDITORS

14. 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. 15. 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 legally-required audit of the accounts, also in accordance with Art. 150, paragraph 3, of Italian Legislative Decree no. 58/1998, no aspects emerged that should be reported herein. 16. 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 Italian 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 2018, 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 Italian Legislative Decree no. 58/1998). 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 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. 17. 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 2018 in normal circumstances, and it brought to light no omissions, reprehensible actions

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or irregularities to be reported, also with reference to the provisions of Art. 15 of the CONSOB Market Regulations. 18. 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 31 December 2018 of RCS MediaGroup S.p.A., to their approval and to matters within its competence.

Milan, 28 March 2019

The Board of Statutory Auditors

Enrico Maria Colombo

Paola Tagliavini

Marco Moroni

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RCS MediaGroup S.p.A - Via Angelo Rizzoli,8 - 20132 Milano www.rcsmediagroup.it