2017 Annual Report

2017 ANNUAL REPORT ARNOLDO MONDADORI EDITORE S.p.A. Share Capital 67,979,168.40 euro Registered Office in Milan Administrative Offices in Segrate (Milan) 2017 ANNUAL REPORT Mondadori Group Consolidated Financial Statements and Arnoldo Mondadori Editore S.p.A. Financial Statements at 31 December 2017 CONTENTS Letter to Stakeholders 9 Composition of Corporate Bodies 10 Mondadori Group Organization 11 Mondadori Group Organization Chart 12 Overview of Group Activities 13 Group History Milestones 16 Investor Relations 18 DIRECTORS’ REPORT ON MONDADORI GROUP OPERATIONS IN 2017 Mondadori Group Highlights in 2017 25 Main Elements in Mondadori Business Areas 27 Consolidated Financial Highlights in 2017 28 Consolidated Financial Highlights in 4Q17 37 Performance by Business Area 41 Financial Position 57 Personnel 61 Performance of Arnoldo Mondadori Editore S.p.A. 63 Internal Control and Risk Management System 64 Significant Events during the Year 69 Significant Events after Year End 71 Business Outlook 72 Other Information 73 Glossary of Terms and Alternative Performance Measures Used 77 Consolidated Non-Financial Statement 81 Independent Auditors’ Report on the Consolidated Non-Financial Statement, pursuant to art. 3, par. 10, of Legislative Decree 254/2016 and to art. 5 of Consob Regulation no. 20267 145 MONDADORI GROUP CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2017 Consolidated Balance Sheet 150 Consolidated Income Statement 152 Consolidated Comprehensive Income Statement 153 Consolidated Income Statement in 4Q17 154 Statement of Changes in Consolidated Equity 156 Consolidated Cash Flow Statement 158 Consolidated Balance Sheet and Income Statement pursuant to Consob Regulation no. 15519 of 27 July 2006 160 Explanatory Notes 164 Certification of the Group’s Consolidated Financial Statements pursuant to art. 81-ter of Consob Regulation no. 11971 of 14 May 1999 as subsequently amended and supplemented 263 ARNOLDO MONDADORI EDITORE S.P.A. FINANCIAL STATEMENTS AT 31 DECEMBER 2017 Balance Sheet 266 Income Statement 268 Comprehensive Income Statement 269 Statement of Changes in Equity 270 Cash Flow Statement 272 Balance Sheet and Income Statement pursuant to Consob Regulation no. 15519 of 27 July 2006 274 Accounting Standards and Explanatory Notes 278 Annexes 358 Certification of the Company’s Financial Statements pursuant to art. 81-ter of Consob Regulation no. 11971 of 14 May 1999 as subsequently amended and supplemented 383 Statutory Auditors’ Report to the Shareholders’ Meeting called for the approval of the Financial Statements at 31 December 2017 386 Independent Auditors’ Reports pursuant to art. 14 of Legislative Decree no. 39 of 27/1/2010 and to art. 10 of (EU) Regulation no. 537/2014 390 LETTER TO STAKEHOLDERS Last year’s excellent results were the crowning In the coming pages you will find a detailed achievement of the process that began in 2013 breakdown of Company performance in 2017 – to strategically redefine the Group’s areas of not only in terms of income, finance and business, operation and restore its financial soundness. but also in relation to sustainability issues as After announcing those results, we said that 2017 they most affect the Group and our place in the would be a year of consolidation and, essentially, publishing industry. of forging ahead with the plan to improve our income and financial position. We began voluntarily corporate social responsibility reporting in 2011 through our Challenging targets indeed, if one considers the Sustainability Reports. This information is now overall magazine market trend. mandatory under Legislative Decree 254/2016 and from this year we are including it in a Those objectives – as announced to the market Consolidated Non-Financial Statement – part of – have been achieved and in some cases even the Directors’ Report on Operations – to provide surpassed, which is proof of the step change that all our stakeholders with a 360-degree picture we have successfully made to the Company’s of our activities and the strategic approach to 9 operations and development. managing them. By harnessing the benefits of the investments This change marks another step towards ever made two years ago through acquisitions in more comprehensive reporting, meeting the the books and digital segments, the Mondadori expectations of our stakeholders and reflecting Group’s leadership in books and magazines grew increasingly widespread concerns over global stronger in 2017. sustainable development objectives. The year’s good results pave the way for the next phase in the development of the Group, which Marina Berlusconi over the coming years will continue its strategic Chairman of the Mondadori Group repositioning and the review of its portfolio of activities. The aim in doing so is to create the Ernesto Mauri financial conditions to embark on a new period of CEO of the Mondadori Group further growth in our strategic core businesses, focusing in particular on the books segment – in both the trade and education segments – which currently generates by far the lion’s share of the Group’s profits. COMPOSITION OF CORPORATE BODIES CORPORATE OFFICES AND BOARDS Board of Directors CHAIRMAN Marina Berlusconi CEO Ernesto Mauri DIRECTORS Pier Silvio Berlusconi Paolo Ainio** Pasquale Cannatelli Alfredo Messina 10 Martina Forneron Mondadori* Danilo Pellegrino Roberto Poli Oddone Pozzi Angelo Renoldi* Mario Resca Cristina Rossello* Marco Spadacini* * Independent Directors pursuant to the Corporate Governance Code for Listed Companies ** Director Paolo Ainio was co-opted on 28 July 2016, following the resignation of Director Bruno Ermolli, and will remain in office together with the entire Board of Directors Board of Statutory Auditors CHAIRMAN Ferdinando Superti Furga STANDING AUDITORS Francesco Antonio Giampaolo Flavia Daunia Minutillo SUBSTITUTE AUDITORS Annalisa Firmani Ezio Maria Simonelli Francesco Vittadini The Board of Directors and the Board of Statutory Auditors currently in office were appointed by the Shareholders’ Meeting of 23 April 2015 MONDADORI GROUP ORGANIZATION* ARNOLDO MONDADORI EDITORE S.P.A. Books Retail Magazines Italy Magazines France Other business Mondadori Libri Mondadori Retail AdKaora S.r.l. Mondadori France Società Europea S.p.A. S.p.A. 100% S.a.s. di Edizioni S.p.A. 100% 100% 100% 36.89% Giulio Einaudi Mondadori Monradio S.r.l. editore S.p.A. International 20% 100% Business S.r.l. 100% Edizioni EL Attica S.r.l. Publications S.A. 50% 41.98% Mondadori Press-di S.r.l. Education S.p.A. 100% 11 100% Mondadori Mondadori Electa S.p.A. Scienza S.p.A. 100% 100% Rizzoli Libri Inthera S.p.A. S.p.A. 100% 99.99% Mach 2 Libri Press-di S.p.A. Abbonamenti S.p.A. 44.91% 100% Mediamond S.p.A. 50% Mondadori Legenda: Seec (Beijing) Advertising Co. Ltd Subsidiary Affiliated 50% companies companies * As at the date of approval of this 2017 Annual Report (March 2018) STRUTTURAMONDADORI GROUP ORGANIZZATIVAORGANIZATION DELCHART GRUPPO MONDADORI* Marina Chairman Berlusconi* Ernesto Chief Executive Officer Mauri* Federico Director of Daniele Group HR Oddone Group Director Angrisano Communications Sacco and Organization Pozzi* of Finance, and Media Director Procurement Relations and IT Enrico Antonio Pierluigi Selva Coddè Porro Bernasconi Managing Deputy Chairman Managing Director of and Managing director Mondadori Director of Mondadori Libri S.p.A. of Mondadori Retail S.p.A. Trade area Libri S.p.A. Carlo Carmine Mandelli Perna General Managing Manager - Director - Magazines Mondadori Italy France * Board of Directors members As at the date of approval of this 2017 Annual Report (March 2018) OVERVIEW OF GROUP ACTIVITIES Mondadori is one of Europe’s top publishing groups, the leading publisher of books and magazines in Italy and among the main publishers in the consumer magazines segment in France. The Group also operates in the retail business with the most extensive network of bookstores throughout Italy (over 600 points of sale). BOOKS RETAIL The business area is managed through Mondadori Through its subsidiary Mondadori Retail S.p.A., the Libri S.p.A., a subsidiary which has absorbed the Group manages the largest network of bookstores range of book publishing activities over the last in Italy, with approximately 600 points of sale under three years, with a view to strengthening and four different formats either managed directly or developing the segment. franchised: Mondadori Megastore, Mondadori Bookstore and Mondadori Point. The physical The Group leads the Trade market with a 28.7% network is complemented by the online sales share in the areas of fiction, non-fiction and channels (mondadoristore.it and rizzolilibri.it) and 13 children’s books, in both traditional and digital the bookclub. formats, published under the following brands: Mondadori, Electa, Giulio Einaudi editore, Piemme, Concurrent to the development of the book Sperling & Kupfer, Rizzoli, BUR, Fabbri Editori and business, and as a result of Retail’s focus on the Rizzoli Lizard. book product (representing 80% of store revenue), Mondadori Retail’s market share stands at 15% in Additionally, it has operations in the school 2017 in this specific segment. textbooks area through Mondadori Education and Rizzoli Education: leader of the segment, its market share stands at 23.7% at end 2017, with a total catalogue of over 30 proprietary and distributed brands, and production spanning from preschool to university. Complementing the book publishing activities are those revolving around art books, the management of museum concessions, and the organization

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