REPORT AND ACCOUNTS 30 June 2017 REPORT AND ACCOUNTS 1H 2017 06 (This is a translation of a document originally issued in Portuguese. In the event of discrepancies, the Portuguese language version prevails – Note 16) TABLE OF CONTENTS INTRODUCTION ....................................................................................................................................... 3 STOCK EXCHANGE EVOLUTION ............................................................................................................. 4 COMPANY ACTIVITY ............................................................................................................................... 6 FINANCIAL REVIEW ................................................................................................................................ 7 OUTLOOK ............................................................................................................................................. 10 CORPORATE GOVERNANCE ................................................................................................................. 11 LEGAL MATTERS .................................................................................................................................. 12 CLOSING REMARKS ............................................................................................................................. 14 STATEMENT UNDER ARTICLE 246, 1, C) OF THE SECURITIES CODE ................................................... 15 DECLARATION OF RESPONSIBILITY .................................................................................................... 16 ARTICLE 447 OF THE COMMERCIAL COMPANIES CODE AND ARTICLE 14, PARAGRAPH 7, OF PORTUGUESE SECURITIES REGULATOR (CMVM) REGULATION NO. 5/2008 ........................................ 17 1 MANAGEMENT REPORT 30 JUNE 2017 CONTAS CONSOLIDADAS REPORT AND ACCOUNTS 1H2017 I. Management Report To the Shareholders Pursuant to the legal requirements, the Board of Directors of Cofina, SGPS., S.A. (Public Company) hereby presents its Report and Accounts for the first semester of 2017. INTRODUCTION The year 2017 has turned out to be a difficult year for circulation and advertising revenues, counteracting the recovery trend that seemed to be a possibility in 2016. Despite the extremely adverse scenario, the Group continued to maintain leadership of its main products in terms of market share. 3 REPORT AND ACCOUNTS 1H2017 I. Management Report STOCK EXCHANGE EVOLUTION (Note: PSI 20 was considered as an index with the same initial market value as the stocks, under analysis, in order to enable a better comparison of the quotations variations.) In the first half of 2017, the national stock index (PSI-20) appreciated around 10.1% compared to the end of 2016, while Cofina shares appreciated 52.7%. Stock Exchange Evolution Cofina vs PSI-20 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Jan/17 Feb/17 Mar/17 Apr/17 May/17 Jun/17 Cofina PSI-20 As of June 30 2017, Cofina’s shares closing price was 0.397 Euro per share corresponding to a market capitalization of 40.7 million Euro. In the first half of 2017, Cofina’s shares were traded at the highest price of 0.425 Euro and at the lowest price of 0.243 Euro. In total, 18,552,225 shares were traded. The most significant events that affected Cofina’s shares in the first semester of 2017 can be detailed as follows: COFINA Stock Exchange Evolution 0.50 0.40 0.30 3- Mar: Disclosure 5 - May: 1Q17results of the 2016 results announcement 0.20 January/17 February/17 March/17 April/17 May/17 June/17 4 REPORT AND ACCOUNTS 1H2017 I. Management Report • In the announcement relating to the Group’s performance in 2016, disclosed on March 3, Cofina presented a net consolidated profit of 4.3 million Euro. Operating income decreased 0.7% amounting to 99.9 million Euro and EBITDA stood at 13.5 million Euro. On this day the stocks closed at 0.273 Euro per share; • On May 5 2017, the announcement relating the presentation of the financial statements for the first quarter of 2017, Cofina SGPS, S.A. presented an operating income of 20.6 million Euro, an EBITDA of 2.3 million Euro and a net consolidated profit of 648 thousand Euro. 5 REPORT AND ACCOUNTS 1H2017 I. Management Report COMPANY ACTIVITY Cofina group develops its activity in the media and contents business area. The key group company in this sector is Cofina Media, S.A., which owns headings of reference, leaders in their respective segments. In the Group’s publishing portfolio it should be highlighted the daily newspaper “Correio da Manhã”, the daily sports newspaper “Record”, the economic information newspaper “Jornal de Negócios”, the free newspapers “Destak” and “Metro”, the information magazine “Sábado” as well as other titles, such as “TV Guia”. In addition, since 2013, Cofina Group incorporated the television channel "CMTV" into its operations portfolio. Cofina Group’s complete structure of participations as of 30 June 2017 is as follows: 100% 100% 29,9% 33,3% 100% 40% Destak Brasil Grafedisport Vasp Adcommedia A Nossa Aposta Empreendimentos 100% Destak Brasil Editora According to the data provided by APCT (“Associação Portuguesa para o Controlo de Tiragem e Circulação”) for the first four months of 2017, “Correio da Manhã” is the most sold newspaper in Portugal, with an average of more than 91 thousand copies sold daily. According to the data provided by this certifying entity, “Correio da Manhã” has a market share of 50% (regarding the daily paid generic newspapers segment). “Correio da Manhã” has been keeping its leadership, year after year, despite the generalized decrease on paid circulation in other titles of the same segment. 6 REPORT AND ACCOUNTS 1H2017 I. Management Report FINANCIAL REVIEW The consolidated financial information of Cofina for the 1st half of 2017, prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS), can be presented as follows: (amounts in thousand of Euro) 1H 2017 1H 2016 Var (%) 1H17/1H16 Consolidated operating revenue 43,991 48,471 -9.2% Circulation 22,810 25,329 -9.9% Advertising 14,454 15,147 -4.6% Alternative marketing products and others 6,727 7,995 -15.9% Operating income by segment 43,991 48,471 -9.2% Newspapers 37,117 39,905 -7.0% Magazines 6,874 8,566 -19.8% Operating Expenses (a) 38,368 42,030 -8.7% Consolidated EBITDA (b) 5,623 6,441 -12.7% EBITDA Margin 12.8% 13.3% -0.5 p.p. Newspapers EBITDA 6,286 7,016 -10.4% Newspapers EBITDA Margin 16.9% 17.6% -0.7 p.p. Magazines EBITDA -663 -575 -15.3% Magazines EBITDA Margin -9.6% -6.7% -2.9 p.p. Restructuring Costs 2,000 - ss Consolidated EBITDA after restructuring costs 3,623 6,441 -43.8% Amortisation and depreciation (-) 923 1,265 -27.0% EBIT 2,700 5,176 -47.8% EBIT Margin 6.1% 10.7% -4.6 pp Net financial income / (loss) (1,482) (1,588) -6.7% Income before taxes and non-controlling interests 1,218 3,588 -66.1% Income taxes (-) 500 1,248 -59.9% Net consolidated profit / (loss) 718 2,340 -69.3% (a) Operating ex penses ex cluding amortisation (b) EBITDA = Earnings before interest, tax es, depreciation and amortisation The period in question was characterised by a decrease in total revenues compared to the same period of last year (-9%), with a decrease in all its components: circulation revenues (-10%), advertising revenues (-5%) and alternative marketing products and others (-16%). In an adverse context, Cofina is implementing a restructuring plan to prepare the Group for current and future reality, ensuring its sustainability as well as acceptable levels of profitability. The plan goes through the optimisation of the structure and product portfolio. Therefore, 2 million Euro of restructuring costs were included in the first semester’s financial statements. EBITDA, before restructuring costs, reached approximately 6.4 million Euro, representing a decrease of 13% compared to the same period of last year. Consolidated net profit reached approximately 0.7 million Euro. As of June 30, 2017, the nominal net debt of Cofina amounted to 56 million Euro. 7 REPORT AND ACCOUNTS 1H2017 I. Management Report In operational terms, Cofina is developing new business units, especially an online gaming platform, which is currently being approved and should be operational during the second half of 2017. The main indicators of the core business segments, excluding restructuring costs, are as follows: Newspapers Segment: (amounts in thousand of Euro) 1H 2017 1H 2016 Var (%) 1H17/1H16 Operating income 37,117 39,905 -7.0% Circulation 19,123 20,605 -7.2% Advertising 12,381 12,567 -1.5% Alternative marketing products and others 5,613 6,733 -16.6% Operating expenses (a) 30,831 32,889 -6.3% EBITDA (b) 6,286 7,016 -10.4% EBITDA Margin 16.9% 17.6% -0.7 p.p. (a) Operating ex penses ex cluding amortisation (b) EBITDA = Earnings before tax es, financial results and depreciation and amortization The newspapers segment of Cofina recorded, in the first semester of 2017, a total income of 37.1 million Euro, which represents a decrease of 7% when compared with the homologous period. The circulation income recorded a decrease of about 7% reaching 19.1 million Euro; the advertising income recorded a decrease of about 1.5% reaching 12.4 million Euro; whilst the revenue from alternative marketing products and others recorded a decrease of 17%, reaching approximately 5.6 million Euro. Therefore, EBITDA of the newspaper segment reached in the period under analysis amounted to 6.3 million Euro, a decrease of approximately 10%, when compared with