Gruppo Editoriale L Espresso Società per azioni. Report on the 3 rd Quarter of 2005

Transcription

1 1 Gruppo Editoriale L Espresso Società per azioni Report on the 3 rd Quarter of 2005

2 REPORT ON OPERATIONS ON THE FIRST NINE MONTHS OF 2005 The Espresso Group closed the first nine months of 2005 with a consolidated net profit amounting to 65.4 million compared with the 61 million of the corresponding period of the previous year; also the consolidated operating profit has increased from million in the first nine months of 2004 to million in the first nine months of 2005 and revenues have increased from million to 789 million. The margin on sales was equal to 16.6%, up from 16% in the first nine months of Net consolidated financial debt increased from million at January 1, 2005 to million at September 30, The strong operating cash flow helped to reduce the impact of the acquisition of music television station All Music ( 110 million), capital expenditure ( 55.2 million) and the distribution of dividends ( 55.8 million). Consolidated Shareholders Equity grew from million at January 1, 2005 to million at September 30, In the first nine months of the year advertising revenues have increased by 8% (by 6.4% excluding advertising sales of All Music and collection for third parties), with the 3 rd Quarter registering a higher growth than the previous months. Advertising sales were strong in September, particularly those of la Repubblica s commercial advertising (up 10.1% on September 2004). Consolidated data include also All Music TV network contribution since the acquisition finalized in April. The broadcasting television network since October 3 has revamped graphics and logo and has further increased its focus on young people and on the world of music. Starting with January 2006 advertising revenues will be collected by the Group s Concessionaire A.Manzoni&C.. Positive results have also come from the sales of optional products that have reached almost 20 million copies of books, DVDs and music CDs, with a contribution to the consolidated operating profit greater than the one of first nine months of Circulation of newspapers and periodicals was in line with the corresponding period in the previous year. La Repubblica sold an average of 618 thousand copies per issue, local newspapers an average of 475 thousand and L espresso an average of 388 thousand. The Group s radio stations confirmed their leadership among private radio stations achieving an average daily audience of over 8.7 million and a weekly audience of 22.4 million (source: Audiradio, 1 st Half of 2005). Internet sites of the Espresso Group have overcome in September, for the first time, 7.6 million unique users confirming Repubblica.it as the most favourite Italian news site (over 482 thousand average daily unique users and 4.8 million monthly unique users). 2

3 RepubblicaRadio broadcasted every morning only on the Internet with news, editorials, interviews and services with reporters and journalists of la Repubblica, has reached in September over 126 thousand unique users and 442 thousand page views, thanks also to the possibility to listen to its programs with a delay and to download on MP3 players or IPOD single fragments of its programs. A new monthly magazine named XL was launched on August 25. The magazine, targeted to a young public, will be sold as a supplement of la Repubblica. The first issue gained great public success and positive acceptance has been confirmed also by the feedback obtained by advertising investors. After the insourcing of the Rome printing activities of la Repubblica, which took place August of last year, in April 2005 also the production of the printing site of Padova, which operates both for La Repubblica and the local dailies of the Veneto area of Finegil Editoriale, has been internalised. These operations, together with a rationalization of the Group headquarter, have generated greater efficiency and cost savings. At the end of September the Group employed 3,425 persons, up 154 on the 3,271 persons employed by the Group at December 31, 2004 due to the addition of personnel of newly acquired TV station All Music and the hiring of personnel of the former Padua printing cooperative. Below we report summary data for the first nine months and the 3 rd Quarter of 2005 and the correspondent data for the same periods in Consolidated data ( million) % change Sales % Operating and personnel costs (613.6) (623.1) +1.5% Gross operating margin % Depreciation, amortization and write-downs (31.8) (34.6) +8.6% Operating profit % Net profit % Jan. 1, 2005 Sept. 30, 2005 Net financial position (141.4) (241.8) Employees 3,271 3,425 3

4 Quarterly data ( million) 3 rd Quarter rd Quarter 2005 % change Sales % Operating and personnel costs (189.8) (185.0) -2.5% Gross operating margin % Depreciation, amortization and write-downs (10.5) (11.4) +8.5% Operating profit % Net profit % OPERATING DIVISIONS Repubblica Division % change Sales % Operating and personnel costs (309.6) (312.4) +0.9% Gross operating margin % Depreciation, amortization and write-downs (10.2) (10.0) -2.3% Operating profit % Employees Results by division include revenues and common costs of subsidiaries that may not be attributed to a specific activity In the first nine months of the year, advertising on la Repubblica and its supplements grew by 8.2%, while sales and margins of add-on products remained high. In the period were launched l Almanacco dei libri, la Domenica di Repubblica and the magazine XL, which offered readers, and particularly the younger segment, a new content and graphic design, with a higher number of pages. Attention dedicated to the quality and innovation of the product offered favored the success of the newspaper: the last Audipress survey on la Repubblica s readers confirmed the newspaper as the one with the largest number of readers with over 3 million. Supplement Venerdì reported 2.9 million readers, and D-la Repubblica delle Donne 1.2 million. 4

5 Periodicals Division % change Sales % Operating and personnel costs (72.8) (85.4) +17.3% Gross operating margin % Depreciation, amortization and write-downs (0.4) (0.5) +21.1% Operating profit % Employees Results by division include revenues and common costs of subsidiaries that may not be attributed to a specific activity The Periodicals area includes weekly magazine L espresso, by-monthly magazine TvMagazine, monthly magazine National Geographic, the two quarterly magazines Limes and Micromega, and L espresso Guide Books. The good performance of add-on products, the increase in advertising revenues and the decline in subscription management costs allowed to offset part of the cost of the campaign for the launch of TvMagazine. The operating profit amounted to 7.2 million, representing a 7.7% margin on sales. To celebrate its 50 th anniversary, magazine L espresso published a series of five volumes featuring a selection of articles and photographs published over the years, covering an important part of Italy s recent history. The publications join other initiatives launched in 2005, selling a total of over 5.1 million copies between books, DVDs and music CDs. Other publications confirmed their positive contribution to the results of the division both in terms of circulation and margins. Monthly magazine National Geographic sold an average of 127 thousand copies per issue, while magazines Limes and Micromega recorded an average circulation of 17 thousand copies per issue each. Local newspapers % change Sales % Operating and personnel costs (141.4) (146.8) +3.8% Gross operating margin % Depreciation, amortization and write-downs (8.9) (10.8) +21.6% Operating profit % Employees 1,282 1,311 5

6 The area includes all local publications published by the Group, consisting in 16 newspapers and a bi-weekly magazine, reaching a total of 3.1 million readers in 10 Italian Regions. After the growth registered in the 1st Quarter, advertising revenues decline slightly due primarily to local advertising. The sales of color advertisng space grew by 25.2% on the first nine months of 2004, against a 12.6% decline in black-and-white space, confirming that the market is leaning towards color advertising also at the local level. In the first nine months of the year, local newspapers also launched add-on publications L Enciclopedia universale and La Grande Storia della Canzone Italiana involving the participation in subsequent phases of all local newspapers and selling a total of 650 thousand copies. From April 1, all production processes of the Padua plant, in charge of the printing of newspapers Il Mattino di Padova, Tribuna di Treviso and La Nuova di Venezia e Mestre, in addition to the copies of la Repubblica distributed in the Veneto area, are managed directly by the Group. Radio stations % change Sales % Operating and personnel costs (24.6) (26.5) +7.5% Gross operating margin % Depreciation, amortization and write-downs (2.4) (2.2) -7.7% Operating profit % Employees Radio broadcasting activities are grouped under subsidiary Elemedia, holder of the broadcasting licenses for Radio Deejay, Radio Capital and m2o. In the first nine months of 2005, despite the 1% decline of the radio advertising market, the Group s radio stations recorded an 11.4% growth in advertising sales that exceeded 53 million. The operating profit grew from 21 million in the first nine months of the previous year, to 24.8 million in 2005, representing a margin on sales of 46.3%. In the period under examination, Radio Deejay consolidated further its leadership position among private radio stations, Radio Capital renewed part of its editorial content in line 6

7 with its classics and news format, and m2o continued to concentrate on the publishing of music compilations sold at newsstands and specialized stores. Internet 2004 Jan Sept 2005 % change Sales % Operating and personnel costs (10.8) (9.5) -11.8% Gross operating margin (1.6) (0.2) +87.0% Depreciation, amortization and write-downs (0.6) (0.3) -54.7% Operating profit (2.2) (0.5) +78.0% Employees In addition to managing the portal bearing the same name, Kataweb acts as service provider and supplies contents for all online activities of the Espresso Group. In the first nine months of the year, the Group s Internet subsidiary reduced further its operating loss. In the period under examination, Kataweb provided consistent technical support and research and development for the launch of the Group s multimedia products. Among activities carried out, Kataweb contributed to the renewal of the Repubblica.it and Deejay.it sites, the start of broadcasting of RadioRepubblica on the web, and the launch of il Passaporto, the new online magazine aimed at immigrants. At the same time, the Kataweb portal was enriched with a renovated Travel section, a new blog area and Voice, a service allowing voice communications on the Internet. Video services were tested and a new portal dedicated to online classified ads Offro e Cerco on all Group publications was launched. Television 2004 Jan Sept 2005 % change Sales n.s. Operating and personnel costs - (7.4) n.s. Gross operating margin n.s. Depreciation, amortization and write-downs - (0.9) n.s. Operating profit n.s. Employees 105 The performance of the television network and projects to be launched in the next months were described in the first part of the report, to which we refer. 7

8 Advertising sales 2004 Jan Sept 2005 % change Sales % Operating and personnel costs (381.5) (401.6) +5.3% Gross operating margin % Depreciation, amortization and write-downs (3.8) (1.8) -54.1% Operating profit (0.3) 0.3 n.s. Employees Advertising sales of A.Manzoni&C. do not include sales of Rete A, whose advertising for 2005 is still managed by PubliKompass. Revenues for the first nine months of 2005 grow by 4.8% on the same period in the previous year. Almost all media of the Group reported a stronger sales performance than that of the market as a whole. According to Nielsen Media Research data, national advertising expenditure grew by 2% in the television sector, and by 4.5% in the printed press sector, while radio stations reported a 1% decline in advertising revenue. The increase in advertising sales and tighter management of receivables resulted in an increase in the operating profit that amounted in the first nine months of 2005 to 0.3 million, up from a loss of 0.3 million in the same period in SUBSEQUENT EVENTS AND OUTLOOK On October 11, 2005 the general shareholders meetings of Elemedia SpA, Eletv SpA and Studiovit Srl have resolved the merger of the companies into Kataweb SpA. With the consolidation of radio, satellite Television and Internet activities in one company, it will be possible to manage in an integrated way the different distributing platforms already existing or in course of development (digital terrestrial transmission) in order to distribute editorial content and therefore reach users on all possible devices (Internet, cell phones, television or other). The merger, whose accounting and fiscal effects will retroactively start as of January 1, 2005, will improve the efficiency of all common functions, reduce company governance costs and optimise the use of human and financial resources. Advertising revenues estimates for the months of October and November keep showing growths on the corresponding periods of 2004 and circulations and sales of additional products also confirm their positive trends. On the basis of the first nine months of the year and of the forecast for the fourth quarter, 2005 results should most likely be better than

9 Consolidated Financial Statements for the 3 RD Quarter of 2005

10 Gruppo Editoriale L'Espresso Consolidated Income Statement for the first nine months of 2005 and 2004 (in million of euro) Revenues Other operating income Purchases (113.9) (115.0) Services received (303.6) (311.3) Personnel costs (193.9) (210.7) Other operating costs (9.1) (10.0) Investments valued at equity Depreciation, amortization and write-downs (31.8) (34.6) Operating income Financial income (expense) (9.7) (14.0) Profit before taxes Taxes (52.1) (51.4) Net profit Minority interest share in net profit GROUP SHARE IN NET PROFIT Basic earnings per share Fully diluited earnings per share

11 Gruppo Editoriale L'Espresso Consolidated Income Statement for the 3 rd Quarter of 2005 and rd Quarter 3 rd Quarter (in million of euro) Revenues Other operating income Purchases (33.6) (35.4) Services received (95.9) (94.9) Personnel costs (59.3) (63.5) Other operating costs (2.4) (1.9) Investments valued at equity Depreciation, amortization and write-downs (10.5) (11.4) Operating income Financial income (expense) (3.3) (4.6) Profit before taxes Taxes (10.3) (9.6) Net profit Minority interest share in net profit GROUP SHARE IN NET PROFIT

12 Gruppo Editoriale L'Espresso Consolidated Balance Sheet ASSETS Jan. 1, June 30, September 30, (in million of euro) Intangible assets with indefinite useful life Other intangible assets Intangible assets Tangible assets Investments valued at equity Other investments Non-current receivables Deferred tax assets NON-CURRENT ASSETS Inventories Trade receivables Bills Financial receivables Tax receivables Other receivables Cash and cash equivalents 383, CURRENT ASSETS TOTAL ASSETS 1, , ,404.4 LIABILITIES AND SHAREHOLDERS' EQUITY Jan. 1, June 30, September 30, (in million of euro) Share capital Reserves Retained earnings (loss carry-forwards) Net income (loss) Group Shareholders' Equity Minority interests SHAREHOLDERS' EQUITY Financial debt Provisions for risks and charges Employee severance and other retirement benefits Deferred tax liabilities NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges Trade payables Tax payables Other payables CURRENT LIABILITIES TOTAL LIABILITIES 1, , TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY , ,

13 Gruppo Espresso Consolidated Net Financial Position Jan. 1, June 30, September 30, (in million of euro) Marketable securities Financial receivables Cash and cash equivalents Total financial assets Bonds (511.0) (514.2) (318.2) Bank debt (37.0) (58.1) (46.3) Other finacial debt (7.6) (6.6) (6.3) Total financial liabilities (555.7) (578.8) (370.7) NET DEBT (141.4) (255.5) (241.8) 13

14 Notes to the consolidated income statement at september 30, 2005

15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT SEPTEMBER 30, 2005 Foreword The unaudited consolidated financial statements of the Espresso Group at September 30, 2005 were prepared in accordance with IFRS. The adoption of international accounting standards is mandatory from 2005 in the preparation of the consolidated financial statements of companies listed in a European regulated market. The Group opted for the adoption of IFRS from the beginning of 2005 also for the preparation of the statutory accounts of the parent company and those of its subsidiaries. Comparative data was also determined in accordance with IFRS. Such accounting principles could differ from IFRS in force at December 31, 2005 due to further orientations of the European Commission with regard to the approval of IFRS or possible new pronouncements or interpretations of competent organizations. Valuation criteria applied to the balance sheet and income statement are in line with those adopted in the interim report at June 30, 2005 and with those expected to be applicable in the preparation of the financial statements at December 31, The present quarterly report was prepared in accordance with the provisions of article 82 of Consob Regulation 11971/1999 (as amended by Resolution dated April 14, 2005) and Attachment 3-d of the same. Accounting principle IAS 34 ( Interim reports ) was therefore not adopted. Changes in the consolidation area with respect to September 30, 2004 From April 1, 2005 companies Rete A SpA and its subsidiary All Music SpA were included in the consolidation. 15

16 INCOME STATEMENT Revenues Circulation Advertising Other revenues Total Consolidated circulation and advertising revenues are commented upon in the Report on operations to which we refer. Other revenues relate primarily to the sale provided by Internet companies in the web solutions area, in addition to revenues from printing services provided to others. The item includes also the change in finished goods, publications and add-on product inventories, equal to an increase of 1.2 million (in the first nine months of 2004 inventories declined by 1.3 million). Other operating revenues Other operating revenues include 17.5 million of grants ( 0.6 million in the first nine months of 2004) on paper purchases (for 2004 and 2005), for the circulation of newspapers abroad (for 2005), and on capital expenditure (as per article 8, Law 62/2001). Purchases Paper for newspapers and magazines (71.4) (74.3) Other paper purchases and production costs (42.5) (40.7) Total (113.9) (115.0) The cost of paper for newspapers and magazines for the first nine months of 2005 grows on the same period in the previous year by 2.9 million due to the increase in the average price of paper and costs incurred in the production of TvMagazine. Other paper purchases and production costs include costs incurred in the acquisition of products sold optionally with Group publications. The 1.8 million decline is due to a different mix of finished and semi-finished products. 16

17 Cost of services received Printing of newspapers and periodicals (54.4) (42.2) Other printing costs (25.1) (25.3) Promotion costs (29.9) (33.4) Distribution (22.1) (23.5) Publisher fees (15.0) (13.0) Agent and agency fees (20.2) (21.8) Copyrights (21.9) (27.9) Other operating costs (114.9) (124.1) Total (303.6) (311.3) The cost for the printing of newspapers and magazines declines by 12.2 million due to the choice to manage directly printing activities carried out at the Rotocolor plant in Rome (August 2004) and at the Padua plant (April 2005). Other printing costs include costs incurred in the production of add-on products and are in line with the previous year. The 3.6 million increase in promotion costs relates primarily to the launch of bymonthly magazine TvMagazine. Distribution costs grow by 1.5 million due primarily to the increase in costs for the distribution of newspaper la Repubblica. Copyright costs include primarily royalties paid for products sold in conjunction with Group publications, radio broadcasting rights and reproduction rights for Internet sites contents. The 6 million increase is due primarily to higher rights paid for products sold optionally in conjunction with la Repubblica and L espresso and royalties paid by All Music for the production and airing of programs. The 9.2 million increase in other operating costs is connected to the development of new publications, TvMagazine and XL, in addition to the consolidation of All Music and the increase in electricity and other utility costs in connection with the new full color rotary presses. Personnel costs Personnel costs amount in the first nine months of 2005 to million, up 16.8 million on the same period in 2004, due to the combined effect of automatic salary increases and the hiring by subsidiary Rotocolor and the Padua division of Finegil 17

18 Editoriale respectively of personnel of STEC, the former printer of newspaper la Repubblica in Rome, and personnel of the Padua printing cooperative. In the first nine months of 2005, personnel costs include 2.1 million of Rete A All Music personnel. Other operating costs Other operating costs include primarily accruals to the provision for risks and charges and are substantially in line with the same period in the previous year. Investments valued at equity The 0.4 million decline is due to the disposal of a 16% stake in Editoriale Libertà, bringing the Group s share from 35% to 19%. Depreciation, amortization and write-downs Depreciation, amortization and write-downs of fixed assets and receivables amount to 34.6 million, as compared with 31.8 million in the same period in The 2.7 million increase is due to the higher depreciation charges on la Repubblica s full color rotary presses, partly offset by the 1.4 million decline in write-downs of receivables. Financial income (expense) The financial expense amounts to 14 million, up 4.3 million on the first nine months of 2004 due to the negative spread between interest paid on the 10-year bond issued in October and interest earned on the proceeds from the same invested in short-term financial assets. 18

19 BALANCE SHEET Intangible assets amount to 634 million, up million on million at January 1, The increase is due mainly to the recording of broadcasting frequencies of newly acquired television network Rete A All Music, and to capital expenditure made in the first nine months of the year for the upgrade of broadcasting equipment and the development of digital terrestrial television. Tangible assets amount to million, down 3.6 million on January 1, 2005 ( 259 million). Increases in the period amount to 27.4 million, of which 8 million due to the consolidation of Rete A All Music, offset by net divestments amounting to 0.4 million and depreciation charges amounting to 30.5 million. Investments amount to 18.6 million ( 27.8 million at January 1, 2005). The 9.2 million decline is due to the reduction in the share held in Editoriale Libertà, declining from 35% to 19%. Non-current receivables amount to 3.4 million and consist of guarantee deposits and tax receivables on Employee Severance Indemnity withholding taxes. At January 1, 2005 the item included the fair value ( 5.4 million) of interest rate swap contracts concluded to hedge against the risk deriving from the 300 million bond issue, terminated in March. Deferred tax assets amount to 22.5 million and include temporary differences between the book value of assets and amounts reported for tax purposes. Inventories amount to 29.1 million and include paper, printing supplies, publications and add-on product inventories. Trade receivables amount to million, down 28.9 million on January 1, 2005 due to the seasonal swings in advertising revenues of A.Manzoni&C., whose advertising sales are lower in the summer months. Marketable securities amount to 0.1 million. Government bonds maturing in the period amounted to 20.1 million. Current financial receivables amount to 0.2 million, down 1.4 million due to lower interest on short-term bank deposits. Tax receivables amount to 74.5 million, as compared with 41.5 million at January 1, The change is due primarily to the tax credit granted on paper purchases for 2004 and 2005, and to a different recording of Ires (income tax) of parent company CIR in the context of tax consolidation. At January 1, 2005, Ires receivable was in fact recorded net of the expected tax expense, while at September 30, 2005 amounts receivable from and 19

20 payable to the parent company at the time of the first advance payment were recorded separately. Other receivables amount to 25.1 million, up 3.2 million on 22 million at January 1, Cash and cash equivalents decline by million due to the repayment of the 200 million 5-year bond issue maturing in the period, and the outlay of 110 million for the acquisition of Rete A All Music. The Shareholders Equity at September 30, 2005 amounts to million ( million at January 1, 2005), of which the Group s share amounts to million ( million at January 1, 2005) and minority interests to 10.7 million ( 11 million at January 1, 2005). Non-current financial debt amounts to million and includes 307 million relating to the 10-year bond issued at the end of Provisions for risks and charges, both current and non current are in line with the previous year. The provision for employee severance indemnities and other retirement benefits amount to a total of million ( 95.9 million at January 1, 2005) and cover amounts accrued to personnel at September 30, Deferred tax liabilities grow by 42.6 million due primarily to the tax effect of the recording of broadcasting frequencies of Rete A All Music. Current financial debt amounts to 40.6 million, down million on January 1, 2005 due to the repayment of 200 million of bonds maturing in the period. Trade payables amount to million, declining by 42.4 million due to the reduction in payables on capital expenditure (down 12.9 million), which at January 1, 2005 included the unpaid balance of full color rotary presses, and payables on the purchase of paper and printing materials (down 22.9 million) affected by the lower volume of add-on products produced. Tax payables amount to 61 million and include income tax (Ires) liabilities which, as a result of the participation to the tax consolidation procedure, are transferred to parent company CIR. As previously explained, the expected tax expense at January 1, 2005, was netted directly against the related tax credit. Other payables amount to 77.2 million and decline by 1.6 million on January 1, 2005 due to the reduction of social security payables settled at the beginning of the year. 20

21 Transition to IFRS

22 TRANSITION TO IFRS FOREWORD The Consolidated Financial Statements of the Group at December 31, 2005 will be the first financial statements prepared under IFRS. The Espresso Group adopted IFRS from January 1, 2005 while the transition date is January 1, The Group has therefore prepared an opening balance sheet at the transition date applying all mandatory exceptions and some of the exemptions to the retroactive application of IFRS allowed under IFRS 1. Until December 31, 2004, the Consolidated Financial Statements of the Espresso Group were prepared in accordance with Italian Law, as interpreted and integrated by the Italian Accounting Profession (referred to jointly as Italian GAAP). For certain aspects such principles differ from IFRS. To conform to IFRS, the Group modified some accounting methods and valuation principles used in the preparation of consolidated financial statements for previous years. The notes that follow describe the choices made by the Group with regard to exemptions to the retroactive application of IFRS allowed under IFRS 1, in addition to the reconciliation and description of effects of the transition from Italian GAAP to IFRS required by Consob. The following reconciliation schedules and related notes were prepared with such end: 1) Shareholders Equity Reconciliation of the Shareholders Equity at the following dates: date of transition to IFRS (January 1, 2004); closing date of the last financial statements prepared under Italian GAAP (December 31, 2004); closing date of the last interim financial statements prepared under Italian GAAP (June 30, 2004); date from which IAS 32 and IAS 39 have been adopted (January 1, 2005). 2) Profit Reconciliation of profit for the following periods: last financial year for which the financial statements were prepared under Italian GAAP (2004 financial year); first nine months of 2004 for which the interim financial statements were prepared under Italian GAAP. The Espresso Group appointed independent auditors PricewaterhouseCoopers SpA, which also audited the financial statements at December 31, 2004, to carry out a full audit of the preliminary IFRS reconciliation schedules at January 1, 2004, December 31, 2004 and January 1, Adjustments were made in accordance with IFRS in force at the date of 22

23 approval of the present interim report. Figures provided in the reconciliation schedules could therefore be subject to changes to reflect further orientations of the European Commission with regard to the approval of IFRS or possible new pronouncements of the IASB or the IFRIC that should occur by December 31, IFRS reconciliation schedules are prepared exclusively for the purposes of the transition in the context of the preparation of the first full financial statements under IFRS approved by the European Commission and lack therefore comparative data and the necessary notes that would be required to present fairly the consolidated financial position and consolidated results of operations of the Espresso Group under IFRS. OPENING BALANCE SHEET As required under IFRS 1, a consolidated balance sheet was prepared at the date of transition to IFRS (January 1, 2004) in which: all assets and liabilities whose recording is required under IFRS, including those not required under Italian GAAP, were recorded; all assets and liabilities whose recording is not allowed under IFRS were excluded; assets and liabilities were recorded at the value that would have applied in case IFRS had been applied retrospectively; items previously reported in the financial statements in a manner different from that provided under IFRS were reclassified. The effect of the adjustment to IFRS of beginning balances of assets and liabilities was recorded in the Shareholders Equity in the Reserve for the conversion to IFRS, net of the related tax effect. In the preparation of the opening Consolidated Balance Sheet at January 1, 2004, the Espresso Group decided to take advantage of the following exceptions to the retroactive application of IFRS: 1. business combinations, acquisition of investments in affiliates and joint ventures: the retroactive application of IFRS 3 ( Business Combination ) requires the review of the recording of all aggregations of companies (mergers, acquisitions, contributions, spinoffs, etc.) carried out in the past from the initial incorporation of the company. IFRS 1 allows the choice not to apply IFRS 3 retroactively, or to apply the same from a date set by the same. The exemption applies also to all acquisitions of shares in affiliated companies and joint ventures. The Espresso Group decided to take advantage of the exemption to the retroactive application of IFRS 3 for the acquisition of shares in affiliated companies and joint ventures occurred before January 1, 2004; 23

24 2. value at which property, plant and equipment and intangible assets are recorded: the retroactive application of IAS 16 ( Property, plant and equipment ), IAS 38 ( Intangible assets ) and IAS 40 ( Investment property ) requires for those tangible and intangible assets are recorded at cost the restatement of the historical cost, accumulated depreciation and write-downs. The Espresso Group decided to apply the estimated cost with reference to part of land and buildings on the basis of expert valuations prepared by independent surveyors. There lacking an active market for intangible assets, the Group could not benefit from the application of the estimated cost in the valuation of the same; 3. employee benefits (Employee Severance Indemnity and other benefits): in the recording of defined benefit plans (which include the Employee Severance Indemnity) IAS 19 allows the suspension of actuarial gains and losses that do not exceed a certain limit ( corridor approach ). The retroactive application of IAS 19 requires the quantification of actuarial gains and losses arising over time from the initial incorporation of the company for all personnel employed at the date of the transaction with the aim of determining the ones to be recorded and those to be suspended. IFRS 1 allows the use of the corridor approach. The Espresso Group opted for the prospective application of the corridor approach. Actuarial gains and losses at the date of the transition are recorded in full, with a parallel recording under Shareholders Equity; 4. designation of financial instruments: IAS 39 requires the designation of a financial instrument to a specific category to be carried out at the time of its first recording. As permitted under IAS 39, IFRS 1 allows the designation to be carried out at the transition date. The Espresso Group decided to apply IAS 32 and 39 starting from January 1, 2005 and opted for the exemption to the restating of the related comparative data. The designation of financial instruments was therefore carried out at the date of adoption of IAS 32 and IAS 39; 5. stock options: the exemptions to stock options allows to wave the application of IFRS 2 for stock options granted before November 7, 2002 (date of publication of the Standard) and for stock options granted after November 7, 2002 and maturing before January 1, The early application of the principle is however allowed only when the company has disclosed the fair value of stock options granted. The Espresso Group opted for the exemption to the application of IFRS 2 for stock option plans issued before November 7, 2002 and for stock options granted after such date and expiring before January 1,

25 EFFECT OF THE ADOPTION OF IFRS ON THE BALANCE SHEET AT JANUARY 1, 2004 ASSETS Italian Reclassifications IAS/IFRS IAS/IFRS ( million) GAAP adjustments Jan. 1, 2004 Intangible assets having an indefinite life Other intangible assets 10.0 (2.6) (0.8) 6.6 Total intangible assets (2.6) Tangible assets Investments valued at equity Other investments 25.6 (21.6) Long-term securities Financial receivables 4.9 (0.2) Deferred tax assets NON-CURRENT ASSETS Inventories 36.5 (5.5) Trade receivables Marketable securities Financial receivables Tax receivables 55.0 (19.5) (0.3) 35.2 Other receivables (0.7) 11.1 Cash and cash equivalents CURRENT ASSETS (9.6) (1.0) TOTAL ASSETS ,141.6 LIABILITIES AND SHAREHOLDERS EQUITY Italian Reclassifications IAS/IFRS IAS/IFRS ( million) GAAP adjustments Jan. 1, 2004 Share capital Reserves (113.8) Retained earnings (loss carry-forwards) (2.8) Net profit (loss ) for the period Group Shareholders Equity Minority interest in the Shareholders Equity SHAREHOLDERS EQUITY Financial payables Provisions for risks and charges (1.2) 17.2 Employee Severance Indemnity and other personnel benefits 98.5 (0.5) (6.2) 91.7 Deferred tax payables NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges 25.9 (18.0) (0.2) 7.7 Trade payables Taxes payable Other payables CURRENT LIABILITIES (8.1) TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS EQUITY ,

26 Main reclassifications consist in the reclassification of leasehold improvements from intangible assets to tangible assets, that of work in progress from inventories to trade receivables, the breakdown of provisions for risks and charges between current and noncurrent, the reclassification of current trade receivables and current financial payables, limited to the part relating to bills discounted with banks and receipts at December 31, 2003 but recorded in The reserve for capital grants, the reserve for merger differences and the revaluation reserve were reclassified from Reserves to Retained earnings (loss carry-forwards). Two new captions were introduced: Investments valued at equity, whose amount is reported separately from Other investments, and Deferred tax assets, whose amount is indicated separately from Tax receivables. The table that follows and the related notes summarize main impacts on the Consolidated Shareholders Equity at January 1, ( million) Consolidated Shareholders Equity under Italian GAAP Intangible assets Investments valued at equity Tangible assets Leased assets Employee benefits Provisions for risks and charges Other adjustments (0.6) Tax effect (41.5) Total IFRS adjustments Consolidated Shareholders Equity under IFRS Notes: 1. Intangible assets (IAS 38) Under IAS 38 intangible assets having an indefinite useful life are not amortized but are subject annually, or any time there is an indication that the asset has experienced a loss in value, to an impairment test to identify possible reductions in value. At the transition date, Publications, Frequencies and Goodwill were classified as intangible assets having an indefinite life. The retroactive application of IAS 38 required the re-recording of the historical costs of these assets (totaling million) with the subsequent elimination of accrued amortization (amounting to million). The impairment test carried out on these assets did not detect losses in value. Net adjustments to item Other intangible assets (equal to 0.8 million) includes prevalently the elimination of the value of self-developed software not covered by 26

27 patents. Such adjustment determined a reduction in the Consolidated Shareholders Equity equal to 0.2 million net of the related tax effect. Overall, the adjustments above resulted in an increase in the Consolidated Shareholders Equity equal to 97.7 million, net of the related 35.3 million tax effect. Such effect includes taxes calculated by individual companies on the restoring of the historical cost of publications and frequencies (equal to 36.8 million) and taxes resulting from consolidation adjustments (positive 1.5 million). 2. Investments valued at equity (IAS 28) Adjustments relating to investments valued at equity relate to the restoring at the date of transition of accumulated amortization of the publication owned by Editoriale la Libertà. The adjustment resulted in a 1.9 million increase of the Consolidated Shareholders Equity. 3. Tangible assets (IAS 16) Under IAS 16, individual components of a complex fixed asset, characterized by a different useful life, are recorded separately and depreciated over their respective useful life. In particular, under IAS 16, it is necessary to identify and record separately the value of land (no longer depreciated) from the value of buildings that insist on the same and, consequently, to depreciate only the buildings. In the transition to IFRS, the Group has therefore identified the two components, eliminating accumulated depreciation relating to land amounting to 1.2 million. Leasehold improvement costs were reclassified under Tangible assets and the requisites for their capitalization were verified. Such verification resulted in the elimination of certain capitalized costs amounting to 0.4 million. The above said adjustments resulted in an increase in the Consolidated Shareholders Equity equal to 0.2 million net of the related 0.6 million tax effect and of 0.3 million relating to the elimination of the provision for reinvested capital gains accrued pursuant to Article 54, Presidential Decree no. 597/73. In addition to the above described gross effect ( 0.8 million), adjustments to item Tangible assets includes the effect of the application of IAS 17 ( 14.2 million) described in the note below. 4. Leases (IAS 17) Under IAS 17, all assets held under a financial lease are accounted for by recording interest payments and depreciation charges of leased assets in the income statement, and the asset and the residual portion of debt in the balance sheet. In the transition to IFRS, the Group recorded in the balance sheet leased assets amounting to 14.2 million ( 8.1 million relating to leases redeemed, and 6.1 million to assets still held under a lease), adjusted prepaid expenses by 1.2 million and recorded under liabilities 5.3 million of financial debt, separating the current portion from the non-current portion. 27

28 These adjustments resulted in an increase in the Consolidated Shareholders Equity of 4.8 million, net of 2.9 million of the related tax effect. 5. Employee benefits (IAS 19) Under IAS 19, liabilities relating to the Employee Severance Indemnity and the Fixed indemnity for managers of newspapers were restated under the actuarial method. This adjustment resulted in an increase in the Consolidated Shareholders Equity of 4.4 million, net of 1.9 million of the related tax effect. 6. Provisions for risks and charges (IAS 37) Under IAS 37, accruals to the provisions for risks and charges are represented by the present value of expected payments to extinguish the obligation. This adjustment resulted in an increase in the Consolidated Shareholders Equity of 1 million, net of 0.4 million of the related tax effect. 7. Other adjustments Other adjustments have a negative impact on the Consolidated Shareholders Equity equal to 0.6 million and are represented by individually not significant adjustments. 28

29 2004 INCOME STATEMENT Italian GAAP Reclassifications IAS/IFRS IAS/IFRS ( million) adjustments 2004 Revenues 1, ,080.3 Other operating income (0.7) 15.8 Purchases (160.3) - - (160.3) Services received (428.0) (427.0) Personnel costs (258.8) (256.5) Other operating costs (15.8) (15.0) Valuation of investments at equity Depreciation, amortization and write-downs (61.9) (46.6) Operating profit Financial income (expense) (12.0) (1.1) (4.6) (17.7) Pre-tax profit Taxes (71.6) - (3.3) (74.9) NET PROFIT Minority interest share in net profit Group s share in net profit The table that follows and the related notes show the main effects on the 2004 Consolidated Net Profit. ( million) Italian GAAP Consolidated Net Profit Intangible assets Investments valued at equity Tangible assets Leases (0.2) 5. Stock options (2.5) 6. Employee benefits Provisions for risks and charges (0.3) 8. Other adjustments 0.2 Tax effect (3.3) Total IFRS adjustments 11.1 IFRS Consolidated Net Profit 98.9 Notes 1. Intangible assets (IAS 38) The application of IAS 38 resulted in a 0.2 million increase in costs for services received due to those costs that may no longer capitalized, in addition to a 16.1 million decline in the amortization expense of publications and radio frequencies. The overall impact on the Consolidated Net Profit was positive by 11.2 million, net of 4.7 million of deferred taxes. The tax effect includes taxes of individual companies on 29

30 restoring the historical cost of publications and frequencies ( 4.6 million) and taxes on consolidation adjustments (positive by 0.1 million). 2. Investments valued at equity (IAS 28) The elimination of the amortization of the publication owned by Editoriale la Libertà had a 0.5 million positive effect on the Consolidated Net Profit. 3. Tangible assets (IAS 16) The elimination of leasehold improvement costs, no longer capitalized ( 0.8 million gross of the tax effect), the non- recording of depreciation on land ( 0.2 million, gross of the related tax effect) and other negative adjustments to depreciation and amortization ( 0.4 million, gross of the related tax effect), resulted in a net positive adjustment to Consolidated Net Profit of 0.3 million, net of 0.2 million of deferred tax assets. The last effect includes 0.4 million relating to the impact of the elimination of the provision for reinvested capital gains accrued pursuant to Article 54, Presidential Decree no. 597/73, as previously mentioned. 4. Leases (IAS 17) The adoption of a new accounting treatment of leasing contracts resulted in the elimination of 1.2 million in leasing payments and a 1.5 million increase in depreciation and amortization, having a combined negative effect on Consolidated Net Profit of 0.1 million, net of the related 0.1 million positive tax effect. 5. Stock options (IFRS 2) The fair value recording of stock options determined a 2.5 million increase in personnel costs and a consequent 1.7 million reduction in the Consolidated Net Profit, net of the related 0.8 million positive tax effect. 6. Employee benefits (IAS 19) The restatement in accordance with the actuarial method of liabilities relating to the Employee Severance Indemnity and the Fixed Indemnity due to managers of companies publishing newspapers resulted in a 4.8 million reduction in the cost of personnel and a 4.2 million increase in financial charges, with a positive impact on Consolidated Net Profit of 0.6 million, net of the 0.1 million positive tax effect. 7. Provisions for risks and charges (IAS 37) The net effect of the discounting of provisions for risks and charges determined a 0.3 million increase in financial charges. The overall impact on Consolidated Net Profit was negative by 0.2 million, net of the 0.1 million positive tax effect. 8. Other adjustments Other adjustments have a positive impact on Consolidated Net Profit of 0.2 million and are represented by adjustments individually not significant. 30

31 BALANCE SHEET AT DECEMBER 31, 2004 ASSETS Italian GAAP Reclassifications IAS/IFRS IAS/IFRS ( million) adjustments Dec. 31, 2004 Intangible assets having an indefinite life Other intangible assets 17.7 (11.3) (0.9) 5.5 Total intangible assets (11.3) Tangible assets Investments valued at equity Other investments 25.4 (21.5) Long-term securities Financial receivables 4.0 (0.1) Deferred tax assets NON-CURRENT ASSETS Inventories 36.6 (6.4) Trade receivables Marketable securities Financial receivables Tax receivables 59.6 (18.1) Other receivables (0.7) 21.9 Cash and cash equivalents CURRENT ASSETS (17.3) (0.7) TOTAL ASSETS 1, ,536.5 LIABILITIES AND SHAREHOLDERS EQUITY Italian GAAP Reclassifications IAS/IFRS IAS/IFRS Dec. 31, ( million) adjustments 2004 Share capital Reserves (134.5) Retained earnings (loss carry-forwards) (2.8) Net profit (loss ) for the period Group Shareholders Equity Minority interest in the Shareholders Equity SHAREHOLDERS EQUITY Financial payables Provisions for risks and charges (0.8) 13.0 Employee Severance Indemnity and other personnel benefits (0.4) (6.9) 95.9 Deferred tax payables NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges 23.8 (13.3) (0.2) 10.3 Trade payables Taxes payable Other payables 78.9 (0.2) CURRENT LIABILITIES (10.9) TOTAL LIABILITIES ,027.7 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1, ,