Half-year Financial Report at June 30, 2008

Transcription

1 Half-year Financial Report at June 30, 2008 RCS MediaGroup S.p.A. Via San Marco, Milan Share capital 762,019,500 Company Register, Tax Code & VAT number Business Register number

2 Contents CORPORATE OFFICERS... 3 GROUP STRUCTURE OF RCS MEDIAGROUP... 6 BRIEF DESCRIPTION OF THE GROUP... 7 CONSOLIDATED FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP (1)... 8 INTERIM REPORT ON OPERATIONS... 9 GROUP PERFORMANCE IN THE SECOND QUARTER GROUP PERFORMANCE IN THE FIRST HALF OF THE YEAR SEGMENT PERFORMANCE NEWSPAPERS ITALY NEWSPAPERS SPAIN BOOKS MAGAZINES ADVERTISING DADA TELEVISION CORPORATE FUNCTIONS TRANSACTIONS WITH RELATED PARTIES REQUIREMENTS UNDER ARTICLES 36 AND 39 OF THE CONSOB MARKET REGULATIONS SIGNIFICANT EVENTS IN THE FIRST HALF OF THE YEAR SIGNIFICANT EVENTS SUBSEQUENT TO JUNE 30, OUTLOOK FOR THE CURRENT YEAR HALF-YEAR CONDENSED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED INCOME STATEMENT (*) CONDENSED CONSOLIDATED BALANCE SHEET (*) CONDENSED CONSOLIDATED CASH FLOW STATEMENT CONDENSED STATEMENT OF CHANGES IN CONSOLIDATED CAPITAL AND RESERVES EXPLANATORY NOTES FORM, CONTENT AND OTHER INFORMATION ON THE HALF-YEAR CONDENSED FINANCIAL STATEMENTS CERTIFICATION PURSUANT TO ART. 154-BIS PARA. 5 DECREE 58/ ATTACHMENTS LIST OF GROUP EQUITY INVESTMENTS AT JUNE 30, EXCHANGE RATES AGAINST THE EURO QUARTERLY CONSOLIDATED INCOME STATEMENTS INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED FINANCIAL

3 CORPORATE OFFICERS Honorary Chairman Cesare Romiti Board of Directors (^) Piergaetano Marchetti (*) Gabriele Galateri di Genola Antonio Perricone (*) ( ) Raffaele Agrusti Roberto Bertazzoni Claudio De Conto Diego Della Valle John P. Elkann (*) Giorgio Fantoni Franzo Grande Stevens Berardino Libonati Jonella Ligresti Paolo Merloni Andrea Moltrasio Renato Pagliaro (*) Corrado Passera Alessandro Pedersoli Carlo Pesenti (*) Virginio Rognoni Chairman Deputy Chairman Chief Executive Officer Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director Director (^) The Board of Directors in office during the first half of 2008 and at the date of approving this report was appointed on April 27, 2006 to serve for financial years and therefore until the AGM called to approve the annual report and financial statements for the last of these years. Franzo Grande Stevens was suspended from office until February 13, 2008 under an administrative penalty ordered by Consob (Italy's stockmarket regulator) pursuant to article 187-quater of Decree 58/1998. (*) Member of the Executive Committee. ( ) Also holds the office of Chief Operating Officer. Powers delegated by the Board of Directors Without prejudice to internal observance of the functions and rules of corporate governance adopted, the Board of Directors has delegated: wide powers to the Chief Executive Officer & Chief Operating Officer for the conduct of the company's management, with limits on the size of financial commitments and/or risks that may be assumed for certain types of transaction; all powers of ordinary and extraordinary administration to the Executive Committee, except for those relating to the purchase and sale of majority equity investments in companies not controlled by the company, plus those reserved in law for the Board itself. In addition, the Board has granted its Chairman with the same powers as the Chief Executive Officer & Chief Operating Officer, but to be exercised only when the latter is absent or unable, as well as joint authority with the Chief Executive Officer for certain limited types of transaction where the limit on the amount of the financial commitment and/or risk is still restricted but nonetheless higher than that permitted to the Chief Executive 3

4 Officer acting on his own, and again only to be exercised in exceptional circumstances and cases of absolute necessity and urgency. Board of Statutory Auditors (^) Pietro Manzonetto Gianrenzo Cova Giorgio Silva Maurizio Bozzato Cesare Gerla Agostino Giorgi Chairman Acting auditor Acting auditor Alternate auditor Alternate auditor Alternate auditor (^) The current Board of Statutory Auditors was appointed on April 27, 2006 to hold office for financial years and therefore until the AGM called to approve the annual report and financial statements for the last of these years. Independent auditors (^) RECONTA ERNST & YOUNG S.p.A. (^) In office until the AGM called to approve the annual report and financial statements for (More details about corporate officers can be found in the report on Ownership Structure and Corporate Governance, also reproduced in the Annual report and financial statements at December 31, 2007). 4

5 GROUP STRUCTURE OF RCS MEDIAGROUP 5

6 GROUP STRUCTURE OF RCS MEDIAGROUP 100% 70.85% (*) 100% 100% 100% 100% 100% 100% 34,5% IGPDECAUX 100% 46,5% 45% 34,6% * The RCS Group has an overall interest of 96.31% in the Unidad Editorial group. 6

7 BRIEF DESCRIPTION OF THE GROUP The RCS Group has a multimedia and international presence; it operates in the media and publishing sectors, with newspapers, magazines, books, partworks, radio and television stations, on-line websites, and in advertising space management, both in Italy and many other countries. The RCS Group is market leader in Italy's newspaper publishing sector, with Corriere della Sera (the top national daily by circulation) and La Gazzetta dello Sport (the top sports daily by circulation). The Group also publishes City and Urban in the free press segment. In the magazines sector, the RCS Group publishes 8 weeklies (including Oggi, A and Il Mondo) and 22 monthlies (including Amica, Style Magazine and Dove). The RCS Group controls the publishing houses of Rizzoli, Fabbri, Bompiani, BUR, Sonzogno, Marsilio, Coccinella, Adelphi, Lizard and Skirà and holds a 50% interest in R.L. Libri in partnership with the Mauri Spagnol group. It also has a presence in textbook publishing (mainly with Tramontana and Nuova Italia), in legal publishing (with La Tribuna), in handbooks and the partworks sector (in Italy and abroad, mainly through Fabbri). The Group is also present in the radio broadcasting sector following its acquisition of 34.6% of Gruppo Finelco, which runs the national radio stations of Radio 105 Network and Radio Monte Carlo, as well as Virgin Radio (formerly Play Radio, previously controlled by the RCS Group). RCS is also present in the on-line segment with the news information website "corriere.it" and the sports portal "gazzetta.it". The RCS Group manages advertising space, mainly for its own titles, through RCS Pubblicità and its subsidiary. In addition, the associated company IGP Decaux is leader in the outdoor advertising sector. The Group has a 45% interest in M- dis, a joint venture with De Agostini and Hachette which is a leading distributor to the newsstand channel. The acquisition of effective control of the Dada group from November 2005 has strengthened the Group's presence in the internet segment. Lastly, RCS has had a presence in the television broadcasting sector since the second quarter of 2007 after acquiring Digicast, with a platform of 5 channels as well as related websites which are becoming increasingly integrated with television media. The Group has a major presence abroad. In Spain, the Unidad Editorial group publishes El Mundo, the country's number two daily newspaper by circulation, and elmundo.es, the world's leading Spanish language news information website, and owns the production house of El Mundo TV. In addition, following the acquisition of the Recoletos group in April 2007, it publishes the sports daily Marca and the business and financial daily Expansion, Spain's leading titles in their respective fields, as well as Telva, a women's magazine, and Actualidad Economica. The Unidad Editorial group has a presence in the radio broadcasting sector as the producer of Radio Marca, a digital broadcaster connected with the sports daily Marca, and one of Spain's leading digital broadcasters. Lastly, after Unidad Editorial purchased another 44.6% interest during the period, it now owns 100% of Veo Television, one of Spain's digital terrestrial license-holders. In France, the RCS Group owns the Flammarion group (a historic publishing house which mostly operates in the "Fiction and Non-fiction" segment). The RCS Group is also present in the United Kingdom, through GE Fabbri (the publisher of partworks in several international markets) and in the United States, through Rizzoli International Publications. The parent company is a public listed company on Italy's electronically-traded equities market, organized and run by Borsa Italiana S.p.A.. It is headquartered in Via San Marco 21, Milan, and has been listed as number in the Milan Company Register since March 6,

8 CONSOLIDATED FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP (1) 2nd quarter 1st half ( /millions) (5) (5) INCOME STATEMENT Net revenues , ,310.5 EBITDA (2) EBIT Earnings before tax and minority interests Income taxes ( 20.7) ( 10.9) ( 15.4) ( 5.2) Net income (loss) from continuing operations Net income (loss) from discontinuing and discontinued operations (3) 13.3 ( 3.2) 13.2 ( 5.6) Net income (loss) for the period Basic earnings per share: continuing operations Diluted earnings per share: continuing operations Basic earnings per share: discontinuing and discontinued operations (0.004) ( 0.008) Diluted earnings per share: discontinuing and discontinued operations (0.004) ( 0.008) BALANCE SHEET Jun Dec Jun Net capital employed 2, , , of which net capital employed in discontinuing and discontinued operations (3) Net debt (cash) (4) 1, ,052.0 Capital and reserves 1, , ,313.5 Employees (average number) 7,082 6,628 6,189 (1) The Recoletos group and the Digicast group were consolidated line-by-line in 2007, with their related impact on the income statement commencing from the second quarter of (2) Earnings before interest, tax, depreciation, amortization and impairment. (3) Refers to the results of Economica SGPS, a subsidiary of Unidad Editorial classified as held for sale in 1st half 2008, and of RCS Broadcast and CNR, sold on July 26, 2007 and December 17, 2007 respectively. (4) Indicator of financial structure, calculated as current financial payables less both cash and cash equivalents and current financial assets. (5) The figures for 2nd quarter 2007 and 1st half 2007 have been restated for the change in accounting policy adopted by the Dada group, described in note 3 of the explanatory notes. The Board of Directors approved the Half-year financial report on August 6,

9 INTERIM REPORT ON OPERATIONS 9

10 GROUP PERFORMANCE IN THE SECOND QUARTER The second quarter of 2008, like the first, revealed ever clearer signs of general economic slowdown. The Group's results were affected by the economic climate of the individual countries in which it operates and by the performance of advertising markets. The results of Economica SGPS, the company which publishes the Diario Economico daily newspaper in Portugal, owned by the Unidad Editorial group and classified as discontinuing, have been reported separately in "Net income (loss) from discontinuing and discontinued operations". The revenues and expenses relating to the comparative period have been classified in the same way. The Group's financial highlights and related comments are presented below. Reclassified consolidated income statement ( /millions) Reference to consolidated financial statements 2nd quarter 2008 % 2nd quarter 2007 % Difference (5) (6) A B A-B Net revenues (13.3) Distribution revenues I (10.5) Advertising revenues (1) I (11.3) Other publishing revenues (2) I Operating costs II (472.8) (65.1) (480.2) (65.0) 7.4 Payroll costs III (138.7) (19.1) (132.8) (18.0) (5.9) Impairment of receivables IV (4.7) (0.6) (6.6) (0.9) 1.9 Increases in provisions for risks V (1.4) (0.2) (2.4) (0.3) 1.0 EBITDA (3) (8.9) Amortization of intangible assets VI (15.1) (2.1) (13.7) (1.9) (1.4) Depreciation of property, plant and equipment VII (13.0) (1.8) (11.4) (1.5) (1.6) Impairment of fixed assets VIII (0.5) (0.1) - EBIT (11.4) Net financial income (charges) IX (13.4) (1.8) (7.2) (1.0) (6.2) Income (charges) from financial assets/liabilities X (3.1) (0.4) (66.4) Share of income (losses) from investments valued using equity XI method Earnings before tax (82.8) Income taxes XII (20.7) (2.9) (10.9) (1.5) (9.8) Net income (loss) from continuing operations (92.6) Net income (loss) from discontinuing and discontinued operations (4) XIII (3.2) (0.4) 16.5 Net income (loss) before minority interests (76.1) Net (income) loss pertaining to minority interests XIV (7.1) (1.0) (10.9) (1.5) 3.8 Net income (loss) pertaining to the group (72.3) (1) Advertising revenues in 2nd quarter 2008 comprise million earned through the group broker RCS Pubblicità (of which million by Newspapers Italy, 47.7 million by Magazines and 2 million by selling the space of other publishers) and million earned directly by the publishers themselves (of which 87.3 million by Newspapers Spain, 13.9 million by Blei, 9.4 million by Magazines, 7.1 million by Dada, 0.7 million by Digicast and 0.5 million by Newspapers Italy less 1.7 million in intragroup eliminations). Advertising revenues in 2nd quarter 2007 comprised million earned through the group broker RCS Pubblicità (of which million by Newspapers Italy, 49.9 million by Magazines and 9.2 million by selling the space of other publishers) and million earned directly by the publishers themselves (of which 97.5 million by Newspapers Spain, 10.9 million by Blei, 10.1 million by Magazines, 4.6 million by Dada and 1.4 million by Digicast less 1.7 million in intragroup eliminations). (2) Other publishing revenues mostly refer to the revenues of the Dada group, revenues from the sale of film rights by the Unidad Editorial group, revenues from the sale of royalties to third parties, revenues associated with sporting events, and revenues from the sale of customer lists and children's boxed sets by companies in the Sfera group. (3) Earnings before interest, tax, depreciation, amortization and impairment. (4) Refers to the results of Economica SGPS, a subsidiary of Unidad Editorial classified as held for sale in 1st half 2008, and of RCS Broadcast and CNR, sold on July 26, 2007 and December 17, 2007 respectively. (5) These references relate to the corresponding headings in the consolidated income statement. (6) The figures for 2nd quarter 2007 have been restated for the change in accounting policy adopted by the Dada group, described in note 3 of the explanatory notes. Net revenues for the second quarter of 2008 amounted to million compared with million in the same period the year before. The decrease of 13.3 million reflects a decline in advertising revenues ( million) and distribution revenues ( million), only partly offset by an increase in other publishing revenues (+ 8.5 million). Most of the decline in advertising revenues came from Newspapers Spain ( 10.2 million), which suffered a market downturn in the quarter, in a reversal of the first two months of the year and only partly mitigated by revenue from sporting events in the last month of the quarter. The decrease in distribution revenues is mainly due to the Books segment, particularly the Italian Partworks division which had fewer new releases. The increase in other publishing revenues is largely due to Newspapers Spain (

11 million), for activities involving the subsidiary Veo Television, and to the Flammarion group thanks to higher revenues from its distribution service provided to third-party publishers ( 3.4 million). EBITDA amounted to million, reporting a decrease of 8.9 million on the second quarter of Adjusting for non-recurring charges ( 6.3 million in the second quarter of 2008, mainly in relation to payroll, and 4.1 million in the second quarter of 2007), the decrease would have been 6.7 million. Newspapers Spain account for 15.4 million of this decrease, the Advertising segment for 2.3 million and the Magazines segment for 0.3 million, all of which were partly offset by increases by the rest of the Group's businesses, including by Newspapers Italy ( 5 million) thanks to strong sales of La Gazzetta dello Sport, good performance in the on-line sector and higher profits from add-ons, by the Books segment ( 2.5 million), Digicast ( 1.7 million) and Dada ( 1.5 million). Second-quarter EBIT was 80.2 million compared with 91.6 million in the second quarter of The decrease of 11.4 million reflects the factors described above, along with an increase of 3 million in amortization and depreciation charges. Depreciation of property, plant and equipment increased by 1.6 million following recent investments by Newspapers Spain in modernizing its print works and by Newspapers Italy in introducing full-color printing at La Gazzetta dello Sport. Amortization of intangible assets increased by 1.4 million, attributable to higher amortization of television rights by the Digicast group ( 1 million), of software user licenses and ICT projects by Corporate Functions ( 0.6 million), and of development costs and other intangible assets by the Dada group. These increases were partly absorbed by lower amortization of titles and film rights at Newspapers Spain ( 0.8 million). Revenues, EBITDA and EBIT in the second quarters of 2008 and 2007 are reported below by business segment: ( /millions) 2nd quarter nd quarter 2007 (3) Revenues EBITDA % of % of % of % of EBIT Revenues EBITDA EBIT revenues revenues revenues revenues Newspapers Italy % % % % Newspapers Spain % % % % Books % % % % Magazines % % % % Advertising % % % % Dada (1) % % % % Television % % % (0.1) -1.4% Corporate Functions 15.8 (2.8) -17.7% (8.2) n.a 16.0 (4.0) -25.0% (8.5) n.a Other and eliminations (171.1) 0.0 n.a 0.0 n.a (168.8) 0.0 n.a 0.0 n.a Consolidated total % % % % Discontinuing and discontinued operations (2) (1.0) n.a. (2.3) n.a Other and eliminations - (0.9) - (0.9) - (4.9) - n.a. - n.a. Total % % % % (1) The Dada group's EBIT in 2nd quarter 2008 and 2nd quarter 2007 includes 0.4 million in amortization of the goodwill arising on its first-time consolidation, which has been allocated to intangible assets. (2) Refers to the results of Economica SGPS, a subsidiary of Unidad Editorial classified as held for sale in 1st half 2008, and of RCS Broadcast and CNR, sold on July 26, 2007 and December 17, 2007 respectively. (3) The figures for 2nd quarter 2007 have been restated for the change in accounting policy adopted by the Dada group, described in note 3 of the explanatory notes. Net financial charges amounted to 13.4 million in the second quarter compared with 7.2 million in the second quarter of The increase reflects higher average net debt in the second quarter of 2008 relative to the second quarter of 2007, combined with a steady rise in interest rates. Net charges from financial assets and liabilities were 66.4 million lower, mainly reflecting the fact that the second quarter of 2007 benefited from 51.9 million in capital gains on the sale of non-strategic investments in Intesa Sanpaolo and 3Italia and 11.7 million in dividend receipts, mainly from Intesa Sanpaolo. The figures for the second quarter of 2008 reflect 3.3 million in investment writedowns ( 0.3 million in the second quarter of 2007), mainly relating to the investments in Poligrafici Editoriale ( 1.9 million), Alice Lab ( 0.9 million) and MB Venture Capital ( 0.4 million). The share of income (losses) from investments valued using the equity method amounted to 5.8 million compared with 4.6 million in the second quarter of Most of this increase arises from the results of Hachette Rizzoli Communication, following the capital gain realized on the sale of its interest in Hachette Rizzoli Magazines ( 2.8 million), and the positive results of new activities by Dada Entertainment LLC ( 0.3 million), as partly offset by lower results for IGP Decaux (- 1.5 million) and the recognition of the loss for the 11

12 period by Gruppo Finelco (- 0.5 million), acquired in the second half of 2007, due to amortization of goodwill recognized upon acquisition and allocated to its broadcasting frequencies. Net income (loss) from discontinuing and discontinued operations was a positive 13.3 million, compared with a loss of 3.2 million in the second quarter of The figure for the second quarter of 2008 includes the gain realized on the sale of Economica SGPS less related costs and tax, as well as this company's results for the period. The figure for the second quarter of 2007 originally included the loss reported by the Play Radio business ( 4.2 million) and has now been restated to include net income reported by Economica SGPS ( 0.8 million) and CNR ( 0.2 million), both subsequently designated as discontinuing and discontinued operations. Net income for the second quarter of 2008 amounted to 55 million. This is 72.3 million lower than in the second quarter of last year and not only reflects the factors described above, but also higher taxes ( 9.8 million), as partly offset by lower net income pertaining to minority interests ( 3.8 million). 12

13 GROUP PERFORMANCE IN THE FIRST HALF OF THE YEAR The revenues and expenses of Economica SGPS have been classified separately in "Net income (loss) from discontinuing and discontinued operations". The revenues and expenses relating to the comparative period have been classified in the same way. The Group's financial highlights and related comments are presented below. Reclassified consolidated income statement ( /millions) Reference to consolidated financial statements 1st half 2008 % 1st half 2007 % Difference (5) (6) (7) A B A-B Net revenues 1, , Distribution revenues I (2.9) Advertising revenues (1) I Other publishing revenues (2) I Operating costs II (946.1) (69.8) (909.2) (69.4) (36.9) Payroll costs III (273.2) (20.2) (244.5) (18.7) (28.7) Impairment of receivables IV (5.8) (0.4) (6.7) (0.5) 0.9 Increases in provisions for risks V (2.5) (0.2) (3.0) (0.2) 0.5 EBITDA (3) (19.9) Amortization of intangible assets VI (28.7) (2.1) (20.5) (1.6) (8.2) Depreciation of property, plant and equipment VII (26.3) (1.9) (21.3) (1.6) (5.0) Impairment of fixed assets VIII (0.6) (0.0) 0.6 EBIT (32.5) Net financial income (charges) IX (28.2) (2.1) (7.2) (0.5) (21.0) Income (charges) from financial assets/liabilities X (8.7) (0.6) (72.0) Share of income (losses) from investments valued using equity XI method Earnings before tax (125.5) Income taxes XII (15.4) (1.1) (5.2) (0.4) (10.2) Net income (loss) from continuing operations (135.7) Net income (loss) from discontinuing and discontinued operations (4) XIII (5.6) (0.4) 18.8 Net income (loss) before minority interests (116.9) Net (income) loss pertaining to minority interests XIV (0.8) (0.1) (9.9) (0.8) 9.1 Net income (loss) pertaining to the group (107.8) (1) Advertising revenues in 1st half 2008 comprise million earned through the group broker RCS Pubblicità (of which million by Newspapers Italy, 80 million by Magazines and 7.2 million by selling the space of other publishers) and million earned directly by the publishers themselves (of which million by Newspapers Spain, 27.8 million by Blei, 15.3 million by Magazines, 15.8 million by Dada, 1.3 million by Digicast and 0.9 million by Newspapers Italy less 2.5 million in intragroup eliminations). Advertising revenues in 1st half 2007 comprised million earned through the group broker RCS Pubblicità (of which million by Newspapers Italy, 78.9 million by Magazines and 17.9 million by selling the space of other publishers) and million earned directly by the publishers themselves (of which million by Newspapers Spain, 23 million by Blei, 16.2 million by Magazines, 7 million by Dada and 1.4 million by Digicast less 1.7 million in intragroup eliminations). (2) Other publishing revenues mostly refer to the revenues of the Dada group, revenues from the sale of film rights by the Unidad Editorial group, revenues from the sale of royalties to third parties, revenues associated with sporting events, and revenues from the sale of customer lists and children's boxed sets by companies in the Sfera group. (3) Earnings before interest, tax, depreciation, amortization and impairment. (4) Refers to the results of Economica SGPS, a subsidiary of Unidad Editorial classified as held for sale in 1st half 2008, and of RCS Broadcast and CNR, sold on July 26, 2007 and December 17, 2007 respectively. (5) These references relate to the corresponding headings in the consolidated income statement. (6) The figures for 1st half 2007 have been restated for the change in accounting policy adopted by the Dada group, described in note 3 of the explanatory notes. (7) The Recoletos group and the Digicast group are consolidated line-by-line, with their related impact on the consolidated income statement commencing from the second quarter of The Recoletos group, excluding its discontinuing operations, reported 68.7 million in revenues and 13.3 million in EBITDA in the first quarter of The Digicast group reported 6.6 million in revenues and 1.7 million in EBITDA in the first quarter of Net revenues amounted to 1,354.8 million at June 30, 2008, reporting an increase of 44.3 million on the first half of Advertising revenues accounted for 25.9 million of this increase, while other publishing revenues contributed 21.3 million; these improvements were partially offset by 2.9 million in lower distribution revenues. The line-by-line consolidation of the Recoletos group, net of its discontinued operations, added million in revenues to the first half of 2008, of which 72.4 million related to advertising revenues. Advertising revenues were 25.9 million higher than in the first half of If the Recoletos group's unconsolidated advertising revenues in the first quarter of 2007 are included, then overall advertising revenues would have decreased by 6.9 million, while those of Newspapers Spain, apparently up by 18.3 million, would have gone down by 14.5 million due to the market downturn. Higher advertising revenues were 13

14 reported by the Dada group as a result of continued business expansion ( 8.8 million) and by Blei, the foreign advertising space broker ( 4.8 million). These results were partly offset by the decrease in revenues reported by the Group's advertising space broker (- 5.9 million), reflecting the advertising market downturn in the second quarter of Other publishing revenues increased by 21.3 million, of which 6.4 million relating to the Digicast group, acquired in the second quarter of last year, and 13.6 million relating to Newspapers Spain, thanks to the contribution of the Recoletos group, also acquired in the second quarter of Adjusting for other publishing revenues earned by the Recoletos and Digicast groups in the first quarter of 2007, the increase would have been 4.6 million. The improvement in other publishing revenues reflects sundry services provided by the Magazines segment, as well as commissions earned by the Advertising segment on the contract with FIGC (Italy's football federation) relating to the national team, as partly offset by a decrease in the Dada group's publishing revenues ( 1.8 million), most of which due to the transfer of the VAS business in the United States to Dada Entertainment LLC, a joint venture with Sony BMG consolidated at equity, which was only partly compensated by the line-by-line consolidation of Namesco. Distribution revenues were 2.9 million lower than in the first half of Adjusting for the distribution revenues earned by the Recoletos group in the first quarter of 2007, consolidated revenues would have gone down by 22.1 million. The principal factors affecting distribution revenues were as follows: A decrease of 17.2 million in circulation revenues reported by Newspapers Italy, due to lower add-on sales ( 20.2 million) and a 3.2% decline in average daily circulation of Corriere della Sera relative to the first half of 2007; these decreases were only partly offset by the 1.9% growth in average daily circulation of La Gazzetta dello Sport, going against the trend by the rest of the sports dailies. A decrease of 12 million in circulation revenues reported by Magazines, mainly reflecting the difficult market as well as a drop in add-on sales. A decrease of 8.2 million in distribution revenues from Partworks, reflecting the drastic reduction in new releases in Italy, where adverse market conditions have led to a focus on very innovative, original products with high staying power, also helping improve average margins. This downturn was only partly offset by an increase in revenues abroad ( 1.5 million). A decrease of 1.1 million in distribution revenues from AGR. An increase of 32.6 million in circulation revenues at Newspapers Spain, mostly due to consolidation of the Recoletos group from the second quarter of Adjusting for the Recoletos group's distribution revenues in the first quarter of 2007, the increase would have been 7.7 million, partly reflecting sales of add-ons and books and the rise in the price of the Sunday newspaper, as offset by lower sales of El Mundo. An increase of 3 million in distribution revenues from Fiction and Non-Fiction, most of which due to Flammarion ( 6.1 million), both thanks to the launch of major bestsellers, and the release of the History of Philosophy series sold together with Le Monde daily newspaper. This improvement was only partially offset by lower sales in Italy (- 3.1 million), reflecting a different timing of new book launches relative to 2007, whose first half included bestsellers like Scusa, ma ti chiamo amore (Sorry but I'm calling you darling) by F. Moccia and La Casta (The Caste) by Stella/ Rizzo. EBITDA amounted to million, which was 19.9 million lower than in the first half of Adjusting for the EBITDA of the Recoletos and Digicast groups in the first quarter of 2007, the decrease would have been 34.9 million. This decrease was principally the result of the following factors: A decrease of 26 million in EBITDA for some of the Group's businesses ( 39.3 million adjusting for the Recoletos group's results in the first quarter of 2007), mostly attributable to Newspapers Spain, Newspapers Italy, the Books and Magazines segments. 14

15 A positive contribution of 4.3 million by the Digicast group, consolidated line-by-line from the second quarter of 2007; adjusting for EBITDA in the first quarter of 2007 the increase would have been 2.6 million. An increase of 4 million reported by the Dada group, reflecting continued expansion of its business, particularly internationally. The recognition of non-recurring charges, primarily payroll costs, relating to reorganization of parts of the Group ( 6.1 million), as well as other costs incurred by the parent company ( 0.2 million). In the first half of 2007 non-recurring charges totaled 4.1 million. The decrease of 8.4 million in EBITDA reported by the Unidad Editorial group ( 21.7 million adjusting for the Recoletos group's results in the first quarter of 2007), mostly reflects the contraction in the advertising market and higher advertising and promotional costs at El Mundo, in response to aggressive promotional activity by the competition. The decrease of 7.5 million in EBITDA reported by Newspapers Italy is largely due to a smaller contribution by add-ons, to the costs incurred for launching the full-color edition of La Gazzetta dello Sport and, to some extent, for launching Corriere Fiorentino. Although Books segment EBITDA is usually negative in the first half of the year for seasonal reasons, it was 5.1 million lower than in the first half of 2007; this was not only because more partworks were released abroad in the first half of 2008 than in the corresponding period of 2007, with a consequent rise in promotional costs, but also because of differences in the publication calendar of new fiction and non-fiction in Italy. EBITDA in the Magazines segment was 1.9 million lower at 6.4 million, reflecting not only the market slowdown but also investments in support of this segment's new activities in the New Media sector. EBIT amounted to 72.2 million, reporting a decrease of 32.5 million on the first half of Apart from the factors described above, this result reflects 13.2 million in additional amortization and depreciation charges. In detail, amortization of intangible assets was 8.2 million higher, of which 4.5 million relating to goodwill arising on the consolidation - from the second quarter of of the Recoletos group allocated to its principal titles ( 3.4 million) and of the Digicast group allocated to intangible assets ( 1.1 million), as well as the amortization of television rights by the Digicast group ( 2.6 million). The increase of 5 million in depreciation of property, plant and equipment was mainly due to Newspapers Spain following recent investments in plant, machinery and buildings as part of the full-color printing project for El Mundo with a consequent acceleration in the depreciation of the presses being replaced, work on getting ready Unidad Editorial's new offices, and changes in the scope of consolidation after acquiring the Recoletos group. Revenues, EBITDA and EBIT are reported below by business segment, more details on which can be found in the section entitled "Segment performance". ( /millions) 1st half st half 2007 (3) (4) Revenues EBITDA % of % of % of EBIT Revenues EBITDA revenues revenues revenues EBIT % of revenues Newspapers Italy % % % % Newspapers Spain % % % % Books (6.1) -1.9% (9.6) -3.0% (0.6) -0.2% (4.4) -1.3% Magazines % % % % Advertising % % % % Dada (1) % % % % Television % % % (0.1) -1.4% Corporate Functions 31.9 (6.7) -21.0% (18.1) n.a 32.5 (6.9) -21.2% (15.9) n.a Other and eliminations (298.5) 0.0 n.a 0.0 n.a (292.5) 0.0 n.a 0.0 n.a Consolidated total 1, % % 1, % % Discontinuing and discontinued operations (2) (2.3) (5.7) Other and eliminations - (0.9) - (0.9) - (8.8) - - Total 1, % % 1, % % (1) The Dada group's EBIT in 1st half 2008 and 1st half 2007 includes 0.8 million in amortization of the goodwill arising on its first-time consolidation, which has been allocated to intangible assets. (2) Refers to the results of Economica SGPS, a subsidiary of Unidad Editorial classified as held for sale in 1st half 2008, and of RCS Broadcast and CNR, sold on July 26, 2007 and December 17, 2007 respectively. (3) The figures for 1st half 2007 have been restated for the change in accounting policy adopted by the Dada group, described in note 3 of the explanatory notes. (4) The Recoletos group and the Digicast group are consolidated line-by-line, with their related impact on the consolidated income statement commencing from the second quarter of The Recoletos group, excluding its discontinuing operations, reported 68.7 million in revenues and 13.3 million in EBITDA in the first quarter of The Digicast group reported 6.6 million in revenues and 1.7 million in EBITDA in the first quarter of

16 Net financial charges amounted to 28.2 million, up from 7.2 million at June 30, The increase of 21 million reflects 15.1 million due to higher average net debt and higher interest rates in the first half of 2008 than in the first half of There were also a number of smaller increases, such as higher charges for discounting liabilities and assets ( 1.5 million), higher default interest ( 1.8 million), higher interest on finance leases ( 0.9 million) and larger exchange losses ( 0.7 million). Net charges from financial assets and liabilities amounted to 8.7 million in the first half of 2008, most of which reflecting the writedown of 7.9 million to the investment in Poligrafici Editoriale to adjust its carrying amount to fair value, based on its share price at June 30, 2008, and the writedowns to the investments in Alice Lab ( 0.9 million) and in MB Venture Capital ( 0.4 million), as partly offset by the capital gain realized by the Spanish group on the sale of 10% of Telediffusion Madrid ( 0.3 million) and dividends received ( 0.2 million). The first half of 2007 reported 63.3 million in net income from financial assets and liabilities, of which 51.9 million in capital gains on the sale of non-strategic investments in Intesa Sanpaolo and 3Italia, 11.7 million in dividend receipts mainly from Intesa Sanpaolo and 0.3 million in writedowns to equity investments. The share of income (losses) from investments valued using the equity method was a net gain of 4.1 million, the same as in the first half of This basically reflects the profits reported by Hachette Rizzoli Communication ( 2.8 million) after selling its interest in Hachette Rizzoli Magazines, by M-dis ( 0.6 million), IGPDecaux ( 1.5 million), Actes de Sud ( 0.4 million) and Mach 2 ( 0.3 million). These profits were partly offset by the share of losses reported by Gruppo Finelco (- 1.5 million), the interest in which has been held since the end of July Income taxes were 15.4 million compared with 5.2 million in the first half of They have been determined using the tax rules applying in the different countries and calculated as if the half year represented an independent tax period. More deferred tax assets were recognized in the first half of 2007 than in the same period of 2008 mainly as a consequence of the Recoletos group's acquisition in the prior year period. Net income (loss) from discontinuing and discontinued operations reported a positive 13.2 million, compared with a loss of 5.6 million in the first half of In the first half of 2008 this includes the gain realized on the sale of Economica SGPS less related costs and tax, as well as this company's first-half results. The figure for the first half of 2007 originally included the loss reported by the Play Radio business ( 6.6 million) and has now been restated to include net income reported by Economica SGPS ( 0.8 million) and CNR ( 0.2 million), both subsequently designated as discontinuing and discontinued operations. Net income came to 36.4 million in the first half of 2008 ( million in the first half of 2007) and reflects the factors described above after deducting 0.8 million in net income pertaining to minority interests. 16

17 Breakdown of the average number of employees by region The average number of employees in the first half of 2008 was 7,082. This compares with 6,189 in the first half of last year. Excluding the discontinuing operations, the increase in headcount was 833, most of which attributable to Newspapers Spain after acquiring the Recoletos group (+628) and to the first-time consolidation of the Digicast group (+44), both of whose staff were included in consolidated headcount from the second quarter of The Dada group also added 100 staff relative to the prior period following its continued expansion in business, especially internationally. The overall increase also reflects new activities by Newspapers Italy (+64) and Magazines (+14), as partly offset by fewer staff in the Books segment (-26). Other minor changes refer to Corporate Functions and the Advertising segment (+9). The breakdown of the average number of employees by region is as follows: Italy Spain France Other countries Total 1st half 1st half 1st half 1st half 1st half Newspapers (1) 1,333 1,269 2,310 1,682 3,643 2,951 Books ,140 1,166 Magazines Advertising (1) Dada Television Corporate Functions (1) Consolidated total 3,611 3,464 2,415 1, ,907 6,074 Discontinuing and discontinued operations (Play Radio - Economica SGPS) (1) Total 3,611 3,491 2,590 1, ,082 6,189 (1) Discontinuing and discontinued operations contain the average headcount of Play Radio and CNR, as well as of Economica SGPS and its subsidiaries; the average headcount of AGR has been classified in Corporate Functions. 17

18 Reclassified consolidated balance sheet ( /millions) Reference to consolidated financial statements (2) Jun % Dec % Intangible assets XV 1, , Property, plant and equipment XVI Non-current financial assets XVII Non-current assets 2, , Inventories XVIII Trade receivables XIX Trade payables XX (717.6) (28.7) (779.9) (33.2) Other assets/liabilities XXI (5.0) (0.2) (36.0) (1.5) Net working capital (1) Provisions for risks and charges XXII (59.6) (2.4) (63.8) (2.7) Deferred tax liabilities XXII (154.9) (6.2) (157.7) (6.7) Provisions for employee benefits XXIII (95.3) (3.8) (98.0) (4.2) Net capital employed in continuing operations 2, , Net capital employed in discontinuing operations XXVIII Net capital employed 2, , Capital and reserves XXIV 1, , Non-current financial payables XXV 1, Current financial payables XXVI Non-current financial assets recognized for derivatives XVII (13.5) (0.5) (5.5) (0.2) Cash and cash equivalents and current financial XXVII receivables (123.7) (4.9) (104.7) (4.5) Net debt (cash) of discontinuing operations XXVIII (0.3) (0.0) Net debt (cash) 1, Total sources of financing 2, , (1) As from January 1, 2008 the Dada group is recognizing directly in income the costs incurred for new subscriptions, whereas previously it deferred such costs to match expected future revenues. This change has been made to comply with the guidance contained in the exposure draft issued at the end of 2007 as part of the IASB's Improvements Project, and has involved restating the comparative figures at December 31, The result has been to reduce net working capital and equity by 6.2 million. (2) These references relate to the corresponding headings in the consolidated balance sheet. Net capital employed was 2,499.7 million at the end of June 2008, having increased by million since December 31, 2007, mainly due to the increase of million in net working capital that was only partly absorbed by decreases in non-current assets ( million) and provisions (- 9.6 million). The changes in the individual components of net capital employed at June 30, 2008 relative to December 31, 2007 have also been affected by the reclassification of the amounts relating to the Portuguese subsidiary Economica SGPS being held for sale, which at June 30, 2008 is presented separately as Net capital employed in discontinuing operations ( 0.2 million). The changes in the main components of net capital employed are discussed in the later section of this Half-year financial report containing Explanatory notes. Net debt amounted to 1,259.7 million at the end of June 2008, having increased by million since December 31, 2007, mainly due to investments in the period, including the acquisition of all minority interests, corresponding to 44.6% of share capital, in VEO Television ( 89.2 million including related costs), the exercise of options over minority shares in Digicast ( 16.2 million), and the purchase or lease of property, plant and equipment ( 76.7 million). In addition a total of 83.9 million in dividends were paid out to shareholders. Ordinary operations, affected by the seasonal trend in business and the unfavorable market conditions, also contributed to the increase in net debt. The most significant disposal in the period was that of Economica SGPS, which was sold at the end of June for 26.7 million, net of 0.8 million relating to the company's financial position. 18

19 The main cash flows are summarized below: ( /millions) Jun Jun Total cash and cash equivalents generated (absorbed) by operating activities (30.2) (0.2) Total cash and cash equivalents generated (absorbed) by investing activities (80.1) (1,034.0) Total cash and cash equivalents generated (absorbed) by financing activities Net increase (decrease) in cash and cash equivalents (A+B+C) (9.6) (212.1) Opening cash and cash equivalents Closing cash and cash equivalents Increase (decrease) for the period (9.6) (212.1) The main changes are described in more detail in the explanatory notes. 19

20 SEGMENT PERFORMANCE 20

21 NEWSPAPERS ITALY Segment profile The Newspapers Italy segment comprises the editing, production and marketing of publications relating to the titles Corriere della Sera, La Gazzetta dello Sport, City and Urban. Corriere della Sera is the leading national news and information daily and comprises a structured, integrated system of paper and digital information media, including the national daily, a network of local titles, special inserts and general interest and specialized supplements, as well as the website corriere.it. La Gazzetta dello Sport is the leading national sports daily and comprises a structured, integrated platform of information media, including the national daily, local editions, special inserts and specialized supplements and the website gazzetta.it. City is a free press daily with a national distribution and local editions in Italy's major cities. Urban is a free press monthly periodical with national distribution and local inserts for Italy's major cities. This segment also includes RCS Sport - which organizes and runs the Giro d'italia and other cycling races and sporting events - and RCS Digital, which manages development of the titles on digital media, and its subsidiary RCS DBGames, which manages the on-line gaming site of Fueps. Financial highlights ( /millions) 2nd quarter nd quarter 2007 % change 1st half st half 2007 % change Circulation revenues (0.8) (7.8) Advertising revenues (2) Other publishing revenues (7.8) (2.1) Total revenues from sales and services (1) (2.5) EBITDA (9.9) (1) of which add-on product sales: (2) Advertising revenues in 1st half 2008 comprise million earned through the RCS Group's advertising broker compared with million in 1st half Circulation of daily newspapers in Italy was generally stable in the first half of 2008, just 0.4% down on the corresponding prior year period according to FIEG (Italian Federation of Newspaper Publishers). In detail, national dailies reported a 1.8% decline on 2007, while regional and multi-region newspapers both raised their circulation by 0.5% and 0.7% respectively. Circulation was generally stable in the sports dailies segment, within which La Gazzetta dello Sport confirmed the progress (+1.9%), already seen in the first quarter, making a major contribution to stabilizing the overall segment trend. The market for add-ons sold together with daily newspapers is increasingly showing signs of saturation, with a wide range of products and series, which are differentiated and segmented by the principal publishers in order to satisfy the interests of niche segment consumers. The advertising market grew by 1.3% in the first five months of 2008 relative to the corresponding period in 2007 (source: Nielsen Media Research). Print media in particular has shown signs of growing difficulty. Advertising in paid newspapers has fallen by 2.7%. The free press segment reported 5.2% growth in the period (Source: FCP). Segment results Circulation of the two paid newspapers was as expected in the six months just ended: Corriere della Sera had an average daily circulation of 633,000, down 3.2% on the first half of 2007; while La Gazzetta dello Sport had an average daily circulation of 368,000, up 1.9% on the first half of 2007 and so going against the trend for other sports newspapers. 21