Half-year Report. at June 30, 2017

Transcription

1 Half-year Report at June 30, 2017 This is English translation of the Italian Half-year report.. The Italian Half-year report is the sole authoritative version. RCS MediaGroup S.p.A. Via A. Rizzoli, Milan Share Capital 475,134, Company Register and Tax Code/VAT No , REA No

2 Contents Corporate Officers... 3 Brief description of the Group... 4 Financial highlights of RCS MediaGroup... 5 Report on operations... 6 Group performance in the first half of the year... 7 Information on ongoing disputes Other Information Operating segment performance Newspapers Italy Magazines Italy Advertising and Sport Unidad Editorial Other Corporate activities Related party transactions Significant events during the first half of the year Events after the reporting date Outlook for the current year Additional information required by CONSOB pursuant to Art. 114, paragraph 5 of Italian Legislative Decree no. 58/1998 of May 27, Condensed interim consolidated financial statements Consolidated financial statements Condensed income statement Condensed statement of comprehensive income Condensed statement of financial position Condensed statement of cash flows Condensed statement of changes in equity Notes to the condensed interim consolidated financial statements Format, content and other information on the condensed interim consolidated financial statements Annexes List of the group equity investments at June 30, Exchange rates against the euro Related parties

3 CORPORATE OFFICERS Honorary Chairman Cesare Romiti Board of Directors (*) Urbano Roberto Cairo Marilù Capparelli Carlo Cimbri Alessandra Dalmonte Diego Della Valle Veronica Gava Gaetano Micciche' Stefania Petruccioli Marco Pompignoli (**) Stefano Simontacchi Marco Tronchetti Provera Chairman and Chief Executive Officer Director Director Director Director Director Director Director Director Director Director (*) The Board of Directors in office at the date of approval of this Report was appointed by resolution of the shareholders meeting on September 26, The Directors are in office for the years and therefore until the Shareholders Meeting called to approve the 2018 financial statements. (**) Director with delegated powers Powers delegated by the Board of Directors Without prejudice to internal observance of the functions and rules of corporate governance adopted, the Board of Directors has granted all the powers to the Chairman and Chief Executive Officer for the conduct of the Company's ordinary administration, as well as a set of powers for the Company s management, with limits on the size of financial commitments and/or risks that may be assumed for certain types of transactions. The Board of Directors also assigned Director Marco Pompignoli the role of overseeing and supervising the administration, finance and management control, legal and corporate affairs, procurement and information systems functions of the RCS Group, in coordination with and in support of the Chairman of the Board of Directors and Chief Executive Officer, granting him within the scope of these functions a series of powers with limits on the financial commitments and/or risks that may be assumed for certain types of transactions. Director Marco Pompignoli was also designated by the Board of Directors as Director responsible for the internal control and risk management system. Board of Statutory Auditors (*) Lorenzo Caprio Gabriella Chersicla Enrico Colombo Guido Croci (**) Renata Maria Ricotti Paola Tagliavini (**) Chairman Standing auditor Standing auditor Alternate auditor Alternate auditor Alternate auditor (*) The Board of Statutory Auditors in office at the date of approval of this Report. The Statutory Auditors are in office for the years and therefore until the Shareholders Meeting called to approve the financial statements relating to the last of these years. (**) The Alternate auditors Guido Croci and Paola Tagliavini were appointed by means of resolution of the ordinary shareholders meeting held on April 27, 2017, replacing the Alternate auditors Barbara Negri and Ugo Rock who resigned on February 9, Independent auditors (*) KPMG S.p.A. (*) In office until the Shareholders Meeting called to approve the 2017 financial statements. 3

4 BRIEF DESCRIPTION OF THE GROUP RCS MediaGroup is one of the main European publishing groups. It is a leader in newspapers in Italy and Spain and active in magazines, television, radio and new media, is one of the top operators in the advertising sales market and is also active in distribution. It is a reference in sport business through the production of high quality publishing content and the organisation of large sporting events. July 2016 saw the successful conclusion of the public offer for purchase and exchange (OPAS) promoted on RCS MediaGroup S.p.A. shares by Cairo Communication S.p.A., which therefore became the direct controlling entity of RCS MediaGroup S.p.A.. In a global context characterised by a profound transformation in communication media, RCS MediaGroup is a leading player in the evolution process of the publishing sector, fortified by the founding values and principles which inspire it and the acknowledged influence which characterises its content, brands and authors. In Italy, the RCS Group publishes Corriere della Sera and La Gazzetta dello Sport, leaders among national and sport dailies, in addition to numerous weekly and monthly magazines, including Amica, Living, Style Magazine, Dove, Oggi, Io Donna, Sportweek, Sette and Abitare. In Spain, the Group is one of the main players in the media sector with the Unidad Editorial Group, which publishes Spain's number two daily newspaper El Mundo, Marca, leader in sports news, and Expansión, leader in business news, in addition to numerous magazines, including Telva, Marca Motor, and Actualidad Económica. The Group is also the leader in Italy (but also present in Spain, Mexico and France) in the early childhood sector with an offer that includes printing, on-line, e-commerce, direct marketing and trade shows dedicated to the sector. Via RCS Sport, the RCS Group organises very important sporting events at global level, including the Giro d Italia, the Milano-Sanremo, Il Lombardia, the Dubai Tour, the Abu Dhabi Tour, the Milan City Marathon and the Color Run, and presents itself as partner for the creation and organisation of events via RCS Live. In Spain, with Last Lap, it is a point of reference for mass events. The Group works in Spain in the football and sport on-line betting sector with the Marca Apuestas website. In Italy, RCS operates in the radio television communication sector, through both the subsidiary Digicast S.p.A. with the satellite channels Lei, Dove and Caccia & Pesca, and via the web TV channels of Corriere della sera and La Gazzetta dello Sport. In Spain it is also present with the top Spanish national sports radio station Radio Marca, with the web TV channels of El Mundo and Marca and broadcasts through the two digital TV channels Gol Television and Discovery Max. Digital innovation, in addition to the natural digital off-shoots of the group brands, is achieved through the creation of numerous innovative Apps. RCS MediaGroup is a leading operator in advertising sales in Italy and in Spain, capable of offering its customers a broad and diversified communications offer through the prestige of the Group s publications, including via more innovative means of communications such as digital editions, web, mobile, tablets, as well as a new, wide range of consumer engagement services and solutions. The RCS Pubblicità division, besides advertising sales for the Group s publications, manages national advertising sales activities (print and web) for several important southern Italian publishers such as: Società Editrice Sud or SES for Gazzetta del Sud; Domenico Sanfilippo Editore for La Sicilia; Editrice del Sud Edisud for Gazzetta del Mezzogiorno; Giornale di Sicilia Editoriale Poligrafica for il Giornale di Sicilia. Until December 31, 2016, it managed national advertising sales activities for the Itedi Group (print and web) and, up to March 1, 2017, for the Monrif Group. RCS MediaGroup holds an investment in m-dis Distribuzione Media S.p.A. and Corporación Bermont, leaders in distribution on the newsstand channel in Italy and in the daily press in Spain, respectively. 4

5 FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP 1st half Year ( /millions) INCOME STATEMENT Revenue EBITDA (1) OPERATING PROFIT Profit (loss) before tax and non-controlling interests 32.2 ( 9.0) 5.0 Income taxes ( 8.2) ( 1.5) ( 9.9) Profit (loss) from continuing operations 24.0 ( 10.5) ( 4.9) Profit (loss) from assets held for sale and discontinued operations Profit (loss) for the period 24.0 ( 2.1) 3.5 Basic earnings (losses) per share: continuing operations 0.05 ( 0.02) ( 0.01) Diluted earnings (losses) per share: continuing operations 0.05 ( 0.02) ( 0.01) Basic earnings (losses) per share: assets held for sale and discontinued operations Diluted earnings (losses) per share: assets held for sale and discontinued operations STATEMENT OF FINANCIAL POSITION Jun Jun Dec Net capital employed Net financial debt (2) Equity Average number of employees 3,413 3,647 3,584 (1) Earnings before interest, tax, amortisation/depreciation and impairment losses. Includes the share of profits and losses of equity-accounted investees. (2) Indicator of financial structure, calculated as current and non-current loans and borrowings less cash and cash equivalents, current financial assets and non-current financial assets recognised for derivatives. Net financial debt as defined by CONSOB in its Communication DEM/ dated July 28, 2006 excludes non-current financial assets. Non-current financial assets relating to derivative instruments at June 30, 2017, June 30, 2016 and December 31, 2016 amounted to zero and, therefore, RCS s financial ratio at June 30, 2017, June 30, 2016 and December 31, 2016 matches the net financial debt as defined by the above-mentioned CONSOB Communication. For complete disclosure purposes, the RCS Group's financial highlights for the second quarter are as follows: ( /millions) 2nd quarter 2017 % 2nd quarter 2016 % Difference Difference A B A-B % Revenue (26.0) (9.1%) Publishing revenue (11.9) (12.1%) Advertising revenue (18.9) (13.6%) Other revenue % EBITDA BEFORE NON-RECURRING EXPENSE (3.6) (6.8%) EBITDA % Operating profit % Profit attributable to owners of the parent % As described in the 2016 annual report, the operating structure and the resulting identification of operating segments are subject to assessment, particularly in relation to the Sport segment, for which the setup of a specific business unit was planned at the start of 2016, combining all La Gazzetta dello Sport and Marca activities, as well as the sporting events organisation activities of RCS Sport S.p.A. and Last Lap S.L. This unification of operations had not yet been implemented. In particular, Unidad Editorial continues to operate as a single segment and single cash generating unit. Based on the fact that the definition of this operating structure and the resulting identification of operating segments are currently subject to assessment, in this Half-Year Report, the results were represented according to the areas of activity identified on the basis of the Group s current operating structure, as better described in note 11 (dedicated to comments on segment information) of this document. The Half-Year Report was approved by the Board of Directors on August 3,

6 REPORT ON OPERATIONS DRAFTED IN ACCORDANCE WITH LAW DECREE NO. 58/1998 AND SUBSEQUENT AMENDMENTS 6

7 GROUP PERFORMANCE IN THE FIRST HALF OF THE YEAR In the first few months of 2017, Italy recorded growth in the economic indicators, sustained by the increase in household spending and, on the supply side, the strengthening of the services sector. In this context, the growth in GDP (already revised upwards by Istat in the first quarter of 2017 with respect to the preliminary estimates) would be confirmed. With respect to the previous quarter, the expected variation is +0.4%, while growth of +1.4% is forecast for (Source: Economic Bulletin no.3/2017 Bank of Italy). In Spain, second-quarter growth in GDP was 0.9% in 2017, up compared to the first quarter of 2017 (which recorded an increase of 0.8%). The increase is 3.1% on an annual basis, in line with the previous quarter and with the expectations (preliminary data of the national statistics institute INE). In this context, for the first time since 2008, the RCS Group moved from a loss to a profit in the first half. The Group's financial highlights and related comments are presented below. Reference to the financial statements First half 2017 % First half 2016 % Difference Difference ( /millions) (3) A B A-B % Revenue (32.4) (6.4%) Publishing revenue I (20.5) (10.6%) Advertising revenue I (23.5) (10.0%) Other revenue (1) I % Operating expenses II (266.8) (56.6) (326.6) (64.8) % Personnel expense III (131.7) (27.9) (140.1) (27.8) % Provisions for risks IV (2.7) (0.6) (3.8) (0.8) % Allowance for impairment V (1.9) (0.4) (1.0) (0.2) (0.9) (90.0%) Share of profits of equity-accounted investees VI (0.9) (69.2%) EBITDA (2) % Amortisation of intangible assets VII (17.3) (3.7) (18.6) (3.7) 1.3 Depreciation of property, plant and equipment VIII (7.4) (1.6) (8.6) (1.7) 1.2 Depreciation of investment property IX (0.3) (0.1) (0.3) (0.1) 0.0 Other impairment losses on non-current assets X (0.1) (0.0) 0.1 Operating profit Net financial expense XI (13.0) (2.8) (16.1) (3.2) 3.1 Gains on financial assets/liabilities XII Profit (loss) before tax (9.0) (1.8) 41.2 Income taxes XIII (8.2) (1.7) (1.5) (0.3) (6.7) Profit (loss) from continuing operations (10.5) (2.1) 34.5 Profit (loss) from assets held for sale and discontinued operations XIV (8.4) Profit (loss) before non-controlling interests (2.1) (0.4) 26.1 Profit (loss) attributable to non-controlling interests XV Profit (loss) attributable to owners of the parent (2.1) (0.4) 26.1 (1) Other revenue includes primarily revenue for television activities, the organisation of events and exhibitions, e-commerce activities, sales of customer lists and boxed sets and, in Spain, for betting activities. (2) Earnings before interest, tax, amortisation/depreciation and impairment losses. Includes the share of profits and losses of equity-accounted investees. (3) These notes relate to the corresponding headings in the condensed income statement. 7

8 The change in revenue with respect to the first half of 2016 is presented below. M Advertising 2.4 Publishing/Other Revenue 32.4 Advertising Publishing/Other (18.8) (3.6) 0, Advertising 5.9 Publishing/Other 8.7 Add ons (12.5) +3.1 Advertising our products 16.5 Third party advertising Publishing/Other 7.9 Advertising 4.6 Publishing/Other 1, June 2016 Newspapers Italy Magazines Italy Advertising and Sport Unidad Editorial Other Corporate activities and eliminations June 2017 Revenue for the first half of 2017 amounted to million, marking a decrease of 32.4 million over the first half of On a like-for-like basis, as detailed below, the variation would amount to million, attributable to the decrease of 10 million in publishing revenue, decrease of 6.1 million in advertising revenue and the increase of 6.2 million in other revenue. The trend in publishing revenue on a like-for-like basis in the first half of 2017 recorded a decrease of 10 million, as commented hereunder: The fall in publishing revenue of Newspapers Italy was 11.1 million. Excluding the effects of the different add-on product publishing plan from the comparison (characterised by a different offer mix), the decrease comes to 3.9 million, and is due to the variation in circulation recorded by Corriere della Sera and La Gazzetta dello Sport publications. The two newspapers retained their circulation leadership in their respective market segments (Source: ADS January - May), with circulation, respectively, of an average of 315 thousand copies for Corriere della Sera and an average of 177 thousand copies for La Gazzetta dello Sport including digital copies (Source: ADS January - May). The performance of the newsstand channel (channels required by law) in May (Source: ADS January - May) shows a decrease of 3.8% for Corriere della Sera compared to -7% of the reference market and 1.5% of La Gazzetta dello Sport with respect to -1.6% of the reference market. The fall in the publishing revenue of Unidad Editorial came to million, compared to the figure in the first half of Excluding the effects generated by the gradual adoption of a different newspapers promotional policy, the decrease would be 6.1 million, attributable to the drop in circulation. The publications Marca and Expansión retained their circulation leadership in their respective market segments, with average daily circulation (including digital copies) of around 137 thousand and 36 thousand copies respectively (Source: OJD) while the publication El Mundo stayed in second place with average daily circulation, including digital copies, of around 121 thousand copies (Source: OJD). The publishing revenue of Magazines Italy recorded a slight decrease of million compared to the first half of 2016, essentially attributable to the lack of homogeneity between the types of add-on products offered. Circulation recorded a positive performance, in particular with Oggi which improved its sales in the newsstand channel, registering higher publishing revenue of 0.4 million, essentially offsetting the modest decreases in the Women s Area and the Men's and Lifestyle Area. Advertising revenue for the first half of 2017 came to million, compared to 236 million in the first half of 2016 (including advertising sales on behalf of third party publishers). The decrease compared to the first half of 2016, net of the effects due to the extraordinary events between the two periods being compared, would be 6.1 million. The main extraordinary events concern both the termination, in 2017, of the advertising contracts with third party publishers (revenues of 1.2 million in the first half of 2017 compared to 17.2 million in the first half of 2016), and the presence, in 2016, of the European football championships, while in 2017 in the RCS Sport area, the Abu Dhabi Tour was held early in the first half of 2017, which had been organised in the second part of The decrease is therefore attributable to the advertising sales of the Group publications, 8

9 only partly offset by the growth in the advertising revenue connected with the sporting events organised by the area headed up by RCS Sport. Other revenue, amounting to 86.4 million, recorded a net increase of 6.2 million on a like-for-like basis compared to the first half of The variation is due to the positive effect of revenue from the sporting events of the RCS Sport area, and in particular, the television rights relating to Giro d Italia. The other revenue of Unidad Editorial improved by + 4 million, due to the continuation of television activities and betting through the Marca Apuestas platform. The change in EBITDA with respect to June 30, 2016 is presented below. M EBITDA , , , ,0 33, , ,9 June 2016 Newspapers Italy Magazines Italy Advertising and Sport Unidad Editorial Other Corporate activities and eliminations June 2017 EBITDA was positive at 69 million, an improvement of 35.1 million with respect to the first half of 2016 ( million in the second quarter of 2017 alone, compared to the second quarter of 2016). In the first half of 2017, no non-recurring net expense or income was recorded (expense totalled 6.3 million in the first half of 2016). Revenue and EBITDA by operating segment for the first half of 2017 and for the first half of 2016 are summarised below, illustrated in the Operating segment performance section, to which reference should be made for more details. ( /millions) First half 2017 First half 2016 Revenue EBITDA % of revenue OPERATING PROFIT (LOSS) % of revenue Revenue EBITDA % of revenue OPERATING PROFIT (LOSS) % of revenue Newspapers Italy % % % % Magazines Italy % % % % Advertising and Sport % % % % Unidad Editorial % % % % Other Corporate activities 12.4 (10.2) (82.3)% (18.4) n.a 19.1 (14.7) (77.0)% (25.5) n.a Other and eliminations (103.5) 0.0 (0.0)% 0.1 n.a (111.8) (0.2) 0.2% (0.2) n.a Consolidated % % % % The improvement in EBITDA, to which all Group business areas contributed, is due to the positive results deriving, on the one hand, from investment in publishing contents, the constant enhancement of the offering and development of the portfolio of sporting events and, on the other, the focus on costs in general and constant commitment to efficiency which has made it possible to obtain benefits amounting to 32 million, of which 19.2 million in Italy and 12.8 million in Spain. In fact, during the first half of 2017, the Group optimised the costs structure further, continuing, in both Italy and Spain, to implement the activities already commenced in 2016 and seeking out further opportunities to reduce and rationalise costs, based on an approach of gradual improvement of supply conditions and of the business and publishing processes, as well as striving to achieve greater simplification of operations. 9

10 The trends in EBITDA of each operating segment are reported below, compared to the corresponding period of the previous year: EBITDA in the Advertising and Sport area came to 22.5 million, improving by a total of 12.1 million due to the growth in activities relating to RCS Sport. The increase in the RCS Sport area is mainly due to the rise in revenues, commented on above, combined with careful cost management. EBITDA in the Newspapers Italy area amounted to 34.5 million, growth of 7 million. This result was achieved due to the initiatives targeted at constantly enriching the publishing offer, combined with the tireless commitment to achieving efficiency. EBITDA of the Unidad Editorial area, amounting to 16.4 million, recorded an increase of 6.4 million. Continuous cost reduction and efficiency recovery initiatives (including the restructuring plan signed with workers representatives in 2016) and the growth in digital revenue more than offset the drop in circulation. EBITDA of the Magazines Italy area totalled 5.8 million, marking an improvement of 4.9 million. This increase derives primarily from the significant commitment to reducing costs, accompanied by the excellent results in terms of circulation of the publications. The improvement of 4.5 million compared to the first half of 2016 recorded by EBITDA from Other Corporate activities is essentially attributable to the fact that, in the first half of 2016, net non-recurring expenses of roughly 4.4 million were recognised. Excluding this effect, EBITDA remained essentially stable, despite the presence of cost and savings efficiencies also realised in this area, for the transfer of these benefits to the business areas through lower charge-backs, with a subsequent drop in revenues from Other Corporate activities ( 6.7 million). Personnel expense decreased by 8.4 million. The variation is prevalently attributable to Unidad Editorial, whose personnel expense fell by 5.2 million. Also personnel expense of Other Corporate activities recorded a decrease compared to the first half of 2016 (- 2.9 million). In particular, the average headcount of the Group in the first half saw an overall decrease of 234 compared to the same figure in 2016, of which an average of 147 relating to Unidad Editorial. The operating profit amounted to 44 million, compared with an operating profit of 6.3 million in the first half of The growth of 37.7 million not only reflects the improvement in EBITDA described above, but was also determined by lower amortisation of 2.5 million. As part of the company asset evaluation process, the analyses conducted did not highlight any signs of impairment. Therefore, in the first half of 2017, no impairment losses were recorded ( 0.1 million in the first half of 2016). The decrease in amortisation/depreciation is due, for 1.3 million, to intangible assets and, for 1.2 million to property, plant and equipment. The reduction in the amortisation of intangible assets is due to the end of the useful lives of various software programs, including Microsoft Office licences, web infrastructures, Corriere and Gazzetta Store e-commerce, attributable to the Other Corporate activities area and was only partly offset by higher amortisation relating to the purchases of new TV licences and rights on executive productions carried out by Newspapers Italy. The lower depreciation of property, plant and equipment is attributable, for 1 million, to Other Corporate activities, and refers to the end of the useful life of improvements on buildings at the Via Rizzoli site and the Group s IT systems. Net financial expense and income and gains and losses on financial assets, amounted to 11.8 million, down by a total of 3.5 million. This reduction is essentially due to lower interest accrued on the net financial debt, as a result of the reduction in average exposure, and to a lesser extent, the net effect of the incidence of hedging derivatives, in addition to the positive effect of discounting expenses. 10

11 The profit from assets held for sale and discontinued operations was zero, compared to a positive 8.4 million in the first half of 2016 (due to the realisation of the translation reserve of the Books group effected at the same time as the sale). Income taxes totalled 8.2 million at June 30, These are in contrast to taxes of 1.5 million at June 30, 2016 and refer to IRAP ( 2.3 million), the use of deferred taxes ( 6.3 million) and the allocation of current taxes for the period ( 0.4 million). These expenses were partly offset by the positive effect of the release of the provision for deferred taxes of Unidad Editorial for 0.8 million. At June 30, 2016, taxes referred almost exclusively to IRAP for the period. The variation reflects the improvement in the results of Group companies. Profit for the first half of 2017 amounted to 24 million, compared to a loss of 2.1 million in the first half of 2016, marking an improvement of 26.1 million. The change reflects the aspects commented on above. Evolution of workforce and breakdown of employees by geographic segment The exact headcount of the RCS Group at June 30, 2017 (3,361, of which 140 on temporary contracts) was down 235 on June 30, This decrease was caused by the reduction in both personnel on permanent contracts (down 199 units), and personnel on temporary contracts (down 36 units). The exact headcount at June 30, 2017 includes 874 people in Italy working under solidarity arrangements, with a reduction in working hours up to a maximum of 20% (143 journalists for the publication La Gazzetta dello Sport, 731 other non-editorial staff) and 134 journalists placed in the extraordinary redundancy fund (CIGS) up to a maximum of 20% in the Magazines Italy segment. The exact headcount broken down by geographic segment is shown below. Italy Spain Other countries Total Jun-30 Jun-30 Jun-30 Jun Executives, middle managers and white collars 1,014 1, ,806 1,961 Publication directors and journalists ,318 1,401 Blue collars Consolidated total 1,987 2,084 1,315 1, ,361 3,596 *** The average number of RCS Group employees in the first half of 2017 was 3,413, down by 234 compared to the figure in the same period of 2016 (3,647). The trend in the workforce in Italy was characterised, on the one hand, by the restructuring and efficiency plans, and on the other, stabilisations and turnover management initiatives. The reduction in Unidad Editorial personnel (down by an average of 147) was particularly significant, mainly as a result of the progress of the restructuring plan signed in 2016 with workers representatives, regulating the exit of 160 people in the period. Average employees working in the Group s foreign operations accounted for approximately 41% of the Group s average total in the first half of

12 The breakdown of the average number of employees by geographic segment is shown below. Italy Spain Other countries Total Jan-Jun Jan-Jun Jan-Jun Jan-Jun Executives, middle managers and white collars 1,055 1, ,851 1,989 Publication directors and journalists ,328 1,421 Blue collars Consolidated total 2,027 2,111 1,327 1, ,413 3,647 Reclassified statement of financial position ( /millions) Reference to the financial statements (2) Jun % Dec % Intangible assets XVI Property, plant and equipment XVII Investment property XVIII Financial assets XIX Non-current assets Inventories XX Trade receivables XXI Trade payables XXII (263.6) (54.1) (292.9) (62.8) Other assets/liabilities XXIII (46.6) (9.6) (54.4) (11.7) Net working capital (37.1) (7.6) (73.6) (15.8) Provisions for risks and charges XXIV (50.7) (10.4) (58.5) (12.5) Deferred tax liabilities XXV (55.7) (11.4) (56.4) (12.1) Employee benefits XXVI (39.6) (8.1) (40.2) (8.6) Net operating capital employed Net capital employed from assets held for sale XXVII Net capital employed Equ i ty XXVIII Non-current loans and borrowings XXIX Current loans and borrowings XXX Non-current financial liabilities recognised for derivatives XXXI Non-current financial assets recognised for derivatives XXXII Cash and cash equivalents and current loan assets XXXIII (10.6) (2.2) (19.2) (4.1) Net financial debt (1) Total sources of financing (1) Indicator of financial structure, calculated as current and non-current loans and borrowings less cash and cash equivalents, current financial assets and non-current financial assets recognised for derivatives. Net financial debt as defined by CONSOB in its Communication DEM/ dated July 28, 2006 excludes non-current financial assets. Non-current financial assets relating to derivative instruments at June 30, 2017 and December 31, 2016 amounted to zero and, therefore, RCS s financial ratio at June 30, 2017 and at December 31, 2016 matches the net financial debt as defined by the above-mentioned CONSOB Communication. (2) These references relate to the corresponding captions in the statement of financial position. Net capital employed amounted to million, marking a net increase of 21 million compared to December 31, 2016, originating from the growth in net working capital (up 36.5 million) and the decrease in provisions (- 9.1 million), partially offset by the drop of 24.6 million in fixed assets. Net working capital went from million at December 31, 2016 to million at June 30, 2017, primarily due to the decrease in trade payables of 29.3 million and other assets and liabilities (- 7.8 million). The decrease in fixed assets ( million) is attributable to the drop in intangible assets and property, plant and equipment ( million) due to amortisation/depreciation ( 24.7 million), partially offset by investments made in the half (+ 7.9 million). Lower non-current financial assets (- 7.5 million) contributed to the decrease in fixed assets, mainly due to the fall in deferred tax assets (- 6 million), as did equity-accounted investees (- 1.3 million), as a result of the distribution of dividends (- 1.7 million), partially offset by the positive results in the half (+ 0.4 million). 12

13 Please refer to the specific notes of these condensed interim consolidated financial statements for comments on the trend in the main items of net capital employed. Equity disclosed an increase with respect to December 31, 2016 amounting to 23.9 million, due mainly to the net result for the period, as well as the positive change in the hedging reserve. This increase was partially offset by the decrease in equity attributable to non-controlling interests, as a result of the exit of shareholders from the investee Editoriale Veneto S.r.l.. Total net financial debt amounted to million, marking a decrease of 2.9 million since December 31, Positive cash flows from ordinary operations (of 23.8 million) more than offset outlays for technical investments made in the half ( 7.7 million), as well as the amount paid for non-recurring expense recognised in previous years ( 11.9 million) The above-mentioned changes in total net financial debt are specified in detail below: M vs Jun 30, vs Jun 30, vs Jun 30, vs Jun 30, 16 (366.1) (1,3) (1.3) 23.8 (363.2) (11.9) (11,9) Net financial debt Dec Disposals and acquisitions Other (nonrecurring expense) (7.7) (7,7) CAPEX Ordinary operations Net financial debt Jun Source: Management reporting analysing the main changes in total net financial debt. The analysis of flows of cash and cash equivalents in accordance with the provisions of IAS 7 is provided and commented on in the Consolidated Financial Statements. 13

14 INFORMATION ON ONGOING DISPUTES RCS Sport Events With reference to the aforementioned events, please refer to the section Information on ongoing disputes in the Annual Financial Reports at December 31, 2015 and at December 31, Updates on the various events are reported below: (i) As regards the proceedings joined as civil parties seeking damages from certain defendants, the case has currently been adjourned to the hearing of October 27, At the hearings on June 9 and 16, 2017, the Chairman of the Board declared that he has been assigned to another appointment and, as a result of the nonconsent of the defence lawyers of the defendants to continuing the preliminary activities carried out up until now, the court hearings must be taken up from the start due to the change of composition of the formation of the Court. (ii) As regards the writ of summons served on August 1, 2014, in which RCS Sport S.p.A. lodged a liability action against the former Chief Operating Officer and the former CEO at the hearing on June 28, 2017, a joint request for a postponement was submitted and the case was adjourned to the hearing of September 26, (iii) As regards the objection to the dismissals imposed (appeal rejected by the Court of Milan), the former CEO and the former Chief Operating Officer both filed an appeal. The next hearing is set for October 23, 2017 for the former CEO and November 15, 2017 for the former Chief Operating Officer. (iv) The following are pending before the Court of Milan against the Bank at which the current account was held: (a) the compensatory action brought by the Consorzio Milano Marathon (b) the compensatory actions brought by Associazione sportiva dilettantistica Milano City Marathon and other associations. The lawsuits were joined and are currently in the preliminary investigation phase. The next hearing is scheduled for September 21, 2017 for the examination of the graphology report prepared by the expert witness. OTHER INFORMATION Effective as of August 7, 2012, the Company decided to take advantage of the rights set forth in Art. 70, paragraph 8 and Art. 71, paragraph 1-bis of the Regulation pursuant to CONSOB Resolution no /1999 as amended. 14

15 OPERATING SEGMENT PERFORMANCE 15

16 NEWSPAPERS ITALY Segment profile The Newspapers Italy segment is primarily dedicated to the editing, production and marketing of publishing products relating to the titles Corriere della Sera (Corriere publications) and La Gazzetta dello Sport (Gazzetta dello Sport publications). It also includes television activities for satellite channels and digital development activities. In particular, Corriere della Sera publications include the national newspaper, the leading national news and information daily, in addition to a structured, integrated platform of paper and digital information media, including a network of local titles, the weekly Sette, special inserts and general interest and specialised supplements, as well as the entire digital offer consisting of the website with corriere.it, the digital edition, mobile and apps. La Gazzetta dello Sport publications include the national newspaper, the leading Italian sports information publication, the weekly Sportweek, special inserts and specialised supplements, the website gazzetta.it, the infotainment GazzaNet website, featuring the latest news and details about the main teams and athletes. The Newspapers Italy segment also includes local editions of the two newspapers. Television activities are carried out in Italy, through the company Digicast, which operates in the satellite television broadcasting segment, offering five channels on SKY: Lei (channel 127), Dove (channel 412), in addition to the optional channels Caccia (channel 235), Pesca (channel 236) and Lei+1 (channel 129). The Newspapers Italy segment also includes the activities to develop newspapers on digital media as well as classified activities including Trovocasa and, through the company Trovolavoro S.r.l., the market segment dedicated to the search for qualified personnel. As regards the part of the distribution of Newspapers, m-dis Distribuzione Media S.p.A., an equity-accounted investee, which handles the distribution of publishing products of the Newspapers and Magazines Italy segment, contributed to the segment s results. Financial highlights ( /millions) First half 2017 First half 2016 Change % change Publishing revenue (11.1) (9.5) Advertising revenue (4.5) (5.7) Other revenue (3.2) (28.1) Total revenue from sales and services (1) (2) (18.8) (9.1) EBITDA (1) of which add-on product sales: (2) Revenue from add-ons at June 30, 2017 stood at 25.9 million, 25.2 million of which was attributable to publishing revenue, 0.6 million to other revenue and 0.1 million to advertising revenue (at June 30, 2016 the total was 34.6 million, of which 32.5 million related to publishing revenue, 1.7 million related to other revenue and 0.4 million to advertising revenue). Market trend At the end of June 2017, the advertising market decreased by 3% compared to the same period of last year. In the print media segment there was an overall downturn of 9.3%: newspapers dropped by 10.8%, with a negative trend for national business advertising (-13.5% compared to the same period in 2016) and magazines 16

17 were down by 7% (Source: Nielsen). The on-line segment was also down (-1.7%) and the advertising market for general television programmes was down -1.9% compared to the same period of 2016 (Source: Nielsen). In terms of circulation, in Italy the unfavourable trend in the paper products market also continued in the first five months of Specifically, the distribution of paper copies of general interest newspapers in the first five months of the year was down by 15.4% (Source: ADS figures, January-May 2017). Also including digital copies, the market was down 14.6%. In the first five months of 2017, sports newspapers showed a decrease of 6.6% (Source: ADS figures, January-May 2017), compared to the same period of Also including digital copies, the decrease in the market remains constant at 6.6% (Source: ADS figures, January-May 2017). Segment results In the period just ended, initiatives continued targeted at increasing the value of the publications in the Newspapers Italy sector and the networks to which they belong. The various initiatives targeted at enhancing the quality of information and independence of the publication include a range of activities and projects launched in the last few months: the entry of a top journalist and author like Massimo Gramellini who, from February 14 offers Il Caffè of the day on the first page and on corriere.it, the assignment of the letters page and the relationship with readers to another leading light like Aldo Cazzullo, the launch of the new weekly economic supplement L Economia, the relaunch of Sette entrusted to another leading name like Beppe Severgnini, and constant monitoring and development of digital activities with the launch (first Italian publisher to do so) of all-encompassing videos, a new way of transmitting news or an event which enables viewers to fully immerse themselves in the reporting location. Numerous initiatives were also implemented for the publication La Gazzetta dello Sport, including the geolocation project, with an entire daily page in the football section dedicated to local football clubs, with a mention on the first page, and the Grande Gazzetta (10 monthly editions starting from February, which has ample space for stylishly covering events/championships of huge national and international interest, including the special edition on Formula1 and MotoGp, on the Milan derby, on the Champions League final and on the Football transfer market). In addition, to celebrate the 100th edition of the Giro d Italia, the Sulle terre del Giro initiative was implemented, a customised local special edition. The sports daily also included a special free 20-page insert, with information on all the past editions of the most popular cycling race. Excluding the figure from even-year events (European Football Championships 2016), circulation is essentially in line with the previous year, with an especially positive result in the month of May (+5.8%). Consolidated revenue of the Newspapers Italy segment amounted to million in the first half of 2017, down by 18.8 million (a decrease of -9.1%) compared to the same period of The decrease was generated, for 11.1 million, by publishing revenue, for 4.5 million by advertising revenue and, for 3.2 million, by other revenue. Digital revenue in the area amounted to 26.5 million, accounting for 14.1% of total segment revenue. Publishing revenue of the Newspapers Italy segment amounted to million, down by 9.5% compared to the same period in The decrease is due primarily ( 7.2 million) to the different publishing plan for addon products, characterised by a product offering that was distributed differently in This was in addition to the decrease in publishing revenue of both Corriere della Sera publications (- 1.6 million compared to the first half of 2016), with growth in digital revenues, which partly offset the drop in circulation of paper copies, and the decrease in La Gazzetta dello Sport publications (- 1.6 million concentrated on paper copies). Both newspapers retained their circulation leadership in their respective market segments in May 2017 (Source: ADS figures January-May 2017). 17

18 In the first half of 2017, Corriere della Sera recorded an average of 338 thousand copies distributed, including digital copies (Internal Source). Total circulation of La Gazzetta dello Sport in the first half of 2017 came to 184 thousand copies on average, including digital copies (Internal Source). As regards the comparison with the market, the newsstand channel (channels required by law), recorded a better performance than the reference market, especially in relation to Corriere della Sera (which recorded a drop of -3.8%, compared to -7% of the market). (Source: ADS January- May). In relation to digital publishing revenue, the growth was determined by higher subscriptions to Corriere della Sera s Membership offer, which reached 36 thousand, an increase of 13% over the same period in the previous year. In the first half of 2017, the average monthly unique browsers for the corriere.it site reached 46.5 million (+17.3% compared to same period in 2016), and the average unique browsers on weekdays totalled 3.1 million, up by 18.1% compared to the first half of (Source: Adobe Analitics). The mobile version of the website Corriere Mobile recorded 23.7 million average monthly unique browsers, marking 38.5% growth compared to the figure recorded in the first half of 2016 (Source: Adobe Analitics). The site gazzetta.it recorded 28.3 million average monthly unique browsers in the first half of 2017 (up 12.7% compared to the same period in 2016). The average unique browsers on weekdays totalled 2.2 million, up by 9.9% compared to the first half of 2016 (Source: Adobe Analitics). Gazzetta Mobile reached 13.5 million unique browsers, up by 16.5% with respect to 2016 (Source: Adobe Analitics). Advertising revenue of the Newspapers Italy segment amounted to 73.9 million, down by 5.7% compared to Deducting the effect on advertising sales deriving from sporting events in the first half of 2016, the decrease would come to 2.3 million, falling to -2.9%. Total advertising sales for on-line media reached roughly 25% of total advertising revenue for the segment, compared to 23.6% in the same period of the previous year. The advertising revenue of Corriere della Sera publications (including supplements and on-line) decreased by 2.2% compared to the same period in 2016, with print down 3.6% compared to -9.3% recorded by the market and digital up 3.9% with respect to a decrease of 1.7% registered by the market (market data, source Nielsen January-June 2017). Advertising revenue from La Gazzetta dello Sport publications (including supplements and on-line) recorded a drop of 13.9% compared to the same period in 2016, with print down 15.5% and the digital segment down 7%. Deducting the effect of the sporting events of the first half of 2016, the decrease would be 4.1%, with print down 6.7% and the digital segment up by 6.1%. Other revenue amounted to 8.2 million, down by 3.2 million due to less revenue from add-on product sales (- 1.1 million) and partly due to the decrease in other revenue with no effects on the margin. It includes other revenue from the television activities of the subsidiary Digicast, which rose by 0.2 million. *** EBITDA in June 2017 amounted to 34.5 million, up by 7 million compared to 27.5 million in the same period of The initiatives targeted at constantly expanding and enriching the publishing offer, combined with the tireless commitment to efficiency, made it possible to achieve this result. In fact, total operating costs, including personnel expense and excluding non-recurring expense in 2016, were down almost 14% from those of the previous year. In the first half of 2017, no non-recurring expense was recorded (net non-recurring expense of 1.3 million in the first half of 2016). 18

19 MAGAZINES ITALY Segment profile The Magazines business area is dedicated to the editing, production and marketing of a structured offer of publishing products. The Magazines segment mainly includes seven Italian magazines, including weeklies and monthlies, and concern the following areas: Women s (IO Donna and Amica), Home Furnishings and Interior Design (Living and Abitare), Family (Oggi publications) and Men s & Lifestyle (Style Magazine, Dove). As regards the multimedia domain, magazines are present with the websites Living.corriere.it, Iodonna.it, Amica.it, Oggi.it, Doveviaggi.corriere.it, Style.corriere.it, Doveclub.it and Abitare.it. In addition, June 2016 saw the launch of the new cooking monthly Sano & Leggero, part of the Oggi publications while, also in Oggi publications, Oggi Cucino went from being published every month to being published every fifteen days in December Lastly, it should be noted that, in June 2017, the publication Oggi Enigmistica Settimanale was reclaimed (previously licenced to third parties), relaunched at the end of June. The area also includes the activities of Hotelyo SA, a company operating under the Dove Club name in the online travel segment in flash sales, catalogue and tailor made mode. In addition to these are the Childhood Magazines specialised in the early childhood segment, including the publications Insieme and Io e il mio Bambino, the controlled distribution of boxed sets containing assorted products and test samples for mothers, the organisation of events and fairs (Bimbinfiera), the offer of digital products (quimamme.it website and publication websites) and e-commerce and direct marketing functions. Thanks to its business model, the Sfera Group is the market leader in Italy and Spain and is also present Mexico (with business models similar to the Italian one), in France and in Portugal, with an exclusively digital offer. Note that direct marketing activities were previously included in the Other Corporate activities area, therefore the comparison period was reviewed accordingly. As regards the part of distribution of magazines, m-dis Distribuzione Media S.p.A., an equity-accounted investee, which handles the distribution of publishing products, contributed to the segment s results. Financial highlights ( /millions) First half 2017 First half 2016 Change % change Publishing revenue (0.6) (4.3) Advertising revenue (1.2) (4.8) Other revenue (1.8) (18.4) Total revenue from sales and services (1) (2) (3.6) (7.4) EBITDA >100 (1) of which add-on product sales: (2) Revenue from add-ons at June 30, 2017 stood at 1.6 million, due entirely to publishing revenue (at June 30, 2016 the total was 2.2 million, of which 2.1 million related to publishing revenue and 0.1 million to other revenue). Market trend In Italy, the advertising market for magazines in print media recorded a decrease of 7% in the first six months of 2017, compared to the same period of 2016, in the presence of an advertising market down 3% on the whole. Internet recorded a drop of 1.7% in investments. (Source: Nielsen). 19