Class Editori Report on Operations and Financial Statements

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2 Class Editori 2011 Report on Operations and Financial Statements Share capital 10,560, fully paid up Registered office: 5, Via Burigozzo, Milan Tax code and VAT number: Economic & Administrative Index no Page 2

3 Index Class Group Composition of corporate bodies... 4 Report on operations of the Publishing House... 5 Highlights of the financial statements for subsidiary and affiliated companies Consolidated Financial Statements for the Publishing House Statement of changes in consolidated Shareholders Equity in 2009 and Statement of consolidated cash flows Consolidated financial situation at 31st December 2011 pursuant to Consob Resolution no dated 27/07/ Explanatory notes to the consolidated financial statements Schedule of significant equity stakes pursuant to Art. 120 of Legislative 82 Decree No. 58/ Related party transactions at 30th June Certification of the consolidated financial statements pursuant to Article 81-bis of the Consob Regulation No / Report of the Board of Statutory Auditors Report of the Independent Auditor on the Consolidated Financial Statements Class Editori Spa Report on Operations of the Parent Company Separate Financial Statements of the Parent Company Statement of changes in consolidated Shareholders Equity in 2010 and Cash flow statement of the parent company Notes to the separate financial statements of the Parent Company Certification of the annual financial statements in accordance with Article 81-ter of Consob Regulation No / Report of the Board of Statutory Auditors on the financial statements of the Parent 161 Company... Report of the Independent Auditor on the Financial Statements of the parent company Report on Corporate Governance and Shareholding Structure Page 3

4 Composition of corporate bodies Board of Directors Chairman Vice Chairman and Managing Director Vice Chairman Vice Chairman Executive Director Executive Director Directors Victor Uckmar Paolo Panerai Luca Nicolò Panerai Pierluigi Magnaschi Vittorio Terrenghi Gabriele Capolino William L. Bolster Maurizio Carfagna Paolo Del Bue Peter R. Kann Samanta Librio Maria Martellini Angelo Eugenio Riccardi Board of Statutory Auditors Chairman Statutory auditors Alternate auditors Carlo Maria Mascheroni Lucia Cambieri Vieri Chimenti Ferruccio Germiniani Pierluigi Galbussera Independent Auditor BDO Spa The three-year mandates of the Board of Directors and the Board of Statutory Auditors, appointed by the Shareholders Meeting on 30th April 2010, will expire at the time of the Shareholders Meeting that approves the financial statements for the 2012 financial year. The independent auditors are appointed until the Shareholders Meeting which will approve the 2012 financial statements. Page 4

5 Report on operations of the Publishing House Page 5

6 Class Editori Spa and subsidiaries Registered office - 5, Via Marco Burigozzo, Milan REPORT OF THE BOARD OF DIRECTORS AT 31st DECEMBER 2011 Introduction The report of Class Editori and its subsidiaries and the Parent Company Class Editori S.p.A. at 31st December 2011, both of which were audited, were drafted on the basis of an ongoing concern and in accordance with the international accounting standards established by the IFRS adopted by the Commission of European Communities with regulation no. 1725/2003 and subsequent amendments, in compliance with regulation no. 1606/2002 of the European Parliament, approved, together with the respective interpretations, by regulation (EC) No. 1126/2008 which, starting on 2nd December 2008, annuls and replaces regulation No. 1725/2003 and subsequent amendments. The above-cited reports take account of the recommendations contained in Consob Resolution no of 27th July 2006 and Consob announcement DEM/ of 28th July The figures for the comparison period have also been reclassified according to IFRS. Management performance Total revenues at 31st December 2011 amounted to million euros, up by 10.7% compared to million of Operating revenues amounted to million euros ( million euros in 2010). Operating costs grew from million euros at 31st December 2010 to million euros in The increase over the previous year was 7.5%. The gross operating margin defined as the difference between total revenues and cost of production before amortisation/depreciation and financial charges was positive for million euros versus the 7.54 million euros of the same period of the previous year, thus up by 61.9%. The financial statements of Class Editori and its subsidiaries at 31st December 2011 showed a pre-tax profit of 2.98 million euros (against a loss of 2.9 million in the previous year); the net profit after minority interest and taxes amounts to 5.6 million euros (against a loss of 1.88 million in 2010). The financial statements of Class Editori Spa closed with a profit of 8.2 million, against a loss of 0.48 million in With reference to the consolidation scope, it is worth noting that, following the transfer during the year of the entirety of the stake held in MF Honyvem Spa, despite the same not being owned by Class Editori Spa at the end of the year, in compliance with IFRS accounting standards, the economic data of the sold company was consolidated until the first official accounting situation available prior to the transfer, which took place on 14/12/2011. As no official data was available at the time, the data referring to all of 30th September 2011 was consolidated; this period is consistent with the one when the company did not exercise its power to direct and control the transferred company, mostly decreased after signing the binding preliminary transfer agreement on 10th October Page 6

7 With reference to the general economic data, a significant growth in revenues was recorded: operating revenues decreased due to the reduction of the revenues of MF Honyvem (partly generated by the different consolidated period, 12 months for 2010 and 9 months for 2011). Net of this effect, operating revenues are slightly up, totalling +0.6 million euros. The growth of the other operating proceeds is due primarily to the capital gains realised through the sale of the holding in MF Honyvem, equal to 17.6 million euros. As better shown in the analysis of the results by business segment, overall the good performance of the turnover regarding periodicals (mainly made possible by the special event linked to celebrating 25 years of Class) offsets the reductions recorded in the other segments, which were badly affected by the unfavourable market conditions. The main reasons for the increase in operating costs include the increase in the price of raw materials (paper) (more than 10% since the beginning of the year), though offset by a reduction in loans; increased sales costs, including agents fees and commissions, and the structural costs of the advertising concessionaire to strengthen the TV segment; increased TV production costs, due to the effect of the full 12-month year for the channel Class TV Msnbc, and the related increase in the costs of services concerning television production activities and the acquisition of programmes and contents required for the new channels; the costs incurred for the Class 25 event. The increase in staff costs was also mainly due to the significant expansion of the television and sales areas, on which the publishing house focused its development strategy and its ability to generate work in areas with the greatest development potential. Depreciation and amortization recorded a reduction of about 5.1 million euros following a complex reorganisation of the methods of using the technologies of the E-Class/PMF area, which provides information services to banks. Primary economic financial events of the period 2011 was once again a very difficult year for the Italian financial markets, characterised by substantially static internal consumption trends. In the publishing sector, the latest data available (ADS moving average of November 2011) show significant drops in all the leading publications on the market, while the data for the advertising market in the 12 months of 2011 published by Nielsen highlights an overall drop of 3.8%: -5.8% for paid daily newspapers (domestic commercial advertising) and - 3.7% for periodicals. Turnover from the TV advertising market also fell, by - 3.1%. The only medium showing growth is the Internet (+12.3%), whose incidence on total media remains very low though (7%). Also in this difficult context, advertising sales by the publishing house grew considerably compared to the previous year (+8%), allowing a recovery of market shares, though still insufficient to allow the publishing house an economic expansion in the new development sectors, particularly TV. Despite the influence that these factors have had on product margins, the publishing house s results are positive, especially in terms of improvement of the development work carried out in the subsidiary MF Honyvem. In spite of the macroeconomic context of decline and compression of activities, consequently to this improvement the revenues and profits are growing and the net financial position is considerably better. Publishing, technical and sales costs for the realisation of the new activities, which from 2011 have become operative at the beginning of the year, are particularly high: investments made by the publishing house in the TV sector were particularly considerable from the second half of These investments were determined in relation to the shift from analog to terrestrial digital broadcasting by the richest part of Northern Italy: a dual and unexpected postponement of the switch-off, from June to the end of November 2010, and the ensuing delay in assigning nationwide channel numbering for automatic electronic programming (Lcn, logical channel numbering), made it impossible to rapidly generate new revenues from that activity against Page 7

8 the relevant costs (most of which cannot be capitalised), not only in 2010 but also in 2011, in consideration of the budget planned by advertising investors. The focus of the publishing house on TV includes a 30% holding in the Class Horse TV Srl, which broadcasts the channel with the same name, the first television channel dedicated to the horse world, and official broadcaster recognized by the FEI (International Equestrian Federation) and by FISE, the Italian Equestrian Federation. The publishing house exploits all its experience and synergies, performs technological service activities and collects advertising revenues on behalf of the latter with encouraging signs of development. With regard to the Publishing House s newspapers, the circulation figures for the period were satisfactory for the period, considering the difficulties on the market: In the period Class enjoyed (moving average updated at 31/12/2011) a circulation of approximately 80,000 copies (in line with the previous year), Capital 77,000 copies and Milano Finanza 90,800 copies, a slight decrease compared to the previous year. Pending a reverse in the advertising market trend, and due to poor revenues, the monthly publication Campus, a guide to universities, was stopped. In 2011 the traffic on the publishing house s websites grew by 38.9% in terms of average individual browsers per day and by 25.5% in terms of average pages viewed per day (source AW Report Audiweb), increasing from 53,348 to 74,116 average individual browsers per day and from 1,269,537 to 1,593,670 average pages viewed per day saw an acceleration of the development already achieved in 2010, when the growth reached 29.9% as regards average individual browsers per day and 10.8% in terms of average pages viewed per day. Tablet and smartphone applications are being developed rapidly. In particular MF-Milano Finanza boasts 91,000 active clients on mobile devices and is now present on all the major platforms on the market: ipad, Android, iphone, Blackberry and Bada. Tablet and smartphone applications are also being developed for ClassMeteo and Italia Oggi, which are also seeing an increasing number of downloads and utilisations, in addition to growing interest by advertising investors. After the official launch in 2011, the site of Class Meteo The Weather Channel recorded a constant growth until reaching 2nd place in the weather site ranking in August with 338,000 individual users in the month (source AWView). Class Meteo apps distributed on ios, Blackberry and Android platforms also reached more than 150,000 downloads during the year, with great success of the Android (more than 40,000 applications downloaded) and Blackberry (more than 60,000 applications downloaded) platform (internal processing based on apple, android market, Blackberry app world and Samsung apps data). In the first few months of 2012, also thanks to the agreement with Libero.it, the traffic of the Class Meteo website doubled, reaching more than 25,000 average individual/daily users (internal source: analytics). During the financial year, the acquisition of % of Telesia S.p.a. was finalised (already consolidated in the financial statements with the line-by-line method), a leader in the Outdoor TV sector (airports and subway systems), with the parent company now owning %. In 2011, the monthly magazine Class and the publishing house celebrated their 25th anniversary. To mark the occasion, the Class25 project has been created. Using all media, newspapers, periodicals, TV channels, radio stations and portals, the publishing house, which is a leading player for fashion, luxury goods and design brands and companies, recounted its history and the evolution of the most prestigious national and international brands and products of the last 25 years (and will continue to do so in 2012), in a major multimedia exhibition at the Triennale in Milan, from 8th September to 2nd October The venue of the exhibition, which will be showcased in 2012 at various international leading locations of world culture, was arranged by architect Italo Rota, testifying to the resources Class Editori has provided for this anniversary. Page 8

9 The most important transaction of last year was the transfer of the holding of the company MF Honyvem Spa to Cerved Group Spa as announced in the press release of 10th October and formalised with a purchase deed dated 14th December. Class Editori and Intesa Sanpaolo definitively sold their holding (70% and 30% respectively) in Mf Honyvem to the Cerved Group. Mf Honyvem is a Brescia-based business information company, which ever since it was purchased by the publishing house four years ago, with Intesa Sanpaolo later purchasing 30% of the company from Class Editori in October 2009, has significantly increased its market share. The enterprise value has been set at 45 million euros. The sale of the holding generated a capital gain of 17.6 million euros for the consolidated financial statements of the publishing house. 90% of the price was collected in December 2011, while the difference will be cashed in May Consolidated Income Statement The re-classified Income Statement of the publishing house is reported below: uro/000 31/12/ /12/2011 Change (%) Sales revenues 116, ,828 (3.0) Other revenues and income 11,381 28, Total revenues 127, , Operating costs (120,105) (129,116) 7.5 Gross profit 7,539 12, % of revenues 5,91 8,63 Amortisation, depreciation and write-downs (9,749) (4,605) (52.8) Operating result (2,210) 7, % of revenues (1,73) 5,38 Net financial income and charges (713) (4,613) (547.0) Pre-tax profits (2,923) 2, Taxes 1,187 2, Minority profit/(loss) (141) (388) (175.2) Net group profit (1,877) 5, Page 9

10 Revenues can be broken down as follows: uro/000 31/12/ /12/2011 Change (%) Revenues from news-stand sales 10,103 9,325 (7.7) Subscription revenues 47,909 41,944 (12.5) Advertising revenues 55,793 60, Other revenues 13,314 28, Total revenues 127, , Contributions for operating expenses Total 127, , News-stand revenues fell by 7.7%; - The reduction in revenues from subscriptions is affected on one side (for about 3.5 million euros) by the drop in revenues from MF Honyvem, an effect mostly due to the different consolidation period in the financial statements: 9 months of 2011 against the 12 months of 2010; on the other side, the lower revenues for services deriving from the reduction in the value of a contract for an important client in the television area; - Advertising revenues record an improvement mainly due to the considerable advertising revenues relating to the event linked to the 25 years of Class (Class 25); - The significant increase in the other revenues is due to the capital gain generated by the sale of 70% of Mf Honyvem. Other revenues also includes an extraordinary item, paper purchase contribution, as per art. 1, subsection 40, law n 220 of 13th December 2010, amounting to 242,000 euros. Details of Operating costs are as follows: uro/000 31/12/ /12/2011 Change (%) Purchases 6,780 6,738 (0.6) Services 80,831 88, Costs for personnel 26,082 27, Valuation of equity investments by shareholders equity note below Other operating costs 6,399 5,754 (10.1) Total operating costs 120, , The purchasing costs remain substantially constant despite the increase in the price of raw materials (paper) since the beginning of the year of more than 10%. This was achieved by limiting of the number of pages comprising newspapers and thanks to the rationalisation in the creation of products supplementing the publications. The personnel cost increase is due to the growth in the set development sectors, television and commercial areas. Page 10

11 These are the details of the Services: uro/000 31/12/ /12/2011 Change (%) Cost of production 33,648 38, Editorial costs 5,023 6, Commercial/advertising costs 21,376 22, Distribution costs 6,470 6, Other costs 14,314 14, Total service costs 80,831 88, The increase in production and publishing costs is mainly linked to all the costs associated with the creation of the Class 25 project, and the greater costs (which in 2011 became operative) of the Class TV Msnbc general television channel on digital terrestrial television, which broadcasts a unique collection of programmes in Italy thanks to its partnership with two of the most important US networks: Msnbc and The Weather Channel. The increase in costs therefore mainly reflects the need to purchase new contents, collections of serials and films, technologies, and additional direction, crew and editing activities. Also in the schedules of the TV Moda channel cost increases were recorded as a consequence of the coverage of special events. Distribution costs remained substantially unchanged in the paper publishing areas, while the overall increase is attributed to the rising costs for the distribution of the band signal for the broadcasting of the Class TV Msnbc channel. Other costs increased proportionally due to the effect of the charges incurred for the in-service realisation of programmes and production activities for the benefit of associates and recharged to the latter. Consolidated balance sheet situation A complete analysis of the consolidated balance sheet can be found in the financial statements and relative explanatory notes. Trade receivables Total trade receivables increased from million euros at 31st December 2010 to million euros at 31st December The details were as follows: uro/000 31/12/ /12/2011 Regular customers 61,457 72,088 Invoices to be issued 4,433 12,756 Portfolio bills 1, Distributors (Italia Oggi - Erinne) 7,541 11,253 Receivables from affiliates 7,325 9,368 Provision for bad debts (1,312) (1,432) Total trade receivables 81, ,713 Page 11

12 The overall increase in trade receivables and invoices to be issued mainly refers to the credit generated when reorganising the IT services of E-Class/PMF mentioned previously. The increase in receivables to distributors is attributed to a slowdown in average payment conditions. Shareholders equity The group s net shareholders equity at 31st December 2011, net of third party interest and after the deconsolidation of MF Honyvem amounted to 75.0 million euros, compared to 69.7 million of 31st December The increase is attributed to the purchase in the period of % of the company Telesia Spa, this taking the holding of the parent company to %. The share capital of the publishing house rose from million euros at 31st December 2010 to million euros at 31st December During the period, as part of the acquisition of the majority share of Telesia Spa, a reserved capital increase for a nominal 143,400 euros was subscribed, as established by the Board of Directors of Class Editori in its meeting of 12th April Among other things, this capital increase involved an increase in the share premium reserve of 1.29 million euros. Net consolidated financial position The consolidated net financial position is shown in the table below: (thousands) 31/12/ /12/2011 Securities Changes 2010/2011 Change % Cash and cash equivalents 5,989 19,435 13, Short-term financial receivables 7,458 11,366 3, Long-term financial payables (1,521) (1,114) 407 (26.8) Short-term financial payables (55,773) (68,484) (12,711) 22.8 Net financial position (43,847) (38,797) 5,050 (11.5) The net financial position of the publishing house showed in the statement shows net indebtedness equalling 38.8 million euros at 31st December 2011, against 60.8 million at 30th September Compared to 31/12/2010 the improvement of 5.0 million euros is mainly due to the management results. Medium-to-long term financial payables include a long-term soft loan taken out with Centrobanca and a loan with Mediocredito, both expiring in Current financial payables include, in addition to cash and current account lines, stand-by loans and short-term revolving credit. Disbursed dividends No dividends were paid during The remaining debt to the shareholders at 31st December 2011 equalled 17,770 euros. Page 12

13 Stock Exchange data Minimum price (euros) Maximum price (euros) Average weighted price (euros) Volume traded (overall) (euros) 27,253,067 33,837,114 Minimum capitalisation (million euros) Maximum capitalisation (million euros) Average capitalisation (million euros) 54 38,5 Number of shares (Category A shares accepted for negotiation) 104,113, ,547,510 It cannot be ignored that such low capitalization is affected not only by the crisis of the financial markets but also by the market s inability to carefully read the value of the assets of the publishing house and their strong projection into the digital strategy with currently heavy investments, the results of which will be seen in the future. Financial performance indicators/ratios For a better understanding of the company s financial situation and economic performance, we include a comparison of certain financial indicators/ratios for two reference periods, and the outline of the income statement reclassified in accordance with the weight of each business areas (thousands) 31/12/ /12/2011 % Change Revenues from sales 116, ,828 (3.0) Internal production Operating income 116, ,828 (3.0) External operating costs (87,611) (95,311) 8.8 Added Value 28,652 17,517 (38.9) Personnel Costs (26,082) (27,911) 7.0 Gross Operating Margin - (EBITDA) 2,570 (10,394) note below Depreciation and amortisation and provisions (9,749) (4,605) (52.8) Operating result (7,179) (14,999) (108.9) Result for accessory area (24) 1,919 note below Net result for financial area Normalised EBIT (7,203) (13,080) (81.6) Result for extraordinary area 4,993 20, Total EBIT (2,210) 7, Net financial income/(charges) (713) (4,613) Page 13

14 Gross Result (2,923) 2, Income taxes 1,187 2, Third party result (141) (388) (175.2) Net profit/(loss) (1,877) 5, Below we present the trend for turnover and net profits over the past five financial years: uro/000, Total Turnover Net Profit 0.9 (3.0) 0.6 (1.9) 5.6 Financing ratios of fixed assets 31/12/ /12/2011 Primary Capital Assets (Own Equity - Fixed Assets) Primary Capital Ratio (Own Equity / Fixed Assets) Secondary Capital Assets (Own Equity + Consolidated Liabilities - Fixed Assets) Secondary Capital Ratio (Own Equity + Consolidated Liabilities / Fixed Assets) /000 (9,271) 28,562 % /000 (1,611) 35,262 % These ratios show the method of functioning of medium and long-term loans, and the composition of the sources of financing. Ratios of the structure of the loans Ratio of overall indebtedness (Consolidated + Current Liabilities/ Own Equity) Financial Indebtedness Ratio (Loan liabilities + current liabilities / Own Equity) % % These ratios aim at representing the composition of the sources of financing. Profitability ratios Net ROE (Net Result / Own Equity) % (2.37) 6.98 Page 14

15 Gross ROE (Gross Result / Own Equity) ROI (Operating Result / Fixed Assets) ROS (Operating Result / Revenues from sales) % (3.69) 3.72 % (8.12) (29.07) % (6.17) (13.29) The profitability ratios are those most frequently used in business economics practice to compare the company s results and the structural sources of financing of operations. The unusual trend of some of these indexes (particularly for fixed assets) can be attributed to the deconsolidation, in the balance sheet, of MF Honyvem Spa, and the consequent removal from the consolidation scope (given almost the same own resources) of the fixed assets (software) of the sold company. Solvency ratios Availability Margin (Current Assets - Current Liabilities) Availability Ratio (Current Assets / Current Liabilities) Cash Margin (Deferred Liquidity + Immediate Liquidity - Current Liabilities) Cash Ratio (Deferred Liquidity + Immediate Liquidity / Current Liabilities) /000 (1,611) 35,262 % /000 (5,615) 31,409 % The solvency ratios aim to represent current assets with respect to the company s short-term commitments. Information concerning the environment and personnel. Given the specific business of the company, no significant elements are seen. No damage has been caused to the environment, nor are there any related sanctions or charges. There have been no events in the workplace which involved harm of any kind to employee personnel. Page 15

16 Business areas A) Newspapers The area includes the company Milano Finanza Editori Spa, publisher of MF/Milano Finanza, whose average circulation was about 90,800 copies in the financial year (ADS figures) and, for the part of services concerning newspapers, the company Milano Finanza Service Spa. Results for the business segment in 2011 are summarized as follows: uro/000 (Data reclassified by management) 31/12/ /12/2011 Absolute change Change (%) Revenues 33,535 26,279 (7,256) (21.6) Direct operating costs 15,042 15,011 (31) (0.2) Contribution margin 18,492 11,268 (7,225) (39.1) % of revenues 55,1% 42.9% With operating costs and volumes more or less stable (the increase in paper costs was substantially offset by the reduction in postage), the fall in turnover and the corresponding margin were caused for about 5.5 million euros by the recording in 2010 of the revenue from the transfer of the shares in Milano Finanza Editori Spa, in the accounting data managerially represented in this area. For the residual part, the drop in turnover and margin is attributed to the decrease in circulation revenues (newsstands and subscriptions) and advertising revenues for the area, the direct result of the economic situation in this market. Despite this, the contribution margin on the turnover remains very high, amounting to about 43%. B) Periodicals This segment includes the companies Class Editori Spa, Milano Finanza Editori Spa (for the magazines Gentleman and Gentleman Real Estate, Patrimoni, Magazine for Fashion e Magazine for Living) Edis Srl, Campus Editori Srl, Lombard Editori Srl, Global Finance Media Inc., Fashion Work Srl and Country Class Editori Srl (which publishes Capital). It also comprises Assinform/Dal Cin Editore Srl, limited to the revenues deriving from the Assinews and Rischio Sanità periodicals. The publications for male readers, Class and Capital, with a monthly circulation of 80,000 and 77,000 copies respectively, as a whole indicate the leadership in the segment of the high level male target. The monthly Gentleman confirmed the positive reception it had previously obtained from readers and advertisers, reaching a high level target and making a name for itself abroad with editions in Spanish, Estonian, French, Flemish, Bulgarian, Turkish and Greek. Results for the business segment in 2011 are summarized as follows: uro/000 (Data reclassified by management) 31/12/ /12/2011 Absolute change Change (%) Revenues 23,105 26,199 3, Direct operating costs 19,428 20,942 1, Contribution margin 3,677 5,257 1, % of revenues 15.9% 20.1% Page 16

17 Despite the effects of the crisis in the publishing sector being the hardest for magazines, the publishing house area recorded overall growth and positive results mainly thanks to: the creation, during the second half, of the Class 25 event mentioned above; the good performance of the Global Finance magazine published in the USA, where revenues grew by more than 20% with a net profit of 1.69 million dollars. The other periodical publications have suffered drops in revenues and margins. Pending a reverse in the advertising market trend, and due to poor revenues, the monthly publication Campus, a guide to universities, was stopped. C) Electronic publishing The area includes the companies E-Class Spa, PMF News Spa, Milano Finanza Service Spa (for the services concerning the area), Fainex Spa (merged on 15/12/2011 with the company E-class Spa), the agency MF Dow Jones News Srl and MF Honyvem Spa (the latter for the period 01/01/ /09/2011). The consolidated range of products sold includes the service via satellite and via internet MF SAT, the trading-on-line products (including information and technology for placing stock market orders), and the Corporate Television activities, consisting of the creation of real television channels dedicated to banks and companies, with services and video clips of financial information. The MF-Dow Jones agency produces and distributes news reports with up to 650 takes per day, which are primarily sold to financial institutions and companies listed on the Italian market. Results for the business segment in 2011 are summarized as follows: uro/000 (Data reclassified by management) 31/12/ /12/2011 Absolute change Change (%) Revenues 35,355 49,146 13, Direct operating costs 26,668 25,356 (1,312) (4.9) Contribution margin 8,687 23,790 15, % of revenues 24.6% 48.4% In this activity area, for management purposes, the capital gain was reclassified deriving from the sale of MF Honyvem, which consolidated is worth about 17.6 million euros. The revenues and margins grow at a lower measure compare to the consolidated capital gain due to the fact that at 31/12/2011 essentially there are no revenues and margins of MF Honyvem of the last quarter, compared to The other information service to banks areas record margins contributing significantly. D) Professional services The area of activity includes the companies Class Pubblicità Spa, MF Conference Srl, DP Analisi Finanziaria Srl and Classpi Digital Srl (just for the concessionaire share). It also includes the activities of the Salone dello studente (Student Fair), spun off from the company Campus Srl and reclassified in this area, as well as that of Assinform/Dal Cin Editore Srl relative to the organization of conventions. Page 17

18 A breakdown of turnover between the various businesses follows: uro/000 (Data reclassified by management) 31/12/ /12/2011 Absolute change Change (%) Conferences/Shows 2,970 2,483 (487) (16.4) Advertising concessions 5,347 5, DP/Analysis Total revenues 8,352 8, As regards Class Pubblicità and Classpi Digital, revenues derive from their role as sub-agents for the sale of advertising space in all the publishing house s publications. The reduction in revenues from Conferences and Saloni was accompanied by a notable reduction in costs (largely variable), while the increase in revenues of the advertising concessionaire must be mainly due to an increase in compensation of the fees on the revenue, as a consequence of the growth of the structures and the commercial costs. Results for the business segment in 2011 are as follows: uro/000 (Data reclassified by management) 31/12/ /12/2011 Absolute change Change (%) Revenues 8,352 8, Direct operating costs 7,819 8, Contribution margin 533 (292) (825) (154.8) % of revenues 6.4% (3.5%) Concerning the points above, the slight loss recorded in 2011 was caused by the advertising concessionaire. Despite the non positive margins of the area, the adjustment and strengthening of the commercial structures (stronger for the digital areas, where the results have still not matched the efforts made) confirm the company s desire and choice to invest in the future. E ) Television and Radio Channels This activity area includes the companies Class CNBC Spa, Class Editori Spa (for the sole activity dedicated to the digital terrestrial channel Class News and the channel Class Life), Radio Classica Srl, a network dedicated to classical music and financial reporting, and the company Telesia Spa (leader in the field of out of home television in airports and subways), Class Tv Service Srl, Class Meteo Services Srl, and Tv Moda Srl. Results for the business segment in 2011 are as follows: uro/000 (Data reclassified by management) 31/12/ /12/2011 Absolute change Change (%) Revenues 22,456 18,000 (4,456) (19.8) Direct operating costs 20,069 22,773 2, Contribution margin 2,387 (4,773) (7,160) (300) % of revenues 10.6% (26.5%) Page 18

19 At 31/12/2011 the area shows a negative margin of about 4.8 million euros: the effects of the economic crisis and the drop in advertising investments (especially by some clients in the banking and telecommunication sectors) were particularly felt by the Radio and TV channels, in addition to the reduced value of sale of the content of a contract with an important client in the communication sector (offset by the same contract being renewed for another three years). Concerning the growing costs, radio & television required the most investments while also offering the best future development potentials. This is the reason for the increase in costs-investments concerning both technical crew, direction and editing expenses, as regards contents (including those purchased from Nbc Universal and those related to the weather acquired by The Weather Channel), programmes, collections of serials and films to strengthen prime time slots, and everything concerning real-time news, not to mention fashion, trends, design, culture, cars, food&drink, art and much more besides. Relations with related parties and affiliates The impact of relations with related parties and affiliates on the financial statements are shown in the relative section of these consolidated annual financial statements. As regards the valuation of the equity holdings entered using the net equity method, appropriate adjustments have been made to record the differences between the book value and the net equity share. Equity investments The following details concern the subsidiaries: Class Editori Service Spa: this company, with head offices in Milan, provides administrative, financial, control, subscription management, EDP and technical production services to the publishing house. The company closed 2011 with a pre-tax profit of 81,000 euros (-18,000 net of taxes). Campus Editori Srl: This company, based in Milan, is the publisher and owner of the magazine Campus and Campus Web as well as the local editions of Tutto Università ( Everything University ) in addition to being the organizer of the Salone dello studente in various universities. The subsidiary closed 2011 with a pre-tax profit of 25,000 euros (breaking even net of taxes). PMF News Editori Spa: This subsidiary, which operates as a daily real-time press agency via satellite, and provides online trading services for banks, closed 2011 with a pre-tax profit of 115,000 euros (23,000 net of taxes). Edis Srl: This company, based in Milan, publishes Ladies and broke even in 2011 (-20,000 net of taxes). Lombard Editori Srl: This company, based in Milan, publishes and owns Lombard and closed 2011 with a pre-tax profit of 60,000 Euros (34,000 net of taxes). MF Conference Srl: This company, based in Milan, organizes conventions and conferences and closed 2011 with a pre-tax gain of 91,000 euros (58,000 net of taxes). Milano Finanza Editori Spa: This company, based in Milan, publishes the magazines MF/Milano Finanza, MF Fashion as well as the monthly magazines Patrimoni and Gentleman. The company closed 2011 with a pre-tax profit of 149,000 Euros (-79,000 net of taxes). Milano Finanza Service Srl: This company, based in Milan, operates in the editorial services field and closed 2011 with a pre-tax profit of 187,000 euros (44,000 net of taxes). Page 19

20 Milano Finanza Servizi Editoriali Srl: this company, based in Milan, works in the field of page-setting. The company closed 2011 with a pre-tax profit of 6,000 euros (-6,000 net of taxes). CFN-CNBC Holding BV: This company, based in the Netherlands, holds a controlling interest in Class CNBC Spa and closed 2011 with a profit of 474,000 euros. Classpi - Class Pubblicità Spa: this company, based in Milan, operates as the agent of the publishing house in collecting advertising fees. The company closed 2011 with a pre-tax loss of 880,000 Euros (- 682,000 net of taxes). Class TV Service Srl: The company, based in Milan, produces television and support programmes for the television organizations of the publishing house. The company closed 2011 with a pre-tax profit of 70,000 Euros (23,000 net of taxes). DP Analisi Finanziaria Srl: this company, based in Milan, works in the field of balance sheet analysis and management of financial databases. The company closed 2011 with a pre-tax loss of 15,000 euros (2,000 net of taxes). EX.CO Srl: this company, based in Milan, operates as a daily press agency and closed 2011 with a pretax profit of 14,000 euros (11,000 net of taxes). E-Class Spa: this company, based in Milan, works in the field of satellite and internet transmission of data and financial information, and in the creation of Corporate Television. The company closed 2011 with a pre-tax loss of 1,496,000 euros (-1,175,000 net of taxes). Global Finance Media Inc.: this company, based in New York (USA), owns and publishes the international financial publication Global Finance. It closed 2011 with a profit of 1,686,000 dollars. Class CNBC Spa: this company, based in Milan, was founded with the aim of launching a digital television company of economic and financial information. It closed the period with a pre-tax profit of 408,000 euros (765,000 net of taxes). Radio Classica Srl: this company, based in Milan, was set up in September 2000 with the aim of developing the group s involvement in the radio sector. A national network has been constituted using all the radio broadcasting technological innovations, with a digital signal via satellite and broadcasting via internet. It closed 2011 with a pre-tax loss of 1,029,000 euros (-730,000 net of taxes). MF Dow Jones News Srl: this company, based in Milan, was set up on 23rd December 2002 under a 50% joint venture between Dow Jones and Company Inc. and Class Editori Spa for the production and sale of economic and financial information in the Italian language, in real time. The company closed 2011 with a pre-tax profit of 293,000 euros (175,000 net of taxes). Telesia Spa: this company, based in Rome, works in the field of video communications and closed 2011 with a pre-tax profit of 311,000 Euros (120,000 net of taxes). Classpi Digital Srl: this company, based in Rome, offers advertising agency services for the Telesia Group and closed 2011 with a pre-tax profit of 258,000 euros (159,000 net of taxes). Country Class Editori Srl: this company, based at Milan, works in the publishing field, and publishes the monthly magazine Capital. It closed 2011 with a profit of 28,000 euros (9,000 net of taxes). Fashion Work Business Club Srl: this company, based in Milan, operates in the fashion field, providing organisational and liaison services and publishing its namesake magazine featuring headhunting announcements for the sector. It closed 2011 with a pre-tax result of -5,000 euros (-4,000 after taxes). Page 20

21 Assinform/Dal Cin Editore Srl: this company, based in Pordenone, has published the monthly Assinews since 1989, a magazine covering insurance techniques, law and information, and also publishes the specialized quarterly magazine Rischio Sanità, as well as a series of books all relating to the world of insurance policies. The company closed 2011 with a loss of 21,000 euros. I Love Italia Srl: The company, based in Palermo, currently in start-up, publishes specialized magazines for the tourism sector. Class Meteo Services Srl: The company, based in Milan, was established on 2nd February 2010 and is still in the start-up phase. It will develop products in the sector of meteorological forecasting, to be distributed to the various business channels of the publishing house. It closed 2011 with a pre-tax result of -43,000 euros (-30,000 after taxes). TV Moda Srl: The company, based in Milan, is a television production company, which edits among other things the channel with the same name, broadcast on Number 180 of the Sky platform. Since 2005, TV Moda is the television channel dedicated entirely to the world of Italian fashion and its protagonists. It closed 2011 with a pre-tax loss of 551,000 euros (-401,000 net of taxes). Classint Advertising Srl: The company, based in Milan, was acquired in the second half of It is engaged in the Internet sector and particularly in the management of sites and advertising. It closed 2011 with a pre-tax result of 3,000 euros (breaking even after taxes). Class Servizi Televisivi Srl: The company, established in the second half of 2011 is wholly owned by Class Editori Spa. It is based in Milan and produces television and support programmes for the television organizations of the publishing house. The company closed 2011 with a pre-tax profit of 15,000 euros (5,000 net of taxes). PRIMARY RISKS AND UNCERTAINTIES TO WHICH THE COMPANY IS EXPOSED Risks related to the sector in which the company operates The economic and financial crisis that has affected the western markets, and that was significantly felt in the publishing market, is without doubt the main element of risk for the publishing house whose advertising revenues are still in excess of 40% of the total. The signals from the advertising investment market in the first few months of 2012 still seem to be based on caution. In this situation of uncertainly and risk, the publishing house continued to invest in improving the quality and quality of the means of communication whilst waiting for better and more favourable market conditions in order to obtain returns on its investments. Credit risk in relation to commercial relations with customers Following the write-downs of receivables in the previous year, the publishing house now owns a solid portfolio characterized by primary customers which, at the moment, do not present solvency problems although the collection conditions worsened slightly in the year. The value of receivables booked in the financial statements, in any case, takes into account both the risk of default on payment - by means of opportune write-downs as well as the deferment of the collection over time by means of the relative discounting of cash flows associated with the changed collection times for receivables (time value), in accordance with the requirements of international accounting principles. Page 21

22 Interest rate risks The policy of the Group does not provide for speculative investments in financial products. Despite the situation involving markets with low interest rates, no bank exposure hedging operations were implemented. Resources are obtained from loans granted by the parent company - which are remunerated at normal market conditions as well as from normal business operations. Changes in market interest rates may influence returns on loans as well as the cost of financing, thereby affecting trends in financial proceeds and charges. At this time, considering generally economic recession, the rate curve expressed by the market, and the overall level of interest charges paid by the company, the risk of further rises is limited. Exchange rate risks The publishing house with the exception of activities managed by the American subsidiary Global Finance Inc - operates almost entirely within the Euro area. Transactions settled in currencies other than the Euro are much more limited. There therefore do not seem to be significant exchange rate risks. Liquidity risks Current liquid funds, the currently available credit lines, the publishing house s development plans and the capacity to generate positive cash flows, in addition to the above-mentioned financial policies of the Group, render the risk of not having sufficient financial resources for operational needs more or less inexistent in the context of economic recovery. Implementing investments in derivative instruments is not part of the company s policy; no operations of this type were implemented, neither for hedging nor trading purposes. Disputes in progress Concerning the legal dispute relative to the failure to declare IRPEG for 2001 and 2003 on the part of Class Editori Spa, as notified in the tax assessment notices of the Italian Internal Revenue Service dated 25th September 2006 and 11th December 2006, and for which the Tax Commission of Milan rejected the appeals filed by the publishing house, the company successfully appealed to Regional Tax Commission on 24th January and 23rd February The Ctr recognised the validity of the economic reasons for the operation. Steps are being taken to recover the sums paid by the company following the issue by the Internal Revenue Service of provisional executive payment notices. The amount paid stands at 438,000 euros. During 2005, the Internal Revenue Service of Milan served tax assessment notices to the company Milano Finanza Editori Spa for the fiscal years 2002 and Following the appeal of Milan Finanza, the Provincial Tax Commission of Milan registered, on 17th July 2007, a ruling of first instance in which it partially accepted the appeal of the company and halved the initial taxable values. In the meantime, however, as required by law, 50% of the amount assessed has been entered in the tax rolls. The tax demands were paid in July 2006 for approximately 354,000 euros. The hearing at the Regional Tax Commission (CTR) in Milan was held on 6th July The judgment, which was filed on 11th November 2009, dismissed the Agency s appeal regarding the notice of assessment for the year 2003, while the appeal was partially granted concerning the notice of assessment for Specifically, the Agency s petition regarding point No. 4 of the notice of assessment was granted, that is the failure to book receivable interest (Art. 56 Income Tax Consolidation Act-TUIR), entailing the recovery of the respective taxes in connection with direct taxation for 340, euros. In December 2010, the company, assisted by the Tax Law Firm founded by F. Gallo, presented an appeal to the Supreme Court of Cassation. The date of the hearing has yet to be established. A dispute is currently underway with Inpgi with respect to the companies Class Editori Spa and Milano Finanza Spa (as well as the affiliated company Italia Oggi Editori Erinne Srl); the institute has put forth claims on alleged contribution violations which the company considers groundless. Given the possibility represented by a tax amnesty, an institution introduced regarding disputes with the Journalists Pension Page 22

23 Institute (INPGI), the Publishing House has determined that it would be expedient to make use of that possibility in connection with the disputes resulting from the initial assessments carried out. For this purpose, provisions for risks totalling 400,000 euros were allocated. The dispute regarding the assessments conducted by the INPGI in 2007 continues. The overall amount of the requests is approximately 1.6 million euros. As regards this matter, encouraged by the evaluation of the Ichino-Brugnatelli and Associates law offices, who have been appointed to defend the company, it was not considered necessary to set aside any provisions (including in compliance with IAS standard No. 37). The company Classpi Spa had been served with assessment notices following reports of findings from assessments of the principle concessionaires for the financial years from 2002 to 2007, for alleged nondeductibility of VAT on costs for negotiation rights paid to the Media Centers, as is the practice in the sector. So far the company has won the first instance for all the years, except 2005, the year for which the Regional Tax Commission (CTR) in Milan (Section 1), with sentence no. 191 announced on 7th June 2011 and filed on 7th 2011, unexpectedly rejected the company s appeal. The sentence was no less curious considering the fact that the same Section 1 of the Regional Tax Commission (CTR) in Milan (with the same chairman and judge but different reporting judge) announced on 5th April 2011 a ruling with a favourable sentence to the company concerning 2006 and Reconstructing the events with the defence lawyers leads us to believe that it was a simple mistake of the Commission, caused by the fact that the dispute for 2005 was part of the tax audit for Therefore the discussion took place together with the one concerning many findings relating to this year, generating a certain confusion for the Commission, which dedicated to this issue marginal attention compared to the other much more complex points in question. The outcome on the issue is even more surprising considering the fact that is part of a sentence that overall was in the company s favour. The company will appeal in second instance at the Regional Tax Commission. Worth remembering is that Equitalia-Esatri had already issued a tax notice concerning 50% of the tax rolls (excluding IRES), for a total of 346,000 euros. The tax notice included the findings contained in the tax audit for 2005 and those related to the disputes on negotiation rights for 2005, 2006 and Following the customary rejection of the suspension proposal, an appeal to pay the notice by instalment was lodged. The request was granted at the beginning of To date the company has paid about 221,000 euros, more than due in total. The company obtained from the Internal Revenue Service and Equitalia permission to interrupt the instalment plan and recover the excess payments. An abatement was actually obtained from the Internal Revenue Service. Calculations are underway for the quantification of the amounts to be repaid to the company. On 25th February 2010, the subsidiary Classpi received a notice of assessment following a tax audit conducted by the Revenue Agency for the year The notice of assessment includes IRES/IRAP tax refunds of approximately 2.5 million euros, and VAT refunds of approximately 2 million euros. Various refunds were the result of the failure by Revenue Agency officials to consider the actual situation of the advertising market in general, and the typical evolution of the contracts for exchange of merchandise, in particular since it is inevitable throughout the publishing sector to re-sell materials/services at prices below those at which they were purchased. The principal irregularity relating to the failure to account for revenues regards the lack of re-invoicing to group companies of advertising costs incurred for the promotion of editorial publications. However, those services are governed by intra-group agreements that set specific remuneration for Classpi. On 7th September 2011 sentence no. 191 of the Tax Commission of Milan (Section 1) was filed. Overall the sentence is very favourable, accepting almost all of the company s observations. In general the Provincial Tax Commission proved to be competent in judging the special trends of the advertising market and the operating methods of exchanging goods. The sentence notably redimensioned the initial findings, reducing the refunds to 175,000 euros of taxable income, for a total fiscal effect of 100,000 euros. The company is assessing how to proceed in the tax dispute. In October 2010, a tax assessment began on the 2007 financial statements of Class Editori. The audit ended on 26th November 2010 with the issue of a Tax Audit Report by the Revenue Office of Milan. The disputed items mainly refer to costs posted but not related to the year. The relative taxes can be recovered by submitting a special application. Apart from the above, the other items disputed by the revenue office Page 23