Gruppo Editoriale L Espresso. Società per azioni

Transcription

1 Gruppo Editoriale L Espresso Società per azioni Annual Report 2002

2 Relazione del consiglio di amministrazione Gruppo Editoriale L Espresso Gruppo Editoriale L Espresso Società per azioni Annual Report 2002 (Translation from the original issued in Italian)

3 Gruppo Editoriale L Espresso Contents Report of the Board of Directors 13 Consolidated Financial Statements 26 Notes to the Consolidated Financial Statements 35 Attachments 60 Reclassified Consolidated Financial Statements 68 Revenues, Group personnel, Circulation 72 Report of the Independent Auditors 77 Information on Corporate Governance 81

4 Gruppo Editoriale L Espresso Company Gruppo Editoriale L Espresso Società per Azioni Share Capital Euro ,70 Registered office Rome, Via Po 12 Secondary office Rome, Piazza Indipendenza, 23/c Board of Directors: Chairman Managing Director Directors Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Cristina Busi Giulia Maria Crespi Mozzoni Carlo De Benedetti Rodolfo De Benedetti Pierluigi Ferrero Milvia Fiorani Franco Girard Antonio Grigolini Paolo Mancinelli Gianluigi Melega Alberto Milla Piero Ottone Alberto Piaser Vittorio Ripa di Meana Executive Committee: Board of Statutory Auditors: Chairman Auditors Independent Auditors Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Rodolfo De Benedetti Alberto Piaser Vittorio Bennani Claudio Berliri Federico Gamna Deloitte & Touche Italia SpA

5 Gruppo Editoriale L Espresso Financial Highlights Consolidated financial data (in millions of euro) Revenues Value added Gross operating profit Operating profit Net profit Capital employed (excluding employee severance reserve) Net financial position (93) (61) (111) (63) Shareholders equity Net profit + depreciation Employees 3,095 3,498 3,394 3,250 Ratios Gross operating margin 16.9% 13.2% 14.2% 18.8% Operating margin 11.8% 7.3% 8.0% 12.7% ROCE 19.2% 11.8% 12.3% 21.6% ROE 12.2% 29.8% 0.3% 11.5% Per share data (euro) Operating profit Net profit Net profit + depreciation (in millions) No. of shares Per employee data (in thousands of euro) Revenues Operating profit Net profit

6 Report of the Board of Directors

7 Report of the Board of Directors Gruppo Editoriale L Espresso Report of the Board of Directors The Espresso Group closed the 2002 financial year reporting a consolidated net profit of euro 46.1 million (euro 1.1 million in 2001), on consolidated revenues amounting to euro million (euro million in 2001). Consolidated operating profit amounted to euro million, equal to 12.7% of revenues (as compared with euro 73.7 million in 2001, representing 8% of consolidated revenues). The consolidated net financial position at December 31, 2002 amounted to a total indebtedness of euro 62.9 million, down from a total indebtness of euro million at December 31, The consolidated Shareholders Equity increased from euro million in the previous year, to euro million in Higher profitability was achieved thanks to cost reductions obtained through the further restructuring of Kataweb, cost cuts implemented in all sectors, the decline in the price of paper (one of the few positive external factors in 2002), and to the efforts to contain working capital. With regards to revenues, profits were helped by the full exploitation of the strength and credibility of la Repubblica and L espresso, leading to the success of the la biblioteca di Repubblica (la Repubblica s Library) book series and other editorial and cultural initiatives sold in conjunction with the publications, in addition to the increase in the price of newspapers and magazines (resulting in a limited decline in circulation). The advertising market (representing in 2002 about 55% of the Group s source of revenues) on the contrary did not provide a positive contribution, posting a decline for the second consecutive year. The recession, affecting in particular publishing and radio broadcasting, reported once more a decline in those sectors that had posted the strongest increases in 2000 (telecommunications, finance and publishing). In this context, the Espresso Group strengthened its leadership in newspaper advertising sales (with periodicals lagging behind), increasing its market share. In the radio broadcasting sector, advertising sales of the Group s radio stations, though declining by 5% on 2001, were considerably stronger than the market as a whole that registered a contraction of more than 9%. Internet advertising sales of the Group posted a 60% increase in the last Quarter on the same period in 2001, bringing growth for the year to 5% and confirming the attractiveness of the Group s sites. The success of the la biblioteca di Repubblica sales initiative compensated for the lower advertising revenues, inducing the continuation in 2003 of the publication of Italian and international contemporary literature books. The 52 titles published in 2002 recorded a total circulation of over 25 million books, averaging over 475,000 copies per issue. Books sold with la Repubblica in 2002 represented more than 40% of total narrative books sold on the Italian market in The development of trademarks was pursued with success also at L espresso that continued to publish multimedia and editorial products offered optionally for sale with the magazine. L espresso and la Repubblica offered jointly films on DVD as preliminary testing for the launch in 2003 of the Capolavori del cinema italiano in dvd (Masterpieces of Italian film on DVD) registering a very good initial reception. The Espresso Group confirmed its domestic leadership in newspapers, with a total circulation in 2002 for its 16 local newspapers and la Repubblica of over 1.1 million copies per day. The increase in the newsstand price of newspapers from euro 0.77 to euro 0.88 at the end of 2001, and subsequently, on March 1, 2002, to euro 0.90, had a positive effect on margins, partly offset by a correlated decline in circulation with respects to 2001, widely expected and reversible in the medium term.

8 14 Gruppo Editoriale L Espresso 2002 Report of the Board of Directors Growing out of its start-up phase into a full-fledged Internet company with profit objectives, Kataweb witnessed a change in its revenue structure, adding to its revenues from the provision of web solutions services (representing about half of its sales) and advertising, revenues from the supply of value added services to private individuals and to telephone and Internet operators, that have rapidly reached about one fourth of total sales. The restructuring of the area in view of the new business model continued, leading to a revision of technologies used and a strong reduction in the organization, allowing to reduce by half the operating loss registered in The Group s radio stations maintained their leadership in terms of audience among private radio stations, with almost 7 million listeners for the average day, confirming Radio Deejay as the station with the second largest public after Radio- RaiUno. The new format of the Group s third radio station, formerly Italia Radio, now renamed m2o was launched in Programs are targeted to a young and very young public, exploring new music trends. In 2002 the Group started the design and development of a new rotary press able to print up to 128 color pages, aimed at la Repubblica. In the next months, rotary presses currently in use will be replaced to offer advertisers color pages and formats without limits, creating a clear competitive advantage in view of opportunities offered by the expected recovery of the advertising market. In October 2002, the parent company and subsidiaries Kataweb and Finegil Editoriale formed the Giornale@scuola - Associazione per la diffusione della lettura association, aimed at promoting newspaper reading and Internet use among teenagers. The Repubblica@scuola project offers students the possibility to use the newspaper as a teaching tool and allows them to create, thanks to a new dedicated software, their own on-line school newspaper. In 2002, the project involved 600,000 students in 4,500 Italian schools. Espresso Group consolidated financial data ( million) ch. % Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest income (expense) (7.0) (2.5) Net profit Shareholders Equity Net financial position (111.3) (62.9) Employees 3,394 3,250 Advertising revenues of la Repubblica and its supplements registered an 11.9% decline, due primarily to the mentioned contraction of advertising spending on the part of companies in the telecommunications and finance sectors. Commercial advertising revenues recorded a stronger than average performance. Local newspaper and radio advertising sales declined less than the market average, down respectively by 2.2% and 5%, while L espresso, after a very negative phase at the beginning of the year, closed 2002 reporting an 11.0% decline in advertising revenues, despite 2 fewer issues than in 2001, thanks to a recovery in the last Quarter. Circulation revenues increased by 28.2% on 2001 due to the good performance of la biblioteca di Repubblica and the increase in the price of newspapers, which had however a negative effect on the number of copies sold. La Repubblica recorded a 4.3% decline in circulation, down from 651,000 average copies per issue to 623,000, while local newspaper s circulation declined from 508,000 average copies per day to 491,000, down by 3.4%. Circulation of L espresso declined from 431,000 average copies per issue to 388,000 copies (down 10%). Capital expenditure on plant and equipment was

9 Report of the Board of Directors Gruppo Editoriale L Espresso concentrated on the acquisition of new color rotary presses to enhance the Repubblica Division color capabilities. Total expenditure amounted to euro 48.3 million, of which euro 15.5 million relating to the Repubblica Division, euro 9.2 million to local newspapers, euro 15 million to rotary press equipment, and euro 3.2 million to the radio sector. The strong cash flow generated in the year (euro million) thanks to the good performance of operations and the reduction in working capital, allowed to reduce debt from euro million at December 31, 2001, to euro 62.9 million at December 31, 2002, after net investments amounting to euro 47.0 million, the acquisition of own shares resulting in an outlay of euro 7.5 million, and the payment of euro 36.6 million in dividends. The net financial expenses declined from euro 7.0 million to euro 2.5 million as a result of the reduction in average debt and active treasury management allowing to take advantage of the decline in interest rates. At December 31, 2002, the Group employed 3,250 persons, 144 less than at December 31, 2001, due primarily to the reduction of personnel in the Internet area. Parent company Gruppo Editoriale L Espresso ( million) ch. % Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest income (expense) (9.2) (3.1) Net profit Shareholders Equity Net financial position (168.8) (114.8) Employees Operating results of the Parent company are illustrated in the Operating Review. In this section we comment upon the financial performance of the parent company and the management of its equity investments. Net losses from investments amounted in 2002 to euro 7.1 million, as compared with net revenues of euro 9.6 million in Write-downs and the coverage of losses amounting to euro 25.5 million were partly offset by dividends received, amounting to euro 18.4 million. The investment in Kataweb (euro 20.1 million) was written-down in full to reflect the value of the Shareholders Equity of the company. The net financial expenses declined from euro 9.2 million in 2001 to euro 3.1 million in 2002 due to the reduction in average debt and interest rates, in addition to active treasury management allowing to minimize interest costs of the bond issue. Capital expenditure of the parent company in 2002 amounted to euro 15.6 million and related primarily to rotary presses to enhance color capabilities of the Repubblica Division and investments in network infrastructure and information systems. The cash flow generated in the year, equal to euro

10 16 Gruppo Editoriale L Espresso 2002 Report of the Board of Directors million, more than compensated the net outflow due to capital expenditure (euro 14.3 million), the payment of dividends (euro 36.6 million) and the acquisition of own shares (euro 7.5 million), allowing a reduction in debt, declined from euro million at December 31, 2001, to euro million at December 31, Espresso Division ( million) ch. % Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Includes the share, calculated according to revenues of parent company common costs In addition to the mentioned decline in the advertising revenues, the operating profit of the Espresso Division was negatively affected by lower circulation revenues resulting from the cancellation of 2 issues due to strikes and lower revenues from the sale of products sold optionally with the magazine as compared with The decline in revenues was partly offset by cost cutting measures, by the positive impact of the decision to transfer to the Group the management of newsstand distribution and subscriptions, in addition to the decline in the price of paper. In 2002, the magazine continued to offer products for sale optionally, featuring a variety of initiatives on music CDs, CD-ROMs and books. Among these, initiatives that encountered success with the public included the art book series (an average of 56,000 copies per issue), the multimedia photography course produced by National Geographic (an average of 40,000 copies per issue), and the collection of volumes dedicated to health and food (an average of 58,000 copies per issue). Test sales of films on DVD in cooperation with la Repubblica begun. In 2002 the magazine and the newspaper issued 11 DVDs which were met well by the public. Such activity laid the groundwork for the first issue in 2003 of a collection dedicated to Italian movie classics that is encountering a success above expectations. The choice to introduce products with a high cultural profile on DVD was made, as often in the past, with the aim of exploiting the medium-to-high cultural level of the Group s publications, offering a high quality product at a competitive price. At the beginning of the year, Giulio Anselmi left his position as Publisher in Chief of L espresso. On February 25, 2002, the Board of Directors appointed to the position Daniela Hamaui, formerly responsible for la Repubblica s women magazine. In the second half of the year, the magazine went through a restyling that involved a new graphic design and the reorganization of articles and editorial content. Among the other titles of the Group, Micromega s circulation increased strongly to an average of over 46,000 copies per issue due primarily to the issue on Justice that sold over 81,000 copies. Limes recorded a good performance (an average of 24,000 copies per issue), while Espresso Guides publications, and in particular those of the Guide of Italian Restaurants and Guide of Italian Wines reported good sales. At December 31, 2002, the number of employees amounted to 118 persons, the same number as at December 31, Repubblica Division ( million) ch. % Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Includes the share, calculated according to revenues of parent company common costs

11 Report of the Board of Directors Gruppo Editoriale L Espresso The operating income of the Repubblica Division registered a strong improvement on The positive performance is due to higher circulation revenues generated by the increase in the price of newspapers and the strong performance of the la biblioteca di Repubblica sales initiative, in addition to the decision to cancel free promotional offers, the effort to reduce operating costs and the decline in the price of paper. The performance of the advertising market has already been commented upon in detail. Despite the downturn, demand for color advertising space on the newspaper was in line with 2001 due to the increasing popularity among advertisers of four-color advertising. Music CD issues continued to meet success with the public: the traditional Saturday issue reached an average of 35,000 copies per issue. To promote its reading over the weekend, in July the publication of supplement D-la Repubblica delle Donne was moved from Friday to Saturday. The magazine sold about 412,000 average copies per issue in At December 31, 2002, the number of employees amounted to 692 persons, 7 less than the 699 persons employed at December 31, Relationships with related parties Parent company Gruppo Editoriale L'Espresso SpA holds with its subsidiaries and affiliated companies both trade relationships and relationships involving the provision of services and of operating and financial advice. Among the most important trade relationships are those held with subsidiary A.Manzoni&C., concessionaire for the advertising of L espresso and la Repubblica, those with subsidiary Kataweb for advertising on the Internet and the management of sites, those held with subsidiaries Rotosud and CPS, supplying typeset and printing services, those with subsidiaries Publietas for the editing of weekly supplement D-la Repubblica delle Donne and Edizioni La Repubblica, for the preparation of multimedia products sold in conjunction with L espresso. Gruppo Editoriale L'Espresso SpA manages a current account for transactions within the Group to which most subsidiaries and affiliated companies participate according to individual debit and credit positions. All relationships within the Group are regulated at market rates. Gruppo Editoriale L'Espresso SpA receives in turn from its parent company CIR, services and advice on strategic, administrative, financial and tax matters. The provision of such services from part of the parent company is deemed as preferable to the provision of the same from third parties thanks, among other things, to the wide knowledge and experience CIR has acquired over time on the company and the sector in which Gruppo Editoriale L'Espresso operates. Relationships with companies controlled by the parent company are not relevant.

12 18 Gruppo Editoriale L Espresso 2002 Report of the Board of Directors Relationships between Gruppo Editoriale L Espresso SpA and other Group companies (in thousands of euro) Costs Revenues Financial Financial Receivables Payables Guarantees expense income (*) SUBSIDIARIES Finegil Editoriale 7,537 2,773 (666) 9, ,182 19,320 Editoriale La Nuova Sardegna 2, (596) ,794 - E A G 1, (321) ,084 1,736 Edizioni Nuova Europa - 24 (29) - - 1,068 - Editoriale La Città - 28 (11) Cima Brenta S.E.T.A (52) ,467 1,192 Editoriale FVG (455) 2, ,604 12,830 Elemedia 220 1, , EleTv - 41 (16) Deejay Budapest kft A. Manzoni & C. 5, ,373 (21) ,869 1,826 - Rotosud 26, (15) 3,385 16,603 5,556 5,766 C.P.S. 3, (36) 442-1,851 - Editoriale Publietas 13,720 1,069 (1,789) 1, ,610 - Selpi (86) - 6 2,661 - Edizioni La Repubblica 4, (270) 1,101-12,240 - Somedia 7, (2) 58 2,477 3,224 - Club La Repubblica (31) - 9 1,198 - Kataweb 2,736 3,093 (200) 7 4,966 1,798 - Kataweb News (4) Ksolutions , Esperya , Quadrante , Studio Vit 75 5 (2) Rotocolor (in liquidation) , AFFILIATED Le Scienze (8) PARENT COMPANY CIR 2, (*) including dividends received by the parent company

13 Report of the Board of Directors Gruppo Editoriale L Espresso Activity of main subsidiaries Kataweb Group (consolidated data) ( million) ch. % Revenues % Gross operating profit (27.0) (14.0) +48.0% Operating profit (34.8) (23.7) +31.9% Financial income (expense) 1.3 (0.5) Net profit (50.9) (34.2) Shareholders equity 29.5 (4.7) Net financial position 6.9 (14.7) Employees The Kataweb Group closed 2002 reporting a consolidated gross operating loss of euro 14 million, as compared with a loss of euro 27 million in Consolidated revenues amounted to euro 25.9 million, down from euro 27.1 million in The euro 23.7 million consolidated operating loss (compared with a loss of euro 34.8 million in 2001) was affected by the reduction in the depreciation period of software, with a negative effect of about euro 3 million. Net consolidated losses amounted to euro 34.2 million (against a loss of euro 50.9 million in 2001) and were negatively affected by extraordinary costs totalling euro 8 million recorded as a result of restructuring of the company and its subsidiaries. This performance is the result of cost cutting measures implemented in the year, that include a reduction in personnel, the restructuring of sites, the streamlining of technologies used, the renegotiation of all supply contracts and the abandonment of all activities without clear development prospects. These measures affected the parent company and its subsidiaries active in the web solutions area. Based on a new certified survey carried out by Red Sheriff a company specialized in the appraisal of Internet audiences in January 2003 Kataweb/Espresso Group sites totalled 192 million page views and 4.3 million unique visitors per month. With regards to investments, on April 15, 2002 the sale of the Vivacity business unit for euro 9.7 million to Vivacity SpA, a subsidiary of the Uunicredito Italiano Group, was concluded. Kataweb subsequently purchased 10% of the company for euro 1.5 million. The residual 49% of Ksolutions not already owned by the Group was purchased in July for euro 7.2 million. The partnership with Turner Broadcasting was terminated at the end of November with the sale of the 30% stake held by the Group in CNN Italia. The consolidated net financial position at December 31, 2002 shows a total indebtedness of euro 14.7 million, as compared with a positive balance of euro 6.9 million at the end of 2001, after capital expenditure of euro 3.5 million. Personnel of Internet area companies at the end of December 2002 amounted to 268 persons, 75 less than at December 31, A. Manzoni & C. ( million) ch. % Gross advertising revenues % Net revenues % Gross operating profit n.s. Operating profit 4.6 (0.9) n.s. Interest income (expense) (1.1) (1.0) Net profit 1.7 (1.7) Net financial position (24.9) (25.7) Employees Market outlook According to Nielsen Media Research estimates, in 2002 the advertising market for classic media press, TV, radio, outdoor and cinema declined by 3.5% on the previous year. Advertising revenues for the press as a whole declined by 7.3%,

14 20 Gruppo Editoriale L Espresso 2002 Report of the Board of Directors those of radio stations by 9.1%, while television advertising revenues remained in line with The periodicals segment registers a more marked decline (down 8%), while newspapers posted a 6.9% decline in advertising revenues due to the strong contraction of national advertising (down 11.3%, source: FCP FIEG), partly offset by the mild growth registered by local advertising (up 2.1%). The reduction in advertising spending was stronger in the sectors of finance (down 23%) and telecommunications (down 20%), while the broad sector of widely consumed goods registered a modest growth (up 2.3%). Advertising spending in the fashion industry declined by 9%. Results In this context, Manzoni & C. s gross advertising revenues declined by 9.2% due to the prevalence of newspapers in its portfolio. Efforts to reduce costs and to streamline the company s business units continued. No large customer was acquired while a number of Internet sites and local publications were discontinued, without determining significant changes in sales. The gross operating loss amounts to euro 0.9 million, down from a gross operating profit of euro 4.6 million in 2001 due to the strong contraction of the advertising market. The net indebtedness improved from euro 24.9 million at December 31, 2001, to euro 25.7 million at December 31, At December 31, 2002, personnel amounted to 481 persons, 29 less than at December 31, 2001 due to a partial freeze in turn-over. Local newspapers ( million) ch. % Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest income (expense) Net profit Net financial position Employees 1,313 1,299 The Local Newspapers area includes Finegil Editoriale and its subsidiaries (Editoriale la Nuova Sardegna, Eag, Ene, Editoriale la Città), Cima Brenta and its subsidiary (Seta), Editoriale FVG and its subsidiary (Edigraf). The Espresso Group publishes through its subsidiaries 16 newspapers and a bi-weekly magazine. The Group s newspaper network is the most extensive and established one in Italy, reaching daily a total of 3.2 million readers in 10 Italian Regions. As already mentioned in the first part of the report, the increases in the price of newspapers occurred between the end of 2001 and March 2002 resulted in a significant rise in circulation revenues, though causing a decline in circulation, down to about 491,000 average copies per issue from 508,000 copies in Market shares of the different titles grew however slightly from the previous year. Advertising revenues declined slightly on the previous year, though registering a better performance with respect to the market. The sale of color advertising spaces registered a marked increase, up 13% on This confirms the soundness of the decision to provide all newspapers with fourcolor printing capabilities as also the local advertising market is increasingly oriented towards color advertising.

15 Report of the Board of Directors Gruppo Editoriale L Espresso The gross operating margin increased over the previous year, up from 20.4% to 22.2%, while the operating margin grew from 12.9% to 15.4% of sales thanks to cost reductions and the positive impact of the decline in the price of paper. The marked improvement of the net financial position, growing from positive euro 46.2 million in 2001, to euro 64.9 million in 2002 despite the payment of euro 12.1 million in dividends and capital expenditure amounting to euro 9.9 million, is due to the strong cash flow generated by operations and the containment of working capital. The number of employees declines from 1,313 at December 31, 2001, to 1,299 at December 31, The reduction of 14 employees is due to the sale of subsidiary Artigraficheriva in Elemedia ( million) ch. % Revenues % Gross operating profit % Operating profit % Interest income (expense) (1.6) (0.9) Net profit Net financial position (28.5) (19.6) Employees In 2002 Elemedia confirmed its leadership among private radio broadcasting companies in Italy. Radio Deejay ranks first among private radio broadcasting stations with 5.2 million listeners (average Audiradio estimate for 2002), while Radio Capital reached 1.6 million listeners, up 14% on the previous year. As previously mentioned, the Group s third radio station was renamed m2o and transformed into a wholly musical radio targeted at a young and very young public, with fast programming and seeking new sound trends. During the year Elemedia continued to restructure and streamline its radio broadcasting network, concentrating on the upgrade and integration of its equipment. At December 31, 2002, its radio broadcasting network consisted of 829 broadcasting stations, as compared with 813 at December 31, The development of international operations continued. After the acquisition of Deejay Budapest in 2001, in 2002 the company acquired a 34% share in Czech company Radio Bonton a. s., owner of the Radio Bonton radio station based in Prague. The gross operating profit amounted to euro 17.1 million, as compared with euro 18.8 million in the previous year, representing a decline of euro 1.7 million. The margin on sales was 35.9%, down from 37.7% in The decline in the gross operating profit resulted from a euro 2.4 million decrease in revenues, partly offset by lower personnel costs as a result of a reduction in the number of employees induced by the new format of m2o and the discontinuation of all activities relating to Deejay tv, transferred in June 2001 to subsidiary Eletv. The operating profit amounted to euro 8.6 million (18.1% of sales), as compared to euro 9.9 million (19.8% of sales) in The net indebtedness declined from euro 28.5 million to euro 19.6 million due mainly to the good cash flow generated in the year. The number of employees, including term contracts, declined from 134 persons to 118, due mainly to the mentioned changes relating to m2o. Edizioni La Repubblica The company publishes the Italian edition of National Geographic, and offers multimedia products to other companies of the Espresso Group, in particular multimedia products for resale with L espresso.

16 22 Gruppo Editoriale L Espresso 2002 Report of the Board of Directors In 2002, Edizioni La Repubblica reported revenues of euro 9.6 million, down 3.3% on the previous year due to lower advertising revenues (down 17.4%) and to a decline in the circulation of the magazine, particularly at the newsstand, from an average 145,000 copies in 2001, to 134,000 copies in the current year. Despite the decline in revenues, the conclusion of a number of special promotions involving National Geographic s products (primarily video products and books), and a strong effort to reduce manufacturing and operating costs, allowed the company to achieve a net profit in line with the previous year. The operating profit grew in fact from euro 1.5 million in 2001, to euro 1.6 million, while net profit amounted to euro 1.1 million, unchanged from The net financial position at December 31, 2002 was positive by euro 9.5 million (euro 8.9 million at the end of 2001), while the company employed 19 persons (as compared with 21 at December 31, 2001). CPS The company, active in preparing Espresso Group magazines for printing, closed the year reporting revenues of euro 3.4 million, in line with The operating profit amounted to euro 0.7 million, in line with the previous year as the net profit, equal to euro 0.4 million. The net financial position was positive by euro 1.3 million (unchanged from December 31, 2001), while the number of employees declined from 33 to 32. Rotosud The rotary press center for Espresso Group periodicals reported in 2002 a turnover of euro 26.6 million, up 3.3% on the previous year due to the coming into operation in the second half of 2002 of the fourth rotary press dedicated to the printing of supplement D-la Repubblica delle Donne, partly offsetting lower printing activity caused by the decline in the number of pages of the Group s titles and the decision of la Repubblica to discontinue in 2002 the printing of free promotional material, carried out in 2001 by Rotosud. The operating profit declined from euro 7.6 million to euro 5.2 million due to the strong increase in depreciation charges coinciding with the coming into operation of the new rotary press. Net profit increased instead from euro 3.2 million in 2001 to euro 5.8 million in 2002, benefiting from tax incentives relating to the same investment. The net financial position at December 31, 2002 showed a total indebtedness of euro 21.1 million, as compared with euro 12.3 million at the end of 2001, as a result of capital expenditure amounting to euro 14.8 million made in the year. The number of employees increased from 124 at the end of 2001, to 125 at the end of Somedia The subscription service for L espresso magazine started in the year. Through this operation, Somedia s activities were repositioned, making it the reference point of all direct marketing and customer care activities of the Group s titles. Thanks to the development of the new activities, the company reported revenues of euro 5.4 million, down from euro 5.2 million in the previous year. Despite higher costs incurred by the company in the development of its activities, resulting in higher labor costs, the operating profit was in line with the previous year. The company reported a loss of euro 1 million, due almost entirely to the negative performance of distance training activities. Somedia closes 2002 reporting a net loss of euro 1.1 million, slightly higher than the euro 1 million loss reported in the previous year.

17 Report of the Board of Directors Gruppo Editoriale L Espresso At December 31, 2002, the net financial position showed a net indebtedness of euro 1 million, as compared with euro 1.2 million in In the same period, the number of employees increased by 2, reaching 18 at December 31, Own shares held by the parent company at December 31, 2002, amounting to 2,500,000, represent 0.58% of the company s share capital. Subsequent events and management expectations of operations The advertising market continues to be weak, while publishing companies benefit from the decline in paper prices registered in the first months of La biblioteca di Repubblica continues to perform well, while the launch of the new I capolavori del cinema italiano in dvd series had positive results, in line with other multimedia products sold optionally in conjunction with the Group s titles. In order to reorganize its structure and streamline the management of operations and of decisional processes, in 2003 the Group plans to merge into the parent company wholly-owned subsidiaries Edizioni la Repubblica, Editoriale Publietas and Club la Repubblica, all operating in the publishing sector and deriving a consistent part of their revenues from services supplied to the parent company. Allocation of net profit for the year ended december 31, 2002 The Financial Statements of Gruppo Editoriale L Espresso SpA that we submit to your approval close reporting a net profit of euro 49,874, We propose to allocate the full amount of net profit (having the Legal Reserve already reached an amount equal to 20% of the share capital), as follows: euro 42,756, to ordinary dividends to be assigned to shareholders in a ratio of euro 0.10 for each of the 427,560,538 shares (keeping into account the 3,100,000 own shares held by the Company) that make up the share capital, with rights accruing January 1, 2002, for which shareholders will be entitled to a full tax credit pursuant to article 14 and 105, 1st comma, paragraph a) of Presidential Decree no. 917/86, to be paid on April 25, 2003 against presentation of coupon no. 6 on April 22, 2003; euro 7,118, to voluntary reserve. The proposed allocation of net profit keeps into account the provisions of article 2357 ter., 2nd comma of the Italian Civil Code, providing for dividends accrued by own shares to be distributed proportionally to other shares.

18 Consolidated Financial Statements at december 31, 2002

19 26 Gruppo Editoriale L Espresso 2002 Consolidated Financial Statements Consolidated Balance Sheet in thousands of euro ASSETS Dec. 31, 2001 Dec. 31, 2002 A - Receivable from Shareholders - - B - Fixed assets I. Intangible assets Incorporation and startup costs Research, development and advertising costs Industrial patents and intellectual property rights 1, Concessions, licenses and trademarks 8,731 4,695 Goodwill on titles 295, ,700 Consolidation differences 30,120 28,344 Goodwill on other assets 35,753 31,144 Work in progress and advances 9,274 1,257 Capital improvements on leased assets 5,316 3,739 Other 3,476 3,016 TOTAL INTANGIBLE ASSETS 390, ,554 II. Tangible assets Land and buildings 27,293 29,478 Plant and equipment 62,968 73,268 Technical equipment Other assets 18,597 15,613 Work in progress and advances 19,983 17,897 TOTAL TANGIBLE ASSETS 129, ,599 III. Financial assets Investments 28,249 26,446 Receivables short-term 202 1,669 long-term 5,999 5,422 Other fixed assets 4,993 4,993 Own shares 2,812 8,231 TOTAL FINANCIAL ASSETS 42,255 46,761 TOTAL FIXED ASSETS 561, ,914

20 Consolidated Financial Statements Gruppo Editoriale L Espresso Consolidated Balance Sheet in thousands of euro ASSETS Dec. 31, 2001 Dec. 31, 2002 C - Current assets I. Inventories Raw materials and merchandise 32,161 27,465 Work in progress, semi-finished and finished products 1,248 1,644 Contract work in progress 1,318 4,537 TOTAL INVENTORIES 34,727 33,646 II. Receivables Trade receivables short-term 252, ,243 Affiliated companies short-term Contributions receivable short-term 1,443 2,593 Other receivables short-term 44,791 47,508 long-term 1,349 4,688 TOTAL RECEIVABLES 300, ,057 III. Marketable securities Investments 1 1 Securities 85, ,414 Financial assets - - TOTAL MARKETABLE SECURITIES 85, ,415 IV. Cash and cash equivalents Banks 43,511 23,269 Cheques Cash TOTAL CASH AND CASH EQUIVALENTS 44,134 23,650 TOTAL CURRENT ASSETS 464, ,768 D- Accrued income and prepaid expenses Accrued income 5,971 6,869 Prepaid expenses 10,557 10,890 TOTAL ACCRUED INCOME AND PREPAID EXPENSES 16,528 17,759 TOTAL ASSETS 1,042,164 1,049,441

21 28 Gruppo Editoriale L Espresso 2002 Consolidated Financial Statements Consolidated Balance Sheet in thousands of euro LIABILITIES Dec. 31, 2001 Dec. 31, 2002 A - Shareholders equity I. Share capital 64,594 64,599 II. Share premium reserve 124, ,900 III. Restatement reserve 2,789 2,789 IV. Legal reserve 12,919 12,920 V. Reserve for own shares 2,812 8,231 VI. Statutory reserve - - VII. Other reserves 183, ,356 VIII. Profit (loss) carried forward - - IX. Profit (loss) 1,075 46,093 CONSOLIDATED SHAREHOLDERS EQUITY 392, ,888 Minority interests 11,218 9,679 CONSOLIDATED SHAREHOLDERS EQUITY AND MINORITY INTERESTS 403, ,567 B - Provisions for risks and charges Provision for retirement benefits 6,605 7,227 Deferred taxes 8,254 7,648 Other reserves 18,555 24,204 TOTAL PROVISIONS FOR RISKS AND CHARGES 33,414 39,079 C - Employee severance reserve 80,358 85,416

22 Consolidated Financial Statements Gruppo Editoriale L Espresso Consolidated Balance Sheet in thousands of euro LIABILITIES Dec. 31, 2001 Dec. 31, 2002 D - Payables Bonds 200, ,000 Banks short-term 18,802 10,335 long-term 34,555 38,576 Other financial institutions short-term long-term 58 3 Advances short-term 1,987 1,255 Trade payables short-term 174, ,565 Affiliated companies short-term Taxes payable short-term 24,443 33,490 Health and social security institutions short-term 12,714 12,975 Other payables short-term 33,336 27,067 TOTAL PAYABLES 501, ,659 E - Accrued liabilities and deferred income 23,670 30,720 TOTAL LIABILITIES 1,042,164 1,049,441 Memorandum accounts Guarantees 1,981 2,618 Other commitments 34,244 26,216

23 30 Gruppo Editoriale L Espresso 2002 Consolidated Financial Statements Consolidated Income Statement in thousands of euro A - Production value Revenues from sales and services 923, ,654 Change in work in progress, semi-finished and finished goods inventories (882) 404 Change in contract work in progress 884 3,220 Increase in self-developed capital improvements 9,567 3,025 Contributions received 246 3,909 Other 17,764 12,707 TOTAL PRODUCTION VALUE 950, ,919 B - Production costs Raw materials, auxiliaries and goods 166, ,419 Services 348, ,382 Leases and rentals 42,314 55,233 Personnel - Wages and salaries 170, ,085 - Social security contributions 52,092 53,131 - Employee severance 14,000 14,391 - Retirement benefits 1, Other costs 7,239 5,384 Depreciation and write-downs - Amortization of intangible assets 27,092 27,621 - Depreciation of tangible assets 29,911 30,749 - Write-down of intangible assets 13,735 2,138 - Write-down of tangible assets - 1,993 - Write-down of current assets 3,097 2,875 Change in inventories (4,400) 4,653 Provisions for risks and charges 7,731 6,134 Other provisions - - Sundry operating costs 8,929 8,342 TOTAL PRODUCTION COSTS 889, ,512 DIFFERENCE BETWEEN PRODUCTION VALUE AND PRODUCTION COSTS 61, ,407

24 Consolidated Financial Statements Gruppo Editoriale L Espresso Consolidated Income Statement in thousands of euro C - Financial income and charges Income from investments Dividends - 43 Other financial income From long-term receivables From securities and other financial assets 3,890 5,285 Other financial income From other parties 6,165 10,408 Interest and other financial charges Payable to third parties (17,124) (18,260) TOTAL FINANCIAL INCOME AND CHARGES (6,995) (2,453) D - Adjustments to the value of financial assets Revaluations of investments Write-downs of investments (3,000) (5,298) of other long-term financial assets (2,091) (2,050) TOTAL ADJUSTMENTS (4,288) (6,623) E - Extraordinary items Profits Gains on disposal of assets 1, Other income 3,202 2,017 Charges Other charges (5,050) (7,709) TOTAL EXTRAORDINARY ITEMS (763) (5,614) Profit before taxes 49, ,717 Taxes payable: current (51,963) (70,214) deferred 419 7,298 Profit before minority interests (1,888) 44,801 Minority interests 2,963 1,292 NET PROFIT 1,075 46,093

25 Notes to the Consolidated Financial Statements

26 Notes to the Consolidated Financial Statements Gruppo Editoriale L Espresso Notes to the Consolidated Financial Statements Principles of consolidation The consolidated financial statements include accounting data at December 31, 2002 of Gruppo Editoriale L Espresso SpA, the Group parent company, and the companies in which it holds, either directly or indirectly, a majority share (higher than 50%) of voting rights. Subsidiaries under liquidation were recorded at cost. Other investments are recorded at equity or cost, as described more in detail in the paragraphs that follow. The financial statements are presented in accordance with the format provided for by the Italian Civil Code. To allow more clarity in the exposure of the Balance Sheet and Income Statement, numerals have been omitted, while entries with a zero balance in the two years under consideration have not been reported. In the notes to the accounts, amounts are expressed in thousands of euro, as relevant. To provide a more complete information and clearer understanding of the financial statements, a reclassified Balance Sheet and Income Statement have been enclosed, in addition to a Statement of Cash Flows and a Statement of Changes in the Consolidated Shareholders Equity. Financial data of subsidiaries relate to amounts contained in the respective companies statutory accounts, prepared according to current applicable regulations by the boards of directors of individual companies. A reconciliation between net profit and shareholders equity of the parent company and consolidated net profit and shareholders equity is provided in the table below: The Balance Sheet and Income Statement have been prepared in thousands of euro, with no decimals. Shareholders Equity Net profit at December 31, Balance in the parent company s accounts 37,074 49, , ,342 Elimination of dividends from subsidiaries (17,014) (22,745) Shareholders Equity and net income of consolidated subsidiaries (37,093) (9,361) 330, ,100 Elimination of consolidated subsidiaries book value 32,372 33,674 (342,072) (315,433) Goodwill on titles and consolidation differences (17,257) (2,768) 68,903 66,107 Subsidiaries valued on equity (452) (962) 24,684 21,934 Elimination of tax related items 2,062 (1,158) 12,485 11,132 Other consolidation differences 1,383 (462) (194) (294) Balance in the consolidated accounts 1,075 46, , ,888

27 36 Gruppo Editoriale L Espresso 2002 Notes to the Consolidated Financial Statements Area of consolidation A list of companies included in the consolidation area is enclosed in the financial statements as Attachment 4. Main events occurred in 2002 were the following: Change in ownership share On February 1, 2002, the share held in Studio Vit was increased to 100% through the acquisition of a residual 30% share, after covering losses reported in the 2001 financial year. On March 28, 2002, the share held in Sias was increased to 100% through the acquisition of a residual 30% share, after covering losses reported in the 2001 financial year. The merger of the company into Ksolutions was resolved on May 22, Exit from the consolidation area Below we discuss the main changes occurred in the year: Sale of companies Artigraficheriva, a wholly-owned subsidiary of Edigraf Srl consolidated line-by-line in 2001 was sold on August 9, Liquidation On March 28, 2002, the share held in Cellularmania.com was increased to 100% through the acquisition of a residual 30% share, after covering losses reported in the 2001 financial year. Subsequently, the company, consolidated in the financial statements at December 31, 2001, was put in liquidation and is therefore excluded from the consolidation area at December 31, Consolidation principles Main consolidation principles adopted were: the value of investments held by the parent company and other companies included in the consolidation was netted against the relating portion of Shareholders Equity of the consolidated company, according to the line-by-line method. The premium paid over the value of the shareholders equity acquired at the time of the acquisition is recorded as merger difference or, in case of publishing companies, to the goodwill of titles up to their fair market value, the difference being recorded as consolidation difference; debits and credits, costs and revenues and all relevant transactions among consolidated companies have been eliminated; minority interests in consolidated companies are recorded in a specific item under liabilities, while the relating share in the net profit of such companies is reported separately in the consolidated income statement; the underwriting of capital increases of consolidated companies or companies valued on equity carried out through the issue of new shares can determine, in the case of minority interests, a change in the share of ownership held by the Group s parent company. In case of a reduction in the ownership share and where the transaction can be considered as a sale, the resulting economic effect is debited or credited to the consolidated income statement. In case of an increase in the share, the resulting economic effect is recorded as a consolidation difference; tax entries, such as accelerated depreciation and capital gains reinvested pursuant to articles 54 of Presidential Decree no. 597/73, are eliminated in the consolidated financial statements; financial statements expressed in foreign currencies are converted at current exchange rates, converting individual asset and liability items at the exchange rate at the closing date of the financial statements. Shareholders Equity items are converted at the historical exchange rate and income statement items at the average exchange rate for the period. Exchange rate differences a

28 Notes to the Consolidated Financial Statements Gruppo Editoriale L Espresso rising from the conversion are recorded under Other Shareholders Equity reserves. Valuation criteria Intangible assets Intangible assets are recorded at the acquisition or production cost, inclusive of any auxiliary cost. They are depreciated over their expected useful economic life. The item includes goodwill on titles, corresponding to the premium paid on the acquisition of the titles relating to the share in the Shareholders Equity acquired at the date of the purchase, attributed to titles up to their fair market value. Titles are depreciated over a period of 40 years from their acquisition, according to their nature and residual useful life. Such term is periodically reviewed in light of the expected future economic performance of subsidiaries. The item includes also the consolidation difference between the cost of the acquisition of subsidiaries and affiliated companies and the share in the Shareholders Equity acquired, not attributable to specific asset and liability items of the company to which it relates. Consolidation differences are amortized over 10 years from the date of acquisition, according to the estimated residual useful life. In case such differences relate to titles, they are amortized over 40 years, as described further on. Costs incurred in the startup of activities in the Internet sector relating to specific projects are amortized over three years, in line with prudent criteria and in accordance with the expected term for the retrieval of costs. In case, therefore, during the amortization period an investment reaches its full operation stage or the possibility of retrieving costs incurred ceases to exist, the unamortized portion is charged to the income statement in the year in which such event occurs. Tangible assets Tangible assets are recorded at cost, adjusted upwards in the case of some assets according to the provisions of Law no. 72, March 19, 1983, Law no. 413, December 31, 1991 and Law no. 342, November 21, Depreciation is calculated on a straight line, according to the rates shown in the table that follows, deemed representative of the residual useful life of the assets and in line with ordinary depreciation rates: Buildings 3% Plant, machinery and equipment 10% - 20% Furniture, office equipment and vehicles 12% - 25% Depreciation rates of assets acquired during the year are reduced by half. Assets whose value is less than euro are expensed in the year in which they are acquired. In case of a durable loss in value, the asset is written down accordingly. Where such loss in value is reversed in subsequent years, the original value of the asset is restored, net of accumulated depreciation. Equity investments Investments in unconsolidated companies, on which the parent company exercises either directly or indirectly (generally with an ownership share between 20% and 50%) significant influence, are valued at equity. Other investments (generally held with a share below 20%) are recorded at cost, written down where appropriate to keep into account permanent loss in value. The original value is restored in subsequent fiscal years in case of a reversal. Not operational subsidiaries, whose accounts are not relevant, are excluded from the consolidation and valued at cost. Long-term investments Long-term investments are recorded at cost, adjusted where necessary in case a permanent loss in value is assessed.