Gruppo Editoriale L Espresso Società per azioni

Transcription

1 Gruppo Editoriale L Espresso Società per azioni Report on the first half of 2005 (Translation from the original issued in Italian)

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3 CONTENTS Financial Highlights page 7 Report of the Board of Directors on the first six months of 2005 Adoption of international financial reporting standards page 11 Operating performance and consolidated results at June 30, 2005 page 12 Results by area page 14 Subsequent events and outlook page 20 Consolidated balance sheet and income statements results at June 30, 2005 page 21 Results of parent company Gruppo Editoriale L Espresso SpA page 28 Interim Financial Statements at June 30, 2005 Balance Sheet page 34 Income Statement page 35 Statement of Cash Flows page 36 Statement of Changes in the Shareholders Equity page 37 Notes page 41 Attachments page 85 Financial Statements of parent company Gruppo Editoriale L Espresso SpA at June 30, 2005 Balance Sheet page 98 Income Statement page 99 Statement of Cash Flows page 100 Statement of Changes in the Shareholders Equity page 101 Reclassified key financial information of subsidiaries page 105 Auditors Report page 109 Transition to IFRS Foreword page 113 Opening Balance Sheet page 114 Effect of the adoption of IFRS page 116 Auditors Report on the IFRS reconciliation schedules page 131

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5 Company Gruppo Editoriale L Espresso Società per Azioni Share Capital Euro 65,003, Tax ID and Rome Company Register no VAT no Registered office Rome, Via Cristoforo Colombo, 149 Secondary office Rome, Via Cristoforo Colombo, 90 Board of Directors: Chairman Managing Director Directors Executive Committee: Board of Statutory Auditors: Chairman Auditors Independent Auditors Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Cristina Busi Giulia Maria Crespi Mozzoni Carlo De Benedetti Rodolfo De Benedetti Francesco Dini Pierluigi Ferrero Milvia Fiorani Franco Girard Paolo Mancinelli Gianluigi Melega Alberto Milla Piero Ottone Alberto Piaser Vittorio Ripa di Meana Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Rodolfo De Benedetti Alberto Piaser Vittorio Bennani Claudio Berliri Federico Gamna PricewaterhouseCoopers SpA

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7 GRUPPO ESPRESSO FINANCIAL HIGHLIGHTS CONSOLIDATED OPERATING DATA ( million) st Half st Half 2005 Revenues 1, Gross operating profit Operating profit Pre-tax profit Net profit FINANCIAL DATA ( million) Jan. 1, 2005 June 30, 2004 June 30, 2005 Net capital employed Shareholders' Equity (Group and minority interests) Group Shareholders' Equity Minority interests Net financial position (141) (174) (256) Dividends distributed (47) (47) (56) PERSONNEL st Half st Half 2005 Employees at period-end 3,271 3,184 3,409 Average no. of employees 3,204 3,181 3,386 RATIOS st Half st Half 2005 ROS 17.8% 18.5% 18.7% ROCE 30.2% 15.9% 14.1% ROE 20.0% 11.4% 11.0% 7

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9 Report of the Board of Directors

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12 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 REPORT OF THE BOARD OF DIRECTORS ON THE FIRST SIX MONTHS OF 2005 ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Starting with the Interim Financial Statements at June 30, 2005 the Espresso Group adopted international financial reporting standard (IFRS) in the preparation of its financial statements. From 2005, the Law requires all companies listed in a European regulated market to prepare their year-end consolidated financial statements under IFRS. The Group chose to adopt IFRS also in the preparation of the statutory accounts of the parent company and its subsidiaries at the same date. To allow a like-for-like comparison with figures for the previous, the balance sheets at January 1, 2004, at June 30, 2004 and at December 31, 2004 were restated under IFRS. Independent auditors PricewaterhouseCoopers SpA issued an Audit Report certifying the correctness of figures reported. The adoption of IFRS has had a positive impact on the results of the Group. The most relevant one is represented by the book value of titles and radio and television frequencies, that are no longer amortized but subject annually to an impairment test. In the opening Balance Sheet at January 1, 2004, the historical cost of such items was restored and accumulated amortization was reversed, resulting in an increase in the Shareholders Equity. The table below shows the main effect of the adoption of IFRS on the Financial Statements at December 31, Italian GAAP 2004 IFRS Sales 1, ,080.3 Operating profit Pre-tax profit Net profit Shareholders Equity * Net financial position (131.1) (141.4) * * Figures are at January 1,

13 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 OPERATING PERFORMANCE AND CONSOLIDATED RESULTS AT JUNE 30, 2005 The Espresso Group closed the first six months of 2005 reporting a consolidated net profit of 54.8 million, up from 52.4 million in the first six months of In the same period, consolidated revenues grew by 3.9% from million to million. Consolidated operating profit also grew from million in the first half of 2004 (18.5% of sales) to million in the first six months of 2005 (18.7% of sales). The consolidated net financial position at June 30, 2005 was equal to an indebtedness of million, up from a net indebtedness of million at January 1, 2005 due primarily to the disbursement of 110 million for the purchase of the Rete A SpA television network. Consolidated Shareholders Equity increased from million at January 1, 2005, to million at June 30, Trends registered in the last months of 2004 were confirmed in the first six months of the year. Advertising revenues grew by 6.7% (up 5.3% on a comparable basis and not including advertising sales for third parties) on the same period in the previous year, with the Group s media registering an increase above the average for the market. Growth was stronger in the second quarter than in the first. Advertising sales benefited primarily from the introduction of full color printing by la Repubblica (with national commercial and local advertising revenues up 7.4%) and stronger advertising sales of the Group s radio stations (up 11.2%) and Internet sites (up 33.4%). The sale of products sold optionally with the Group s publications met growing success, not only in the case of products sold in conjunction with la Repubblica and L espresso, but also those distributed with local newspapers. Over 16 million of books, DVDs and music CDs were sold, with revenues growing from million to million. Results of national commercial TV network Rete A All Music were consolidated from April After the conclusion of the acquisition, on April 14, 2005, the Group made investments in the development of a digital terrestrial television broadcasting network and the upgrade of the existing analogue broadcasting network, while a new corporate structure was put in place. The next few months will be dedicated to the reshuffle of the programs and the strengthening of the image of the network, which will continue to focus on music and programming for a young audience, while synergies with other Group media are being sought. From 2006, advertising sales will be managed by a specific sales network within A.Manzoni&C., the Group s advertising concessionaire. In the first half of 2005, RepubblicaRadio started broadcasting solely on the Internet, becoming in a few months an online information reference point. RepubblicaRadio 12

14 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 broadcasts three hours of live programs, and users can listen to or download in MP3 format sections of any of its programs throughout the day. Circulation of Group newspapers was substantially stable in the first six months of the year. La Repubblica sold an average of 617 thousand copies per issue, local newspapers an average of 471 thousand and L espresso an average of 416 thousand copies per week. The number of readers registered instead an increase: in the last market poll carried out by Audipress (2005/I Edition), la Repubblica continued to rank first in terms of readers among information newspapers in Italy, with an average of close to 3 million daily readers, while L espresso exceeded 2.3 million readers per issue and local newspapers registered an average of 3.1 million daily readers. The Group s radio stations continue to have the largest audience in Italy with 22.4 million listeners per week and 8.7 million in the average day. Audiradio figures for the first half of 2005 show the consolidation of the leadership of Radio Deejay which, with an average weekly listenership of 13.4 million (up from 12.1 million in the first six months of 2004), confirmed its ranking as the radio station with the largest weekly audience, ahead of Rai Radio Uno. In the average day Radio Deejay is still the first among the private radio stations with 5.7 million listeners. Both Radio Capital - with 6.3 million listeners per week and nearly 2 million listeners in the average day - and m2o with over 1 million in the average day have consolidated their positions. Internet site Repubblica.it maintained its leadership position among domestic information sites with an average of 170 million page views and 3.9 million unique users (over 400 thousand readers per day). Overall, the Kataweb/Gruppo Espresso internet site network exceeded in June 6.5 million unique users and million page views. At June 30, 2005, the Group employed 3,409 persons, including personnel under term contracts, 138 more than the 3,271 it employed at the end of Such increase is due to the inclusion of personnel of newly acquired Rete A and the insurcing of Padua s and Rome s (Rotocolor) printing centers, still carried out by third parties in the first six months of

15 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 RESULTS BY AREA National newspapers 1st Half st Half 2005 % change Revenues % Operating and personnel costs (216.1) (219.1) -1.4% Gross operating profit % Depreciation, amortization and write-downs (6.5) (6.6) -0.8% Operating profit % Employees Figures for the division include the share in revenues and costs that may not be attributed to a specific activity The sale of publications and products in conjunction with la Repubblica continued through sales initiatives that allowed to achieve higher margins than those registered in the first six months of the previous years. The continuation of the book series launched in 2004 and new series launched in the year, sold a total of 10.7 million copies, as compared with 12.5 million copies in the first six months of 2004, which were however positively affected by sales of l Enciclopedia di Repubblica that alone sold over 4.5 million copies. Among the most successful initiatives in the first six months of the year were Le Guide d Italia tourist guide series and Le Religioni series which sold respectively over 175 thousand and 115 thousand copies on average per issue, while the comics book series, by now at its 40 th issue, sold an average of about 80 thousand copies per issue. The success of add-on products was accompanied by an increase in advertising revenues favored primarily by the recovery of national commercial advertising. Many printed press advertisers, particularly in the automobile and finance sector, attracted by the stronger availability of color advertising space and formats, resumed campaigns on la Repubblica. In the first six months of 2005, la Repubblica refined its graphic design as a result of the introduction of full color and launched two inserts, l Almanacco dei libri and la Domenica di Repubblica, that were very well received by the public. Thanks to the growth in advertising sales and margins achieved on products sold optionally with publications, operating profit grew from 53 million in the first six months of 2004, to 55.3 million in the same period in 2005, while the operating margin on sales increased from 19.2% to 19.7%. 14

16 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Periodicals 1 st Half st Half 2005 % change Revenues % Operating and personnel costs (46.2) (62.6) -35.6% Gross operating profit % Depreciation, amortization and write-downs (0.4) (0.4) -1.6% Operating profit % Employees Figures for the division include the share in revenues and costs that may not be attributed to a specific activity The Periodicals area includes weekly magazine L espresso, by-monthly magazine TvMagazine, the two monthly magazines National Geographic and Le Scienze, the two quarterly magazines Limes and Micromega, and L espresso Guide Books. In the first six months of the year, L espresso, also thanks to the multimedia products packaged with the magazine, sold a total of 4.1 million copies, registering at the same time an improvement in profit margins through pricing policies and careful management of production costs and returns. The first six months of the year benefited in particular from the success of Stanley Kubrick s DVD series (with sales averaging 75 thousand copies per issue) and the English language course (with average sales in excess of 45 thousand copies per issue). Other publications gave a positive contribution to results for the first half of the year, with circulation and margins in line with the same period in Monthly magazine National Geographic sold an average of thousand copies per issue, generating a profit of 0.9 million. Among periodicals of affiliate Le Scienze SpA, Mente & Cervello reached average sales of 20.4 thousand copies per issue, while sales of monthly magazine Le Scienze averaged 64.5 thousand copies per issue. A new bi-weekly magazine, TvMagazine, dedicated to TV programming and offering a guide to TV programs for the two weeks following its publication, was launched on January 10. Three other competing magazines were launched in the same period, making the sector of TV magazines all the more competitive. Circulation of TvMagazine averaged in any case 197 thousand copies per issue. The investment in the campaign for the launch of TvMagazine affected the operating profit that declined by 20.9% on the same period in the previous year from 9 million to 7.1 million. The improvement in the profit generated by add-on products, accompanied by the 15

17 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 increase in advertising revenues, the good level of circulation and a careful monitoring of subscription management costs (subscriber lists, promotional materials, etc.) allowed to maintain profit margins of the area high: the operating margin was equal to 10.2%. Local newspapers 1 st Half st Half 2005 % change Revenues % Operating and personnel costs (96.5) (101.5) -5.2% Gross operating profit % Depreciation, amortization and write-downs (5.6) (7.4) -30.7% Operating profit % Employees 1,290 1,318 The area includes all local publications published by the Group, consisting in 16 newspapers and a bi-weekly magazine. In the first six months of the year, circulation declined by 1% on the same period in the previous year, to an average of 471 thousand copies per issue. Newspapers La Nuova Sardegna and Le Gazzette encountered some difficulties due to the launch of competing papers in the respective areas, while circulation of Veneto area newspapers grew by 3.4%. The decline in circulation was offset by the success of add-on products. In developing sales initiatives the Group aimed at enhancing local history and traditions while at the same time offering products involving the largest possible number of publications. Following this policy, two regional series Il Friuli Venezia Giulia in cucina and La Grande Musica della Sardegna were launched together with two other series of books, L Enciclopedia universale and La Grande Storia della Canzone Italiana that provide for the participation in subsequent phases of all local newspapers. Sales for the first six months of the year were close to 1 million copies. Advertising revenues for the first half of the year fluctuated widely, growing in the first three months of the year while declining in the second quarter. The sale of color advertising spaces grew instead steadily throughout the period, up 23% on the first six months in the previous year. From April 1, all production processes of the Padua plant, in charge of printing newspapers Il Mattino di Padova, Tribuna di Treviso and La Nuova di Venezia e Mestre in addition to the copies of la Repubblica distributed in the Veneto area, are managed 16

18 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 directly. The direct management of production processes resulted in a different cost structure as compared to the previous year, with a decline in printing costs and an increase in personnel cost due to the hiring of personnel formerly employed with the cooperative that was in charge of printing in the past. Such change is expected to produce an improvement in production efficiency and in the saving of production cost. Radio stations 1 st Half st Half 2005 % change Revenues % Operating and personnel costs (17.2) (18.4) -7.3% Gross operating profit % Depreciation, amortization and write-downs (1.7) (1.5) +12.9% Operating profit % Employees Radio broadcasting activities are grouped under subsidiary Elemedia, holder of the broadcasting licences for Radio Deejay, Radio Capital and m2o and owner of two radio broadcasting companies in Eastern Europe, Radio Bonton a.s., broadcasting through radio station Radio Deejay Prague, and Radio Deejay Kft., broadcasting through Radio Deejay Budapest. In the first half of 2005 the radio sector continues to represent one of the most profitable areas for the Group. Operating profit increased by 19.1% on the first half of 2004, growing from 14.8 million to 17.6 million, while operating margin was close to 47%. All three radio stations are steadily gaining audience and Radio Deejay has become the reference point for the market both in terms of programming and personalities working in its programs. Advertising revenues continue to grow (up 11.2% on the first half of 2004) despite the fact that advertising for the radio sector registered a 3.5% contraction in the first months of 2005, while costs remain stable thanks to ongoing efforts to improve efficiency. To maintain a high quality standard in radio broadcasting, investments were made on plant and equipment, renovating recording studios and introducing signal monitoring equipment in a large part of the 846 broadcasting plants nationwide. In line with the strategy followed in the past two years to promote publishing initiatives under the trademark of the three radios at newsstands and specialized stores, 2 music CDs and one video CD bearing a double audio and DVD track were published under the m2o 17

19 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 trademark. Sales exceeded 122 thousand copies and the compilations reached top rankings. The Radio Deejay internet site, that contributed to role in the success of the radio station, was completely renovated in February. In June, unique users of the site approached 500 thousand, while page views were 8 million. Internet site m2o.it also registered a steady growth and is set to pass the 100 thousand unique user per month mark. Results achieved in the first half of the year by foreign radio stations were in line with the same period in the previous year. Czech company Radio Bonton a.s. reported an operating breakeven, while Hungarian company Radio Deejay Kft reported an operating loss of 0.5 million. Internet 1 st Half st Half 2005 % change Revenues % Operating and personnel costs (7.8) (6.4) +17.4% Gross operating profit/(loss) (1.1) (0.2) +78.4% Depreciation, amortization and write-downs (0.4) (0.2) +56.2% Operating profit/(loss) (1.4) (0.4) +72.4% Employees The Internet area includes the activities of Kataweb that, in addition to managing the portal bearing the same name, acts as service provider and supplies contents for all online activities of the Espresso Group. In the first six months of 2005 the company continued to streamline costs and services, reducing further its operating loss, now close to zero. Among activities carried out, Kataweb contributed to the renewal of the Repubblica.it and Deejay.it sites, the start of broadcasting of RadioRepubblica on the web and the launch of il Passaporto, the new online magazine aimed at immigrants. In the second half of the year, a new portal dedicated to classified ads for all Group publications will be launched. 18

20 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Television 1 st Half st Half 2005 % change Revenues n.s. Operating and personnel costs (0.5) (3.8) n.s. Gross operating profit n.s. Depreciation, amortization and write-downs (0.1) (0.6) n.s. Operating profit n.s. Employees n.s. Television network Rete A and its subsidiary All Music were included in the consolidation from April 1, In the second quarter the two companies reported revenues of 5.7 million and an operating profit of 1.6 million (representing a 27.4% margin on sales). The operating performance of the network and plans for the next months were discussed in the first part of the present report to which we refer for further information. In the first half of 2005, subsidiary Ele Tv, broadcaster of satellite channel Deejay Tv, reported revenues of 0.7 million, down slightly from 0.8 million in the same period in Operating profit declined from 0.2 million in the first half of 2004, to 0.1 million in the first half of The subsidiary continued to cooperate with satellite network Sky Italia, while the grafic design of videoclips was enhanced to include subtitles with the words of songs broadcasted. Advertising sales 1 st Half st Half 2005 % change Revenues % Operating and personnel costs (274.9) (288.4) -4.9% Gross operating profit % Depreciation, amortization and write-downs (3.4) (1.3) +60.3% Operating profit % Employees Advertising sales of A.Manzoni&C. do not include sales of Rete A, whose advertising for 2005 is still managed by PubliKompass. The increase in advertising sales is due to Group publications, registering a 5.3% increase on the first six months of 2004, while advertising sales on third parties media declined (down 12.3%) due to the discontinuation of some publications. 19

21 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Advertising revenues for all media recorded a growth above the average for the market. The growth of advertising expenditure at the national level was in fact slightly higher than 2%, the printed media was equal to 2.7%, television grew by 2.6%, cinema and outdoors advertising declined by 4.9% and 1.7% respectively, and advertising on radio stations declined by 3.2% (source: Nielsen Media Research). SUBSEQUENT EVENTS AND OUTLOOK Advertising on the Group s media continued to grow also in the third quarter of Publishing initiatives continue to register good sales and the launch of new book series sold in conjunction with la Repubblica and L espresso is planned for the fall. A new monthly magazine named XL will be launched on August 25. The magazine, targeted at a young public, will be sold as a supplement of la Repubblica. The economic performance for the whole year is expected to improve on the performance registered in

22 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT RESULTS AT JUNE 30, 2005 Income Statement Below is the Consolidated Income Statement of the Group for the first six months of 2005 compared with the corresponding period of st Half 1 st Half ( million) Revenues Other operating income Purchases (80.3) (79.6) Services received (207.7) (216.4) Personnel costs (134.6) (147.1) Other operating costs (6.7) (8.1) Investments valued at equity Depreciation, amortization and write-downs (21.3) (23.2) Operating income Financial income/(expense) (6.4) (9.4) Pre-tax profit Taxes (41.8) (41.9) NET PROFIT Minority interests Group net profit Revenues and operating performance were already discussed in the first part of the current report. The section that follows examines costs, results of financial management and those of subsidiaries. Other operating income includes 7.9 million of grants on paper purchases ( 0.5 million at June 30, 2004), on the distribution of newspapers abroad and on capital expenditure. Purchases include paper and supplies for printing, in addition to costs for the acquisition of products sold optionally with Group publications. These are in line with the same period in the previous year. Services received and other operating costs include printing costs and work carried out by third parties, in addition to the cost of rights, promotion and transport, editorial costs for photographs, freelance work, traveling expenses and news agencies. The increase on the first six months of 2004 was equal to 10.1 million due to the launch of TvMagazine, the production, promotion and sale of the numerous sales inizitives carried out in conjunction with la Repubblica and L espresso, the increase in costs due to the 21

23 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 introduction of color for la Repubblica, and the operating costs related to the newly acquired Rete A. Savings were instead achieved through the direct management of preprinting and printing at the Rotocolor and Padua printing plants. Personnel costs amount to million, up 12.6 million on the first six months of 2004 due to the combined effect of contractual increases and the hiring by Rotocolor and the Padua operating division of Finegil Editoriale respectively of personnel of STEC and of the former printing cooperative. In the first half of 2005, personnel costs include also 0.9 million of cost relating to personnel of Rete A. Depreciation, amortization and write-downs increase by 1.8 million due primarily to the depreciation expense of la Repubblica s full color rotary presses. Net financial charges amount to 9.4 million. The increase on the first six months of 2004 is due to the higher average debt and the negative spread between interest paid on ten-year bond issued in October 2004 and interest earned on the available cash and cash equivalents. To limit the effect of the negative spread between the fixed interest paid out and the floating interest earned, until the expiration of the old bond issue (August 1, 2005) and the payment for the acquisition of Rete A, the Group entered into interest rate hedging contracts, swapping the fixed rate into a floating rate. The operation was reversed in March 2005 with a gain of about 9 million, achieved thanks to a further reduction in interest rates in the period. In line with IFRS, such gain is accounted for over the residual term of the bond issue. 22

24 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Balance Sheet Below is presented the Consolidated Balance Sheet of the Group. ASSETS Jan. 1, June 30, ( million) Intangible assets with indefinite useful life Other intangible assets Total intangible assets Tangible assets Investments valued at equity Other investments Financial receivables Deferred tax assets NON-CURRENT ASSETS Inventories Trade receivables Marketable securities Financial receivables Tax receivables Other receivables Cash and equivalents CURRENT ASSETS TOTAL ASSETS 1, ,612.5 LIABILITIES AND SHAREHOLDERS EQUITY Jan. 1, June 30, ( million) Share capital Reserves Retained earnings Net income Group Shareholders Equity Minority interests SHAREHOLDERS EQUITY Financial debt Provisions for risks and charges Employee severance reserve and other retirement benefits Deferred tax liabilities NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges Trade payables Tax payables Other payables CURRENT LIABILITIES TOTAL LIABILITIES 1, ,113.2 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1, ,

25 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Intangible assets amount to million, up 153 million on million at January 1, The increase is due primarily to the consolidation of television broadcasting frequencies of newly acquired network Rete A. Tangible assets amount to million, up 0.1 million on January 1, 2005 ( 259 million). Increases in the period amount to 25.2 million, of which 8.8 million resulting from the consolidation of Rete A, offset by net divestments amounting to 0.2 million, and depreciation, amortization and write-downs amounting to 24.9 million. Investments amount to 18.4 million ( 27.8 million at January 1, 2005). The 9.3 million decline is due to the reduction in the share held in Editoriale Libertà SpA, declining from 35% to 19%. Non-current financial receivables amount to 3.6 million and consist of security deposits and tax receivables on advances paid on employee termination indemnities. The 5.7 million decline on the end of 2004 is due primarily to the unwinding in March 2005 of interest rate swaps entered into to hedge interest rate risk relating to the new 300 million bond issue. Deferred tax assets amount to 25.2 million and include temporary differences between amounts recorded in the balance sheet and those recognized for tax purposes. Inventories amount to 27.7 million and include inventories of paper, printing material, for publications and products sold optionally with publications. Trade receivables amount to million, up 11.8 million on January 1, 2005 due primarily to higher trade receivables resulting from the growth in advertising sales. Marketable securities amount to 10.1 million and relate to Government Bonds held by the parent company. In the first six months of 2005, 9.8 million of bonds were redeemed upon expiration. Current financial receivables amount to 3.5 million, up 1.8 million due to higher interest earned on short-term bank deposits. Tax receivables amount to 60.3 million, as compared with 41.5 million at January 1, The change is due primarily to advances paid in the first half of the year and income tax (Ires) receivables that, in compliance to tax consolidation regulations, will be transferred to parent company CIR only at the closing of the financial year. 24

26 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Other receivables amount to 26.2 million, up 4.2 million on 22 million at January 1, Cash and cash equivalents decline by 77.1 million due to the disbursement of 110 million for the purchase of Rete A. Shareholders Equity at June 30, 2005 amounts to million ( million at January 1, 2005), of which million belonging to the Group ( million at the end of 2004), and 10.6 million relating to minority interests ( 11 million at January 1, 2005). Non-current financial debt amounts to million and includes 307 million relating to the bonds issued on October 8, Provisions for risks and charges, both current and non-current, are in line with the previous year. Employee severance reserve and other retirement benefits amount to million ( 95.9 million at January 1, 2005) and cover personnel benefits accrued at June 30, Deferred tax liabilities grow by 41.3 million due primarily to the tax impact of the consolidation of TV broadcasting frequencies of Rete A. Current financial debt amounts to million and includes million relating to the 5-year bond issue expiring on August 1, Trade payables amount to million, down 26.4 million due to the reduction in debt relating to capital expenditure (down 8.9 million), which on January 1, 2005 included the unpaid balance for the purchase of la Repubblica s full color rotary presses, and payables on paper and printing supplies purchased (down 16.5 million). Tax payables amount to 50.7 million and include income tax (Ires) payables which, as a result of the participation in the fiscal consolidation of parent company CIR, will be transferred to the same only at the end of the fiscal year. Other payables amount to 80.4 million, up 1.6 million on January 1, 2005 due to the increase in payables to personnel on account of deferred retribution (13 th monthly salary payments), partly offset by the reduction in social security payables paid out at the beginning of the year. 25

27 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Consolidate Statement of Cash Flows Below are presented the Cash Flows for the first half of 2005 compared with the corresponding period of st Half 1 st Half ( million) OPERATING ACTIVITIES Net income Minority interests Adjustments: - Accruals to provisions for personnel, risks and charges Accruals to provisions for stock option costs Depreciation, amortization and write-downs Other adjustments (0.6) (0.5) Cash flow from operating activities Decrease (Increase) in inventories Decrease (Increase) in current receivables (3.9) (18.0) Decrease (Increase) in current payables 9.2 (24.8) Decrease in tax receivables/increase in tax payables Decrease in current assets/increase in current liabilities 24.3 (24.9) Decrease in deferred tax receivables/increase in deferred tax payables Uses of provisions for personnel, risks and charges (7.4) (6.4) CASH FLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES (Increase)/Decrease in intangible assets (0.8) (154.1) (Increase)/Decrease in tangible assets (60.1) (20.2) (Increase)/Decrease in equity investments CASH FLOW FROM INVESTING ACTIVITIES (60.4) (164.9) FINANCING ACTIVITIES Increases in capital and reserves and other changes in the Shareholders' Equity Increase (decrease) in other financial debt Net change in marketable securities (and own shares in 2004) (4.8) 10.1 Net change in other financial receivables/payables Dividends paid (47.1) (55.8) CASH FLOW FROM FINANCING ACTIVITIES (36.9) (14.6) Increase (decrease) in cash and cash equivalents 4.8 (77.1) Cash and cash equivalents at beginning of the period CASH AND CASH EQUIVALENTS AT END OF THE PERIOD Cash generated by operating activities is in line with the previous year. Net current assets decline due to the increase in advertising trade receivables resulting from the growth in advertising sales, and the simultaneous decline in payables to suppliers due to the payment 26

28 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 of the last installment relating to the full color project, in addition to the insurcing of the printing of part of the copies of la Repubblica. The joint effect of these two components and the recording of 40 million in provisions for deferred tax liabilities resulted in a stable operating cash flow. Cash flow from investing activities is negative by million due primarily to the acquisition of Rete A SpA. Other investments in the period relate primarily to the television sector ( 5.9 million) for the development of broadcasting equipment of the newly acquired television station and the development of the digital terrestrial television network, to the printing centers of la Repubblica and local newspapers ( 4.3 million), to the renovation of the new Rome offices of the Group ( 3 million), to the renovation of the offices of Veneto Region newspapers, La Nuova Sardegna and Il Piccolo ( 1 million), in addition to the upgrade of information systems and the development of i.c.t. network infrastructure ( 2.8 million). Cash flow from financing activities absorbed resources amounting to 14.6 million, due to the payment of 55.8 million in dividends. Despite the good cash flow from operations, capital expenditure for the first six months of the year, together with the disbursement of 110 million for the purchase of national television network Rete A and the payment of 55.8 million in dividends, determined an increase in net consolidated debt from million at January 1, 2005, to million at June 30, The table that follows shows the breakdown of the net financial position of the Group. Jan 1, June 30, ( million) Marketable securities Financial receivables Cash and cash equivalents Total financial assets Bonds (511.0) (526.4) Bank debt (37.0) (45.9) Other financial debt (7.6) (6.6) Total financial liabilities (555.7) (578.8) NET DEBT (141.4) (255.5) 27

29 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 RESULTS OF PARENT COMPANY - GRUPPO EDITORIALE L ESPRESSO SPA Income Statement 1 st Half 1 st Half ( million) Revenues Other operating income Purchases (59.0) (59.1) Services received (147.1) (166.9) Personnel costs (54.4) (59.1) Other operating costs (3.3) (4.6) Depreciation, amortization and write-downs (6.9) (6.9) Operating income Financial income/(expense) (6.0) (9.0) Dividends Pre-tax profit Taxes (22.9) (22.0) NET PROFIT Balance Sheet ASSETS Jan. 1, June 30, ( million) Intangible assets with indefinite useful life Other intangible assets Total intangible assets Tangible assets Other investments Financial receivables Deferred tax assets NON-CURRENT ASSETS Inventories Trade receivables Marketable securities Financial receivables Tax receivables Other receivables Cash and cash equivalents CURRENT ASSETS TOTAL ASSETS 1, ,

30 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 LIABILITIES AND SHAREHOLDERS' EQUITY Jan. 1, 2005 June 30, ( million) Share capital Reserves Retained earnings Net income SHAREHOLDERS' EQUITY Financial debt Provisions for risks and charges Employee severance reserve and other retirement benefits Deferred tax liabilities NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges Trade payables Tax payables Other payables CURRENT LIABILITIES TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1, ,

31 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Statement of Cash Flows 1 st Half 1 st Half ( million) OPERATING ACTIVITIES Net income Adjustments - Accruals to provisions for personnel, risks and charges Accruals to provision for stock option costs Depreciation, amortization and write-downs Other adjustments (27.1) (47.2) Cash flow from operating activities Decrease (Increase) in inventories Decrease (Increase) in current receivables Decrease (Increase) in current payables (0.5) (26.9) Decrease in tax receivables/increase in tax payables Decrease in current assets/increase in current liabilities Decrease in deferred tax receivables/increase in deferred tax payables (0.1) 0.2 Uses of provisions for personnel, risks and charges (3.0) (3.0) CASH FLOW FROM OPERATING ACTIVITIES INVESTING ACTIVITIES (Increase)/Decrease in intangible assets (0.4) (0.6) (Increase)/Decrease in tangible assets (13.3) (5.2) (Increase)/Decrease in equity investments (27.0) (120.5) Dividends received CASH FLOW FROM INVESTING ACTIVITIES (13.5) (79.1) FINANCING ACTIVITIES Increases in capital and reserves and other changes in the Shareholders' Equity Increase (decrease) in other financial debt (0.6) (3.1) Net change in marketable securities (and own shares in 2004) (4.8) 10.1 Change in other financial receivables/liabilities 1.9 (1.0) Dividends paid (47.1) (55.8) CASH FLOW FROM FINANCING ACTIVITIES (49.6) (45.5) Increase (decrease) in cash and cash equivalents 1.4 (80.7) Cash and cash equivalents at beginning of the period CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

32 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 The operating performance was described in the section on individual divisions to which we refer. Below we discuss the financial performance of the parent company and that of its equity investments. Capital expenditure of the parent company in the first half of 2005 amounts to 5.8 million and relate primarily to the renovation of new offices, the development of information systems of the Group, and the optimization of the operation of new rotary presses of La Repubblica Division. At June 30, 2005, net financial debt of the parent company amounted to million, up on million at January 1, The increase from the end of 2004 is due primarily to the acquisition of Rete A for 110 million, the distribution of 55.8 million in dividends and capital expenditure, offset only in part by cash generated by operations ( 43.9 million). At the end of June, the Company employed 952 persons, 12 more than at December 31, Newly hired personnel was employed primarily in publishing initiatives launched in the first half of the year TvMagazine and in publications to be launched in the near future XL, the new monthly supplement of la Repubblica. 31

33 Interim Financial Statements at June 30, 2005

34 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Espresso Group Consolidated Balance Sheet ASSETS Jan. 1, June 30, Notes ( thousand) Intangible assets with an indefinite useful life 460, ,349 Other intangible assets 5,459 5,418 Total intangible assets (1) 465, ,767 Tangible assets (2) 258, ,075 Investments valued at equity (3) 23,907 14,547 Other investments (4) 3,868 3,883 Financial receivables (5) 9,254 3,603 Deferred tax assets (6) 26,811 25,209 NON-CURRENT ASSETS 788, ,084 Inventories (7) 30,189 27,734 Trade receivables (8) 241, ,537 Marketable securities (9) 20,142 10,068 Financial receivables (5) 1,671 3,505 Tax receivables (10) 41,471 60,288 Other receivables (11) 21,976 26,157 Cash and cash equivalents (12) 383, ,115 CURRENT ASSETS 740, ,404 TOTAL ASSETS 1,528,936 1,612,488 LIABILITIES AND SHAREHOLDERS' EQUITY Jan. 1, June 30, Notes ( thousand) Share capital (13) 64,896 65,003 Reserves (14) 187, ,314 Retained earnings 132, ,560 Net income 98,869 54,810 Group Shareholders' Equity 484, ,687 Minority interests (15) 11,005 10,592 SHAREHOLDERS' EQUITY 495, ,279 Financial debt (16) 330, ,409 Provisions for risks and charges (17) 13,022 13,236 Employee severance reserve and other retirement benefits (18) 95, ,176 Deferred tax liabilities (6) 54,181 95,499 NON-CURRENT LIABILITIES 493, ,320 Financial debt (16) 224, ,429 Provisions for risks and charges (17) 10,273 10,183 Trade payables (19) 209, ,146 Tax payables (20) 16,481 50,735 Other payables (21) 78,797 80,396 CURRENT LIABILITIES 539, ,889 TOTAL LIABILITIES 1,033,853 1,113,209 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,528,936 1,612,488 The notes from page 41 to page 81 are an integral part of these interim financial statements. 34

35 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Espresso Group Consolidated Income Statement 1 st Half st 1 Half Notes ( thousand) Revenues (22) 546, ,613 Other operating income (23) 4,735 12,591 Purchases (24) (80,303) (79,560) Services received (25) (207,665) (216,395) Personnel costs (26) (134,576) (147,129) Other operating costs (27) (6,705) (8,069) Investments valued at equity Depreciation, amortization and write-downs (28) (21,327) (23,174) Operating income 100, ,337 Financial income (expense) (29) (6,449) (9,435) Pre-tax profit 94,452 96,902 Income taxes (30) (41,772) (41,856) NET PROFIT 52,680 55,046 Minority interest share in net profit Group share in net profit 52,365 54,810 Base, income per share (31) Diluted, income per share (31) The notes from page 41 to page 81 are an integral part of these interim financial statements. 35

36 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Espresso Group Consolidated Statement of Cash Flows 1 st Half 1 st Half Notes ( thousand) OPERATING ACTIVITIES Net income 52,365 54,810 Minority interests Adjustments: - Accruals to provisions for personnel, risks and charges 10,071 11,813 - Accruals to provisions for stock option costs 894 1,280 - Depreciation, amortization and write-downs 21,327 23,174 - Other adjustments (550) (495) Cash flow from operating activities 84,422 90,818 Decrease (Increase) in inventories 8,362 2,455 Decrease (Increase) in current receivables (3,862) (18,036) Decrease (Increase) in current payables 9,169 (24,775) Decrease in tax receivables/increase in tax payables 10,660 15,437 Decrease in current assets/increase in current liabilities 24,329 (24,919) Decrease in deferred tax receivables/increase in deferred tax payables ,920 Uses of provisions for personnel, risks and charges (7,365) (6,400) CASH FLOW FROM OPERATING ACTIVITIES 102, ,419 INVESTING ACTIVITIES (Increase)/Decrease in intangible assets (764) (154,074) (Increase)/Decrease in tangible assets (60,148) (20,191) (Increase)/Decrease in equity investments 466 9,380 CASH FLOW FROM INVESTING ACTIVITIES (60,446) (164,885) FINANCING ACTIVITIES Increases in capital and reserves and other changes in the Shareholders' Equity 1,455 4,163 Increase (decrease) in other financial debt 7,049 7,791 Net change in marketable securities (and own shares in 2004) (4,842) 10,074 Change in other financial receivables/liabilities Dividends paid (32) (47,114) (55,833) CASH FLOW FROM FINANCING ACTIVITIES (36,884) (14,633) Increase (decrease) in cash and cash equivalents 4,800 (77,099) Cash and cash equivalents at beginning of the period 69, ,214 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 74, ,115 The notes from page 41 to page 81 are an integral part of these interim financial statements. 36

37 Gruppo Editoriale L Espresso - Interim Financial Statements at June 30, 2005 Espresso Group Statement of Changes in the Consolidated Shareholders' Equity Share Share Own Fair value IFRS Stock option Equity Retained Net Group Minority Total ( thousand) capital premium shares reserve reserve * reserve reserves earnings profit Sh. Equity Sh. Equity Sh. Equity Balance at January 1, ,769 63,991 8, , , , ,956 10, ,576 Dividends (47,114) (47,114) - (47,114) Capital increases, capital contributed by shareholders 53 1, ,110-1,110 Stock options Own shares transactions - (4,842) 4, Net profit (loss) ,365 52,365-52,365 Other changes (7) - 3 (28) (25) Balance at June 30, ,822 60,206 13, ,885 1,725 12, ,742 52, , ,806 Allocation of net profit Capital increases, capital contributed by shareholders 74 1, ,513-1,513 Stock options , ,571-1,571 Own shares transactions (313) Net profit (loss) ,504 46,504-46,504 Other changes (46) - (31) Balance at December 31, ,896 61,958 13, ,885 3,296 12, ,696 98, ,771 11, ,776 Elimination reserve for own shares under Italian GAAP 13,192 (13,192) Effect of adotion of IAS (14,012) (13,192) - (13,192) Effect of adotion of IAS (2,240) 1, (501) - (501) Balance at January 1, ,896 75,150 (14.012) (2.240) 112,565 3,296 12, ,575 98, , , ,083 Allocation of net profit ,869 (98,869) Dividends (55,833) - (55,833) - (55,833) Capital increases, capital contributed by shareholders 107 2, ,263-2,263 Stock options , ,280-1,280 Own shares transactions - - 2, (795) 501-2,143-2,143 Net profit (loss) ,810 54,810-54,810 Other changes (83) 1, (1,552) - (54) (413) (467) Balance at June 30, ,003 77,306 (11,575) (2,323) 114,124 3,781 13, ,560 54, ,687 10, ,279 * Gross of the effect of the adoption of IFRS, amounting to about 2 million, recorded under "Retained earnings".

38

39 Notes to the consolidated financial statements

40

41 Gruppo Editoriale L Espresso Interim Financial Statement at 30 June, 2005 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION Gruppo Editoriale L Espresso SpA (the parent company ) and those companies in which it holds either directly or indirectly an interest (further on in the present document referred jointly to as the Espresso Group or the Group ) operates mainly in the publishing sector and more specifically publishes newspapers and periodicals, owns and manages radio stations, sells advertising on various media, has online publishing interests and interests in terrestrial and satellite television. Gruppo Editoriale L Espresso SpA has its registered office in Italy at Via Cristoforo Colombo, 149, Rome. The Espresso stock is listed on the screen-based trading circuit (Mercato Telematico Azionario, MTA) of the Italian Stock Exchange (Reuters code: ESPI.MI, Bloomberg code: ES IM). The stock is included in the S&P/MIB and MIDEX indexes. The present interim report for the first six months of 2005 with starting date January 1, 2005 were approved by the Board of Directors of the parent company on July 27, FORM AND CONTENT OF THE FINANCIAL STATEMENTS As allowed by article 81 of the Issuers Regulation no , modified by CONSOB Resolution no dated April 14, 2005, the present Consolidated Interim Financial Statements were prepared in accordance with accounting principles established for the consolidated accounts of financial year 2005, adopted according to the procedure described in article 6 of EU Regulation no. 1606/2002 (International Financial Reporting Standards, referred to in the present document individually as IAS/IFRS or, jointly, as IFRS) and approved until the reporting date. In application of IAS 34 ( Interim financial reporting ) and of paragraphs no. 45 and 46 of IFRS 1 ( First-time adoption of International Financial Reporting Standards ) section Transition to IFRS of the present document provides reconciliations prescribed in paragraphs no. 39 and no. 40 of IFRS 1, and the related notes. Changes made to the Issuers Code follow EU Regulation no. 1606/2002 of July 19, 2002, requiring, starting with the financial year beginning January 1, 2005, the preparation of consolidated financial statements of companies whose stock is admitted to listing in a regulated market of the EU, under IFRS in place of the accounting principles of individual Member States. With regard to certain aspects, the implementation and interpretation process carried out by official organisms in charge, in addition to the necessary approval of measures taken by the European Commission, is still underway. As a result, at the present date it cannot be ruled out that further changes or amendments to the said accounting principles and their interpretation could in the future oblige or allow the Espresso Group to modify accounting, valuation and classification criteria adopted in the preparation of the present Consolidated Interim Report. 41