ANNUAL REPORT 2000 (Translation of the original Italian document)

Transcription

1 Gruppo Editoriale L Espresso Società per azioni ANNUAL REPORT 2000 (Translation of the original Italian document)

2 GRUPPO EDITORIALE L ESPRESSO Società per Azioni ANNUAL REPORT 2000

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4 CONTENTS Report of the Board of Directors 11 Allocation of net profit for the year ended December 31, Consolidated financial statements at December 31, 2000 in lire 41 Consolidated financial statements at December 31, 2000 in euro 49 Notes to the consolidated financial statements at December 31, Attachments 97 Reclassified financial statements 103 Report of the Independent Auditors 113 Espresso Group 5

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6 Company Gruppo Editoriale L Espresso Società per Azioni Capital stock euro 64,593, Registered office Rome, Via Po 12 Board of Directors: Chairman Carlo Caracciolo ( * ) Managing Director Marco Benedetto ( * ) Directors Executive Committee: 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 Vittorio Ripa di Meana Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Rodolfo De Benedetti Pierluigi Ferrero Board of Statutory Auditors: Chairman Auditors Independent Auditors Vittorio Bennani Claudio Berliri Federico Gamna PricewaterhouseCoopers SpA ( * ) With full powers to conduct ordinary business, and joint powers, limited to a number of operations and maximum amounts, to conduct extraordinary business Espresso Group 7

7 ESPRESSO GROUP FINANCIAL HIGHLIGHTS CONSOLIDATED FINANCIAL DATA (in billions of lire) Revenues 1,348 1,501 1,642 1,845 Value added Gross operating profit Operating profit Net profit Capital employed (excluding employee severance reserve) ,011 1,146 Net financial position 51 (62) (180) (119) Shareholders equity Net profit + depreciation Employees 2,574 2,930 3,102 3,498 RATIOS Gross operating profit/revenues 12.3% 13.9% 16.9% 13.2% ROS 8.2% 9.2% 11.8% 7.3% ROCE 15.7% 14.8% 19.2% 11.8% ROE 7.6% 9.3% 12.2% 29.8% 8 Espresso Group

8 ESPRESSO GROUP FINANCIAL HIGHLIGHTS SHARE DATA (in lire) Operating profit Net profit Net profit + depreciation (in millions) No. of shares Adjusted No. of shares The results per share have been calculated on the basis of the adjusted number of shares, in order to take into account the stock split (52 new shares for 15 old ones) resolved by the Extraordinary Shareholders meeting of October 20, 1999 PER EMPLOYEE DATA (in millions of lire) Revenues Operating profit Net profit Espresso Group 9

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10 REPORT OF THE BOARD OF DIRECTORS

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12 REPORT OF THE BOARD OF DIRECTORS The Espresso Group closed the 2000 financial year reporting a consolidated net profit of lire billion as compared with lire 79.2 billion in Net profit was affected by the good operating performance of the Group s traditional activities, registering a consolidated net profit of lire billion (as compared with lire 87.3 billion in 1999). It included losses reported by consolidated company Kataweb, amounting to about lire 185 billion, and a capital gain of lire 298 billion realized on the acquisition by Unicredito Group of a 5% share in the capital stock of Kataweb through a reserved capital increase. Kataweb s loss was due primarily to promotion and startup costs amounting to about lire 90 billion, and to expenses relating to the planned listing of the company presently put on hold totaling about lire 8.5 billion, in addition to the write-down of investments and other extraordinary costs amounting to over lire 40 billion. The total amount of the loss is therefore also due to the decision to expense in the 2000 fiscal year the full amount of startup costs of projects launched in 1999 and 2000, and to write down equity investments in companies not expected to reach a breakeven in the short term. Such losses should in fact reduce sharply starting with 2001 and reach a neutral position in terms of gross operating profit in 2002, following the closing of startup phases for all projects. The Group s consolidated turnover for 2000 reached lire 1,844.7 billion, increasing by 12.3% over the previous year in which it amounted to lire 1,642.1 billion. The consolidated gross operating profit, net of Kataweb s impact, grew by 30.1%, from lire billion in 1999 to lire 364 billion in Its profit on revenues increased from 17.1% in 1999 to 20.1% in the current year. If we include the loss of about lire 120 billion registered in the Internet area, the gross operating profit decreases from lire billion in 1999 to lire billion in Similarly, the operating profit of the Group s traditional activities increased from lire billion in 1999 to lire 273 billion in 2000 (up 34.5%), with profit on revenues increasing from 12.4% to 15.1% respectively for the two years. Taking into account Kataweb s losses, operating profit amounted to lire billion, as compared with lire billion in The Group s consolidated net financial position at December 31, 2000 was negative by lire billion, as compared with negative lire 180 billion at December 31, Consolidated shareholders equity at December 31, 2000 was equal to lire billion, increasing from lire billion at December 31, At the end of the year, the Group employed 3,498 persons (of which 495 relating to Kataweb), as compared with 3,102 persons at December 31, 1999 (of which 165 persons relating to Kataweb). Espresso Group 13

13 Gruppo Editoriale L Espresso L Espresso Division: L Espresso MicroMega - Limes - Le Guide de L Espresso la Repubblica Division: la Repubblica, Venerdì, D, Affari & Finanza, Musica!, Salute, Viaggi FINEGIL EDITORIALE Mattino di Padova Tribuna di Treviso La Nuova Venezia Gazzetta di Mantova Gazzetta di Modena Gazzetta di Reggio Nuova Ferrara Il Centro Il Tirreno MANZONI G.M.P. KATAWEB NEWS UHURU 92.5 KATAWEB ESPANA KATAWEB KATAWEB INC. ALEPH CELLULARMANIA ELEMEDIA Radio Dee Jay Radio Capital Italia Radio 5 ELE TV EDIZIONI la Repubblica Editoriale PUBLIETAS 92 EDITORIALE FVG Il Piccolo Messaggero Veneto EDITORIALE LA NUOVA SARDEGNA E.A.G. Provincia Pavese + AGL 3 ESPERYA USA EASY Commerce 80 QUADRANTE 70 IFE STUDIO VIT SIAS WEB BRIDGES 5 CLUB La Repubblica 95 LE SCIENZE 50 EDIGRAF E.N.E. Sentinella del Canavese ZIVAGO E-VIAGGI SOMEDIA 71 CIMA BRENTA SVEDIT SUD La Città di Salerno ROTOSUD S.E.T.A. Alto Adige EDITORIALE LIBERTÁ Libertà di Piacenza 35 CPS 70 SELPI % ownership unless indicated

14 REPORT OF THE BOARD OF DIRECTORS Activities carried out in 2000 In 2000 the Espresso Group continued to follow its investment strategy aimed at increasing its presence in high growth sectors (Internet, digital Tv and radio), while continuing to pursue the development and consolidation of publishing activities in print, representing the Group s main strength. A considerable amount of resources have been devoted to Internet activities where the Group achieved significant results. Kataweb generated an aggregate turnover of lire 93.7 billion (of which lire 25.7 billion of advertising revenues, representing about 15% of the total market), and consolidated revenues amounting to lire 61.5 billion. Kataweb created an integrated offer system that is unique in the Internet sector in Italy. About 80% of traffic was generated by contents alone, while only 20% was due to services and communities. Such breakdown of traffic allowed Kataweb to become the Internet portal with the longest average time spent per person on its sites (a characteristic which is strongly appreciated by advertisers), achieving in January 2001 about 253 million page views and 700,000 daily unique users. Web solutions activity registered also strong growth rates, with a total order portfolio amounting at the present date to about one third of total turnover for The alliance with the Unicredito Banking Group, that acquired a 5% share in Kataweb s capital, is among the most significant agreements concluded in 2000 by the company. The new Vivacity project has become operational a few months ago, with the launch, through a national bridge portal, of portals located in the cities in which Unicredito member banks operate. These make use of contents and services supplied by Kataweb, while giving access to on-line services supplied directly by the banks involved. In a context characterized by convergence between communication media, the Group incorporated Eletv, a new company that will be active in theme television channels with contents in line with those of other Espresso Group publications and radio stations, to be broadcasted simultaneously through different media. In the first months of activity, the company set up the organization and acquired the structure necessary to produce digital television programs, developing the first experimental program schedule for the DeeJay Tv digital channel which began satellite broadcasting with a music format aimed at a young audience, written and produced by Radio DeeJay staff. In the context of the Group s traditional activities, most Group publications increased their circulation and advertising revenues. Radio DeeJay consolidated its leadership among commercial radio stations, while Radio Capital increased its audience. The Group continued to invest in production facilities to equip printing centers with presses enabling them to meet future advertising demand. Espresso Group 15

15 REPORT OF THE BOARD OF DIRECTORS Special operations and acquisitions Unstable and volatile markets, coupled by the steep decline registered by technology and Internet stocks, particularly in the second half of the year, have not allowed the company to proceed with the listing of Kataweb SpA shares on the Nuovo Mercato (new listings market), managed by the Italian Stock Exchange. In November, Kataweb s capital increase of lire 306 billion reserved for Unicredito was underwritten and paid-in, allowing the banking group to hold a share in the company and to develop the mentioned partnership. In addition to the agreement with Unicredito and the numerous acquisitions in the Internet sector illustrated in the section dedicated to Kataweb, the Espresso Group carried out two important acquisitions in the sector of local newspapers: - Finegil Editoriale SpA acquired a 35% share in Editoriale Libertà SpA, formerly Stabilimento Tipografico Piacentino di Ernesto Prati & C. Sapa, editor of Libertà, a Piacenza daily newspaper. The cost of the transaction, that included also the acquisition of 35% of the local advertising concessionaire Altrimedia SpA and of real estate company Benedettine Srl, amounted to lire 49.5 billion; - Gruppo Editoriale L Espresso SpA increased further its control stake in Editoriale Messaggero Veneto SpA and in V.I.T.A. SpA, acquiring respectively a 39.8% and 19.1% share in the capital stock of the same, partly directly and in part by acquiring 100% of Editoriale Lino Zanussi Srl, with a total expense of lire 26.3 billion. Having in practice completed with this last operation its acquisitions in operating companies of the Friuli Venezia Giulia region, the Espresso Group streamlined its operations by merging (on December 28, 2000, effective retroactively January 1, 2000) Editoriale Messaggero Veneto SpA, Editoriale Il Piccolo SpA, V.I.T.A. SpA and Editoriale Lino Zanussi Srl into holding company NCE - Newco Edit SpA, that has subsequently changed its name to Editoriale FVG SpA. In addition, free press publishing company GMP SpA, acquired during the year from Finegil Editoriale SpA, was merged (effective January 1, 2001) into advertising concessionaire A. Manzoni & C. SpA, thereby concentrating in a single company all the advertising concessionaires of the Espresso Group. 16 Espresso Group

16 REPORT OF THE BOARD OF DIRECTORS CONSOLIDATED FINANCIAL DATA Espresso Group consolidated financial data The table that follows shows Espresso Group key reclassified consolidated financial data for the 2000 and 1999 financial years, in addition to data that exclude Kataweb and the capital gain realized on the acquisition of a share in the company through a capital increase reserved to Unicredito: (in billions of lire) Excluding Kataweb Including Kataweb ch. % ch. % Revenues 1, , % 1, , % of which: Circulation % % Advertising 1, , % 1, , % Gross operating profit % % Operating profit % % Interest profit / (expense) (6.7) (12.3) (7.2) (16.4) Net profit Shareholders equity Net financial position (171.5) (239.1) (180.0) (118.7) Employees 2,937 3,003 3,102 3,498 To allow better comparison between the two years, in the paragraphs that follow we will analyze data net of the Internet area which will be commented upon in the section relating to Kataweb. The strong growth in profits for traditional activities has been achieved primarily thanks to the increase in advertising revenues, currently representing 65% of total revenues. The growth in advertising revenues over the previous year was however unevenly distributed among the Group s titles: la Repubblica registered an increase in revenues, gross of agency fees, equal to 19% (higher than the average of domestic newspapers amounting to 15% - source: FCP), spurred by domestic commercial advertising (up 25.8%). Radio stations, reporting gross revenues of lire billion, registered a 38.3% increase in revenues (considerably higher than the 20.6% increase in comparable terms recorded by the market as a whole - source: Nielsen), while local newspapers registered an average increase in gross advertising revenues of 7.4%. Circulation revenues increased by 2.2% over 1999, despite the negative impact (about lire 20 billion) of 10 days of strike at la Repubblica, 9 in local newspapers, 4 at L Espresso and 3 at la Repubblica s supplements personnel. The increase was determined by the good performance of sales, helped in some cases by the success of multi-media product inserts. Espresso Group newspapers sold an average of 1,147,000 copies daily, representing a 2.9% increase over La Repubblica s circulation grew by 4.9%, increasing from an average of 613,000 copies to 643,000 copies per issue, while local newspaper circulation was sta- Espresso Group 17

17 REPORT OF THE BOARD OF DIRECTORS ble (up 0.5%) at an average of 504,000 copies per day. L Espresso magazine increased its circulation from 384,000 to 402,000 average copies per issue, while the Italian edition of National Geographic reached an average of 161,000 copies per issue, of which over 80,000 under subscription. Consolidated operating profit grew proportionally more than revenues thanks to the lower weight of operating costs, despite the impact of strikes (estimated at about lire 8 billion over the previous year), and higher raw material prices. The average price of paper in 2000 increased in fact by about 2% over 1999 and, starting in January 2001 paper mills increased prices by about 20%, reducing at the same time quantities offered. To hedge part of the risk of increases in the price of paper, the Espresso Group concluded a number of paper swap contracts through which it fixed for three years the price of 50% of paper supplied for magazines and 30% of newsprint at the level applicable at the time at which the contracts were concluded, plus a premium varying between 4% and 7%. In 2000 these swap contracts resulted in an additional cost of paper of about lire 3.5 billion. The trend was reversed in the first few weeks of 2001, and the Group is currently achieving significant benefits. Net financial expenses increased from lire 6.7 billion to lire 12.3 billion in the current year, due mainly to higher average debt, an increase in interest rates, and changes in the exposure between short and long-term debt. With the aim of securing credit lines to finance development, on July 18, 2000 Gruppo Editoriale L Espresso launched with success a bond issue organized by Chase Manhattan Bank and Banca Commerciale Italiana. The 200 million euro issue, listed on the Luxembourg Exchange, has a term of five years and a fixed 6.5% coupon. Investment in production facilities continued during the year with the upgrade of technologies and the acquisition of frequencies. Total investments amounted to lire 107 billion, of which lire 20 billion relating to la Repubblica, lire 14 billion to local newspapers, lire 7 billion in the printing press area and lire 55 billion relating to the radio broadcasting sector. The above investments, the expense of lire 70 billion for equity investments, the payment of lire 65 billion in dividends and the lire 24 billion outlay for the Group s share in the capital increase of Kataweb, more than offset the strong operating cash flow (lire 208 billion), determining an increase in debt (net of Kataweb) from lire billion at December 31, 1999 to lire billion at December 31, The Group s employees (excluding Kataweb), including short-term employment, amounted at the end of the year to 3,003 persons, representing an increase of 66 employees over the end of the previous year, due to the development in the Internet, radio and digital Tv areas relating to A. Manzoni & C., the opening in Bari of a new editorial office of la Repubblica, and the enhancement of radio stations and Rotosud, partly offset by restructuring in local newspapers and free press. 18 Espresso Group

18 REPORT OF THE BOARD OF DIRECTORS GRUPPO EDITORIALE L ESPRESSO SpA Parent company Gruppo Editoriale L Espresso SpA financial data The table that follows shows parent company Gruppo Editoriale L Espresso key financial data for the 2000 and 1999 financial years. The company is the publisher of L Espresso weekly magazine and la Repubblica daily newspaper, in addition to providing strategic support and acting as coordinator for all Group activities. (in billions of lire) % change Revenues , % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest profit / (expense) (8.4) (14.2) Net profit Shareholders equity Net financial position (315.5) (316.0) Employees The good operating performance has been achieved primarily thanks to the increase in advertising revenues as illustrated more in detail in the section relating to operating divisions allowing an increase in profits of the Group s parent company. The operating margin increased from 11.5% in 1999 to 16.2% in The cash flow generated during the year amounted to lire 157 billion and covered in full equity investments made (lire 27 billion), dividend distribution (lire 65 billion), investments in production facilities (lire 28 billion), and the expense borne for the underwriting of the capital increases of subsidiaries Kataweb, Eletv and Elemedia (lire 37 billion), leaving debt unchanged (lire 316 billion at December 31, 2000) from the previous year. L ESPRESSO DIVISION L Espresso Division (in billions of lire) % change Revenues % of which: Circulation % Advertising % Gross operating profit (*) (14.4) (5.5) Operating profit (*) (15.9) (7.3) (*) Includes the share, calculated according to revenues, of parent company common costs Espresso Group 19

19 REPORT OF THE BOARD OF DIRECTORS The operating profit of L Espresso Division, though improving over 1999, remains negative. The cost of the strong promotional effort aimed at boosting circulation for L Espresso magazine has in fact eroded part of the steep increase in advertising revenues and of higher circulation revenues. In 2000, despite 4 fewer issues as compared with 1999 due to strikes, circulation revenues increased by 8.3% as a result of higher sales, reaching an average of 402,000 copies per issue (up 4.7% on 1999), and higher number of supplements sold together with the magazine. A music CD-ROM series featuring Songs of the Century offered with the magazine was well received by the public, recording revenues averaging 75,000 copies sold per issue. A collection of CD-ROMs featuring readings from main literary works worldwide (Great classics of foreign literature), a series on the history of world literatures (History of foreign literature), and an overview of Italian literary movements and authors (History of Italian literature) were also issued. In addition to an interactive English course on CD-ROM based on three popular television series (Movie Talk), a collection of CD-ROMs on the history of the Twentieth Century and minor initiatives limited to one or two issues, the sale of movie features on video tape continued, though on a lower number of copies due to declining demand. Advertising revenues increased by 20.8% over the previous year, accompanied by a strong growth in terms of advertising spaces sold. This was due to renewed interest on the part of advertisers for the news magazine sector that has benefited those magazines that have retained high visibility with their readers. At December 31, 2000 the Division employed 128 persons (127 at December 31, 1999). In 2000, Micromega s average circulation doubled, reaching an average of 30,000 copies per issue, thanks mainly to the success of the number on Philosophy and Religion which sold 68,000 copies. Limes and L Espresso Guides s circulation remained stable at 1999 levels. Monthly magazine Le Scienze, published by affiliated company Le Scienze SpA, with an average circulation of 71,000 copies per issue and revenues of lire 8 billion for the year (up 1.3%), closed the year reporting a net profit of lire 0.2 billion (lire 0.5 billion in 1999). 20 Espresso Group

20 REPORT OF THE BOARD OF DIRECTORS LA REPUBBLICA DIVISION la Repubblica Division (in billions of lire) % change Revenues % of which: Circulation % Advertising % Gross operating profit (*) % Operating profit (*) % (*) Includes the share, calculated according to revenues, of parent company common costs Thanks to the strong increase in advertising (publisher s share of net revenues, including direct advertising, up 20.3%), the la Repubblica Division registered a significant increase in profits, with operating margin growing from 15.7% to 20.1%. The increase in advertising revenues affected the whole La Repubblica network. The newspaper (national commercial advertising up 25.8%) benefited from new investments that enhanced production capacity in terms of the number of pages that may be printed and particularly higher number of color pages that may be printed. La Repubblica s women magazine supplement D registered a 16.4% increase in revenues over 1999, with net revenues exceeding lire 77 billion, while Affari & Finanza (Business and Finance supplement) revenues increased by 27%, thanks also to the restyling carried out. Venerdì and Viaggi (Friday and Travel supplements) increased net revenues by 14.6% and 16.6% respectively on the previous year, thanks primarily to price increases. Revenues from circulation (up 3.4%) performed well despite 5 issues lost over 1999 due to national journalism profession strikes, thanks to an increase in circulation of the newspaper from an average of 613,000 to 643,000 copies per issue (up 4.9%), and the contribution of multimedia supplements sold in conjunction with the newspaper (Futuro no problem, Future no problem, Viaggio nella Storia, Journey through History, Sabato Classica, Saturday Classical, and Sabato Jazz, Saturday Jazz). The good revenues performance resulted also from efforts to improve the editorial quality of the title and to make distribution more capillary while strengthening relationships with readers. On November 21, 2000 the newspaper launched a local news section for the city of Bari, bringing thus up to nine the number of editions of la Repubblica published in different Italian cities. New joint-marketing initiatives in Argentina and Australia and a customer care service provided by affiliated company Somedia were launched at the same time. The strong increase in advertising pages resulted in higher advertising revenues while generating a parallel increase in production costs and, in some cases, also in editorial costs. In addition, promotion costs increased due to the general increase in the cost of raw materials (paper, printing supplies and energy). Espresso Group 21

21 REPORT OF THE BOARD OF DIRECTORS Other operating and personnel costs increases were instead moderate, contributing to a 46.9% increase in operating profit, from lire billion to lire billion. The number of employees of the division increased from 679 to 709 at the end of the year, due mainly to the opening of the Bari office and transfers within the Group. Relationships with subsidiaries, affiliated companies and the parent company The Group s 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 space of L Espresso and la Repubblica, those with subsidiary Kataweb for the advertising on the Internet and the management of sites, and those held with subsidiaries Rotosud and CPS, supplying typeset and printing services. Gruppo Editoriale L Espresso manages a current account for transactions within the Group to which each subsidiary and affiliated company participates according to its debit and credit position. All relationships within the Group are regulated at market rates. Gruppo Editoriale L Espresso receives in turn from its parent company CIR services and advice on strategic, administrative, financial and tax matters. The provision of such services on the part of the parent company is deemed as preferable than the provision of the same on the part of 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. 22 Espresso Group

22 REPORT OF THE BOARD OF DIRECTORS Financial highlights of main subsidiaries KATAWEB SpA As previously mentioned, in November 2000, Unicredito Italiano acquired a 5% stake in Kataweb by underwriting a capital increase reserved to it for a total of 5,263,158 shares of par value euro 0.20 each and premium of euro per share. The agreement with the banking group provides that, in case Kataweb is listed by June 30, 2003 on a regulated stock exchange at a price below 10% less than the price paid by Unicredito Italiano, the latter will have the right to receive a number of shares at par value sufficient to bring the resulting average cost of shares held in line with the price set for the Initial Public Offering (IPO). In 2000, Kataweb s first full year of operation, the company invested a large amount of resources to achieve a strong market position in the domestic Internet market. Kataweb continued in fact to develop an integrated range of contents, products and services offered through: a portal, or a complete network aimed at a consumer market of specialized contents directly integrated with electronic commerce activities; web solutions, or a set of services dedicated to companies operating on the Internet or who are planning to approach the net. As a result, the equity portfolio and the number of joint ventures have been greatly enhanced due to the numerous acquisitions carried out: Portals Area 70% share in Studio Vit Srl, owner of the Fantacalcio trademark, for a total amount of lire 11 billion; 90% share in Kataweb España S.A. (lire 8.8 billion), a company incorporated following an agreement with the Prensa Española publishing group aimed at the creation of the site; 4% share in US company Beenz.com Inc. with a total expense of lire 24.6 billion; 49% share in Italian company Beenz.com Italia SpA (the residual 51% is owned by Beenz.com Emea S.L., a subsidiary of Beenz.com Inc.) to develop in Italy the first and most widely used fidelity system for Internet users, for a total amount of about lire 1 billion; 80% share in Cellularmania Srl, a company operating in the sector of Internet content in the field of cellular telephones, for a total expense equal to lire 554 million; 30% share in TCD SpA, for lire 1.1 billion. The company was created with the help of the Municipality of Trieste for the development of a portal dedicated to the city, with information and services aimed at citizens and local companies. Espresso Group 23

23 REPORT OF THE BOARD OF DIRECTORS Web solutions 49% share in Aleph Srl, a company specialized in the field of service integration, communications systems and electronic commerce platforms, for a total amount of lire 25 billion, allowing the Group to control 100% of its capital; 60% share in Web Bridges Srl, a company specialized in WAP systems, with a total expenditure of lire 6.3 billion; 70% share in Quadrante Srl, a company active in web graphic design and technology applications, for lire 3.5 billion; 70% share in Sias Srl, a company offering innovative services to companies and the public administration, for lire 1.8 billion; 12.5% share in Uhuru Digital Design Srl, a company active in the design of web sites and providing consulting services in the communications sector and Internet marketing, with an investment of lire 27.8 million, bringing the total share in the company to 92.5%. In 2001 Kataweb increased its share in I.F.E. Srl (manager of the esperya.com site) from 70% to 100% by covering in full its losses at December 31, Market positioning The range and quality offered to customers (information, entertainment and service), distributed over different platforms (web, wap, sms and, shortly, gprs, umts, cable/satellite), accompanied by various services (free access, search engine, , chat, forum, etc.), represent the strength of the Kataweb portal that has become in a short period of time the leading portal in terms of time spent by surfers on its sites (over 27 minutes in January source: Nielsen/Net Ratings, household customers) and is among the top portals in terms of unique users (6.2 million - source: Kataweb, households and customers) and page views, ranking just below large telecommunications companies that offer network connections. In January 2001 the total number of page views in the Kataweb and Espresso network sites was 253 million, increasing by 370% on 1999 (53 million). Kataweb sites registered over 155 million page views, of which 43 million for KwFinanza (which at the end of the year had over 257,000 subscribers), 24 million for Katamail (919,000 subscribers), and 9 million for Fantacalcio, which in 2000 trebled the number of visits. La Repubblica sites, those of local newspapers and of L Espresso had respectively 39 million, 8 million and 6 million page views, while those of the Group s radio stations increased from slightly less than 2 million to almost 30 million. The increase in contacts, accompanied by the simultaneous expansion of the market, contributed to the good performance of advertising distribution, for which Kataweb uses a 24 Espresso Group

24 REPORT OF THE BOARD OF DIRECTORS dedicated sales network provided by A. Manzoni & C. Net advertising revenues reached lire 25.7 billion, achieving a market share of over 15%. In the web solutions sector, Kataweb completed an acquisition phase and is now able to face the market with a wide offer of services, ranging from graphic design of sites and e- commerce platforms, to web hosting, down to the complete integration between the web and mobile telephone services. On August 16, 2000, Kataweb was granted by the Ministry of Communications a license as telecommunications operator. Financial data The table that follows shows key consolidated financial data for 2000 and 1999 of Kataweb and its subsidiaries: (in billions of lire) Revenues Gross operating profit (1.6) (119.9) Operating profit (8.8) (137.4) Interest profit / (expense) (0.5) (4.1) Net profit (10.4) (184.5) Shareholders equity Net financial position (8.5) Employees Internet companies as a whole reported an aggregate turnover of lire 93.7 billion and lire 61.5 billion net of group transactions. Breaking down consolidated data, revenues relating to the portal amount to lire 31.6 billion, those resulting from e-commerce sites amount to lire 5.3 billion, while web solutions activities account for lire 24.6 billion (that become lire 56.8 billion if we include activities carried out for the Kataweb Group). High promotion costs to establish the trademark and startup costs relating to the numerous initiatives carried out in 1999 and 2000 represent the main factors that gave rise to the high operating loss equal to lire 120 billion. The loss includes, in addition to operating losses, also the impact of expenses incurred in the preliminary work towards the listing of the company s stock in 2000 (lire 8.5 billion). The consolidated loss for the year amounts to lire billion and was negatively affected by the decision to write off the value of goodwill relating to some equity investments (about lire 32 billion) which are not expected to reach a breakeven in the short-term, and of the expensing in full of startup costs (over lire 8 billion) capitalized in Espresso Group 25

25 REPORT OF THE BOARD OF DIRECTORS The net financial position increases from negative lire 8.5 billion at the end of 1999, to a surplus of lire billion at December 31, 2000 as a result of the payment of lire 306 billion from Unicredito Italiano and lire 24 billion from Gruppo Editoriale L Espresso SpA following the capital increase. The loss reported for the year absorbed lire 113 billion of cash generated, while acquisitions and investments resulted in expenditures of lire 53 billion and lire 35 billion respectively. At the end of 2000 the Internet area employed 495 persons, increasing by 330 on December 31, 1999, of which 131 relating to companies included for the first time in the area of consolidation in A. MANZONI & C. SpA The table that follows shows key financial data for 2000 and 1999 of A. Manzoni & C. SpA, the Group s advertising concessionaire: (in billions of lire) % change Gross advertising revenues 1, , % Net revenues 1, , % Gross operating profit % Operating profit % Interest profit / (expense) (0.3) (1.5) Net profit Net financial position 5.4 (48.5) Employees In 2000 the company generated gross revenues amounting to lire 1,300 billion, confirming its leadership in the advertising space on print. During the year it developed further its radio broadcasting activities and started to sell advertising space on the Internet. At the end of the year, a new sales network dedicated to theme Tv channels was created, gaining the concession for advertising on National Geographic and Studio Universal, in addition, naturally, to DeeJay Tv. Espresso Group media generated combined gross revenues equal to lire 1,273.4 billion (up 18% in comparable terms on 1999), with an extremely good performance for la Repubblica (up 19%), L Espresso (up 21%) and radio stations (up 38.2%). Advertising revenues for third party publications, among which newspapers L Arena di Verona, Il Giornale di Vicenza and La Prealpina, registered a 14.8% increase in comparable terms, reaching lire 50.9 billion. 26 Espresso Group

26 REPORT OF THE BOARD OF DIRECTORS Operating profit amounting to lire 5.7 billion, representing a decline from lire 8.8 billion on 1999, was negatively affected by investments made in the development of Internet networks and radio stations, the launch of a new television division and, in general, higher selling costs. The net financial position decreased from positive lire 5.4 billion at December 31, 1999 to negative lire 48.5 billion at the end of 2000 due to shorter payment terms requested by local publishers and the acquisition of GMP for a total of lire 7.1 billion. The number of employees at December 31, 2000 amounted to 482 persons, increasing by 42 units over the previous year due to the mentioned development of Internet, radio broadcasting and digital television divisions and the transfer of part of administration personnel formerly employed at merged company GMP. * * * GMP was merged into A. Manzoni & C. effective January 1, 2001 and has strongly reduced its activities during the year due to the sale of the business that included 12 publications in Lombardy, North-Eastern Italy and Emilia regions. After the restructuring, the company continued to publish 7 publications (among which Il Bo and Il Fo) published in the Romagna region and in Bologna, representing the most profitable and established ones in the region. The company s operating profit increased from lire 0.8 billion in 1999 to lire 2.2 billion in the current year, now representing 16.3% of revenues as compared to 2.9% in the previous year, climbing by over 13 percentage points. In comparable terms, excluding therefore publications sold and those that have been discontinued, operating profit increased by 26.7% while revenues grew by 5.5% over the previous year, reaching lire 13.7 billion. The net financial position increased from negative lire 0.2 billion at the end of 1999, to a surplus of lire 4.6 billion at December 31, 2000 thanks to the strong cash flow generated during the year and the sale of a building for lire 1.2 billion. At December 31, 2000 the company employed 28 persons, representing a decline of 48 over the end of 1999 due to the sale of the mentioned business and the transfer of 11 employees to parent company A. Manzoni & C. Espresso Group 27

27 REPORT OF THE BOARD OF DIRECTORS LOCAL NEWSPAPERS SECTOR The table that follows shows key financial data for 2000 and 1999 of the Espresso Group s local newspapers. (in billions of lire) % change Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest profit / (expense) Profit before taxes Net profit Net financial position Employees 1,243 1,249 Local newspapers of the Espresso Group registered stable circulation, affected in some cases by strikes, while reporting a lower increase in advertising revenues than other Group media due to a dull market. Gross operating margin increased on the first half of 1999 from 19.3% to 20%. Operating margin declined slightly from 13.1% to 12.4%, due to depreciation charges relating to investments made in the past two years to introduce color printing, and to the value of titles resulting from Editoriale FVG, following the merger of publishing companies controlling Trieste newspaper Il Piccolo and Udine s Messaggero Veneto. Against profit before taxes in line with 1999, net profit increased from the previous year thanks also to the higher consolidated share in Editoriale FVG, following the mentioned acquisitions. The decline in the net financial position, decreasing from a cash surplus of lire 65.3 billion to a surplus of lire 52.1 billion, is due to the acquisition for lire 49.5 billion of a 35% share in companies controlled by newspaper Libertà of Piacenza, in addition to the last payments of investments (lire 21 billion) relating to the introduction of four-color printing and the payment of dividends to the Group s parent company (lire 16 billion), partly offset by the faster collection for advertising revenues (lire 10 billion) and the operating cash flow generated. 28 Espresso Group

28 REPORT OF THE BOARD OF DIRECTORS FINEGIL GROUP (in billions of lire) % change Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest profit / (expense) Net profit Net financial position Employees Consolidated revenues of local newspapers controlled by Finegil Editoriale (12 newspapers and one twice-weekly magazine) increased by 3.6% from the previous year, resulting from an increase in advertising revenues and a slight decline in circulation revenues, due exclusively to the numerous strikes of journalists on the occasion of the renewal of the national contract for the profession. The average circulation per issue of the Finegil Group local newspapers was 361,000 copies, increasing by about 1% over 359,000 copies in Among newspapers, Pescara s Centro s circulation increased by 3%, while Salerno s La Città sold 14% more copies than in the previous year, and all other newspapers circulations remained stable. Advertising revenues grew by 8.8%, though not evenly across advertising formats. National advertising (up 18%) benefited from the positive market trend (up 12.9% - source: FCP), and by the coming into full operation of four-color printing on all publications for the full year, while local advertising (up 5.6%) was affected by less brisk market (up 9.6% - source: FCP) due also to a slowdown in the classified ads market, and to organizational problems encountered by the advertising concessionaire in some areas. It must be noted, however, that strikes during the year fell in days that would have had a high advertising content, determining a loss in revenue estimated at about lire 5 billion. Despite the moderate increase in revenues and the first signs of an increase in the price of paper (up 3.5% on 1999) and printing supplies, gross operating profit grew by 17.6%, increasing from lire 52.9 billion to lire 62.2 billion, representing an improvement in the margin from 18.2% to 20.7%. Such advantage was reflected only in part on the operating profit, increasing from lire 36.8 billion to lire 42 billion, due to the growing weight of depreciation charges on investments made in the past years. The economic impact of the introduction of color printing Espresso Group 29

29 REPORT OF THE BOARD OF DIRECTORS in 2000 continued to be negative, but if advertising revenues projections are correct, breakeven is expected to be reached already in Despite such fact, operating profit as a percentage of revenues increased by 1.3% on 1999, reaching 14%. Extraordinary items (lire 0.7 billion) include a lire 1.1 billion provision made by the Livorno Division of Finegil Editoriale for restructuring costs in the printing area, and the collection of contributions (lire 2.2 billion) by Editoriale Nuova Sardegna for investments made in the past years. The net financial position at December 31, 2000 was positive by lire 32.4 billion. The decrease from lire 51.8 billion at December 31, 1999 was due to equity investments made (lire 43 billion, net of the sale of GMP), investment in plant and equipment (over lire 14 billion) and the distribution of dividends to the Group s parent company (lire 16 billion), offset in part by a reduction in advertising revenues collection terms (from 120 to 90 days). At December 31, 2000 the Finegil Group employed 780 persons, 18 less than at the end of 1999 due mainly to the restructuring of the printing department in a number of companies. CIMA BRENTA SpA AND S.E.T.A. SpA Cima Brenta, through its wholly-owned subsidiary S.E.T.A., is the publisher of Bolzano newspaper Alto Adige, and of Corriere delle Alpi in Belluno. Circulation of the newspaper was unchanged on 1999 at about 40,000 average copies per issue, varying however according to the different distribution areas. In the Bolzano and Belluno provinces, circulation increased respectively by 1.5% and 10.7%, while in the Trento province circulation declined by 1.1% due to strong competition from its major competitor. Circulation revenues amounted to lire 15.3 billion registering a slight decline over 1999 (down 0.4%), due to 2 extra issues lost to strikes (9 days of strike in 2000 for the renewal of the national contract for the journalism profession, as compared to 7 days in 1999 in addition to the canceling of pages in German). Advertising revenues rose by 4.5% reaching lire 21.2 billion, allowing overall revenues to grow from lire 36.4 billion in 1999 to lire 37.2 billion in 2000 (up 2.2%). Consolidated operating profit declined slightly from lire 2.6 billion to lire 2.2 billion, representing 6% of revenues (7.1% in 1999), due to the fact that the limited growth in revenues was offset by higher promotional expenses aimed at countering competition in Trento and higher labor costs resulting from new hirings. Consolidated net profit declined from lire 0.6 billion to lire 0.1 billion due in part to higher taxes resulting from the exhaustion of previous years loss carryforwards. Investments amounted in 2000 to lire 0.7 billion and referred to printing press maintenance, the streamlining of the new editorial system and the upgrade of office equipment. 30 Espresso Group

30 REPORT OF THE BOARD OF DIRECTORS The net financial position improved from lire 0.8 billion at December 31, 1999 to lire 3.1 billion at December 31, 2000 due primarily to shorter payment terms adopted by advertising concessionaire A. Manzoni & C. in addition to the cash flow generated by operations. The increase in the number of employees, growing from 116 at December 31, 1999 to 122 at the same date in 2000 was due to growth in the Trento and Belluno editorial offices. EDITORIALE FVG SpA (in billions of lire) pro-forma % change Revenues % of which: Circulation % Advertising % Gross operating profit % Operating profit % Interest profit / (expense) Net profit Net financial position Employees The ownership structure of companies based in the Friuli Venezia Giulia region controlled by holding company NCE Newco Edit was restructured during the year. Companies Editoriale Messaggero Veneto SpA, Editoriale Il Piccolo SpA, V.I.T.A. SpA and Editoriale Lino Zanussi Srl were merged into NCE effective retroactively January 1, 2000, changing the resulting company s name to Editoriale FVG. The company resulting from the merger, controlled with a 92% share by Gruppo Editoriale L Espresso SpA, is divided into two operating divisions, one located in Udine and the other in Trieste, respectively in charge of the two newspapers, that have retained their personnel, contractual relationships and existing organization. Circulation of Messaggero Veneto increased by 1% over 1999, reaching an average of 54,000 copies per issue, while circulation of Trieste s Il Piccolo remained stable at an average of 50,000 copies. Both newspapers increased their market share in their respective distribution areas, in a region where average circulation dropped by 2,000 copies per day (down 1.2). The slight decline in circulation revenues (down 0.7%) affected by 3 fewer issues due to strikes, and the moderate increase in advertising revenues (up 2.6%), in addition to about lire 2 billion of costs relating to changes in the top management of the publications, expenses relating to the merger and higher production costs (price of newsprint up 3.5%) negatively affected gross operating profit that decreased from lire 24.1 billion to lire 20.4 billion. Espresso Group 31

31 REPORT OF THE BOARD OF DIRECTORS Operating profit (lire 10.7 billion) and net profit (lire 4.9 billion) were affected by depreciation charges (lire 4.4 billion) on goodwill arising from the charging of merger differences to individual titles (lire billion), in addition to higher depreciation charges due to the coming into operation of investments in printing plants. The net financial position improved from a cash surplus of lire 11.8 billion at December 31, 1999 to a surplus of lire 15.8 billion at December 31, 2000 due to the cash flow generated by operations. At December 31, 2000 Editoriale FVG employed 324 persons, 3 more than at December 31, 1999 due to hirings at the Udine rotary press. RADIO BROADCASTING SECTOR ELEMEDIA SpA The table that follows shows key financial data for 2000 and 1999 of Elemedia, owner of three national radio stations Radio DeeJay, Radio Capital and Italia Radio: (in billions of lire) % change Revenues % Gross operating profit % Operating profit % Interest profit / (expense) (1.0) (1.8) Net profit Net financial position (33.0) (50.3) Employees Commercial advertising revenues increased by 38.5% over 1999 due mainly to the good performance of Radio DeeJay and Radio Capital whose growth rates were higher than the market average. Music advertising revenues registered a more moderate growth (up 26%). The strong growth in revenues resulted in a marked improvement of the gross operating profit that climbed to lire 37.4 billion from lire 22.2 billion in the previous year, representing an increase in the margin from 31.8% to 39.6%. Operating profit, though negatively affected by higher depreciation charges resulting from the acquisition of frequencies and the reclaim and modernizing of station equipment, amounted to lire 19.5 billion (representing 20.7% of revenues) as compared with lire 11.2 billion (16% of revenues) in the previous year. Investments amounted to lire 55 billion, of which lire 41.9 billion of frequencies, and exceeded the operating cash flow, determining an increase in debt from lire 33 billion at the end of 1999 to lire 50.3 billion at the end of Espresso Group