Gruppo Editoriale L Espresso Società per azioni Annual Report 2004 (Translation from the original issued in Italian)
Gruppo Editoriale L Espresso Società per azioni Annual Report 2004 (Translation from the original issued in Italian)
Gruppo Editoriale L Espresso 2004 5 Contents Report of the Board of Directors Report of the Board of Directors 13 Information required by Consob - resolution 11971/1999 27 Consolidated Financial Statements of the Espresso Group at 31 December, 2004 Consolidated Financial Statements 36 Notes to the Consolidated Financial Statements 45 Attachments 68 Reclassified Consolidated Financial Statements 80 Revenues, Group personnel, Circulation 84 Report of the Independent Auditors 89 Financial Statements of the Gruppo Editoriale L Espresso SpA at 31 December, 2004 Financial Statements 92 Notes to the Financial Statements 101 Attachments 124 Reclassified Financial Statements 136 Report of the Board of Statutory Auditors 141 Report of the Independent Auditors 147 Financial highlights of subsidiaries 151 Report on Corporate Governance 155
Gruppo Editoriale L Espresso 2004 7 Company Gruppo Editoriale L Espresso Società per Azioni Share Capital Euro 64,896,058.20 Tax ID and Rome Company Register no. 00488680588 VAT no. 00906801006 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
Gruppo Editoriale L Espresso 2004 9 Financial Highlights Consolidated financial data (in millions of euro) 2001 2002 2003 2004 Revenues 923 964 1,051 1,080 Value added 376 427 481 490 Gross operating profit 131 181 231 232 Operating profit 74 122 175 177 Net profit 1 46 68 88 Capital employed (excluding employee severance reserve) 602 567 590 620 Net financial position (111) (63) (150) (131) Shareholders' Equity 392 402 332 375 Net profit + depreciation and amortization 58 104 124 142 Employees 3,394 3,250 3,166 3,271 Ratios 2001 2002 2003 2004 Gross operating profit/revenues 14.2% 18.8% 22.0% 21.4% ROS 8.0% 12.7% 16.7% 16.4% ROCE 12.3% 21.6% 29.7% 28.6% ROE 0.3% 11.5% 20.4% 23.4% Per share data (euro) 2001 2002 2003 2004 Operating profit 0.17 0.29 0.41 0.41 Net profit 0.00 0.11 0.16 0.20 Net profit + depreciation and amortization 0.14 0.24 0.29 0.33 (in milions) No. of shares (excluding own shares) 430.1 428.2 429.1 429.3
Report of the Board of Directors
Report of the Board of Directors Gruppo Editoriale L Espresso 2004 13 Report of the Board of Directors The Espresso Group closed the 2004 financial year reporting a consolidated net profit of 87.7 million, up from 67.8 million in 2003, on consolidated revenues equal to 1,079.8 million (up from 1,051.1 million in 2003). Consolidated operating profit amounted to 177.4 million (16.4% of margin revenues), against 175.1 million in 2003 (16.7% of margin revenues). Net financial debt at December 31, 2004 declined to 131.1 million from 149.5 million at the end of the previous year thanks to cash flow generated by operations that more than offset capital expenditure and dividends distributed. Shareholders Equity grew from 332 million at the end of 2003 to 375.2 million at December 31, 2004. Main events in 2004 included the completion of the full color project by la Repubblica (involving also the construction of a new printing center in Rome), the transfer of all Group companies based in Rome to a new location, the good performance of products sold optionally in conjunction with la Repubblica and L espresso, the growth of radio audiences and the successful completion of restructuring in the Internet area. Along with the strengthening of the Group s core business, efforts were devoted also to development: new publishing activities, such as the launch of a magazine devoted to TV programs (TV magazine) and the restyling of the magazine Musica with its conversion to a monthly magazine, in addition to the signing of an important agreement for the acquisition of a national TV network Rete A. This is a network aimed at a very young public that is currently registering a growth in audience and advertising sales and will be able to develop further by exploiting the trademarks and know-how of Group s radio stations, in addition to the technological support provided by the Internet area. Growth in the advertising market continued to be modest, though showing signs of a recovery in the last quarter also as a result of full color advertising offered by la Repubblica. With the coming into operation of the new rotary presses on schedule and one year in advance of competitors, la Repubblica is currently the only national newspaper able to offer color advertising pages and formats without saturation constraints. The new offer was well received by the market: in December, 73% of all advertising published by the newspaper was in color, as compared with 49.4% in the same period in 2003; in 2004, national color advertising of la Repubblica grew by 12.3%, as compared with 7.5% for the market as a whole (source: FCP, December 2004). In the first months of 2005, the replacement of black and white advertising with color continues, with good prospects for sales and margin growth. Sales of products sold optionally in conjunction with Group publications confirmed once again that there now exists a sustainable, well consolidated market accounting for a stable proportion of revenues and profits of the Group. In 2004, revenues from products sold optionally in conjunction with Group publications reached 227.2 million, with a margin exceeding 35%. In 2004, sales benefited from the good reception by the public of the l Enciclopedia di Repubblica and La Storia series, that sold a total of over 9.6 million volumes with an average circulation of over 280 thousand copies per issue. Sales initiatives of L espresso and local newspapers also reported good results. Circulation of newspapers and periodicals were in line with 2003: la Repubblica had an average circulation of 625 thousand copies per issue, local newspapers one of 488 thousand copies and L espresso an average circulation of 390 thousand copies per week. The last Audipress report (2004/II), released at the beginning of the current year, rewards la Repub-
14 Gruppo Editoriale L Espresso 2004 Report of the Board of Directors blica, placing it at the top position of Italian newspapers (2.9 million readers). Radio stations registered further gains in terms of audience, reaching a total of 8.4 million average daily listeners and a 20.5 million weekly audience (source: Audiradio 2004 annual data). Radio Deejay climbed to 5.6 million average daily listeners, confirming its ranking as first radio station in terms of audience for the whole week with 12.7 million listeners; Radio Capital s audience grew to almost 2 million average daily listeners and 5.6 million average weekly listeners, while m2o, aimed at a younger public, doubled its audience in the last two years to almost 1 million average daily listeners. Advertising revenues of the three radios grew by 18.9% on the previous year. After the completion of the critical phase of the restructuring process, the Internet area begun to exploit new sources of revenue and growth. In 2004 Kataweb sharply reduced its operating loss from 9 million in 2003 to 2.9 million. Financial charges declined significantly from 28.6 million at the end of 2003, to 12.9 million at the end of 2004; financial charges in the previous year were negatively affected by costs incurred in the unwinding and termination of interest rate hedging transactions. After having made public its BBB- Standard&Poor s rating with a positive outlook, on October 8 the Company placed a 10 year, 300 million bond with institutional investors. The bond was very well received on the market with requests for over 5 times the amount on issue. Bonds are listed on the Luxembourg Stock Exchange and pay an annual 5.125% coupon, equal to a 10 year midswap rate plus 105 basis points. hosting the Group in Rome, amounted to 94.3 million (as compared with 70.8 million in 2003). At December 31, 2004, the consolidated net financial position showed an indebtness of 131.1 million, improving from 149.5 million at December 31, 2003 thanks to the strong cash flow generated in the year ( 162 million) that allowed to finance capital expenditure and the payment of 47.1 million in dividends. At the end of 2004, the Group employed 3,271 persons, including personnel under term contracts, as compared with 3,166 at December 31, 2003. The increase is due to the decision to manage directly the pre-printing and printing of la Repubblica in Rome, involving the hiring of personnel by subsidiary Rotocolor. Below are finally reported 2004 main results, compared with previous year statements: ( million) 2003 2004 ch. % Revenues 1,051.1 1,079.8 +2.7% of which: Circulation 482.8 496.4 +2.8% Advertising 534.0 546.1 +2.3% Gross operating profit 231.5 231.5 - Operating profit 175.1 177.4 +1.3% Financial income/(expense) (28.6) (12.9) Net profit 67.8 87.7 Shareholders Equity 332.0 375.2 Net financial position (149.5) (131.1) Employees 3,166 3,271 Capital expenditure, namely on new full color printing presses, the update of a number of printing centers some of which were completely rebuilt and the renovation of the new offices
Report of the Board of Directors Gruppo Editoriale L Espresso 2004 15 Parent company Gruppo Editoriale L Espresso ( million) 2003 2004 ch. % Revenues 648.5 656.4 +1.2% of which: Circulation 367.9 380.8 +3.5% Advertising 271.6 267.3-1.6% Gross operating profit 142.3 117.2-17.7% Operating profit 125.7 98.5-21.6% Financial income/(expense) (27.4) (12.5) Net profit 57.7 70.4 Shareholders Equity 239.2 266.1 Net financial position (176.7) (162.9) Employees 920 940 Operating results of the parent company are illustrated in the Operating Divisions Review; in the section that follows, we comment upon the financial performance of the parent company and of its equity investments. In 2004, net revenues from equity investments amounted to 21.7 million (as compared with a net expense of 4.2 million in 2003); higher dividends received from subsidiaries and affiliated companies ( 27.2 million) more than offset writedowns and the coverage of losses incurred by subsidiaries, amounting to 5.5 million. The positive cash flow ( 114.7 million) due to the good operating performance and the containment of net current assets, allowed to achieve a reduction in debt from 176.7 million at December 31, 2003, to 162.9 million at the end of 2004, after capital expenditure amounting to 57.4 million and the distribution of 47.1 million in dividends. Espresso Division ( million) 2003 2004 ch. % Revenues 110.9 121.0 +9.1% of which: Circulation 75.9 86.3 +13.6% Advertising 32.4 33.2 +2.5% Gross operating profit 14.3 17.4 +21.6% Operating profit 13.4 16.8 +25.4% Figures for the division include the share in revenues and costs that may not be attributed to a specific activity Circulation was in line with 2003 at an average of about 390 thousand copies per issue, as were products sold optionally with the magazine: in 2004, L espresso sold a total of 4.2 million books, 2.4 million DVDs and 2.5 million CD-ROMs and music CDs. The increase in advertising sales, out of line with respect to the weak advertising market for other periodicals, and of margins on products sold optionally with the magazine, coupled with the reduction in production and subscription promotional costs, represented a determining factor in the improvement of the operating profit, up from 13.4 million in 2003 (a 12.1% margin on sales), to 16.8 million in 2004 (a 13.9% margin on sales). Other publications of the division continued to perform well both in terms of circulation and margins: the monthly magazine National Geographic sold over 123 thousand copies per issue, while magazines Limes and Micromega recorded an average circulation of 19 thousand and 20 thousand copies per issue respectively. In 2004, the total contribution of these publications to the operating profit of the division amounted to about 2.7 million. Among publications of affiliated company Le Scienze SpA, periodical Mente & Cervello reached an average circulation of 25 thousand copies per issue, while monthly magazine Le Scienze reported an average circulation of 61 thousand copies per issue.
16 Gruppo Editoriale L Espresso 2004 Report of the Board of Directors Repubblica Division ( million) 2003 2004 ch. % Revenues 537.6 535.4-0.4% of which: Circulation 292.0 294.6 +0.9% Advertising 239.3 234.2-2.1% Gross operating profit 128.0 99.8-22.1% Operating profit 112.3 81.7-27.2% Figures for the division include the share in revenues and costs that may not be attributed to a specific activity The year was characterized for la Repubblica by the change in the graphic design spurred by the coming into operation of the new full color rotary presses: in December, color pages represented 85% of the newspaper. Color was used to highlight major news and events and its potential was exploited in full in new supplements l Almanacco dei libri and la Domenica di Repubblica. Starting in November, the newspaper includes in fact eight pages dedicated to reviews and sales figures of the best selling books, published every Saturday, and 20 pages of investigations, reportages and in-depth coverage of major current events, published on Sunday. Moreover, in 2004 sales and revenues from products sold optionally with the newspaper reached a peak. Two sales initiatives contributed most to these results: l Enciclopedia di Repubblica, whose appendix volumes sold in the first four months of the year over 4.8 million copies, and La Storia, which sold an average of 283 thousand copies per issue. A new book series, L Italia, was launched on Decem-ber 28. The series is a collection of guide books of major Italian cities and regions, consisting of 23 volumes published in cooperation with the Italian Touring Club. The first issue, after a free introductory one, was dedicated to Rome and went into reprint after over 300 thousand copies were sold. La Repubblica s new Rome printing plant became operational at the end of August. The printing of the newspaper had previously been carried out by a third party. The in-house printing and offset of the newspaper will allow to achieve higher production efficiency and significant cost savings. Higher launch and production costs linked to the increased number of products sold optionally with the newspaper in the year, the growth in printing costs and higher depreciation charges relating to the new color rotary presses were reflected on the operating profit that declined from 112.3 million (20.9% of sales) in the previous year, to 81.7 million (15.3% of sales) in 2004. The Internet site of the newspaper, www.repubblica.it, registered in the last year a constant growth in unique users, continuing to rank first among domestic information sites and among the first in Europe (source: Audiweb 2004). In December 2004, www.repubblica.it had almost 3.5 million unique users and page views were about 164.7 million. In the aftermath of the catastrophe that hit South-East Asia, the Internet site experimented with a strong success an online news update service 24 hours on 24. Results of main subsidiaries Local newspapers ( million) 2003 2004 ch. % Revenues 244.3 254.3 +4.1% of which: Circulation 118.9 119.1 +0.1% Advertising 105.6 107.7 +2.0% Gross operating profit 56.8 62.6 +10.3% Operating profit 40.3 46.0 +14.0% Financial income/(expense) 0.7 0.5 Net profit 19.1 24.4 Net financial position 58.7 31.2 The Local Newspapers area includes Finegil Editoriale and its subsidiaries (Editoriale la Nuova Sardegna, Eag, Ene, Editoriale la Città), Seta and Editoriale FVG. The Espresso Group publishes through its subsidiaries 16 newspapers and a bi-
Report of the Board of Directors Gruppo Editoriale L Espresso 2004 17 weekly magazine, reaching daily a total of 3.1 million readers. Average circulation of local newspapers in 2004 was 488 thousand copies per issue, just above 2003: circulation of individual newspapers followed the same trend, with the exception of those in the Veneto Region whose sales grew by 4.7%, with a 7% increase in market share, and newspaper Il Centro di Pescara (whose circulation grew by 2.0%), favored by the launch of the new Lanciano local edition. The sale of publications and products in conjunction with some local newspapers (Nuova Sardegna, Mattino di Padova, Tribuna di Treviso, Messaggero Veneto and Piccolo) continued with a series of books dedicated to regional authors: sales averaged about 30 thousand copies per issue. The first joint publishing initiative involving all local newspapers of the Group was launched in April, with the publication of a series of 20 books for teenagers whose sales reached an average of 28 thousand copies per issue. Advertising revenues, though still far from registering strong growth rates, is undergoing a gradual change in the breakdown of advertising spaces sold. The 19% increase in sales of color advertising and the parallel 4.2% reduction in black and white advertising sales confirm the migration of advertisers towards color. In this framework the Mantova and Sassari printing centers increased their color printing capacity. Gross operating profit amounted to 62.6 million, up from 56.8 million in the previous year, thanks to the decline in the price of paper and the containment of operating costs. Operating profit grew also from 40.3 million in 2003, to 46 million in 2004: in the same period, its margin improved from 16.5% to 18.1%. The net financial position declined from positive 58.7 million at December 31, 2003, to positive 31.2 million at the same date in 2004, after the distribution of 19.1 million in dividends and capital expenditure amounting to 46.3 million, relating primarily to the implementation of la Repubblica s full color project. Elemedia ( million) 2003 2004 ch. % Revenues 55.3 67.4 +21.8% Gross operating profit 22.2 33.6 +51.4% Operating profit 13.8 25.1 +81.8% Financial income/(expense) (0.4) (0.1) Net profit 4.6 15.2 Net financial position (5.2) 6.9 The increase in advertising revenues, the continuing effort to improve productive efficiency and the containment of promotional expenses resulted in an improvement in the operating profit that almost doubled from 13.8 million in the previous year, to 25.1 million in 2004. The operating margin also improved sharply from 25% in 2003 to 37.3% in 2004. Exploiting the Deejay trademark and the popularity of its characters, a DVD titled Natale a Casa Deejay was distributed at newsstands at Christmas selling over 125 thousand copies. The promotion of Group radio station trademarks had already been experimented with success with the distribution of music compilations produced by m2o, that continued in the year reaching top sales positions. Thanks to the good cash flow generated by operations, the net financial position improved from an indebtness of 5.2 million at December 31, 2003, to positive 6.9 million at the end of 2004. At the end of the year, the broadcasting network consisted of 843 stations, up from 834 at the end of 2003. The good signal coverage achieved by the radio stations allowed to limit work on broadcasting equipment to ordinary maintenance.
18 Gruppo Editoriale L Espresso 2004 Report of the Board of Directors In 2004, Deejay Television completed its first full year of broadcasting on the Sky Italia platform. The inclusion in the Sky bouquet of programs and the consequent containment of broadcasting costs resulted in a marked improvement in Ele TV s results: revenues grew by 19% and operating profit reached 0.7 million, representing a 35% margin on sales. A.Manzoni&C. ( million) 2003 2004 ch. % Gross advertising revenues 591.1 604.7 +2.3% Net revenues 538.5 551.3 +2.4% Gross operating profit 2.6 5.7 n.s. Operating profit 1.8 5.1 n.s. Financial income/(expense) (0.8) (0.5) Net profit (0.5) 1.0 Net financial position (20.0) (7.0) After a strong performance at the beginning of the year, the advertising market slowed down considerably in the last quarter for all media (press, TV, radio, cinema and outdoors). Gross advertising revenues grew by 7.3%, but once again advertising expenditure concentrated on television, up 10.4%, and radio, registering a 21.7% increase in advertising revenues. Advertising on printed media remains weak, with periodicals registering a 0.3% increase and newspapers a 2.4% growth (source: Nielsen Media Research). The different growth rates in advertising revenues among media resulted in a 2.3% growth in Manzoni s gross advertising revenues that reached 604.7 million. Almost all sectors in which the Group is active registered an improvement: radio stations reported an excellent performance, recording an 18.9% growth, while local newspapers were up 2.3%, L espresso 1.8% and Internet sites registered a 2.8% increase in revenues. Advertising sales of la Repubblica declined slightly (down 2.3%) due primarily to difficulties registered by its supplements. The increase in sales revenues, the ongoing monitoring of major cost items and the streamlining of sales channels reflected positively on the operating profit that grew from 1.8 million in 2003 to 5.1 million in 2004. At December 31, 2004, the net indebtedness amounted to 7 million, improving from 20 million at December 31, 2003 as a result of 6.5 million generated by operations and the 7 million capital increase carried out in the year. Kataweb In 2004, the Group s sites registered a strong growth in audience: in December, the network registered 5.9 million unique users and 246.4 million page views, up about 30% on the same period in 2003. Numerous activities were launched in 2004 with qualified partners. New activities are aimed at offering new services such as the printing of digital photos, the online sale of books, shopping, the download of music and Internet telephony services. Revenues were streamlined, new activities were launched and a number of projects aimed at promoting advertising on sites were launched in the last part of the year. These efforts resulted in an improvement of Kataweb s operating profit from a loss of 9 million in 2003, to a loss of 2.9 million in 2004. The 5.5 million net loss reflects the share in the loss for the year of subsidiaries ( 3.9 million). The net financial position improves from positive 5.7 million at December 31, 2003, to positive 17.7 million at the end of 2004 thanks to 20 million in contributions made by the Parent company in 2004. Printing In 2004 Rotosud, the company managing the rotary press center for the Espresso Group periodicals, reported a turnover of 30.9 million, down 4.3% on the previous year due to the lower
Report of the Board of Directors Gruppo Editoriale L Espresso 2004 19 circulation and number of pages per issue of la Repubblica s supplements. The decline in turnover resulted in a reduction in the operating profit from 7.2 million to 6.1 million, while net profit was in line with 2003 at 3.1 million. The net financial position at December 31, 2004 amounted to an indebtness of 12.5 million ( 17 million at the end of 2003), after capital expenditure amounting to 2.4 million and the payment of 2.9 million in dividends. CPS, active in preparing the Espresso Group magazines for printing and the setting of la Repubblica s advertising, closed 2004 reporting sales of 3.7 million, up 5.4% due to the higher number of color advertising pages produced as a result of the launch of the full color project. Operating profit amounted to 0.9 million and net profit to 0.5 million, in line with the previous year. The net financial position improved slightly from positive 1.5 million at the end of 2003, to 1.6 million at December 31, 2004. Since August 26, subsidiary Rotocolor carries out the printing of la Repubblica in Rome in addition to the pre-printing of all newspaper editions, previously carried out by a third party. Two new full color rotary presses were installed and were operational since September. Personnel previously working for STEC, the former printer of the newspaper in Rome (122 persons), was transferred to the new plant upon its coming into operation. In 2004 the company reported an operating profit of 0.5 million on sales amounting to 6.9 million. Results are not comparable with the previous year as the plant came into operation only in 2004. Capital expenditure in the year amounted to 15.4 million, used primarily in the renovation of the plant, the purchase of rotary presses and the construction of typeset equipment. At December 31, 2004, net debt amounted to 5.4 million, after net expenditure described above. Somedia Somedia represents today the reference point in the Group for all direct marketing and customer care activities promoted by Group. In addition to the fulfilment of subscriptions and the traditional activities, with the publication of the Carrer Book, the company is active in the organization of personnel training seminars and conferences, among which the university degree program in enginering organized cooperation with the Milan Polytechnic, that continued with success. Thanks to the good performance of the different business areas, turnover reached 6.2 million, up 2% on 2003. Operating profit amounted to 0.1 million. The net financial position at December 31, 2004 was positive 0.8 million, down slightly on 1.4 million at the end of 2003. Subsequent events and outlook In the first months of 2005, advertising on the Group s media grew steadily as a result primarily of the increase of color advertising on la Repubblica. Products sold optionally in conjunction with publications showed a strong performance: the first issues of the Touring Club guides with la Repubblica sold an average of over 255 thousand copies, while Stanley Kubrick s complete work DVD series distributed in conjunction with L espresso sold an average of almost 100 thousand copies per issue. New bi-weekly magazine TV magazine dedicated to TV programming was launched on January 10. The magazine uses a successful formula already adopted in Germany and France, offering a guide to TV programs for the two weeks following its publication. La Repubblica s new digital radio, broadcasting three hours a day on the Internet as part of the newspaper s site, www.repubblica.it, was launched on February 14. The radio is dedicated entirely to news, in-depth analysis, opinions and deba-
20 Gruppo Editoriale L Espresso 2004 Report of the Board of Directors tes, and may represent a first nucleus of a future digital channel once the technology will be in use within the radio sector. On February 10, 2005, the Authority for Telecommunications issued a favorable opinion on the acquisition of national TV network Rete A, while approval from the Antitrust Authority is expected soon. At the end of January, the Lazio Regional Revenue Service Office accepted the appeal submitted to obtain a waiver on the application of tax elusion regulations in the context of the merger of Elemedia SpA, Ele TV SpA and Studio Vit SpA into Kataweb SpA. The operation will allow the Espresso Group to merge activities in the radio, television and Internet sectors, thus benefiting from synergies between Group companies operating in the multimedia sector. Relationships with related parties Transactions between Group companies and related parties, including intragroup transactions, are carried out in the normal course of business and are settled at market rates; in the period under consideration there were no atypical or unusual transactions falling outside the scope of ordinary business to report. The economic and financial effect of transactions between consolidated companies are eliminated in the consolidated financial statements, while the effect on the consolidated statements of transactions with other related parties are immaterial. The 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 relation are those held with subsidiary A.Manzoni&C. SpA, concessionaire for the advertising space of L espresso and la Repubblica, those with the subsidiary Kataweb SpA for advertising on the Internet and the management of sites, and those held with subsidiaries Rotosud SpA and CPS SpA, supplying typeset and printing services. Gruppo Editoriale L'Espresso SpA also manages a current account for transactions within the Group to which most subsidiaries and affiliated companies participate according to individual debit and credit positions. Gruppo Editoriale L'Espresso SpA receives in turn from its parent company CIR SpA, services and advice on strategic, administrative, financial and tax matters. It is to be noted that the provision of such services on the part of the parent company is deemed as preferable to the provision of the same on the part of a third party thanks, among other things, to the wide knowledge and experience CIR SpA has acquired over time on the company and the sector in which Gruppo Editoriale L'Espresso SpA operates. The new Testo Unico tax law (TUIR) introduced the possibility for companies of a same Group to determine an overall profit corresponding in principle to the algebraic sum of taxable profits of each company (parent company and companies controlled directly and/or indirectly with a share over 50%) and, consequently, to determine a single income tax liability for the whole Group. On October 20, 2004, the Board of Directors of Gruppo Editoriale L Espresso SpA resolved the participation of the company to CIR s Tax consolidation and a general agreement regulating the rights and obligations of CIR and consolidated companies (thus including Gruppo Editoriale L Espresso SpA) with respect to the participation in the tax consolidation, was underwritten. The table below shows the operating and financial data concerning Gruppo Editoriale L'Espresso SpA and its parent companies, subsidiaries and affiliated companies. Individual items are commented upon in the notes to the financial statements of Gruppo Editoriale L'Espresso SpA.
Report of the Board of Directors Gruppo Editoriale L Espresso 2004 21 ( thousand) Costs Revenues Financial Financial Receivables Payables Guarantees expense income* Financial Trade Financial Trade given SUBSIDIARIES Finegil Editoriale SpA 14,014 3,105 (46) 16,480 6,477 487-5,043 17,190 Editoriale La Nuova Sardegna SpA 2,254 451 (254) - - 1 4,102 395 - E A G SpA 1,966 349 (173) - - 72 9,605 297 1,728 Edizioni Nuova Europa SpA - 32 (18) - - - 1,216 1 - Editoriale La Città SpA 12 206 (8) - - 38 631 - - S.E.T.A. SpA 185 434 (51) 319-118 4,653 51 1,192 Editoriale FVG SpA 6 389 (369) 2,426-78 20,575 1 - Elemedia SpA 25 1,763 (19) 4,591-853 6,772 1,185 - EleTv SpA - 19 (18) - - - 1,726 4 - Deejay Budapest kft - - - 2 1 - - - 100 Radio Bonton a.s. - - - - - - - - 200 A. Manzoni & C. SpA 6,016 268,664 (48) 193 3,610 92,150-1,126 - Rotosud SpA 31,134 342 (8) 3,200 9,160 12-5,685 5,766 C.P.S. SpA 3,615 595 (26) 520-168 1,607 802 - Rotocolor SpA 6,882 497 (59) 30 5,463 143-5,457 - Selpi SpA 418 25 (40) 157-47 2,224 306 - Somedia SpA 5,856 325 (9) 2-676 465 3,092 - Kataweb SpA 2,545 3,797 (361) 2-1,643 17,478 1,082 - Kataweb News Srl - - - - - - 4 - - Ksolutions SpA 30 128-250 5,743 92-16 - Esperya SpA 6 - - 37-2 60 6 509 Studio Vit Srl - - - 1 1 - - 169 66 AFFILIATED COMPANIES Le Scienze SpA - 466-103 - 492-423 - PARENT COMPANY CIR SpA 2,330 - - 45-4,360 - - - (*) includes dividends received from subsidiaries
22 Gruppo Editoriale L Espresso 2004 Report of the Board of Directors Other information Own shares held by the Parent Company at December 31, 2004 were 3.3 million and represented 0.8% of the share capital. Pursuant to Legislative Decree no.196, it is acknowledged that Gruppo Editoriale L Espresso, in compliance with current regulations, has updated the safety protocol for the year 2004. In compliance with the provisions of the Code on the Privacy of Personal Information the Company has moreover taken steps to make such document compatible with law provisions requiring the adoption of new safety measures by June 30, 2005. With regards to the adoption of new accounting principles, as allowed by IFRS1, the Group decided to opt for the estimated cost for the initial valuation of tangible assets, the exemption on the application of the international accounting principle for combinations of companies formed before January 1, 2004, and the adoption of IAS32 and IAS 39 from January 1, 2005. The Company is also evaluating, in agreement with parent company CIR SpA and as recommended by CONSOB, whether to adopt IAS principles already from the 1 st Quarter of 2005 or to postpone their application to the Half-year Report at June 30, 2005. Adoption of international accounting principles The Espresso Group has reached an advanced stage in the review of the project for the adoption of international accounting principles (IAS, currently IFRS - International Financial Reporting Standards), which will have to be adopted by European companies whose shares are traded on a regulated market starting with the consolidated financial statements for the 2005 financial year. In 2004 the Company assessed main differences between the accounting principles currently adopted by the Group and IFRS, and has selected those options that allow a better representation of the economic and financial structure of the Company. A Company Accounting Principles Manual is currently being drafted and in the immediate future all Group companies will be required to identify and quantify differences between previously adopted accounting principles and those contained in the Manual so as to determine the effect of the adoption of new principles. As highlighted in the diagnostics phase, the areas that are most affected by the adoption of the new principles are Intangible assets, Financial assets and liabilities, Personnel benefits (particularly the accounting treatment of stock options) and information contained in the financial statements.
Report of the Board of Directors Gruppo Editoriale L Espresso 2004 23 Allocation of net profit for the year ended December 31, 2004 To our Shareholders: the Financial Statements of Gruppo Editoriale L Espresso SpA that we submit to your approval close reporting a net profit of 70,423,331.54. We propose to distribute a dividend of 0.13 to each of the 428,990,388 ordinary shares in circulation (keeping into account the 3,650,000 own shares held by the Company) and to allocate the remainder to the voluntary reserve, having the Legal Reserve already reached an amount equal to 20% of the share capital. Thus we propose to allocate: 55,768,750.44 to ordinary dividends to be distributed to shareholders in a proportion of 0.13 for each share in circulation, to be paid out on May 26, 2005, with an ex-dividend date of Coupon no. 9 on May 23, 2005; 14,654,581.10 to voluntary reserve. The proposed allocation of net profit keeps into account the provisions of article 2357 ter., 2 nd paragraph of the Italian Civil Code, providing for dividends accrued by own shares to be distributed proportionally to other shares. The exact amount to be destined to the distribution of dividends and to voluntary reserve may vary according to the number of own shares held at the date of the Meeting or according to the possible issue, on March 31, 2005, of a maximum of 4,650,850 shares with rights accruing January 1, 2004 as part of applicable stock option plans. Allocation of net profit for the year ended December 31, 2004 resolved by the Shareholders Meeting of April, 20, 2005 The Shareholders Meeting held on April 20, 2005 having acknowledged the proposal of the Board of Directors and the issue on March 31, 2005 of 495,900 ordinary shares of par value 0.15 each, with rights accruing from January 1, 2004, issued to service current stock option plan, resolved the following allocation of the 2004 net profit of Gruppo Editoriale L Espresso SpA, amounting to 70,423,331.54: 55,833,217.44 as ordinary dividends of 0.13 to each of the 429,486,288 ordinary shares in circulation (keeping into account the 3,650,000 own shares held by the Company) with rights accruing January 1, 2004, to be paid out on May 26, 2005, upon the clipping of Coupon no. 9 on May 23, 2005; 14,590,114.10 to voluntary reserve. The proposed allocation of net profit keeps into account the provisions of article 2357 ter., 2 nd paragraph of the Italian Civil Code, providing for dividends accrued by own shares to be distributed proportionally to other shares. Rome, April 20, 2005 Rome, February 23, 2005
Information required by Consob - resolution 11971/1999
Information required by Consob - resolution 11971/1999 Gruppo Editoriale L Espresso 2004 27 Information on stock option plans Stock option plans for managers of the parent company and its subsidiaries holding strategic positions within the Group assign the right to exercise at a pre-determined price and for a set term an option for the underwriting of new shares to be issued by the company pursuant to the related stock option plan resolutions. The related rules regulate, among other terms and conditions, also the case in which the assignee of the said options ceases for whatever reason to be employed by the company. Starting from 2001, ad hoc stock option plans were assigned to the Managing Director of the company, Marco Benedetto, giving him the right to acquire from the company at a pre-determined price and for a set term, a number of shares equal to the options already assigned to him. Current stock option plans are: 2000 stock option plan On February 23, 2000, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 29, 1996, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 2,155,000 shares at a price of 25.60, of which 0.15 of nominal value and 25.45 of premium over par, determined in relation to the higher between the official price and the listed price on the Italian Stock Market (Borsa Italiana S.p.A.) on February 22, 2000, for the purposes of the 2000 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from September 30, 2000 and at subsequent quarterly intervals until September 30, 2010; b) up to a maximum for each quarter of 6% of the total options assigned in the period between December 31, 2000 and March 31, 2004, and at subsequent quarterly intervals until September 30, 2010; c) the residual 4% of the total options assigned starting from June 30, 2004 and up until September 30, 2010. To date no option has been exercised and, pursuant to the stock option plan, 540,000 options have expired. The residual number of shares is thus 1,615,000. April 24, 2001 stock option plan On April 24, 2001, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 930,000 shares at a price of 6.25, of which 0.15 of nominal value and 6.10 of premium over par, determined in relation to the provision of article 9, paragrapf IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, for the purposes the April 24, 2001 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from September 30, 2001 and at subsequent quarterly intervals until September 30, 2011; b) up to a maximum for each quarter of 6% of the total options assigned in the period between December 31, 2001 and March 31, 2005, and at subsequent quarterly intervals until September 30, 2011; c) the residual 4% of the total options assigned starting from June 30, 2005 and up until September 30, 2011. To date no option has been exercised and, pursuant to the stock option plan, 150,000 options have expired. The residual number of shares is thus 780,000. October 24, 2001 stock option plan On October 24, 2001, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 885,000 shares at a price of 2.51, of which 0.15 of nominal value and 2.36 of premium over par, determined in relation to the provision of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market
28 Gruppo Editoriale L Espresso 2004 Information required by Consob - resolution 11971/1999 prices of the company s shares in the previous month, for the purposes the October 24, 2001 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from March 31, 2002 and at subsequent quarterly intervals until March 31, 2012; b) up to a maximum for each quarter of 6% of the total options assigned in the period between June 30, 2002 and September 30, 2005, and at subsequent quarterly intervals until March 31, 2012; c) the residual 4% of the total options assigned starting from December 31, 2005 and up until March 31, 2012. To date 501,900 options have been exercised and, pursuant to the stock option plan, 10,200 options have expired. The residual number of shares is thus 372,900. March 6, 2002 stock option plan On March 6, 2002, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,330,000 shares at a price of 3.30, of which 0.15 of nominal value and 3.15 of premium over par, determined in relation to the provisions of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, for the purposes of the March 6, 2002 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from September 30, 2002 and at subsequent quarterly intervals until September 30, 2012; b) up to a maximum for each quarter of 6% of the total options assigned in the period between December 31, 2002 and March 31, 2006, and at subsequent quarterly intervals until September 30, 2012; c) the residual 4% of the total options assigned starting from June 30, 2006 and up until September 30, 2012. To date 549,750 options have been exercised and, pursuant to the stock option plan, 51,400 options have expired. The residual number of shares is thus 728,850. July 24, 2002 stock option plan On July 24, 2002, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,322,500 shares at a price of 3.36, of which 0.15 of nominal value and 3.21 of premium over par, determined in relation to the provision of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, for the purposes the July 24, 2002 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from December 31, 2002 and at subsequent quarterly intervals until December 31, 2012; b) up to a maximum for each quarter of 6% of the total options assigned in the period between March 31, 2003 and June 30, 2006, and at subsequent quarterly intervals until December 31, 2012; c) the residual 4% of the total options assigned starting from September 30, 2006 and up until December 31, 2012. To date 440,475 options have been exercised and, pursuant to the stock option plan, 47,050 options have expired. The residual number of shares is thus 834,975. February 26, 2003 stock option plan On February 26, 2003, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,367,500 shares at a price of 2.86, of which 0.15 of nominal value and 2.71 of premium over par, determined in relation to the provision of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, for the pur-
Information required by Consob - resolution 11971/1999 Gruppo Editoriale L Espresso 2004 29 poses of the February 26, 2003 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from September 30, 2003 and at subsequent quarterly intervals until September 30, 2013; b) up to a maximum for each quarter of 6% of the total options assigned in the period between December 31, 2003 and March 31, 2007, and at subsequent quarterly intervals until September 30, 2012; c) the residual 4% of the total options assigned starting from June 30, 2007 and up until September 30, 2013. To date 320,850 options have been exercised and, pursuant to the stock option plan, 61,200 options have expired. The residual number of shares is thus 985,450. July 23, 2003 stock option plan On July 23, 2003, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,332,500 shares at a price of 3.54, of which 0.15 of nominal value and 3.39 of premium over par, determined in relation to the provision of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, for the purposes of the July 23, 2003 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from December 31, 2003 and at subsequent quarterly intervals until December 31, 2013; b) up to a maximum for each quarter of 6% of the total options assigned in the period between March 31, 2004 and June 30, 2007, and at subsequent quarterly intervals until December 31, 2013; c) the residual 4% of the total options assigned starting from September 30, 2007 and up until December 31, 2013. To date 202,725 options have been exercised and, pursuant to the stock option plan, 45,100 options have expired. The residual number of shares is thus 1,084,675. February 25, 2004 stock option plan On February 25, 2004, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,485,000 shares at a price of 4.95, of which 0.15 of nominal value and 4.80 of premium over par, determined in relation to the provision of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, for the purposes of the February 25, 2004 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total options assigned starting from September 30, 2004 and at subsequent quarterly intervals until September 30, 2014; b) up to a maximum for each quarter of 6% of the total options assigned in the period between December 31, 2004 and March 31, 2008, and at subsequent quarterly intervals until September 30, 2013; c) the residual 4% of the total options assigned starting from June 30, 2008 and up until September 30, 2014. To date no option has been exercised and, pursuant to the stock option plan, 45,000 options have expired. The residual number of shares is thus 1,440,000. July 28, 2004 stock option plan On July 28, 2004, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,450,000 shares at a price of 4.80, of which 0.15 of nominal value and 4.65 of premium over par, determined in relation to the provision of article 9, paragraph IV of the Income Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the