“PRICE SENSITIVE” PRESS RELEASE IN COMPLIANCE WITH THE FINANCE ACT AND CONSOB REGULATIONS
The Espresso Group: the Board of Directors examines results as of December 31, 2009
The Board of Directors of Gruppo Editoriale L’Espresso S.p.A. met today under the chairmanship of Mr. Carlo De Benedetti to approve the Group’s draft statutory financial statements and 2009 consolidated financial statements.
Proposed allocation of net profit
The Board of Directors proposed to the Shareholders Meeting, called on April 21, 2010, not to distribute any dividend for the year 2009, and to destine the net profit to the Retained Earnings Reserve.
Market outlook
The results attained by the Espresso Group in 2009 are to be analyzed in the framework of the severe crisis that has affected the economy and the reference market.
The recession has produced a significant contraction of the advertising market: based on the outcome of Nielsen Media Research, advertising investments have recorded a decline of 13.4% which involved, even if with different impact, practically all media.
The publishing sector, with an overall decline of 21.6%, is one of the most severely affected activities: the paid-for dailies decline was somehow less important (-16%), while the reduction recorded for magazines (-28.7%) and free dailies (-26.6%) was sharper.
Within traditional media, the radio sector, with a decline equal to -7.7% has proven to be stronger, and the performance is still positive as far as the Internet sector is concerned (+5.1%), showing, however, a slowdown with respect to the previous years. Alongside the general decline in consumption, circulation of daily newspapers and magazines has equally recorded a negative trend: the decline was respectively 6.2% in daily newspapers, 6.8% in weekly magazines and 8.5% in monthly titles (source/October 2009 ADS).
Comments on the 2009 Consolidated Financial Statements
The Group’s consolidated revenues amount to €886.6mn, with a decline equal to 13.5% with respect to the previous year (€1,025.5mn).
Circulation revenues, net of add-on products, amount to €274,2mn and show good resilience (-0.8% on the corresponding period of 2008), in a declining market.
In particular, circulation revenues of la Repubblica show a positive evolution (+1.4%), thanks to the good newsstand sales performance, while the total circulation of the newspaper is declining, entirely due to the – either eliminated or reduced – highly promotional, still unprofitable, circulation initiatives, which only marginally contributed to revenues.
Circulation revenues of local daily newspapers, as well as the number of copies circulated, are in line with the corresponding period of 2008, reflecting the good resilience of the Espresso Group titles.
Finally magazines, which represent about 10% of the Group’s circulation revenues, suffered a decline of 7.4%, in line with the market trend.
Advertising revenues, amounting to €496.9mn, have recorded a decline of 18.3% with respect to 2008, basically reflecting the general evolution of the Group’s reference markets.
As far as the Group’s main sector of activity – daily newspapers – is concerned, the decline (-14.9%) was sensibly lower that the reference market’s; as regards both the local dailies and la Repubblica, the Group’s market shares have increased, reflecting the progressively improved performance of its advertising subsidiary. It is worth noting that, with respect to the market, advertising on Radio Deejay (-6.7%) was resilient and as regards Repubblica.it it has significantly increased (+9.0%).
Finally, revenues from add-on products decreased by 12.4% to reach €100.6mn; this is anyhow to be considered as a positive performance as it was attained in a market which has kept recording a significantly negative trend.
Operating costs were reduced by 11.9% with respect to 2008, in fact, in 2009 savings reached €97.6mn, thanks to the current reorganization plan that – at full speed – will produce a cost reduction equal to €140mn. It must be noticed, however, that the extraordinary expense linked to the implementation of the abovementioned plan has been fully paid over the year (€31.7mn).
The Consolidated Gross Operating Profit amounts to €106,7mn, showing a decline of 25.2% vis-à-vis €142.5mn of 2008. The impact of the drastic reduction in advertising revenues was significantly counterbalanced by the reduction in operating costs.
The consolidated operating profit amounts to €63.9mn (€95.3mn in 2008) and the consolidated net profit, after deduction of extraordinary provisions for taxes equal to €11.4mn, amounts to €5.8mn (€20.6mn in 2008).
The consolidated Net financial indebtedness as of December 31, 2009 decreased to €208.2mn (€278.9mn at the end of 2008). The operating cash flow of 2009 reached €70.8mn, with a current cash flow of €98.1mn (vis-à-vis €117.8mn of 2008) and investments equal to €25.6mn (vis-à-vis €53mn of the previous year).
At the end of December 2009 the Group staff – including term contracts – totaled 3,116 persons, 228 less (-6,8%) than at the end of December 2008, reflecting – even if still just partially – the effects of the ongoing restructuring plans.
Alessandro Alacevich, Central Director of Finance and Administration, dirigente preposto alla redazione dei documenti contabili societari (manager in charge of drafting the corporate and accounting documents), pursuant to subparagraph 2 article 154bis of Testo Unico della Finanza (Finance Act), states that the accounting information included in this press release corresponds to the documented results, the books and the accounting records.
Comments to the outstanding bond loan issue
The company, with the “BB/Negative outlook” rating awarded by Standard&Poor’s, has an outstanding bond loan issue of €285.5mn, expiring in October 2014, taking into account the buyback and subsequent cancellation of a share of the bond loan (€14.5mn) implemented in 2009. The bond issue is listed on the Luxembourg Stock Exchange and pays an annual coupon equal to 5.125%.
2009 Financial Statements of the Parent Company
The Parent Company’s revenues amount to €494.2mn, that is -13.9% vis-à-vis €575.4mn of 2008. The operating profit has reached €22.1mn – decreasing from €37.9mn registered in 2008 – due to the influence of declining advertising revenues just partly counterbalanced by the cost reduction measures adopted.
Net Profit amounted to €30.4mn (€49.5mn in 2008).
Subsequent events and outlook
No significant events have taken place since the end of 2009. The macroeconomic framework evolution over 2010 is still characterized by poor visibility; anyway, the expected weak growth of the Italian economy – thereby, of domestic consumption – does not allow any prediction of a neat recovery of advertising investments.
Therefore, in spite of the positive trend recorded by the Group’s advertising revenues in the first months of 2010, uncertainty still hovers over expectations for the current year.
Anyway, in the present framework, the Group will benefit from further positive and significant effects originating from the cost reduction plan and the new strength of the advertising agency, that is enabling recovery of competitiveness in the advertising market.
Finally, the Group is implementing a powerful editorial development plan regarding the new media that shall entail a larger distribution of its contents through all the new platforms.
Verification of requisites for independence of the members of the Board of Directors and Board of Statutory Auditors
The Board of Directors has verified its members’ requisites for independence and confirmed that the following members are entitled: (Ms) Agar Brugiavini, Mr. Giorgio Di Giorgio, Mr. Mario Greco, Mr. Tiziano Onesti and Mr. Luca Paravicini Crespi. Requisite for independence and honorability were also confirmed for the members of the Board of Statutory Auditors.
Proposal submitted to the Shareholders’ Meeting to revoke the existing proxy and authorize a new proxy for share buyback
The Board of Directors, acknowledging that own shares in portfolio are as of today no. 7,980,000 (average book value €2,66 each) equal to 1.95% of Share Capital, deliberated to propose to the Shareholders’ Meeting to revoke, for the time left and for the non-utilized part, the existing proxy for share buyback, and simultaneously confer a new proxy. Also considering the capital structure of the Group, the buyback could be a good lever to create value in favor of the shareholders. The requested proxy shall comply with the following requirements: a) duration: 18 months after the first day subsequent to approval by the Shareholders’ Meeting; b) maximum number of ordinary shares that may be purchased: 20,000,000, equal to about 4.9% of Share Capital; c) the price of each share buyback must neither be 10% higher nor 10% lower of the reference price registered by ordinary shares in the regulated market trading session prior to each operation.
Proposal of 2010 stock option plans to the Shareholders’ Meeting
The Board of Directors has decided to propose to the Ordinary Shareholders Meeting, as an incentive for the Group’s employees, a new stock option plan for 2010.
Call for Ordinary Shareholders’ Meeting
The Ordinary Shareholders’ Meeting has been called to be convened on April 21, 2010, at 11a.m. in Rome and if necessary, in second call on the subsequent day, same venue and time, to discuss and vote the following agenda: Financial Statements for the year ended December 31, 2009; proposal not to distribute any dividend on the 2009 net profit; proposal to revoke the existing proxy, and confer a new proxy to the Board of Directors to purchase own shares; 2010 stock option plans.
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