Today, the meeting of the Board of Directors of Arnoldo Mondadori Editore S.p.A., chaired by Marina Berlusconi, reviewed and approved the Half-Year Financial Report at 30 June 2018^[1], presented by CEO Ernesto Mauri.

Group performance in first half 2018

In first half 2018, the Mondadori Group recorded a 9% increase in adjusted EBITDA, rebounding from the weaker performance of the first quarter of the year, in line with the forecast operating plans.

Actions continued on improving operations in the Books Area, reducing costs and focusing on the core business in the Magazines areas.

Against this backdrop, the half year comprised non-ordinary restructuring and reorganization costs functional to the structural reduction in operating costs, and to the disposal of non-strategic and non-profitable businesses in the Magazines Italy Area. 2017 had, instead, recorded most of the restructuring costs in the second half, while in the first six months of the year, it had benefited from certain gains from the disposal of assets.

This trend, together with the enduring positive performance of cash generation from ordinary operations, makes the achievement of the targets set and disclosed for the whole 2018 financial year increasingly feasible.

Consolidated revenue in first half 2018 amounted to approximately € 543.8 million, down by 5.1% versus € 573.1 million in the prior year, due mainly to the performance of the Magazines areas, attributable to the persisting negative trends of the relevant markets, in terms of both circulation and advertising. Revenue from the Books Area increased by 4%.

In the first half under review, the Group more than made up for the operating loss recorded in the first quarter, which was entirely attributable to Magazines Italy.

Adjusted EBITDA came to € 24.2 million, up by 9% versus the prior year (€ 22.2 million in first half 2017) – with a percentage on revenue growing to 4.4% (from 3.9%).

The various businesses recorded different trends:

• a sharp rise in the Books Area, driven by further operating efficiencies and for a different timing in revenue from the supplies to a number of clients in the School Textbooks segment;
• a gradual improvement in the Retail Area, as a result of the rationalization of directly-managed stores;
• a steady performance by the Magazines France Area (net of the discontinuity associated with the disposal of NaturaBuy in 2017);
• a drop in the Magazines Italy Area, previously recognized in the first quarter, while in the second quarter the ongoing actions to cut operating and structural costs offset the decline in revenue triggered by the trend of the traditional markets.

In the period under review, the Mondadori Group also continued with its effective measures to curb fixed overheads, which reduced their impact on revenue from 8.5% to 8% in the first half of the year.

Consolidated EBITDA came to € 14.3 million, down versus € 27.6 million in the first half of the prior year. This downturn reflects:

• less positive non-ordinary items versus first half 2017, which had benefited from gains of approximately € 8.5 million (€ 4.3 million from the disposal of NaturaBuy in the Magazines France Area and € 4.2 million from the disposal of a property in the Corporate & Shared Services Area);
• a loss (approximately € 2 million) by the Magazines Italy Area, due to the disposal of Inthera;
• higher restructuring costs recorded in the first half, due mostly to the Magazines Italy Area and functional to the reorganization and revision of the operating and overhead costs structure.

Consolidated EBIT came to € -1.1 million versus € +11.5 million at 30 June 2017, and includes amortization, depreciation and impairment losses of € 15.4 million, down versus € 16 million in the prior year, due to the dynamics of the abovementioned extraordinary items.

The consolidated result before taxes amounted to € -12.4 million and includes: the sharp drop in financial expenses, due to an average interest rate of 2.13% versus 4.36% in the prior year; a lower average net debt; the negative result of associates (consolidated at equity), which deteriorated due in particular to Mach2 Libri, active in the distribution of books in the Large Retailers channel and put into liquidation in 2018.

The net result came to € -12.5 million versus € +4.4 million in first half 2017, which had included net gains of approximately € 7 million and lower restructuring costs, while first half 2018 included liquidation costs of approximately € 7 million for Mach2 Libri.

The Group’s net financial position at 30 June 2018 stood at € -238.4 million, improving by approximately 16% versus € -284.4 million at 30 June 2017, due to the positive cash generation of the Group of approximately € 46 million.

At 30 June 2018, cash flow from operations in the last twelve months came to a positive € 80.3 million; cash flow from ordinary operations (after outlays for financial expenses, management of investments and taxes for the period) came to € 62.1 million, confirming the strong path of cash generation and financial improvement of the Group, and the cash conversion of adjusted EBITDA (rolling basis) to over 50%.

Cash flow from non-ordinary operations came to € -16 million, as a result of a negative acquisition/disposal value of € 5 million and of restructuring costs of approximately € 11 million.

At 30 June 2018, Group employees amounted to 2,962 units, down by 4.8% from 3,112 units at 30 June 2017, as a result mainly of the disposal of the subsidiary Inthera, despite the acquisition of Direct Channel, and of the ongoing restructuring and efficiency improvement measures involving each of the Group’s business areas. Net of these discontinuities, the drop would have been around 3.4%.

Consolidated financial highlights in second quarter 2018
Consolidated revenue in second quarter 2018 amounted to € 290.4 million, down by 3.7% versus the prior year, attributable mainly to the Magazines areas: as mentioned earlier, the Magazines Italy Area, however, saw a steady improvement in the drop in the second quarter which, net of the disposal of Inthera, would have amounted to 6.7%.

Revenue from the Books Area grew by 6.2%, due partly to a different timing in the Educational segment.

At a consolidated level, all cost items in the quarter under review reduced their percentage on revenue, despite the contraction of the latter.

Adjusted EBITDA in second quarter 2018 amounted to € 23.7 million, up significantly versus € 18.2 million in the same period of 2017, thanks mainly to the Books Area, which improved by € 5.2 million.

In the Magazines areas – both in Italy and France – the measures to reduce operating costs and overheads helped reach basically steady results versus second quarter 2017, despite the drop in overall revenue triggered by the trend of the traditional markets.

Business outlook
In light of the current relevant context and the results achieved in the first six months of the year, the forecasts on 2018, on a like-for-like basis versus 2017, previously disclosed to the market, can be reasonably confirmed: a slight drop in consolidated revenue; adjusted EBITDA basically steady; net profit up sharply in second half 2018 versus the same period of the prior year and down by approximately € 7 million for the full year versus 2017, which had included positive non-ordinary items.

Cash flow from ordinary operations is forecast at around € 55/60 million.

Business areas

• BOOKS

In the first six months of the year, the Trade Books market was basically steady versus the same period of the prior year (-0.1%)[2].

Against this backdrop, Mondadori Libri retained its leadership position with an overall 27.8% market share.

In the period under review, the Mondadori Group placed 6 titles in the ranking of the top ten bestselling books in terms of value[3]: Storie della buonanotte per bambine ribelli 2 by Cavallo Francesca, Favilli Elena (Mondadori); Quando tutto inizia by Volo Fabio (Mondadori); Storie della buonanotte per bambine ribelli. 100 vite di donne straordinarie by Cavallo Francesca, Favilli Elena (Mondadori); Origin by Dan Brown (Mondadori); Il morso della reclusa by Fred Vargas (Einaudi); Divertiti con Luì e Sofì. Il fantalibro by Me contro Te (Mondadori Electa).

In first half 2018, the Area revenue amounted to € 178.5 million, up by 4% versus € 171.6 million in the same period of 2017, driven by the positive performance of the Educational Area (+18.8%), due mainly to the timing of invoicing to large customers in the school textbooks business.

In the Trade segment, revenue fell by 5.4% versus the same period of the prior year, due mainly to the continued strategy of selective production of new titles, and the meticulous management of the related print runs, aimed at increasing operating efficiency and, therefore, overall profitability.

Adjusted EBITDA amounted to € 13.3 million, improving strongly versus € 6 million in the same period of the prior year, as a result of further operating efficiencies and of the continued management streamlining process undertaken in recent years, and of the different timing of revenue from supplies to a number of clients in the Education Area.

EBITDA amounted to € 12.5 million, confirming the abovementioned growth versus the prior year (€ 5.6 million at 30 June 2017).

• RETAIL

The relevant market for the Retail Area is books (approximately 80% of revenue[4]), where Mondadori Retail’s market share stands at 14.1%.

In the first six months of the year, revenue amounted to € 83.1 million, down slightly (-1.9%) versus € 84.7 million in the same period of the prior year. The analysis by channel versus first half 2017 shows: a 2.3% increase in directly-managed Bookstores, driven by the positive performance of Books; an approximately 11% drop by Megastores, attributable to the decline in consumer electronics sales and closure of two stores; a 3.6% increase in franchised Bookstores, in line with the strategy to strengthen this channel.

Adjusted EBITDA amounted to € -3.2 million, improving versus € -3.7 million at 30 June 2017, due to the rationalization plan of directly-managed stores. EBITDA came to € -3.5 million, rebounding sharply versus the six months of 2017 (€ -5 million), as a result of lower restructuring costs.

• MAGAZINES ITALY

In Italy, against the sharp fall of the relevant market in the first five months of 2018, the Mondadori Group retained its leadership in magazines with a 31.4% share.[5]

The Area’s revenue amounted to € 147.5 million, down by 11% versus € 165.7 million in the same period of the prior year, due also to the sharp drop in add-on sales (-23.6%).

Net of the disposal of Inthera in May, the decline would have come to 9.7%. This performance reflects a steady improvement recorded in the second quarter, which shows a 6.7% decrease (on a like-for-like basis).

In the first half, circulation revenue lost 7.1%, performing slightly better than the relevant market[6], due also to the contribution of the new titles Giallo Zafferano and Spy.

Advertising revenue (print + web) was down by 7.1%; web advertising sales were steady versus first half 2017, while print sales were basically in line with the market[7]. The percentage of digital advertising sales on the total increased to 30% (from 28% in 1° half 2017).

In the period under review, the Mondadori Group retained its position as Italy’s top traditional publisher also in the digital segment, with a total audience of 27.7 million unique users per month[8], up by 15% versus 2017. The reach on the market is close to 76% of the Italian digital population.

In the first six months of 2018, adjusted EBITDA fell by € 6.8 million versus € 11 million in first half 2017, due to the drop previously recorded in the first quarter of the current year. The digital area continued to improve in the period and increased its adjusted EBITDA by over € 1 million in the half year.

The Area’s EBITDA (€ -0.1 million versus € 10.8 million in first half 2017) reflects higher restructuring costs recorded in the period from the necessary accelerated structural reorganization and cost reduction process and from the loss generated by the disposal of Inthera.

• MAGAZINES FRANCE

In France, in a continually shrinking market in terms of circulation and advertising, Mondadori France held a 10.1% share[9], basically steady versus the prior year, ranking as second top player on the magazine advertising market.

In the first six months of 2018, revenue amounted to € 152.9 million, down by 7.3% versus € 164.9 million in the same period of 2017. In terms of circulation (approximately 77% of total revenue), the decline was -6.7% versus the prior year. Advertising revenue (print + web) fell by an overall -7.3% versus the same period of 2017, with print advertising (87% of total) down by -5.6% versus the market’s -10.7%.

Adjusted EBITDA amounted to € 12.1 million, basically steady versus € 12.5 million of the six months of the prior year, net of the discontinuity from NaturaBuy (sold in May 2017), thanks to the effective actions to contain industrial costs, and to the reorganization of the teams, which started to offset the decline in revenue triggered by the trend of the markets. Adjusted EBITDA from digital operations ended positive versus the loss recorded in first half 2017.

EBITDA amounted to € 10.8 million, down versus € 15.7 million in the first six months of 2017, which had benefited from the gain of € 4.3 million from the abovementioned disposal.

Significant events after first half 2018
Following the authorization to purchase treasury shares approved by the Shareholders’ Meeting held on 24 April 2018, on 25 June, Arnoldo Mondadori Editore S.p.A. launched a share buyback program.

On 2 July, the Group announced the purchase, in the period from 25 to 29 June, of a further 27,500 ordinary shares (equal to 0.011% of the share capital) at an average unit price of € 1.3006, for a total amount of € 35,766.85.

On 9 July, the Group announced the purchase, in the period from 2 to 6 July, of a further 16,000 ordinary shares (equal to 0.006% of the share capital) at an average unit price of € 1.3530, for a total amount of € 21,648.10.

On 16 July, the Group announced the purchase, in the period from 9 to 13 July, of a further 17,500 ordinary shares (equal to 0.007% of the share capital) at an average unit price of € 1.4700, for a total amount of € 25,725.70.

On 23 July, the Group announced the purchase, in the period from 16 to 20 July, of a further 17,500 ordinary shares (equal to 0.007% of the share capital) at an average unit price of € 1.5102, for a total amount of € 26,428.50.

On 30 July, the Group announced the purchase, in the period from 23 to 27 July, of a further 27,000 ordinary shares (equal to 0.010% of the share capital) at an average unit price of € 1.4606, for a total amount of € 39,435.25.

Following the purchases made so far, Arnoldo Mondadori Editore S.p.A. holds to date 1,025,500 treasury shares, equal to 0.392% of the share capital (including the approximately 80,000 shares purchased in the period from 30 November to 2 December 2016, as per disclosure to the market on 6 December 2016).

The documentation relating to the presentation of the results at 30 June 2018 is made available through the authorized storage mechanism 1Info (www.1info.it) and in the Investors section of the Company’s website www.gruppomondadori.it.

The Financial Reporting Manager – Oddone Pozzi – hereby declares, pursuant to art. 154 bis, par. 2, of the Consolidated Finance Law, that the accounting information contained herein corresponds to the Company’s records, books and accounting entries.

Annexes (in the pdf file):

1. Consolidated balance sheet;
2. Consolidated income statement;
3. Consolidated income statement – second quarter
4. Group cash flow;
5. Glossary of terms and alternative performance measures used.

[1] Beginning from 1 January 2018 (and to provide a consistent presentation, also for 2017), the Mondadori Group has adopted the new IFRS 15 – Revenue from Contracts with Customers – revenue recognition standard.
The new IFRS 15 presents revenue and costs differently, with no effect on EBITDA. Beginning from 2018, the result generated by associates (consolidated at equity), previously classified in adjusted EBITDA, is shown under EBIT; for consistency, 2017 has been reclassified accordingly.
[2] Source: GFK, June 2018 (figures in terms of market value)
[3] Source: GFK, June 2018 (ranking in terms of cover value)
[4] Store revenue on a like-for-like basis
[5] Internal source: Press-Di, cumulative figures at May 2018 (newsstands + subscriptions) in terms of value
[6] -9.1%: Internal source: Press-Di, cumulative figures at May 2018 (newsstands + subscriptions) in terms of value
[7] -8.6% (Nielsen, cumulative figures at May 2018)
[8] Source: comScore, average figure Jan.-May 2018
[9] Source: Kantar Media, cumulative figures in terms of volume at April 2018