BoD approves results at 31 December 2016

  • Consolidated net revenue of 1,262.9 million euro: +12.4% versus 1,123.2 million euro in 2015; -2.9% on a like-for-like basis
  • Adjusted EBITDA[1] improves sharply to 108.5 million euro: +48.5% versus 73 million euro in 2015; +20.7% on a like-for-like basis
  • Net profit of 22.5 million euro: tripling versus 6.4 million euro in 2015
  • Net financial position: -263.6 million euro versus -199.4 million euro in 2015 net debt reduced by approximately 100 million euro over last three years,  despite capital expenditure for the acquisitions in 2016

Guidance for 2017-2019 three-year period

  • 2017-2019: completion of path to strengthen competitive position and improve the business and financial performance of core businesses
  • 2017 estimates: pro-forma revenue basically steady versus 2016[2]; high single-digit growth in adjusted EBITDA; 30% increase in net profit; net debt to reduce and reach debt/adjusted EBITDA ratio between 2.2/2x
  • 2019 estimates: consolidated revenue above 1.3 billion euro; adjusted EBITDA of approximately 115 million euro; net profit of 35 million euro; cash generation from ordinary operations around 60 million euro; net financial position of approximately -155 million euro

[1] Adjusted EBITDA: gross operating profit net of income and expenses of a non-ordinary nature (Glossary: annexe 8)

[2] Pro-forma figures: consolidation of the companies acquired in 2016 (Rizzoli Libri and Banzai Media) assumed as from 1 January 2016.

Today, the meeting of the Board of Directors of Arnoldo Mondadori Editore S.p.A., chaired by Marina Berlusconi, reviewed and approved the draft Parent Company and Group consolidated financial statements at 31 December 2016[1] presented by CEO Ernesto Mauri.

2016 was a truly important year in the history of the Mondadori Group, a year in which it successfully completed its strategic repositioning and laid the structural foundations to address the challenges of its new phase of growth.

To start with, the Group confirmed the positive outcome of the path of change that it embarked on in 2014 which, thanks to the steadfast commitment to focus on its core businesses – achieved also through a number of extraordinary transactions – and contain operating costs and overheads, brought a sharp improvement in results and in Mondadori’s ability to generate financial resources.

Over the last three years, the Group has, in fact, doubled adjusted EBITDA, up from 49.1 million euro to 108.5 million euro (approximately 100 million euro pro-forma), and reduced net debt at end 2016 (-263.6 million euro) by approximately 100 million euro versus end 2013 (-363.2 million euro), despite capital expenditure for the acquisitions made in 2016 (approximately 133 million euro, net of disposals).

In 2016, a crucial step was taken with the acquisition of Rizzoli Libri, which has allowed the Group to increase the contribution of the Books business, to consolidate its presence in the Italian Trade market, and to gain a leadership position in the school textbooks market and in the international illustrated books business (USA in particular).

The acquisition of Banzai Media operations was a cornerstone in the growth strategy of Mondadori’s magazine brands: thanks to this deal, the Group has become Italy’s top publisher also in the digital area with a leadership in key areas – women, food, health&wellness – that are complementary and synergistic with the brands held in its portfolio.

2016 also marked a turning point in the relations with the financial market, following admission to the STAR segment of Borsa Italiana, the start of a path that will shine greater light on the Mondadori Group to enhance the value of the Company and of its activities.

Group performance at 31 December 2016
In 2016, consolidated net revenue totaled 1,262.9 million euro, up by 12.4% versus 1,123.2 million euro in 2015.

Pro-forma revenue (based on the consolidation of the acquired companies as from 1 January) would amount to approximately 1,280 million euro.

On a like-for-like basis, the Group dropped by 2.9%.

Consolidated adjusted EBITDA improved sharply in 2016 (+48.5%), amounting to 108.5 million euro versus 73 million euro in the prior year (pro-forma adjusted EBITDA, including the results of Rizzoli Libri and Banzai Media as from 1 January, would amount to approximately 100 million euro).

The Books Area contributed 75.3 million euro, up by 76% (net of the negative contribution in the first quarter of Rizzoli Libri) versus 42.7 million euro in 2015, while Magazines Italy tripled its contribution to reach 10.5 million euro (Banzai Media consolidated for seven months only).

Even on a like-for-like basis, the Group achieved a remarkable performance, with adjusted EBITDA at 88.2 million euro, up by over 20% versus 2015.

The quarter-by-quarter results confirm the Group’s ability to constantly improve its operational effectiveness, despite the challenging scenario of its relevant markets, deriving from the industrial revision actions and re-organization launched and implemented over the last three years, while still maintaining continuous improvement in the publishing quality of its brands as a key objective.

On a like-for-like basis, operational effectiveness improved from 6.5% to 8.1% of consolidated revenue.

Total EBITDA grew by 15.3%, from 81.6 million euro in 2015 to 94 million euro in the reporting period. 2015 benefited from net positive non-recurring items of 21.2 million euro (from the disposal of certain assets) versus net negative non-recurring items of 3.7 million euro in 2016 related to expenses deriving from acquisitions made.

Consolidated EBIT in the year amounted to 60 million euro, improving by approximately 10% versus 54.5 million euro in 2015, as a result of the abovementioned improvement in EBITDA, despite increased amortization of 7.6 million euro from the changed consolidation scope.

Consolidated profit before taxes came to a positive 42.3 million euro, up by 10.4% versus 38.3 million euro in 2015. Financial costs in 2016 amounted to 17.7 million euro versus 16 million euro in 2015, which had benefited from the positive contribution of 1.6 million euro from the derecognition of a number of put options (Kiver, MUK and NaturaBuy), despite the significant investments made in the acquisition of Rizzoli Libri and Banzai Media, which increased average net debt for the year by approximately 20 million euro, offset by a decrease in the average debt rate (inclusive of amortized costs) of approximately 0.5 bps.

Consolidated profit from continuing operations, after minority interests, came to a positive 21.6 million euro, up by 43% versus 15.1 million euro at 31 December 2015.

Group profit at 31 December 2016 came to a positive 22.5 million euro, improving by 16.1 million euro and tripling the 6.4 million euro reported in 2015 (which included the loss of 8.7 million euro from the disposal of Monradio operations). Net profit in 2016 includes a capital gain of 1 million euro, net of relating expenses, from disposals.

The Group’s net financial position at 31 December 2016 came to -263.6 million euro versus -199.4 million euro at 31 December 2015, as a result of cash outlays for extraordinary transactions of 132 million euro, despite the Group’s positive cash generation from ordinary operations of 68 million euro (48 million euro on a like-for-like basis).

At 31 December 2016, cash flow from operations came to a positive 99.4 million euro (74.4 million euro on a like-for-like basis); ordinary cash flow (after the cash-out for financial charges and taxes for the year) amounted to 67.9 million euro, which is net of the cash outlays in the January-March quarter (not consolidated in 2016) of Rizzoli Libri, attributable to the investments made and to the seasonal nature of the Education business; on a like-for-like basis, Group cash generation from ordinary operations came to 48.4 million euro, improving versus 45.4 million euro in 2015.

Cash flow from extraordinary operations came to -132.1 million euro, as a result of capital expenditure net of disposals of 132.6 million euro, restructuring costs of approximately 15 million euro, and cash-ins from prior-years’ taxes amounting to 15.5 million euro.

In 2016, Group employees amounted to 3,261 units (3,076 units in 2015); on a like-for-like basis, the headcount dropped by 6.9% versus 31 December 2015, as a result of the ongoing reorganization process implemented both in Italy and in France.

Business outlook
In 2016, the Mondadori Group accomplished the goals of strategic repositioning and business-financial stability it had set three years ago, securing itself a leadership position and positive profitability in all its business areas, while continuing to push strongly on efficiency measures consistent with the relevant market trends.

Additionally, overall profitability improved significantly in the period, with adjusted EBITDA (pro-forma)[2] at approximately 100 million euro, as well as cash flow from operations, reducing total net debt to adjusted EBITDA (pro-forma) within 2.6x.

Over the 2017-2019 three-year period, the Group will continue efforts to strengthen its competitive position and improve the business and financial performance of its core businesses, through ongoing focus on publishing quality and optimization of operational processes and cost structure, while paying particular attention to the achievement of synergies arising from the integration of Rizzoli Libri, to the development of the Digital Area of Magazines Italy, and to the plan to expand the Franchising channel in the Retail Area.

In line with the above strategy, the plan sets operational targets which, based on the current scope, allow the Group to estimate for 2019 consolidated revenue above 1.3 billion euro, adjusted EBITDA of approximately 115 million euro, a net profit of 35 million euro, cash generation from ordinary operations close to 60 million euro, and a negative net financial position of around 155 million euro, net of the impact of any dividend distribution.

In light of today’s relevant context, it is reasonable to predict for 2017 basically steady pro-forma3 revenue versus 2016 and a “high single-digitgrowth of adjusted EBITDA, with a resulting improvement in profit margins. The net profit for the year is expected to rise sharply by approximately 30%. Lastly, net debt at end 2017 is estimated to drop versus 31 December 2016, with a debt/adjusted EBITDA ratio at 2.2/2x.

Business areas
Books
In 2016, the Mondadori Group confirmed its leadership position in the Trade market with a 29.3% share (23.1% on a like-for-like basis, net of Rizzoli Libri brands), and secured itself the top position also in the school textbooks market, following the integration of Rizzoli Education activities, with a 24% share of textbook adoptions[3].

In the reporting period, the Area’s revenue totaled 475.1 million euro, up by 48.1% versus 320.8 million euro in the prior year, due basically to the effects of the consolidation of Rizzoli Libri from the second quarter.

On a like-for-like basis:

  • Trade revenue grew by 1.7%, despite the selective publishing policy focused on improving efficiency and profitability;
  • the Educational segment was basically steady (-0.4%);
  • distribution activities fell sharply due to the termination of a number of distribution contracts.

Adjusted EBITDA increased by approximately 76% to reach 75.3 million euro versus 42.7 million euro in 2015. A result ascribable to the consolidation of Rizzoli Libri as from 1 April 2016 and to the 30.8% increase on a like-for-like basis. The reporting period reaped the benefits of the new management policy launched in 2015, focused on a targeted publishing policy and on the ongoing optimization of the operating processes in the Trade segment, which significantly increased the contribution margin; concurrently, action continued on containing fixed costs which, together with the increased performance of Mondadori’s Educational Area, contributed to further improving profitability, which stood, on a like-for-like basis, at 18.2% versus 13.3% in the prior year.

 

In the April-December consolidation period, Rizzoli Libri contributed 19.4 million euro to reported EBITDA, mainly as a result of the positive performance of the schools segment, which excludes the negative contribution in the first quarter from the seasonal nature of the Education business.

The Area’s EBITDA amounted to 72.5 million euro, up by 57.7% versus 45.9 million euro in 2015, which included the capital gain of 7.6 million euro from the transfer of the interest held in the Harlequin Mondadori joint venture, despite a higher percentage of restructuring costs versus the prior year (4.3 million euro in 2016 versus 0.5 million euro in 2015). 2016, instead, included charges of 2.3 million euro for the acquisition of Rizzoli Libri.

Retail
In 2016, revenue generated by the Retail Area amounted to 199.6 million euro, in line with the prior year on a like-for-like basis. As of 1 April 2016, following the consolidation of the acquisition of Rizzoli Libri, activities relating to Librerie Rizzoli have been absorbed by the Retail Area; as a result, the Area increased revenue by an overall 1.6%.

The analysis by channel of the Area shows the following:

  • a growth in Megastores (+2.4%), driven by the openings of Milano San Pietro all’Orto in June 2015 and Arese in April 2016 (-5.5% on a like-for-like basis);
  • the good performance of franchised Bookstores (+0.2%), driven by the development of the network (-1.9% on a like-for-like basis);
  • the 4.8% drop of directly-managed bookstores (+2.7% on a store like-for-like basis);
  • the growth of the online channel (+8.6%), specifically in the Book product (+12%);
  • a more moderate drop by the Bookclub (-3.4%) than in prior years.

In 2016, the Retail Area’s adjusted EBITDA amounted to 2.3 million euro on a like-for-like basis, up by 3.6% versus the prior year (1.8 million euro including the result of Librerie Rizzoli).

A result achieved through ongoing cost-curbing measures, which led to a lower percentage of overheads and personnel costs, despite the reduction in the product margin arising from the different product/channel mix, related also to the structural decline of the book clubs channel.

EBITDA in 2016 amounted to 1.9 million euro (1.4 million euro including the result of Librerie Rizzoli) versus 1.8 million euro in the prior year.

Magazines Italy
In 2016, the Group retained its leadership of the magazine market, with a circulation share, in terms of value, of 31.7%, steady versus December 2015[4].

In the reporting period, the Area’s revenue amounted to 310.8 million euro, basically steady (+0.4%) versus 309.6 million euro in the prior year (-3.8% on a like-for-like basis, net of the effects of the acquisition of Banzai Media, consolidated as from 1 June 2016).

Specifically:

  • circulation revenue: down by approximately 3%;
  • revenue from add-on products: basically in line with 2015 (-0.6%);
  • total advertising revenue: up by approximately 13%, pushed by the acquisition of Banzai Media; on a like-for-like basis, gross advertising sales on Group brands in Italy (print+web) fell by 3.8%.

Banzai Media, consolidated as of June 2016, contributed approximately 12.8 million euro to Magazines Italy revenue, bringing overall revenue of the properties at approximately 18 million euro, basically tripling the figures of 2015, and accounting for 21% of total advertising revenue.

In 2016, the Group reached a unique audience of 16 million/month,[5] becoming Italy’s top digital publisher, a position corroborated by comScore surveys, which reported in December 2016 an audience of 23.7 million unique users/month.

Adjusted EBITDA in the Magazines Italy Area improved sharply, rising from 3.5 million euro to 10.5 million euro, despite the drop in revenue triggered by the market context, driven by the effective review of the publishing structure and by the containment of promotional activities, while retaining the traditional focus on the publishing quality of the titles. The reporting period additionally saw a sharp drop in industrial costs, achieved also as a result of the renegotiation of printing contracts.

The Area’s EBITDA confirmed the growth trend, increasing from 0.4 million euro in 2015 to 3.8 million euro in 2016, as a result of the above actions and despite higher restructuring costs.

Magazines France
Mondadori France’s revenue came to 321.6 million euro in 2016, down by -3.9% versus 334.6 million euro in 2015.

Against a shrinking market backdrop, Mondadori France retained its position as second player in the magazine advertising market, with its share (in terms of volume) steady at 10.9%.

Advertising revenue (print-digital) fell by 6.5% versus 2015: digital advertising (almost 18% of total advertising revenue) grew by over +16%, partly offsetting the decrease from print advertising sales (-10.3% in terms of value).

Circulation revenue (newsstands+subscriptions), which accounts for approximately 75% of the total, showed an overall -2.9% decline, slightly improving versus the prior year, thanks to the steady performance of subscriptions, which make for over half the total (53%).

Digital activities grew by an overall 11.6%, driven by the digital activities of the properties (+9.5%) and by NaturaBuy activities (+23.5%).

Adjusted EBITDA came to 33.2 million euro, down by 8% versus the prior year, due in particular to M&A costs in the year with margins on revenue again above 10% (10.3% in 2016 versus 10.8% in 2015).

In 2016, Mondadori France continued to focus its strategy on editorial and overhead cost containment to counter the lingering weakness of the relevant markets, with a view to further adjusting the organization to market changes, while retaining the ability to make investments in quality and in the gradual digitization of publishing activities. Digital activities continued to enjoy positively growing margins in the reporting period versus 2015.

The Area’s EBITDA, amounting to 30.8 million euro, was down by 5% versus 2015 (32.4 million euro), to a lesser extent as a result also of lower restructuring costs.

Performance of Arnoldo Mondadori Editore S.p.A.
The financial statements of the Parent Company Arnoldo Mondadori Editore S.p.A. show a loss of 15.2 million euro for the year ended 31 December 2016, improving versus 32 million euro reported in the prior year.

Main significant events after year-end
On 29 September 2016, the Board of Directors approved the plan on the merger by incorporation of the subsidiary Banzai Media S.r.l. in Arnoldo Mondadori Editore S.p.A., prepared pursuant to art. 2501-ter and art. 2505, par. 1, of the Italian Civil Code, concurrently approved by the Board of Directors of Banzai Media S.r.l.

The transaction aims to achieve the full integration of Banzai Media activities with the digital properties of Magazines Italy. The value of Banzai Media’s brands will, instead, remain separate and distinct. The merger will give birth to a unified product range with the potential to present itself as a leader to both advertisers and users, improving time to market and sharing the wealth of mutual assets and know-how, leveraging on greater streamlined business processes.

On 8 November, the Board of Directors approved the merger by incorporation, with no share exchange, of the wholly-owned company Banzai Media S.r.l., in accordance with the previously approved merger plan.

The merger, signed on 10 January, took effect for statutory purposes as from 15 January 2017, and for accounting and tax purposes as from 1 January 2017.

The Board of Directors of Arnoldo Mondadori Editore S.p.A. called the Shareholders’ Meeting on Thursday 27 April 2017 in first call.

Renewal of the authorization to purchase and sell treasury shares
Following the expiry of the preceding authorization resolved upon by the Shareholders’ Meeting on 21 April 2016, with the approval of the financial statements at 31 December 2016, the Board of Directors will propose to the next Shareholders’ Meeting the renewal of the authorization to purchase and sell treasury shares with the aim of retaining the applicability of law provisions in the matter of any additional re-purchase plans and, consequently, of picking up any investment and operational opportunities involving treasury shares.

Here below are the main elements of the proposal made by the Board of Directors:

Motivations
The motivations underlying the request for the authorization to purchase and sell treasury shares refer to the opportunity to attribute to the Board of Directors the power to:

  • to use the treasury shares purchased as compensation for the acquisition of interests within the framework of the Company’s investments;
  • to use the treasury shares purchased against the exercise of option rights, including conversion rights, deriving from financial instruments issued by the Company, its subsidiaries or third parties and to use the treasury shares for lending, exchange or transfer transactions or to support extraordinary transactions on the Company’s capital or financing transactions that imply the transfer or sale of treasury shares;
  • to undertake any investments, directly or through intermediaries, including for the purpose of containing abnormal movements in share prices, stabilizing share trading and prices, supporting the liquidity of the share on the market, in order to foster the regular conduct of trading beyond normal fluctuations related to market performance, without prejudice in any case to compliance with applicable statutory provisions;
  • to possibly rely on investment or divestment opportunities, if considered strategic by the Company, also in relation to available liquidity;
  • to sell treasury shares as part of share-based incentive plans pursuant to art. 114-bis of the TUF, and of plans for the free allocation of shares to Shareholders.

Duration
Until the Shareholders’ Meeting called to approve the financial statements for the year ending 31 December 2017.

Maximum number of purchasable treasury shares
The renewed authorization will enable the Company to reach the cap of 10% of its share capital, also considering the shares held directly and indirectly from time to time, in line with the previous authorization.

Criteria for purchasing treasury shares and indication of the minimum and maximum purchasing cap
Purchases shall be made on regulated markets pursuant to the combined provisions of art. 132 of Legislative Decree no. 58/1998, of art. 5 of Regulation (EU) 596/2014, (ii) of art. 144-bis of the Issuer Regulation, (iii) of the EU and national legislation on market abuse, and (iv) of Accepted Practices.

Specifically, purchases shall be made on regulated markets, according to operating criteria which do not allow the direct combination of the purchase negotiation proposals with pre-determined sale negotiation proposals.

The minimum and maximum purchase price would be determined under the same conditions established by the preceding Shareholders’ Meeting authorizations, i.e. at a unit price not lower than the official Stock Exchange price of the day preceding the purchase transaction, reduced by 20%, and not higher than the official Stock Exchange price of the day preceding the purchase transaction, increased by 10%.

In terms of daily prices and volumes, the purchase transactions would be completed in compliance with the conditions established in art. 3 of the Delegated Regulation (EU) 2016/1052.

With regard to the sale of treasury shares, the Board of Directors resolved to propose to the Shareholders’ Meeting to sell the shares in any appropriate manner in the interest of the Company, for purposes which include the sale on regulated markets, the exercise of option rights, including conversion rights, deriving from financial instruments issued by the Company or third parties, and support to incentive plans approved by the Shareholders’ Meeting.

To date, Arnoldo Mondadori Editore S.p.A. holds a total of no. 80,000 treasury shares, equal to 0.031% of the share capital.

For further information on the proposed authorization for the purchase and sale of treasury shares, reference should be made to the Directors’ Explanatory Report, which will be published within the time limits and in the manner prescribed by current laws and regulations.

Proposed adoption of a Performance Share Plan
The Board resolved, on a proposal from the Remuneration and Appointments Committee, to submit to the approval of the Ordinary Shareholders’ Meeting, the adoption of a Performance Share Plan for 2017/2019, in accordance with art. 114-bis of Legislative Decree no. 58 of 24 February 1998, intended for the CFO-Executive Director and/or other executive managers with strategic responsibilities and/or second-line managers/executives of the Group.

With the adoption of the Plan, the Company aims to incentivize Management to improve medium to long-term performance, in terms of both industrial performance and growth in the value of the Company.

The Plan envisages the right for beneficiaries to receive a bonus in the form of Company shares, subject to the achievement of specific targets set and measured at the end of the three-year performance period from 2017 to 2019.

These targets are structured to include both shareholder remuneration indicators and management indicators functional to raising the share value, ensuring maximum alignment of Management remuneration and the creation of value for the Company.

For details on the proposed adoption of the Performance Share Plan, the beneficiaries and the main characteristics of the Regulations of the Plan, reference should be made to the information document drawn up by the governing body, pursuant to art. 84-bis and annex 3A of the Issuer Regulation, and to the explanatory report, which will be published within the time limits and in the manner prescribed by current laws and regulations.

Proposed amendments to the company by-laws
The Board resolved to submit a proposal to the Extraordinary Shareholders’ Meeting on amendments to art. 7 (adoption of increased voting rights pursuant to art. 127-quinquies of Legislative Decree no. 58/98) and art. 17 (amendments to appointment procedures for the Board of Directors by means of a so-called blocked lists system) of the Company by-laws. For further information on the amendments, reference should be made to the explanatory reports, which will be published within the time limits and in the manner prescribed by current laws and regulations.

Sustainability Report
The Board of Directors of Arnoldo Mondadori Editore S.p.A. also aligned financial and non-financial disclosures by approving its 2016 Sustainability Report, drafted according to the GRI Guidelines, standard G4, based on the “in accordance – core rating”.
A summary of the Sustainability Report in line with the provisions will be supplemented in the Annual Report; the complete document will be made available at the Shareholders’ Meeting.

The 2016 results, approved on today’s date by the Board of Directors, will be presented by the Mondadori Group Management to the financial community today, 5:00 PM, at the Mondadori Megastore in piazza Duomo, Milan.

The corresponding documentation will be made available on 1Info at www.1info.it, www.borsaitaliana.it and www.mondadori.com (Investors).

The Executive Manager responsible for the drafting of the corporate accounting documentation – Oddone Pozzi – hereby declares, pursuant to Art. 154 bis, par. 2, of the Finance Consolidation Act, that the accounting documentation contained in this press release corresponds to the Company’s accounting entries, books and results.

Annexes (see attached pdf):

  1. Consolidated balance sheet;
  2. Consolidated income statement;
  3. Consolidated income statement – fourth quarter;
  4. Group cash flow;
  5. Arnoldo Mondadori Editore S.p.A. balance sheet;
  6. Arnoldo Mondadori Editore S.p.A. income statement;
  7. Arnoldo Mondadori Editore S.p.A. cash flow statement;
  8. Glossary of terms and alternative performance measures used.

[1] On 30 September 2015, the transfer of 80% of the share capital of Monradio S.r.l. to R.T.I. S.p.A. was completed for a consideration of 36.8 million euro. Pursuant to IFRS 5 (“Non-current assets held for sale”), the Group’s radio business was classified as “discontinued operations” and as such entered in these consolidated financial statements. As a result, in the income statement for 2015, the results achieved in the period, along with the depreciation of operations made in order to bring their value in line with the consideration from the transfer, were classified under “Profit/(loss) from discontinued operations”.

 

[2] Pro-forma figures: consolidation of the companies acquired in 2016 (Rizzoli Libri and Banzai Media) assumed as from 1 January 2016.

[3] AIE, 2016 ministerial data based on textbook adoption (number of sections).

[4] Internal source: Press-di, December 2016.

[5] Source: Audiweb at December 2016