BoD approves results at 30 June 2019

The results of the half-year financial report at 30 June 2019[1] have been prepared by showing Magazines France amounts under “Adjusted result from discontinued operations” [2]

  • Consolidated revenue € 380 million versus € 390.8 million at 30 June 2018;
  • Adjusted EBITDA (before IFRS 16) € 13.8 million: +14% versus € 12.1 million at 30 June 2018;
  • EBITDA (before IFRS 16) € 12.6 million: up significantly (€ +9 million) versus € 3.5 million at 30 June 2018;
  • Adjusted net result from continuing operations € -5.7 million: improving by € 9 million versus € -14.7 million at 30 June 2018;
  • Group’s net result improves significantly: € -1.9 million versus € -12.5 million at 30 June 2018;
  • Group net financial position (before IFRS 16) € -204.2 million: improving in the 12 months by € 34.2 million as a result of the steady generation of cash flow from ordinary operations

TARGETS FOR CONTINUING OPERATIONS IN 2019 CONFIRMED

  • Slight drop in revenue;
  • Single-digit growth of adjusted EBITDA (before IFRS 16);
  • Strong growth (before IFRS 16) in net result (forecast in the range of € 30-35 million);
  • Cash flow from ordinary operations forecast at approximately € 45 million, creating sustainable conditions for a possible future return to a dividend

[1] As of 1 January 2019, the Group has adopted the new IFRS 16 – Leases. The new standard provides a new definition of lease (operating leases) and introduces a criterion based on the control (right of use) of an asset to distinguish leases from service contracts, the differences lying in: the identification of the asset, the right to replace the asset, the right to essentially receive all the financial benefits arising from the use of the asset, and the right to control the use of the asset underlying the contract. The standard introduces a single lessee accounting model, by which an asset under an operating lease is recognized in assets with an offsetting financial liability. P/L will no longer record lease payments as operating/general costs, rather the depreciation of the booked asset and the financial expense implicit in the lease payment. An exception to this accounting model are leases regarding low-value assets and those with a term of 12 months or less.

[2] In 2019, the “Adjusted result from discontinued operations” included the net result of Mondadori France in the current year, together with the recognition of the fair value adjustment of the disposal group, to reflect the negotiations in progress. This item also includes the financial expense held by the Parent Company, but attributable to Mondadori France and charged to the latter under the intercompany loan agreement (approximately € 1.3 million). The “Adjusted result from continuing operations” and the “Adjusted result from discontinued operations” therefore differ by this amount from the amounts of the statements attached to this Report (equal to € 5.2 million in first half 2019 and € 3.9 million in first half 2018), prepared in accordance with IFRS international accounting standards. To enable a like-for-like comparison, 2018 figures have been restated accordingly.

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 2019, presented by CEO Ernesto Mauri.

HIGHLIGHTS OF FIRST HALF 2019
In first half 2019, in line with the targets set, the Group recorded adjusted EBITDA from continuing operations of € 13.8 million, up by 14% net of the effect of the application of IFRS 16.

Actions continued to be taken to improve operations in the Books Area and to reduce costs, as well as to strengthen the Digital component in Magazines Italy.

The six months saw significantly lower restructuring and reorganization costs than in the same period of 2018, due to the planned reduction and different timing of the divestment of non-strategic businesses and the reorganization of Group activities.

This trend, together with the extended positive performance of cash generation from ordinary operations, paves the way to the achievement of the targets set and disclosed for the entire financial year 2019.

PERFORMANCE AT 30 JUNE 2019
Consolidated revenue in first half 2019 came to € 380 million versus € 390.8 million in the prior year, due partly to the change in the consolidation scope of Magazines Italy following the sale of Inthera S.p.A. and Panorama.

Adjusted EBITDA (before IFRS 16) for the period under review came to € 13.8 million, up by € 1.7 million versus the prior year (€ 12.1 million), with a percentage on revenue increasing from 3.1% to 3.6%.

IFRS 16 adjusted EBITDA came to € 21.8 million and includes the IFRS 16 impact of € +8 million.

EBITDA (before IFRS 16) grew strongly versus the prior year, from € 3.5 million to € 12.6 million, including the increase in adjusted EBITDA and the significant reduction in restructuring costs recorded in the first half of the year.

IFRS 16 EBITDA amounted to € 20.6 million and includes the IFRS 16 impact of € +8 million.

EBIT (before IFRS 16) at 30 June 2019 amounted to € 1.5 million, increasing sharply versus € -6.6 million at 30 June 2018, as a result of the dynamics of the above components, and includes amortization, depreciation and write-downs of € 11.1 million, slightly higher than the prior year.

IFRS 16 amortization and depreciation amounted to € 7.4 million.

IFRS 16 EBIT amounted to € 2.1 million and includes the IFRS 16 impact of € +0.6 million.

The consolidated result before tax came to € -1.6 million, improving strongly versus € -16.1 million in first half 2018. It includes:

  • the decrease in financial expense (from € -1.4 million to € +0.3 million) as a result of lower average net debt;
  • the result of the associates (consolidated at equity) from € -8.2 million to € -3 million.

The adjusted net result from continuing operations improved by approximately € +9 million and amounted to € -5.7 million versus € -14.7 million at 30 June 2018.

The net result from discontinued operations came to a positive € 3.9 million and includes the positive effect of the fair value adjustment of Mondadori France at 30 June 2019.

The Group’s net result was € -1.9 million, improving strongly versus € -12.5 million at 30 June 2018.

At 30 June 2019, the net financial position (before IFRS 16) stood at € -204.2 million, improving by € 34.2 million (approximately -14%) versus € -238.4 million at 30 June 2018, as a result of the ongoing cash generation from ordinary operations of continuing operations, amounting to
€ 46.5 million
.

Including the effect of the application of IFRS 16 (€ -102 million), the Group’s net financial position at 30 June 2019 stood at € -306.2 million.

At 30 June 2019, with regard to continuing operations, Group employees amounted to 2,117 units, down by approximately -5% versus 2,224 units at June 2018, as a result of the sale of Panorama and of efficiency gains in the individual business areas, and excluding the 691 employees of Mondadori France.

Cost of personnel[1] of continuing operations in the first six months of the year amounted to € 79.3 million, down by approximately 7% versus the same period of 2018, as a result of the ongoing reduction in the workforce and of the sale of Inthera and Panorama.

CONSOLIDATED FINANCIAL HIGHLIGHTS IN SECOND QUARTER 2019
Consolidated revenue in second quarter 2019 amounted to € 213.1 million, steady versus the prior year, despite the effect of the change in the consolidation scope of Magazines Italy following the sale of Inthera S.p.A. and Panorama.

In the Books Area, revenue in the second quarter increased by approximately 8%, while the Retail Area grew by approximately 1%; the Magazines Italy Area fell by 5% on a like-for-like basis as a result of the dynamics of the relevant markets.

Adjusted EBITDA (before IFRS 16) came to € 16 million, up by € 1.1 million versus the prior year
(€ 14.9 million).

IFRS 16 adjusted EBITDA came to € 20.1 million and includes the IFRS 16 impact of approximately
€ +4 million.

BUSINESS OUTLOOK[2]
The Group will continue its strategic repositioning and further focus on its core businesses, in particular by consolidating its leadership in the Books Area, completing the sale of Mondadori France and identifying new areas of development.

In line with the outlined strategy and in light of the current relevant context, including the performance in the first half, the operating targets for 2019, based on the current scope, allow the Group to confirm, at a consolidated level, a slight decrease in revenue and a single-digit growth of adjusted EBITDA before IFRS 16 versus 2018.

The net result from continuing operations in 2019 is expected to be significantly higher than last year (in the range of € 30-35 million).

Cash flow from ordinary operations in 2019 is forecast at approximately € 45 million, creating sustainable conditions for a possible future return to a dividend.

PERFORMANCE OF BUSINESS AREAS

  • BOOKS

In the first six months of the year, the trade books market grew by +4%[3] versus the first six months of the prior year. During the period, the Mondadori Group retained its leadership, with an overall 25.3% market share.

Revenue in the Books Area in first half 2019 amounted to € 183.8 million, up by 2.7% versus € 179 million in first half 2018. Specifically: the Trade Area recorded a +1.6% increase, the Educational Area +5.4%.

Adjusted EBITDA (before IFRS 16) came to € 15.6 million, up versus the same period of 2018
(€ 13.3 million), as a result of the ongoing improvement in operations.

IFRS 16 adjusted EBITDA came to € 16.2 million and includes the IFRS 16 impact of approximately
€ +0.6 million.

EBITDA (before IFRS 16) amounted to € 15.2 million, up versus € 12.5 million at 30 June 2018.

IFRS 16 EBITDA amounted to € 15.8 million and includes an impact of approximately € +0.6 million.

  • RETAIL

The relevant market for the Retail Area is books (approximately 83% of store revenue), where Mondadori Retail has a 12.8% market share.

In the first six months of the year, the Retail Area recorded revenue of 81.4 million, down slightly
(-2%) versus € 83.1 million in first half 2018.

The analysis by channel shows the following:

  • a +1.2% increase by direct bookstores, as a result of the performance of the new stores in Roma Valle Aurelia and Taranto, opened respectively in April and September 2018 (-1.8% on a like-for-like basis in terms of stores);
  • an approximately 12% drop by Megastores, due mainly to the shrinking sales of consumer electronics (-11.3% on a like-for-like basis in terms of stores);
  • the Franchised Bookstores are in line with the prior year (also on a like-for-like basis in terms of stores);
  • a slight decrease by the online segment (-3.4%);
  • a slight fall by the Clubs channel versus the prior year (approximately -3%).

In first half 2019, Mondadori Retail’s adjusted EBITDA (before IFRS 16) came to € -4.6 million versus € -3.2 million at 30 June 2018.

IFRS 16 adjusted EBITDA came to € -0.6 million and includes the IFRS 16 impact of € +3.9 million.

EBITDA (before IFRS 16) amounted to € -4.8 million, down versus € -3.5 million at 30 June 2018.

IFRS 16 EBITDA amounted to € -0.9 million and includes the IFRS 16 impact of € +3.9 million.

  • MAGAZINES ITALY

In the first five months of 2019, the Italian advertising market reported a growth in digital channels (+2%) and a -15.4% drop in magazines[4].

Circulation also declined in Italy in the period (-12.3%), with a slowdown in both the newsstands and subscriptions channels.

The Mondadori Group’s market share in this segment stood at 28.8%[5].

The Magazines Italy Area generated revenue of € 130.9 million versus € 147.5 million in first half 2018 (-3.9% net of the disposals of Inthera and Panorama).

Specifically:

  • circulation revenue and revenue from add-on sales recorded an overall reduction of 12.5% versus first half 2018 (-5.9% net of the sale of Panorama);
  • advertising revenue was down overall by -10.2%: the digital channel recorded a growth of approximately +15% versus first half 2018. The percentage of digital revenue on the total rose to approximately 39% versus 30% at 30.06.2018.
  • distribution activities and other revenue fell by 9% versus the prior year, due to the sale of Inthera (+5.9% excluding Inthera).

The Mondadori Group retained its position as Italy’s leading digital publisher in the latest comScore survey in May, with a reach of 77% and 29.3 million unique users in the month.

Adjusted EBITDA (before IFRS 16) from the Magazines Italy Area came to € 6.8 million, in line with the same period of 2018 (€ 6.8 million), as a result of the actions aimed at reducing operating and structural costs, the ongoing improvement in the digital area and the positive effects of the sale of Inthera and Panorama.

IFRS 16 adjusted EBITDA amounted to € 6.9 million.

EBITDA (before IFRS 16) amounted to € 6.3 million, up sharply versus € -0.1 million at 30 June 2018, as a result of lower restructuring costs.

IFRS 16 EBITDA amounted to € 6.4 million.

  • MAGAZINES FRANCE (discontinued operations)

In first half 2019, Mondadori France generated revenue of € 139.8 million (€ 152.9 million in first half 2018). Specifically:

  • circulation revenue (approximately 80% of the total) was down by 5.1%;
  • advertising revenue fell by 17% overall.

Adjusted EBITDA came to € 11.4 million versus € 12.1 million in the first six months of the prior year.

EBITDA amounted to € 11 million versus € 10.8 million in the first six months of 2018.

SIGNIFICANT EVENTS AFTER FIRST HALF 2019
On 24 July, the sale of the subsidiary Mondadori France S.A.S. to Reworld Media S.A. received clearance from the Autorité de la Concurrence.

In accordance with the remedy set out in the clearance, Reworld Media undertakes to sell a title of its choice that could be either L’Auto-Journal, published by the joint venture EMAS (Editions Mondadori Axel Springer) or Auto Moto, published by Reworld Media.

The parties have agreed to update – according to the terms disclosed on 24 July 2019 – the structure of the consideration from the transaction, which remains, as expected, equal to € 70 million (cash free/debt free), also adding an earn-out of € 5 million.

Additionally, on 29 July 2019, the Shareholders’ Meeting of Reworld Media resolved to grant the Board of Directors the power to implement the reserved capital increase.

The transaction remains subject to the provision of the bank loan, already authorized, to Reworld Media.

Following the authorization given by the Shareholders’ Meeting of 17 April 2019, on 10 June Arnoldo Mondadori Editore launched a share buyback programme.  

Following the transactions carried out so far and disclosed to the market in accordance with current legislation, Arnoldo Mondadori Editore S.p.A. currently holds no. 1,728,703 treasury shares, equal to 0.661% of the share capital and to 0.431% of the total voting rights.

The documentation relating to the presentation of the results at 30 June 2019, is made available through the authorized storage mechanism 1Info (www.1info.it) and in the Investors section of the Company website www.mondadori.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:

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

[1] Cost of enlarged personnel includes costs for collaborations and temporary employment.
[2] Before application of IFRS 16.
[3] Source: GFK, June 2019 (figures in terms of market value). As of May 2019, GfK has expanded its coverage panel by increasing the survey of e-commerce operators; as a result, the overall market value and the YoY deviations have been restated pro-forma and the details by channel have been reviewed by merging book chains and e-commerce.
[4] Source: Nielsen, cumulative figures at May 2019
[5] Internal source: Press-Di, cumulative figures at May 2019 (newsstands + subscriptions) in terms of value