Today, the meeting of the Board of Directors of Arnoldo Mondadori Editore S.p.A., chaired by Marina Berlusconi, reviewed and approved the Interim Management Statement at 31 March 2020 presented by CEO Ernesto Mauri.

HIGHLIGHTS OF FIRST QUARTER 2020
In 2020, after the first two months of activity aligned with Group forecasts, the performance in March was inevitably marked by the adverse effects of the health emergency brought by the spread of COVID-19.

Starting from the first ten days of March, in fact, the gradual and increasingly widespread application of restrictive measures to social and economic activities has significantly curtailed part of the activities in the businesses where the Group operates as a leader.

Specifically, as from 12 March, the application of government measures has led to the closure of the physical channel of bookstores across the Country, with immediate direct effects on the performance of the Group’s Retail business.

At the same time, Trade book sales have fallen sharply, limited as they are to the e-commerce channel alone (which in turn is restricted to the above products) and, to a much lesser extent, to the large retailers channel.

The emergency measures have concurrently led to the closure of museums, archaeological parks and bookstores across all Italian regions, with a resulting reduction in activities, therefore in revenue, of the Group companies operating in these areas.

Lastly, the Media^[1] business too has recorded declines following closure of part of the newsstands in Italy and the decrease in advertising sales.

The Mondadori Group has set up and implemented a series of activities to mitigate the effects of the economic juncture, through actions to contain operating and personnel costs.

In order to reduce the impacts on the business areas, the Company has:

• taken steps to contain and cut operating costs also by renegotiating contracts and reviewing rates;
• promoted the use of outstanding holidays and the procedures for social safety nets;
• resolved on the reduction of the variable remuneration of Group Management for 2020;
• placed particular emphasis on the management of the Group’s working capital (with specific actions on customers and suppliers).

More specifically, for the different business activities:

• in the Trade Area, the editorial programmes have been reshaped and rescheduled, with a plan to phase out “minor” titles;
• in the Education Area, actions have been taken to curb or eliminate the costs related to the stoppage and canceling of museum and archaeological park activities;
• in the Media Area, a strict policy has been adopted to reduce the production costs of the various titles;
• in the Retail Area, during the lockdown period, a plan has been implemented to reduce overheads relating to the points of sale.

PERFORMANCE AT 31 MARCH 2020
In light of the extraordinary emergency situation that materialized in March, the Mondadori Group performed as follows in first quarter 2020:

• consolidated revenue amounted to € 135.3 million, down by 18.9% versus € 166.8 million in the same period of 2019 (-17.1% on a like-for-like basis, net of the change in the scope of consolidation from the disposal of the five titles in December 2019). The downturn is attributable mainly to the effects of COVID-19;

• adjusted EBITDA in the period under review amounted to € -3.1 million, down by € -4.8 million versus € 1.7 million in 1° quarter 2019. The decline is due mainly to the effects of COVID-19, obviously also considering the first positive effects of the actions taken;

• EBITDA amounted to € -4.2 million, down versus € 1.1 million in the first quarter of the prior year;

• EBIT amounted to € -14 million, down versus € -7.2 million at 31 March 2019, due to the dynamics of the above components and to higher amortization, depreciation and write-downs, which rose to € 9.8 million from € 8.4 million in 1° quarter 2019.

• the consolidated result before tax amounted to € -23.8 million versus € -9.2 million in first quarter 2019;

• the result from continuing operations amounted to € -19.1 million versus € -7.9 million in first quarter 2019, due to the net impact of € 5.2 million from the adjustment to market value of the Reworld Media shares held;

• the Group’s net result amounted to € -19.1 million versus € -3.5 million in 1° quarter 2019 (which had also included the temporarily positive result of € 4.9 million from discontinued operations, in addition to the above net impact of € 5.2 million relating to Reworld Media shares);
• the net financial position before IFRS 16 stood at € -96.9 million, improving sharply by approximately 46% versus € -179.3 million at 31 March 2019, as a result of the disposal of Mondadori France (€ 62.8 million) and of the cash generation from ordinary operations in the context of continuing operations in the last 12 months, equal to € 45.8 million versus € 48.5 million at 31 December 2019;

• the IFRS 16 net financial position stood at € -193.9 million and includes the IFRS 16 impact of € -97 million.

The Group’s financial situation and medium-term prospects, despite the significant stress put on the entire global economic system in this specific historical juncture, allow it to maintain a positive attitude towards future developments, albeit in a partly and inevitably affected economic scenario for 2020.

At 31 March 2020, Group employees in the context of continuing operations totaled 1,942 units, down by 8% versus 2,111 units at March 2019 (excluding the employees of Mondadori France at 31 March 2019), as a result of the disposal of the five titles and efficiency gains in the individual business areas.

Update on COVID-19 measures
Since 23 February 2020, the Group has taken immediate action to implement all the preventive measures required to protect the health of its employees and associates, in accordance with the provisions of the Ministry of Health and in conjunction with the company health officer, and to reduce the impact of the health emergency on the performance of the business areas.
Additionally, the Group is constantly monitoring the situation and providing updates on developments, also in order to guarantee the entire company population real-time access to information that is essential for the safe performance of work activities.

For such reason, the Mondadori Group has:

• set up a cross-functional Crisis Committee with workers’ representatives to indicate the urgent measures needed and coordinate actions taking account of the specific nature of each company area;
• from the onset further encouraged smart working, enabling almost all workers to do so, with a physical presence only of staff tasked with monitoring the sites;
• published and made available to the entire company population a Company Anti-Contagion Protocol, containing the principles and rules adopted and to adopt;
• fitted itself with the necessary personal and corporate protective equipment, distributed sanitizers to the company population, and installed spray dispensers inside the premises;
• arranged for workplace sanitation in coordination with the company health officer, the relevant authorities, the Safety Managers and the Workers’ Trade Union Representatives;
• carried out training on how to behave in order to perform remote activities safely, through online workshops and webinars;
• introduced new services for employees and associates, including a website that is permanently accessible with all the necessary information, a dedicated email address to submit specific questions and requests, and psychological counselling desks both online and within the company;
• assessed the adequacy of the measures taken to comply with the principles of privacy

Disclosure on this activity has been provided to the corporate control bodies and Internal Committees, also in order to receive guidance on the strategies to adopt, both in the initial phase of the health emergency and in preparing the gradual return of workers to the sites.

BUSINESS OUTLOOK
Given the poor visibility of the possible range of scenarios produced by the effects of COVID-19, macroeconomic and sector estimates predict downturns in the Group’s relevant markets that are clearly unmeasurable at this time.
For this reason, as things stand, the elements that contribute to the development of forecasts for the year remain highly uncertain: in particular, how the pandemic evolves and how demand reacts amid the potential materialization of a severe recession.

This highly unstable backdrop does not allow for the development of a new and reliable guidance.

In order to alleviate the effects of the current economic juncture, the Group has implemented measures to reduce costs and select investments and has prepared for recovery, providing adequate safety standards consistent with regulatory guidance.

The Group has also started an analysis of the organization models and processes to make the most of the current experiences and use them to gain ongoing benefits in terms of efficiency of a number of adopted and planned solutions (e.g. digitization, computerization and smart working most of all).

PERFORMANCE OF BUSINESS AREAS

• BOOKS

In Italy until February, the trade book market had decreased by -1.1% versus the same period of 2019; in March, the decline grew to -29.3%, reaching -9.6%^[2] at the end of the first quarter.

This abnormal downturn in demand over the last month of the quarter is linked to the COVID-19 emergency and the related health measures, which led, among other things, to the total closure of independent bookstores and book chains from the second ten days of March.

Despite the sharp increase of the e-commerce channel, the only channel actually operating in the second half of March, sell-out figures obviously witnessed a slump.

Against this backdrop, the Mondadori Group retained its leadership position, with a total market share of 23.4% in the trade area and 4 titles appearing in the top ten bestselling books in terms of value in the first three months of the year: La misura del tempo by Gianrico Carofiglio (Einaudi); Le fantafiabe di Luì e Sofi by Me contro Te (Mondadori Electa); In cucina con voi! by Benedetta Rossi (Mondadori Electa); Una gran voglia di vivere by Fabio Volo (Mondadori).

In the first three months of 2020, the Area’s revenue amounted to € 58.2 million, down by 17.1% versus
€ 70.2 million in first quarter 2019. Specifically:

• in the Trade Area, revenue amounted to € 39.1 million (€ 48.2 million in 2019), down by 19.1%, due to the abovementioned effects of the COVID-19 health emergency. The closure of the Bookstores and Chains channels in the second half of March made it clearly impossible to supply a significant part of the market (approximately 65% of the total). Despite the increases recorded in the e-commerce channel, the impact on revenue was heavy.

The Group set aside the planned launch of new titles, rescheduling them by pushing back the planned publications. The editorial programmes remain, however, basically confirmed, albeit with a different timing and the phase out of a number of minor titles.

• in the Educational segment, marked in the first quarter by the seasonal nature of the school textbooks business (with most of revenue generated from June to October), revenue amounted to € 16.7 million on a like-for-like basis, down by -10.2% versus € 18.6 million in the same period of 2019. The downturn in revenue, amounted approximately to € 2 million, is due largely to the museum business, which was impacted by the adverse effects of the COVID-19 health emergency, with urgent measures that led to the gradual closure from the beginning of March of the museums, archaeological parks and bookstores in which Electa operates.

Revenue from the sale of e‐books and audiobooks increased by +26% versus the same period of 2019, accounting for almost 10% of total revenue for the period (6% in 2019). The audiobook component accounted for approximately 13% of total digital revenue, up from 7% in 2019.

These increases in revenue are attributable to the situation generated by COVID-19 and the previously mentioned constraints on the distribution and marketing of physical books.

In the first quarter of the year, adjusted EBITDA amounted to € -4.5 million versus € -0.2 million in 2019.

EBITDA amounted to € -5.2 million versus € -0.3 million in 2019.

In the period under review, the Area recorded an EBIT of € -8.3 million versus € -2.8 million in 2019.

• RETAIL

In first quarter 2020, the book market (which accounts for over 80% of revenue^[3] in the Retail Area) suffered, as mentioned, a decline (-9.6%^[4]) versus the same period of the prior year, due to the COVID-19 emergency.

Specifically, the quarter was negatively impacted by the urgent measures to contain the COVID-19 contagion, which led to the closure of physical bookstores throughout the country from 12 March 2020.

Against this backdrop, the market share of Mondadori Retail stood at 10.9%, operating in the final part of the quarter through the online channel alone.

In the first three months of the year, revenue in the Retail Area amounted to € 31.1 million, down by 24.8% versus € 41.3 million in the same period of the prior year, due to the abovementioned government COVID-19 measures. Specifically, considering March alone, sales were -65.8% lower than in 2019; the online channel bucked the trend (+13.5%) and grew by approximately +130% in March.

In the first quarter of the year, adjusted EBITDA amounted to € -1.2 million versus € -0.5 million in the same period of 2019, due to the mentioned drop in revenue.

At 29 February, the business unit’s adjusted EBITDA improved by € +0.3 million versus the same period of the prior year, thanks to careful cost management and the deep organizational and process review implemented in the second half of 2019.

At the end of the quarter, EBITDA amounted to € -1.3 million (versus € -0.6 million in the first three months of 2019).

In the period under review, the Area recorded an EBIT of € -3.8 million (versus € -3.2 million in first quarter 2019).

• MEDIA^[5]

In the first two months of 2020, the Group’s relevant markets, still unscathed by the COVID-19 emergency, showed the following trends[6]:

• in terms of advertising, a growth in digital channels (+4.8%) and a decline in magazines (-12.2%);
• in terms of circulation, a drop in magazines of -8.8%.

Against this backdrop, the Group retained its leadership position with a 23.3% market share in terms of value[7].

The market, especially advertising, inevitably suffered in March from the ripple effects of the COVID-19 health emergency.

In first quarter 2020, the Media Area recorded revenue of € 50.6 million, down by 19.6% versus
€ 63 million in 2019 (-14.8% net of the disposal of the five titles). In the first two months of the year, the drop in revenue in the Media Area on a like-for-like basis was in line with the guidance and the performance of the relevant market, amounting to approximately -10%.[8]

Specifically, in the period under review, the Area performed as follows:

• circulation revenue was down by 23%, a performance affected both by the disposal of the five titles and by the COVID-19 impact; net of these discontinuities, the estimated decline was around -10%.
• advertising revenue decreased by 24% in total and -20% on a like-for-like basis. Approximately 60% of the drop is attributable to COVID-19 and can be estimated at € 1.8 million, including the decline in revenue from proximity marketing solutions (AdKaora) virtually halted by the lockdown.

Digital revenue as a percentage of total advertising revenue was approximately 48% (up from 42% in 2019).

• distribution activities and other revenue fell by 10% versus the prior year (-9.9% net of discontinuities in 2019).

The Mondadori Group retained its position as the leading multimedia publisher in Italy: on the web, with an 84% reach and approximately 33 million unique users in March[9]; in social media, with an aggregate fan base of 32 million[10]; in magazines, with 16 million readers per month.

Adjusted EBITDA amounted to € 2 million in the first quarter of the year, down slightly versus 1° quarter 2019 (€ 2.6 million), due to the effective measures to contain operating costs.

EBITDA amounted to € 1.8 million versus € 2.3 million in 2019.

In the period under review, the Area recorded an EBIT of € -0.1 million versus € 1 million.

NEW EXECUTIVE DIRECTOR CO-OPTED
The Board of Directors, which met today, resolved to co-opt Alessandro Franzosi as executive director, in view of the position to hold as Chief Financial Officer of the Mondadori Group as from 4 June, as announced on 23 March.

The new executive director was co-opted following the resignation of Oddone Pozzi from the role of director, effective as from 22 April.

Additionally, as from June 4, Alessandro Franzosi will concurrently hold the position of Financial Reporting Manager, pursuant to Article 24 of the Bylaws and Article 154 bis of Legislative Decree 568/1998. The appointment will be effective until expiry of the term of office of the Board of Directors or until a different resolution is passed.

Based on the information available to the Company, to date Alessandro Franzosi holds no shares of the Company.

His professional profile is available on the website www.gruppomondadori.it, Governance section.

The documentation relating to the presentation of the results at 31 March 2020, 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 Interim Management Statement at 31 March 2020 will be made available on the authorized storage mechanism (www.1Info.it) and in the Investors section of the Company’s website www.gruppomondadori.it by today’s date.

PUBLICATION OF THE MINUTES OF THE SHAREHOLDERS’ MEETING
Arnoldo Mondadori Editore S.p.A. informs that the minutes of the Ordinary Shareholders’ Meeting held on 22 April 2020 are available on the authorized storage mechanism (www.1info.it) and in the Governance section of the Company’s website www.gruppomondadori.it.

The Financial Reporting Manager – Oddone Pozzi – hereby declares, pursuant to Article 154 bis, paragraph 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 complete pdf):

• Consolidated balance sheet;
• Consolidated income statement;
• Group cash flow;
• Glossary of terms and alternative performance measures used.

^[1] As from 1 January 2020, the activities referring to Mondadori Group magazines and websites, as well as the equity investments in the Magazines Italy Area, were transferred to the wholly-owned subsidiary Mondadori Media S.p.A.

^[2] GFK, March 2020 (figures in terms of market value). As a result of the COVID-19 health emergency and closure of the physical channel of Bookstores and Chains, GFK has temporarily suspended the presentation of sell-out figures by channel.  The relating breakdown is, therefore, unavailable at this time.

^[3] Product revenue excluding Club revenue

^[4]GFK (in terms of value)

^[5] As from 1 January 2020, all the activities referring to Mondadori Group magazines and websites, as well as the investments in the Magazines Italy Area, were transferred to Mondadori Media S.p.A. (100% owned by Arnoldo Mondadori Editore S.p.A.).

^[6]Nielsen, cumulative figures at February 2020

^[7] Internal source: Press-di, figures at February 2020 (newsstands + subscriptions channel) in terms of value

^[8] Management Reporting

^[9] Comscore (March 2020)

^[10] Storyclash (March 2020)