BoD approves results at 30 September 2019

The results of the Interim Management Statement at 30 September 2019[1] have been prepared showing Magazines France in the item “Adjusted result from discontinued operations” [2]

  • Consolidated revenue steady at € 658.9 million versus € 658.5 million at 30.09.2018;
  • Adjusted EBITDA (before IFRS 16) € 71.3 million: approximately +13% versus € 62.8 million at 30.09.2018;
  • EBITDA (before IFRS 16) up sharply to € 66.3 million: +25% versus € 53 million at 30.09.2018;
  • Adjusted net result from continuing operations of € 25.4 million: improving by over 60% versus € 15.8 million at 30.09.2018;
  • Group net result € +23.1 million versus € -181.5 million at 30 September 2018, which had included the impact from the fair value adjustment of Mondadori France of approximately € -200 million;
  • Group net financial position (before IFRS 16) € -110.4 million: improving in the 12 months by approximately € 99 million as a result of the steady generation of cash flow from ordinary operations.

TARGETS FOR CONTINUING OPERATIONS IN 2019 CONFIRMED

  • Revenue down slightly (steady on a like-for-like basis);
  • Single-digit growth of adjusted EBITDA (before IFRS 16);
  • Strong growth (before IFRS 16) of net result (forecast in the range of € 30-35 million);
  • Cash flow from ordinary operations forecast at approximately € 45 million, paving the way for the distribution of 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” includes the net result recorded by Mondadori France in the current year, together with the recognition of the fair value adjustment of the discontinued group. 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 € 1.6 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 € 0.4 million in 9M 2019 and € -193.3 million in 9M 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 Interim Management Statement at 30 September 2019 presented by CEO Ernesto Mauri.

HIGHLIGHTS OF FIRST NINE MONTHS OF 2019
In the first nine months of 2019, the Mondadori Group recorded basically steady revenue and an approximately 13% increase in adjusted EBITDA from continuing operations before IFRS 16 to
€ 71.3 million, overshooting the planned targets.

Actions continued, in fact, to be taken to improve operations in the Books Area and to reduce costs, as well as to strengthen the Digital component of Magazines Italy; additionally, the reporting period saw the disposal of Mondadori France.

The first nine months of the year recorded 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 performance (marked also by temporary benefits), together with the extended positive cash generation from ordinary operations, paves the way to the achievement of the targets set and disclosed for the entire financial year 2019.

GROUP PERFORMANCE AT 30.09.2019
Consolidated revenue came to € 658.9 million versus € 658.5 million in the prior year, despite the change in the consolidation scope of the Magazines Italy Area following the disposal of Inthera S.p.A. and Panorama (+1.5% on a like-for-like basis).

As mentioned above, adjusted EBITDA before IFRS 16 amounted to € 71.3 million, up by € 8.6 million (+13% approximately) versus the prior year (€ 62.8 million), with a percentage on revenue increasing from 9.5% to 10.8%.

IFRS 16 adjusted EBITDA amounted to € 83.4 million (IFRS 16 impact of € +12 million).

Consolidated EBITDA before IFRS 16, amounting to € 66.3 million versus € 53 million at 30.09.2018, was up sharply (+25%) versus the prior year. The result includes the increase in adjusted EBITDA and strong reductions in restructuring costs recorded in the period.

IFRS 16 EBITDA amounted to € 78.4 million (IFRS 16 impact of € +12 million).

EBIT before IFRS 16 improved significantly to € 49.2 million versus € 37.5 million at 30.09.2018, as a result of the dynamics of the above components (includes amortization, depreciation and write-downs of € 17.1 million). IFRS 16 amortization and depreciation amounted to € 11.1 million.

IFRS 16 EBIT amounted to € 50.2 million (includes the IFRS 16 impact of € +1 million).

Consolidated profit before tax was € 41.5 million, increasing sharply versus € 25.6 million in the first nine months of 2018. It includes:

  • the significant reduction in financial expense, as a result of lower average net debt;
  • improved performance by associates (consolidated at equity), from € -9.9 million to € -5.3 million in the same period of 2018.

The adjusted net result from continuing operations amounted to € 25.4 million, up more than 60% versus € 15.8 million at 30 September 2018.

Considering the net result of discontinued operations, the Group’s net result came to € 23.1 million versus € -181.5 million in 2018, which had included the impact from the fair value adjustment of Mondadori France of approximately € -200 million.

The Group’s net financial position before IFRS 16 stood at € -110.4 million, improving by approximately € 99 million versus € 209.3 million at 30 September 2018, as a result of the ongoing generation of cash flow from ordinary operations of continuing operations of € 52.5 million. The IFRS 16 Group net financial position stood at € -209.5 million.

At 30 September 2019, with regard to continuing operations, Group employees amounted to 2,092 units, down by -5% versus 2,203 units at 30 September 2018, as a result of the disposal of Panorama, of efficiency gains in the individual corporate areas, and excluding the employees of Mondadori France.

CONSOLIDATED FINANCIAL HIGHLIGHTS IN THIRD QUARTER 2019
Consolidated revenue came to € 279 million, up by 4.2% versus € 267.7 million at 30.09.2018, despite the effect of the change in the consolidation scope of Magazines Italy resulting from the disposal of Panorama.

Specifically, in the period revenue from Books increased by approximately +13% (partly temporary), while the Retail Area dropped by approximately -2%; the Magazines Italy Area fell by 7.3%, on a like-for-like basis, as a result of the dynamics of the relevant markets.

Adjusted EBITDA before IFRS 16 amounted to € 57.6 million, improving by 14% versus the prior year (€ 50.7 million), with different trends reported by the various businesses:

  • in line with the revenue trend, the Books Area grew as a result of the positive performance of both the Trade and Education areas;
  • the Retail Area fell versus 3° quarter 2018;
  • the Magazines Italy Area grew despite the declining market trend, as a result of the disposals that took place, of the ongoing improvement of the digital area and of the actions aimed at reducing operating and structural costs.

IFRS 16 adjusted EBITDA amounted to € 61.6 million (IFRS 16 impact of approximately € 4 million). Consolidated EBITDA before IFRS 16 was up sharply, amounting to € 53.7 million versus € 49.5 million of the prior year.

BUSINESS OUTLOOK
In the first nine months of 2019, the Mondadori Group continued on the path of strategic repositioning and focus on its core businesses of Books and Retail and on Magazines with greater potential for multimedia development, completing the disposal of Mondadori France and moving ahead with the finalization of the disposal of five magazines.

In line with the outlined strategy and in light of the relevant context, including the performance in the first nine months, the operating targets for 2019, based on the current scope, allow the Group to confirm, at a consolidated level, a slight decrease in revenue (steady on a like-for-like basis following years of decline) and a single-digit growth of adjusted EBITDA no 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 around € 45 million, paving the way for the distribution of a dividend in 2020.

PERFORMANCE OF BUSINESS AREAS

  • BOOKS

In the first nine months of the year, the Trade Books market grew by 4.6% versus the first nine months of the prior year[1]. The Mondadori Group retains its leadership position with a total 25.7% market share and places seven titles in the ranking of the twenty best-selling books in terms of value.

In the period under review, revenue from the Books Area amounted to € 366 million, up by 7.5% versus € 340.3 million in the first nine months of 2018, as a result of the good performance of both Trade (+9.3%) and Educational (+7.7%).

Adjusted EBITDA before IFRS 16 amounted to € 77.6 million, up versus € 68 million in the same period of the prior year, as a result of the increase in revenue and the ongoing improvement of operations. IFRS 16 adjusted EBITDA amounted to € 78.6 million (the impact of IFRS 16 was € 1 million).

Reported EBITDA before IFRS 16 amounted to € 77.1 million, improving versus € 66.8 million reported at 30 September 2018. IFRS 16 reported EBITDA amounted to € 78.1 million and includes an impact of € +1 million.

  • RETAIL

In the first nine months of 2019, Mondadori Retail generated revenue of € 126.6 million, down by 2.1% versus € 129.3 million of the same period of the prior year.

In the Books segment, the relevant market for the Area (approximately 82% of revenue[2]) with a 13.2% market share, Mondadori Retail recorded a performance of -0.7% (on a like-for-like basis -1.1%).

The analysis by channel shows the following:

  • a basic stability of direct bookstores (on a like-for-like basis -1.6%);
  • in the Megastores, an approximately 12.7% drop (on a like-for-like basis -10.7%), due mainly to the decline in sales of consumer electronics;
  • in franchised bookstores, a performance in line with the prior year (on a like-for-like basis -1.2%);
  • in e-commerce a +2% growth;
  • in the bookclub, a decrease of approximately 4% versus the prior year.

Adjusted EBITDA before IFRS 16 amounted to € -5.2 million versus € -3.4 million at 30 September 2018: the deterioration is due mainly to the decrease in revenue on a like-for-like basis and to the higher inventory write-down of consumer electronics products.

IFRS 16 adjusted EBITDA came to € +0.8 million and includes the IFRS 16 impact of € +6 million.

Reported EBITDA before IFRS 16 amounted to € -5.5 million, down versus
€ -3.7 million at 30 September 2018. IFRS 16 reported EBITDA amounted to € +0.5 million and includes an impact of € +6 million.

  • MAGAZINES ITALY

In the first nine months of 2019, the Italian advertising market reported a growth in the digital channel (+2.1%) and a fall in magazines (-15.2%)[3]. Circulation also declined (-12.3%), with a slowdown in both the newsstands and subscriptions channels.

In this context, the Mondadori Group‘s market share stood at 28.6%, steady on a like-for-like basis (excluding the disposal of Panorama)[4]. The Group also retained its position as Italy’s leading digital publisher, with a 73% reach and 28.2 million unique users in the month[5].

In the first nine months of 2019, revenue in the Magazines Italy Area came to € 191.2 million versus
€ 216.1 million at 30.09.2018 (-5% net of the disposals of Inthera and Panorama). Specifically:

  • revenue from circulation and related to add-on products was down by
    -14.1% versus the same period of the prior year, affected also by the disposal of Panorama
    (-8.5% on a like-for-like basis);
  • advertising revenue (print + digital) recorded an overall drop of -7.7% versus the first nine months of 2018 (-2% net of the disposal of Panorama): the digital component grew by approximately +18%, thanks also to the contribution of AdKaora, an agency specializing in proximity marketing solutions; print advertising sales fell by -19.5% (approximately -13% excluding Panorama in the nine months of 2018, in line with the market trend). The percentage of digital revenue on the total rose to approximately 41% (from 32% in the first nine months of 2018);
  • distribution activities and other revenue in the nine months fell by -8.7% versus the prior year, due to the disposal of Inthera S.p.A. (+2.6% excluding Inthera in the nine months 2018).

Adjusted EBITDA before IFRS 16 amounted to € 5.4 million, up versus the same period of the prior year (€ 4.1 million), as a result of the actions aimed at reducing operating and structural costs, of the ongoing improvement in the digital area, and the positive effects of the sale of Inthera S.p.A. and Panorama. IFRS 16 adjusted EBITDA amounted to € 5.5 million.

Reported EBITDA before IFRS 16 amounted to € 2.5 million, improving sharply versus € -3 million at 30 September 2018, as a result of lower restructuring costs. IFRS 16 reported EBITDA amounted to € 2.6 million.

TRANSFER TO A SINGLE COMPANY OF ALL THE ACTIVITIES INVOLVING THE MAGAZINES ITALY AREA
Today’s meeting of the Board of Directors also approved the transfer – effective from 1 January 2020 – of the Magazines business unit to a wholly-owned single company, where all the activities regarding magazine titles and the websites of Arnoldo Mondadori Editore S.p.A., as well as the investments in the Magazines Area, will be transferred.

The transaction brings no change to the overall profile of the Group’s activities or basic operating features, but completes an organization that is focused more on the peculiarities of the individual businesses, as was the case for the Retail and Books areas.

The setup is also more functional to the achievement of strategic opportunities and partnerships.

The transfer will be made on the basis of book values, with no impact on the consolidated financial statements.

The transaction is excluded from the application of the “Regulations containing provisions on transactions with related parties”, adopted by CONSOB with resolution no. 17221 of 12 March 2010, as well as the procedures adopted by Arnoldo Mondadori Editore S.p.A. on the matter, as it is a transaction with a subsidiary in respect of which the interests of other related parties of the Company cannot be considered significant (according to the criteria set out in the abovementioned procedures).

Significant events after the reporting period
On 23 October, the Group announced that it had received a binding offer for the acquisition of magazines Confidenze, Cucina Moderna, Sale&Pepe, Starbene and Tustyle by La Verità S.r.l.. The Board of Directors has resolved to authorize CEO Ernesto Mauri to implement all the actions aimed at reviewing and finalizing the transaction, in line with the announced strategy of focusing on the core businesses of Books, Retail and Magazines with greater potential for multimedia development. The offer is valid until 31 December 2019 and envisages the creation of a NewCo, whose interest will be 75% held by La Verità S.r.l. and 25% by Arnoldo Mondadori Editore S.p.A.; the offer also includes an earn-out in favour of the shareholder Arnoldo Mondadori Editore S.p.A. and put/call mechanisms in favour of shareholders. The activities relating to the 5 titles in question recorded revenue of € 22.4 million in 2018.

In accordance with the provisions of law, the procedure with the trade unions has been put into effect.

Following the authorization given by the Shareholders’ Meeting of 17 April 2019, on 10 June Arnoldo Mondadori Editore S.p.A. launched a share buyback programme. Following the transactions carried out so far and disclosed to the market in accordance with current legislation, the Company holds, to date, no. 2,641,203 treasury shares, equal to 1.010% of the share capital and 0.659% of the total voting rights.

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

The Interim Management Statement at 30 September 2019 approved by the Board will be available at the Company’s registered office, on the authorized storage mechanism 1Info (www.1info.it) and on www.gruppomondadori.it (Investors section) by today’s date.

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 – III quarter;
4. Group cash flow;
5. Glossary of terms and alternative performance measures used.

[1] Source: GFK, September 2019 (figures in terms of market value). As of May 2019, GFK has expanded its coverage panel by increasing the survey of e-commerce players; 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.
[2] Product revenue excluding the bookclub
[3] Source: Nielsen, cumulative figures at September 2019
[4] Internal source: Press-Di, cumulative figures at August 2019 (newsstands + subscriptions) in terms of value
[5] Source: comScore survey, August