INTERIM MANAGEMENT STATEMENT 30 SEPTEMBER 2014

INTERIM MANAGEMENT STATEMENT 30 SEPTEMBER 2014 24 ORE GROUP INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014 DIRECTORS’ REPORT....................
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INTERIM MANAGEMENT STATEMENT 30 SEPTEMBER 2014

24 ORE GROUP INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

DIRECTORS’ REPORT........................................................................................................................... 3 CORPORATE BODIES ................................................................................................................................. 3 STRUCTURE OF THE 24 ORE GROUP ........................................................................................................ 5 HIGHLIGHTS ............................................................................................................................................ 6 OPERATING PERFORMANCE AS AT 30 SEPTEMBER 2014 ......................................................... 7 SEGMENT REPORTING ...................................................................................................................... 13 MARKET PERFORMANCE ........................................................................................................................ 19 SIGNIFICANT EVENTS IN THE FIRST NINE MONTHS OF 2014 ............................................... 23 EVENTS AFTER 30 SEPTEMBER 2014 ............................................................................................. 25 FINANCIAL STATEMENTS ................................................................................................................ 26 HIGHLIGHTS OF INCOME STATEMENT ..................................................................................................... 26 STATEMENT OF FINANCIAL POSITION ..................................................................................................... 27 STATEMENT OF CASH FLOWS ................................................................................................................. 29 NET FINANCIAL POSITION ...................................................................................................................... 30 COMMENTARY ..................................................................................................................................... 31 GENERAL INFORMATION ........................................................................................................................ 31 FORMAT, CONTENT AND ACCOUNTING STANDARDS ............................................................................... 33 NOTES TO THE FINANCIAL STATEMENTS .................................................................................. 34 INCOME STATEMENT ............................................................................................................................. 34 STATEMENT OF FINANCIAL POSITION ..................................................................................................... 37 ATTACHED STATEMENTS ................................................................................................................ 42 OUTLOOK............................................................................................................................................... 43 DECLARATION PURSUANT TO ARTICLE 154-BIS, PARAGRAPH 2, ITALIAN LEGISLATIVE DECREE NO. 58 OF 24 FEBRUARY 1998, AS AMENDED .................................................................................................... 44

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INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

DIRECTORS’ REPORT Corporate bodies The Board of Directors and the Board of Statutory Auditors were elected by the Ordinary Shareholders’ Meeting on 29 April 2013. The Board of Directors and the Board of Statutory Auditors will remain in office until the Shareholders’ meeting held to approve the 2015 separate financial statements.

Board of Directors Chairman

Benito BENEDINI

Chief Executive Officer

Donatella TREU

Directors

Luigi ABETE Antonio BULGHERONI Alberto CHIESI (2) Maria Carmela COLAIACOVO Mario D’URSO (1) Marcella PANUCCI Alessandro SPADA Carlo TICOZZI VALERIO (1) Marco VENTURI

Secretary to the Board Gianroberto VILLA

(1)

Independent Director

(2)

Appointed by the Shareholders’ meeting of 29 April 2014.

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INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Board of Statutory Auditors Chairman

Luigi BISCOZZI

Standing statutory auditors

Maurilio FRATINO Laura GUAZZONI

Alternate statutory auditors

Maria SILVANI Fabio FIORENTINO

Internal Control & Audit Committee Chairman

Carlo TICOZZI VALERIO

Members

Mario D’URSO Alessandro SPADA

Human Resources and Compensation Committee Chairman

Carlo TICOZZI VALERIO

Members

Mario D’URSO Antonio BULGHERONI

Representative of special-category shareholders Mario ANACLERIO

Corporate financial reporting manager Valentina MONTANARI

Internal Audit Manager Massimiliano BRULLO

Independent auditor KPMG S.p.A.

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INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Structure of the 24 ORE Group Il Sole 24 ORE S.p.A.

24 ORE Cultura S.r.l.

100%

Milano Cultura S.c.a.r.l.

50%

Alinari 24 ORE S.p.A. in liquidation

55%

Shopping 24 S.r.l.

100%

BacktoWork24 S.r.l.

90%

Companies included in the scope of consolidation

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Il Sole 24 ORE UK Ltd .

100%

Newton Management Innovation S.p.A.

60%

Newton Lab S.r.l.

51%

Il Sole 24 ORE Trading Network S.p.A.

100%

Operating associates

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INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Highlights The figures are commented on a like-for-like basis, net of the disposal of Business Media and of the Software Area.



Consolidated Group revenue up €1.8 million (+0.8% compared to the first nine months of 2013), as a result of the product and services innovation strategy, particularly the digital versions. The newspaper’s circulation revenue increased by 2.4% (+€1.2 million), Tax&Legal revenue from e-publishing rose by 11.3% (+€3.2 million), Training revenue was up 15.8% (+€2.6 million) and Culture revenue increased by €6.1 million.



Group digital revenue amounts to €67.1 million, up €6.6 million (+10.9%) compared to the same period of 2013, and accounts for 30.5% of total revenue (27.7% as at 30 September 2013).



Gross operating profit (loss) showed an improvement of €7.7 million (+31.7%) to stand at €16.5 million (€-24.1 million in the first nine months of 2013), as a result of the constant focus on cost containment, optimisation of the organisational, production and distribution structure and on process efficiency which have led to a decrease in costs of €6.5 million compared to the same period of 2013 (-2.6%), and of the €1.8 million growth in revenue. Furthermore, the last quarter was strongly affected by seasonality, reflected in the slowdown in revenues – above all, advertising – in the summertime.



Il Sole 24 ORE was confirmed as the leading Italian digital newspaper with over 194 thousand digital copies in September 2014 (+98.6% vs. September 2013). In the last quarter, digital copies exceeded the circulation of the printed daily newspaper. In September Il Sole 24 ORE was in second place among Italian daily newspapers for its printed+digital circulation, with 369,875 copies sold on average. The total printed+digital circulation for the first nine months of 2014 was over 364 thousand copies (+24.8% vs. January-September 2013), against the market trend which was down 3.1% (source: ADS September 2014). Revenue for the daily newspaper rose by €1.2 million (2.4%), and in particular copies sold without any change in price at the newsstands led to a 7.6% increase in revenue.



System Area advertising revenue decreased by 2.3% compared to the same period of 2013, compared with the reference market which was down 6.7%. All media results proved better than those of the market: Radio 24 (+1.9% vs. -3.1% market), online (+2.3% vs. +0.1% market), printed (-5.5% vs. -9.7% market) - Source: Nielsen - January-September 2014.



Culture Area revenue doubled (€+6.1 million) after the success of the exhibitions that confirm 24 ORE Cultura’s leadership. Gross operating profit (loss) improved by 93.5% relative to the first nine months of 2013.



The growth in revenue of €+2.6 million (+15.8%) and in the GOP margin (+13.1%) of the Training and Events Area was the result of the increase in sales, the expansion of the Business School’s product mix and the increase in events organised by Newton.



www.ilsole24ore.com, Italy’s first paying web site with over 20 thousand users as at 30 September 2014 that had signed up for a subscription formula, recorded a growth of 2.3% to almost 650 thousand unique browsers on average and an increase in the average daily pages of 0.7% compared to the average for the first nine months of 2013 (Source: Nielsen Site

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INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Census/Omniture Sitecatalyst). In the first nine months of 2014 the mobile version saw a 95.5% increase in average daily unique browsers and 33.4% of average daily pages (source: Nielsen Site Census/Omniture Sitecatalyst), following the graphics restyling and content layout optimisation. 

The Operating profit (loss), recording an €8.0 million improvement compared to the first nine months of 2013 (+22.3%) was negative by €27.8 million (€-35.8 million in 2013);



The profit (loss) attributable to owners of the parent was a negative €10.6 million, benefiting from the profit from discontinued operations of €20.5 million relating to sale of the Software Area and compares with the loss of €-30.4 million as at 30 September 2013, which included the recognition of deferred tax assets for €8.1 million.

The Net Financial Position stood at €1.3 million, up €49.9 million compared to the start of the year (€-48.6 million at 31 December 2013).

OPERATING PERFORMANCE AS AT 30 SEPTEMBER 2014 Market environment The market figures for 2014 still show a downward trend compared to 2013 in terms of advertising revenue, daily newspaper circulation and publishing products for businesses and professionals. The annual report on the state of the publishing industry produced by Associazione Italiana Editori (AIE) provided a snapshot of Italian publishing trends. In 2013 the sector recorded revenue of €2.6 billion, down 6.8%. The forecasts for 2014 are still not positive. Nielsen forecasts indicate a further decline of 6.6% in the sales figure. (Source: Report on the state of the publishing industry 2014 - AIE, latest available edition)

The advertising market as a whole closed the first nine months of 2014 with a 3.2% decrease. Printed media confirmed a decline of -10.3%, and -8.7% for magazines. Radio recorded a lower decrease (-3.1%) and is essentially in line with Internet (+0.1%) and TV. (Source: Nielsen January-September 2014). The Group’s reference market was down by 6.7%. As regards circulation, ADS figures for January-September 2014 show a drop in printed national daily newspaper circulation of around 12.9% compared to the same period of 2013. The circulation figures for printed plus digital copies show a 3.1% decrease. The persisting economic crisis has led to increasing difficulties in final demand in the Group’s top markets: companies, households and professionals. 2013 GDP was down 1.9% compared to 2012. For 2014 the Confindustria Study Centre expects Italy’s GDP will fall by 0.4%, a downward review of its forecasts of last June which indicated a slight growth of +0.2%. For 2015 the growth forecast is 0.5%. The consumption model evolved in favour of electronic media, databases, online services and products. The overall effects of the crisis and the new content usage methods have led to lower expenses and difficulty in selling online news at prices suitable for the printed versions, particularly on the professional market.

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Performance of the 24 ORE GROUP Disposal of the 100% investment in 24 ORE Software S.p.A. share capital to TeamSystem S.p.A. was finalised on 28 May 2014. This transaction was treated in accordance with IFRS 5. Profit from discontinued operations includes the profit and losses of the area sold, including the gain recognised net of costs to sell. The summary figures illustrated below refer to the interim management statement as at 30 September 2014, restated following the disposal in question. HIGHLIGHTS OF 24 ORE GROUP Jan-Sep 2014

Jan-Sep 2013 Restated

Revenue

220,981

233,558

Gross operating profit (loss) Operating profit (loss) Profit (loss) before tax Profit (loss) from continuing operations Profit (loss) from discontinued operations Profit (loss) attributable to owners of the parent

(17,653) (28,980) (29,749) (31,103) 20,499 (10,648)

(23,785) (35,731) (37,023) (30,129) (681) (30,353)

Net financial position Equity attributable to owners of the parent Employee headcount at end of period

1,299 110,016 1,220

(48,553) (1) 121,582 (1) 1,381 (1)

in thousands of euro

(1) Value related to 31 December 2013

Disposal of the Business Media business unit to a newco, New Business Media S.r.l., owned by Tecniche Nuove S.p.A. was also finalised on 30 January 2014. The results of the business unit sold are recognised on a single line - Loss from other discontinued assets - for the purpose of the Directors’ Report. The income statement figures reported and commented in the Directors’ Report, both consolidated and by business segment, are on a like-for-like basis for ease of comparison.

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HIGHLIGHTS OF 24 ORE GROUP ON A LIKE-FOR-LIKE BASIS in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

Revenue

220,305

218,491

Gross operating profit (loss) Operating profit (loss) Profit (loss) before tax Profit (loss) on a like-for-like basis Profit (loss) from discontinued operations Profit (loss) from other discontinued assets Profit (loss) attributable to owners of the parent

(16,470) (27,792) (28,561) (29,915) 20,499 (1,188) (10,648)

(24,120) (35,789) (37,081) (30,187) (681) 58 (30,353)

Net financial position Equity attributable to owners of the parent Employee headcount at end of period

1,299 110,016 1,220

(48,553) (1) 121,582 (1) 1,267 (1)

(1) Value related to 31 December 2013

In the first nine months of 2014, the 24 ORE Group achieved consolidated revenue of €220.3 million, up €1.8 million (+0.8%) relative to the €218.5 million of the first nine months of 2013. The growth in revenue was the result of the Group’s product and services innovation strategy focusing on customer needs and integration of the Group’s contents. In particular: -

revenue for the daily newspaper rose by 2.4%, i.e. €1.2 million, compared to the same period last year. This result was due to the growth in overall printed+digital circulation. In particular, revenue from digital circulation rose by 52.4% and revenue from newsstand sales - where prices remained unchanged - recorded a 7.6% increase, also as a result of the innovation and integration of Tax&Legal Area products into the mix. Il Sole 24 ORE was confirmed as the leading Italian digital newspaper with over 194 thousand digital copies in September 2014 (+98.6% vs. September 2013), overtaking the printed newspaper circulation. September saw Il Sole 24 ORE’s rise to second place among Italian daily newspapers for its printed+digital circulation, with 369,875 copies sold on average. The total printed+digital circulation for the first nine months of 2014 was over 364 thousand copies (+24.8% vs. January-September 2013).

-

the positive trend in e-publishing revenue of the Tax&Legal Area improved by 11.3% to €3.2 million, supported by the action taken to steer the migration from printed to online and by the Group’s Business Class content integration process for the various customer targets of reference. This trend resulted in a strong increase in the digital component, the influence of which grew from 57.8% for 30 September 2013 to 68.1% for 2014;

-

revenue for the Culture Area was up €6.1 million on the figure as at 30 September 2013 (+99.8%), mainly as a result of the more successful exhibitions organised during the period (Warhol Milano, Pollock, Brain, Kandinskij, Munch, Modigliani Roma, Klimt, Luini, Preraffaelliti, Warhol Roma and Chagall);

-

revenue in the Training Area rose by 15.8%, i.e. €2.6 million, due to the good performance of the Business School following expansion of the courses and a higher number of students, and to the increase in events organised by Newton.

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-

System area advertising revenue closed with a 2.3% decrease of €1.9 million compared to the same period of 2013, showing a performance better than that of the reference market, (down 6.7%), due to Radio 24 revenue (+1.9% vs. -3.1% market), online (+2.3% vs. +0.1% market) and to media revenue which also recorded a performance better than the market (5.5% vs. the market’s decline of 9.7%) - Source: Nielsen - January-September 2014;

-

revenue from the sale of printed add-ons, books and magazines for professionals recorded a decline of €4.5 million compared to the same period last year. This result was particularly due to the migration to digital-only of certain magazines and the streamlining of the books catalogue.

Group digital revenue amounts to €67.1 million (30.5% compared to 27.7% at 30 September 2013), up €6.6 million (+10.9%) compared to the same period of 2013. Total costs decreased by €6.5 million, or 2.6%, compared to the first nine months of 2013. Personnel expense decreased by €2.5 million, equal to 3.1%, compared to the same period in 2013. This decrease was mainly due to implementation of the organisation that focuses in particular on integrating the content-production and marketing areas, in addition to continued streamlining of the workforce. Specifically, the change is attributable to the decrease of 44 in the average headcount, on a like-for-like basis, and to expansion of the solidarity agreements implemented as a result of those signed with the graphics, polygraphics and journalists’ trade unions. Employees in service as at 30 September 2014 were 1,220, compared with 1,267 on a like-for-like basis. As at 31 December 2013 the total number of employees was 1,817, decreasing by 597 of which 436 relating to Software, 114 to Business Media and 47 on a like-for-like basis. Direct and operating costs decreased by 2.2%, due to the implementation of the digital strategy and industrial cost cutting initiatives, particularly: -

costs for raw materials and consumables decreased by €2.4 million (-17.9%);

-

distribution costs declined by €4.1 million (-17.6%);

-

printing costs fell by €2.7 million (-29.2%), mainly relating to the daily newspaper as a result of the production reorganisation implemented in the second half of 2013 (closure of the printing centres of Verona and Benevento and a new printing contract in Bologna).

Certain cost types increased in relation to their associated revenue trends, particularly: -

advertising costs for third-party publishers increased by €1.1 million (+9.7%) due to the higher revenue from publications under concession;

-

exhibition setup costs increased by €1 million (+25.5%) due to the higher number of exhibitions organised;

-

costs associated with events organised by Newton rose by €1.7 million (+51.4%), directly related to the higher revenue;

-

sales costs increased by €1.3 million (+9.9%) as a result of the different product mix sold.

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Gross operating profit (loss) was affected by the Group business seasonality and by the different mix of revenue in favour of lower-margin products. Seasonality results in a slowdown in revenue from publishing, particularly Tax&Legal, and especially in advertising revenue in the summertime. As a result of this revenue trend, gross operating profit (loss) was negative by €15.2 million in the third quarter. Gross operating loss amounted to €16.5 million for the first nine months of 2014, an improvement by €7.7 million (+31.7%) on the figure at 30 September 2013 which was a negative €24.1 million. This result was reached through the focus by management and the entire company on implementing the innovation, digital and platform integration strategy, the launch of new publishing products - particularly How to spend it, digital products, global cost containment action and on process efficiency improvement, in addition to the record set by the digital daily newspaper and the growth in newsstand sales of printed copies. The Operating loss amounted to €27.8 million, compared with the operating loss of €35.8 million recorded in the same period of 2013, so an improvement of €8.0 million (+22.3%). Profit from discontinued operations totalled €20.5 million and includes the gain from sale of the Software area for €23.5 million, net of costs to sell of €1.6 million and the €1.4 million net loss of the area sold. The €1.2 million loss from other discontinued assets refers to the reclassification of the profit and loss of the Business Media business unit, the disposal of which was finalised on 30 January 2014. In the financial statements as at 31 December 2013 the assets and liabilities subject to disposal were recognised in the statement of financial position as available-for-sale assets and liabilities. The profit (loss) attributable to owners of the parent was a negative €10.6 million, benefiting from the profit from discontinued operations of €20.5 million relating to sale of the Software Area and compares with the loss of €-30.4 million as at 30 September 2013, which included the recognition of deferred tax assets for €8.1 million. The Net Financial Position stood at €1.3 million, up €49.9 million compared to the start of the year (€-48.6 million as at 31 December 2013), due mainly to the overall collection of €96.6 million on disposal of the Software Area. The amount collected was partly absorbed by operations of €16.5 million, investments of €6.7 million and the payment of non-recurring charges of €19.5 million, of which €10.9 million due to sale of the Business Media business unit, €5.4 million to the reimbursement of amounts withheld as guarantee for the purchase of Esa Software and €3.1 million in outlay relating to restructuring expenses. Since the start of the year, net of payments of non-recurring charges, net working capital improved by €2.9 million.

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Income statement for the period on a like-for-like basis The income statement is provided below, net of the effects of disposal of the Business Media business unit:

HIGHLIGHTS OF THE CONSOLIDATED INCOME STATEMENT ON A LIKE-FOR-LIKE BASIS in thousands of euro

Revenue from sales and services Other operating income Personnel expense Change in inventories Purchase of raw materials and consumables

Jan-Sep 2014

Jan-Sep 2013

220,305

218,491

9,446

10,083

(78,519)

(81,040)

508

(7,157)

(11,355)

(6,051)

(128,971)

(130,924)

(24,323)

(23,759)

(3,562)

(3,762)

Gross operating profit (loss)

(16,470)

(24,120)

Depreciation, amortisation and impairment losses Net gains on disposal of intangible assets and property, plant and equipment

(11,325)

(11,690)

4

22

Operating profit (loss)

(27,792)

(35,789)

(783)

(1,072)

13

(220)

(28,561)

(37,081)

(1,354)

6,894

Services Other operating costs Provisions and allowances for impairment

Financial income (expenses) Income (expenses) from investments Profit (loss) before tax Income taxes Profit (loss) on a like-for-like basis

(29,915)

(30,187)

Profit (loss) from discontinued operations

20,499

(681)

Profit (loss) from other discontinued assets

(1,188)

58

44

(456)

(10,648)

(30,353)

Profit (loss) attributable to non-controlling interests Profit (loss) attributable to owners of the parent

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SEGMENT REPORTING At the end of 2013 action was taken of an organisational nature in compliance with the 24 ORE Group’s innovation model, which places readers-customers at the heart of its core business and focuses on digital development. The new corporate organisation features a single journalism and publishing department, a single marketing and sales department, and incorporating all the Group’s activities relating to the daily newspaper, web site, specialised digital daily newspapers, professional information, radio and press agency into the Publishing Division. In 2013 the Radio and Tax&Legal Areas were separate operating segments. During the year two operations were carried out that altered the Group’s scope of consolidation: disposal of the Business Media business unit and of the Software Area. The table below provides the basic Group figures broken down by segment:

INCOME STATEMENT BY SEGMENT SEGMENT

Revenue from third parties

Revenue between segments

Tot. Revenue

GOP/GOL

Depreciation & Amortisation

Operating profit (loss)

PUBLISHING Jan-Sep 2014

110,809

49,164

159,974

(8,606)

(2,497) (11,097)

Jan-Sep 2013

117,307

52,312

169,619 (11,520)

(3,890) (15,391)

Jan-Sep 2014 Jan-Sep 2013 TRAINING AND EVENTS

77,644 79,440

29 48

77,673 79,488

(152) (2,735)

(6) (6)

(158) (2,742)

Jan-Sep 2014

18,801

501

19,302

1,669

(143)

1,526

Jan-Sep 2013

16,359

310

16,669

1,475

(173)

1,302

11,930 5,934

355 214

12,286 6,148

(165) (2,533)

(40) (82)

(204) (2,616)

1,120 (550)

147 895

1,267 345

(9,217) (8,808)

(8,639) (17,858) (7,539) (16,343)

220,305 218,491

-

220,305 (16,470) 218,491 (24,121)

(11,325) (27,792) (11,690) (35,789)

SYSTEM

CULTURE Jan-Sep 2014 Jan-Sep 2013 CORPORATE AND CENTRALISED SERVICES Jan-Sep 2014 Jan-Sep 2013 CONSOLIDATED Jan-Sep 2014 Jan-Sep 2013

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Publishing Area Publishing is the division that manages Publishing & Digital, Tax&Legal, Radio, Press Agency and Public Administration. The Publishing & Digital Area, including the daily newspaper Il Sole 24 ORE (printed and digital versions), add-ons and related magazines, new digital products, the web site www.ilsole24ore.com and the paid online content. The Tax & Legal Area develops integrated product systems of technical and regulatory content targeting professionals, companies and public administration. Radio 24, with a News & Talk format, and the press agency Radiocor are also included.

PUBLISHING AREA REVENUE in thousands of euro

Publishing & Digital Tax & Legal Radio Area Agency and P.A. Total revenue

Jan-Sep 2014

Jan-Sep 2013

% change

98,256 46,788 9,546 5,383

104,659 49,131 9,296 6,534

-6.1% -4.8% 2.7% -17.6%

159,974

169,619

-5.7%

Market performance The market figures for 2014 still show a downward trend compared to 2013 both in terms of advertising revenue and daily newspaper circulation. As regards circulation, ADS figures for January-September 2014 show a drop in printed national daily newspaper circulation of around 12.9% compared to the same period of 2013. The circulation figures for printed plus digital copies show a 3.1% decrease. In the first eight months of 2014 the market for add-ons to daily newspapers and magazines recorded a decline of -12.2% (source: internal data). The media advertising market in the first nine months confirmed the negative trend of 2013 and recorded a 10.3% decrease for daily newspapers and an 8.7% decrease for magazines (source: Nielsen January-September 2014). The annual report on the state of the publishing industry produced by Associazione Italiana Editori (AIE) provided a snapshot of Italian publishing trends. In the past year the sector recorded revenue of €2.6 billion, down 6.8%. The forecasts for 2014 are still anything but positive. Nielsen forecasts indicate a further decline of 6.6% in the sales figure. (Source: Report on the state of the publishing industry 2014 - AIE, latest available edition)

The digital market continued to grow, both in terms of the titles available and its impact on the market (+3% vs. the previous year). This growth is counterbalanced, however, by the negative trend for the professional market, in which the Tax & Legal Area operates, which in the past year has seen an -8.6% decline in revenue. (Source: Report on the state of the publishing industry 2014 - AIE, latest available edition)

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This negative trend was affected by the heavy economic crisis in progress, causing growing difficulties for the spending power of companies, public entities and households and professionals Il Sole 24 ORE’s main targets. 14,269 companies closed in 2013, +14% on 2012. 8,101 companies closed in the first half of 2014, exactly 736 more than in the same period of 2013 and therefore an increase of 10%. Furthermore, compared to June 2009 the percentage of bankruptcies rose by 79%, a figure that emphasises the economic difficulties of our businesses (source: CRIBIS D&B - Analysis of bankruptcies in Italy second quarter 2014). With regard to radio, the most recent audience data for the first half of 2014 indicate that the daily radio audience was 34,736,000 listeners on average, recording a 2% decrease (-551,000) compared to the same period of 2013. In the period January to September 2014 the radio advertising market recorded a drop of 3.1% compared to the same period of the previous year (source: Nielsen - January-September 2014). In terms of volume, the radio market dropped by 5% compared to 30 September 2013 (source: Osservatorio FCP Assoradio). The Italian market of professional publishing in real time, in which the Agency and P.A. Area operates, was considerably impacted by the current economic crisis, and in a different way from traditional publishing. Area performance Aggregate revenue generated by the Publishing division was €160.0 million (-5.7% compared with the same period of 2013). The gross operating loss was €8.6 million, an improvement of €2.9 million (+25.3% compared to 30 September 2013 when it was €-11.6 million), confirming the trend that began in the second half of 2014, associated with the strategic innovation decision focusing on digital products and the rationalisation of the product portfolio, costs and processes. Publishing & Digital revenue totalled €98.3 million, down 6.1% on the same period in 2013 and attributable to the drop in revenue from add-ons and tabloids. The gross operating profit (loss) for this Area recorded an improvement of €5.6 million, €7.5 million of which due to lower direct costs, as a result of production rationalisation action. Net of the decline in advertising the improvement would be €9.9 million. The first nine months of 2014 confirmed the positive trend, contrary to that of the market, in circulation revenue for the Il Sole 24 ORE daily newspaper, up 2.4% on the same period of 2013 and strongly driven by innovation and the overall growth in circulation of printed and digital versions which now stands at over 364,000 copies (+24.8% on the first nine months of 2013). In September Il Sole 24 ORE was in second place among Italian daily newspapers for its printed+digital circulation, with 369,875 copies sold on average. Il Sole 24 ORE was confirmed as the leading Italian digital newspaper with over 194 thousand digital copies in September 2014 (+98.6% vs. September 2013). This result was achieved also due to the innovation and integration of Tax&Legal area products into the mix. In particular, Il Sole 24 ORE achieved a 7.6% increase in circulation revenue from newsstand sales at a price that remained unchanged. The printed-to-digital copy migration strategy has had the effect of increasing sales revenue from digital copies by 52.4% and a decline in printed version

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INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

subscriptions as a result of the strategic corporate decision. The strongly digital-oriented strategy also envisages the conversion of newsstand-based subscriptions to digital subscriptions that are more profitable. These trends illustrate Il Sole 24 ORE’s leadership in the evolution of the digital strategy and in the progress of the audience segmentation strategy as a further step in the migration to digital. For this purpose, Il Sole 24 ORE has adopted innovative formulas, compared to those of international players, in the launch of column newspapers, thereby offering an innovative and completely segmented product that better responds to customers’ information needs. In particular, the Il Sole multimedia system has been enhanced by the launch of Scuola24, the reference product for the Education, Universities and Research sphere, targeting teaching staff, sector operators and students. This product joins the mix of other specialised digital daily newspapers, i.e.: Fisco, Diritto, Casa & Territorio, Finanza 24, and Business Class services (Buongiorno dal tuo amico Sole, Il giornale di domani, the .com web site and its mobile version), Radio 24 and its related web site. The web site www.Ilsole24ore.com, Italy’s first paying web site, recorded almost 650 thousand unique browsers on average, up +2.3% with an increase in the average daily pages of 0.7% compared to the average for the first nine months of 2013. (Source: Nielsen Site Census / Omniture Sitecatalyst). As at 30 September 2014 over 20 thousand users had signed up for a web site subscription formula. The development of higher-capacity digital products continues, such as the mobile .com web site that in the first nine months of 2014 saw a 95.5% increase in average daily unique browsers and 33.4% of average daily pages (source: Nielsen Site Census/Omniture Sitecatalyst), following the graphics restyling and content layout optimisation. Growth also continued as regards social media. As at 30 September the official Il Sole 24 ORE Facebook page had 503,000 fans, up 131.4% on the figure as at 30 September 2013. The number of followers on Twitter, on the other hand, has reached 2 million (source: internal data). In the first night months of 2014 the synergy between the daily newspaper and the professional world continued through constant improvement of the services and products associated with the Business Class initiative. At the same time the marketing investments and service enhancement continued through the BBC English Go! and Focus de Il Sole 24 ORE initiatives. Then on 28 August a new initiative was launched dedicated to English for professional users, BusinessEnglish24: 20 double weekly issues with DVDs and a book for professional enhancement. Of note among the new publishing initiatives are: from 3 June the “Gli indispensabili” book collection, a series of 20 weeklies on sale as compulsory add-ons to the daily newspaper, and from 9 June the “Jobs act - Come cambia il lavoro” single theme book. At the Pitti Immagine Uomo expo in June, Il Sole 24 ORE launched a special print&digital edition of Moda24: a 32-page insert with an augmented reality app for smartphones that transforms reading into an interactive multimedia experience, by this offering a newspaper more rich in fashion world content. Then in September the Milan fashion shows were given extensive coverage by Moda24, both in the Friday section and in fashion reporting services in the daily newspaper. Among the more important events as at 30 September 2014, in addition to the new 4-insert daily newspaper format, were enhancement of the Nòva24 section through the market release of the Nòva AJ app, and the launch of Nòva24 Progetti, new single-theme column reports from the pages of Il

DIRECTORS’ REPORT

16

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Sole 24 ORE, together with the new online in-depth Nòva24 platform (www.nova.ilsole24ore.com) which joins Nòvatech, the news focus channel on the Il Sole 24 ORE web site. As regards Nòva24, the brand enhancement has continued through the September relaunch of La Vita Nòva, the tablet magazine, and the development of a new format Nòva Round Table: meetings around Italy moderated by the editorial staff on issues associated with science and technology offering debate between researchers, start-ups and companies. Other events included the 23rd Telefisco conference and organisation of the 16th “Premio Alto Rendimento” awards. In the first nine months of 2014 the market for add-ons to daily newspapers continued to record a decrease in operating performance due to the persisting consumer crisis that is penalising published product purchases. This phenomenon is also affected by the gradual move from newsstand sales of daily newspapers to digital, especially for Il Sole 24 ORE whose digital user base has overtaken that of traditional channel readers. With regard to the Group’s add-ons, the figures confirm the decline already consolidated in the first half, recording revenue of €2.1 million (-52% compared to the same period in 2013). This result reflects the drop in profit from professional collections, largely affected by the absence of new regulations and legislation and by the postponement of certain collections originally planned for the first part of 2014. Revenue from Publishing & Digital Area magazines increased by 37.9% to €1.8 million (€+0.5 million) compared to the same period of 2013, due solely to the first issue in September of the Italian edition of How to Spend It , the international magazine of the Financial Times, world leader in the luxury sector. The Italian edition proposes content translated from English and original content produced by Il Sole 24 ORE for Italian readers. The monthly magazine is available at the newsstands as a mandatory add-on to the daily newspaper at the extra price of €0.50. A major planning was envisaged via radio, TV, press, Internet and advertising posters for the September launch. In addition, for the new product presentation, initiatives were organised across the country in strategic locations in the fashion/luxury sector and an exclusive evening event in Milan at the future Museum of Culture to present the new product to the market. The first issue of How to Spend It met with considerable approval from the advertising market in terms of the volumes agreed and of the average prices for advertising pages. The trend seen in later issues confirms the results of the first. Therefore the publishing house business continues to grow, centred on coverage of the luxury and fashion sectors through new, high-quality products and significant advertising appeal. In February, IL restyled its fashion section “Visioni”, further enhancing the content linked with the world of fashion, luxury and lifestyle with new services and columns, more space given to editor recommendations and a new graphic layout. In 2014 the magazine received two new awards: the International Award from Infografica Malofiej for Si Premium, the magazine for Premium CartaSi customers, and the gold medal at the SPD Awards in the “Best Entire Issue” category for the IL 56 Food issue which came out in December 2013. Tax&Legal Area revenue totalled €46.8 million, down 4.8% compared to 30 September 2013, due to the negative performance of printed products which saw a decline of 28.1% compared to the

DIRECTORS’ REPORT

17

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

previous year. From January 2014, rationalisation of the magazines catalogue was performed and certain publications became digital-only versions, a number of titles no longer profitable were closed and the books publishing plan was rationalised. Digital products saw an 11.3% increase in revenue, the impact of which has risen from 57.8% in the first nine months of 2013 to 68.1% at 30 September 2014. The positive trend in digital revenue was the result of action taken to steer the migration from printed to online and by the Group’s content integration process in the targeted Business Classes. In the first nine months of 2014, with a view to continued enhancement of digital products and the integration of all Group content, the following products were released: -

new versions of Quotidiano Fisco and Quotidiano del Diritto, with enhanced content and functions;

-

new legal theory modules with enhancement of the Soluzioni24 Fisco products;

-

the new Business Class “Diritto” with sales linked to the Lex24 database, this too enhance with new functions and content;

-

the new Business Class “Lavoro”, a tool which combines the contents of professional databases and the digital daily newspaper into a single product;

-

the new Quotidiano del Lavoro, an online service with journalist input and technical studies of Il Sole 24 ORE and Guida al Lavoro, enhanced with links to documentation and reports taken from the Unico Lavoro 24 database;

-

PubblicaAmministrazione24: the new modular system for online consultation that integrates all Il Sole 24 ORE products for public administration;

The different revenue mix in any event made it possible to maintain margins at a level of 27% as a result of editorial and commercial cost containment action. In the first half of 2014 Radio 24 had a daily average of 1,982,000 listeners, confirming its 9th place in the national radio rankings. As regards online traffic performance, in the period January-September 2014 the web site recorded an average 383,000 users per month and around 4,801,000 pages viewed (source: Omniture Site Catalyst). Radio Area revenue amounted to €9.5 million in the first nine months of 2014, up 2.7% on the same period of 2013. The high quality of the publishing products, the increase in special projects and the numerous events sponsored allowed Radio 24 to achieve an increase in advertising revenue of +1.9% in the first nine months of 2014, compared to the same period last year, the opposite of the market which instead recorded a 3.1% decline. In terms of advertising space, Radio 24 recorded +1% compared to the same period last year (source: Nielsen analysis per second), and its positioning in seconds compared to the total radio market rose from 8% in 2013 to 9% in 2014. The Radio 24 drivers were confirmed as: finance/insurance, automotive and professional services, which by themselves account for 53% of total seconds in the first nine months of 2014 and have seen a steep increase (+16%). A strong growth was recorded in Media/Publishing and Distribution. The advertising revenue from the web site, introduced for Radio 24 in February 2013, still accounts for a limited percentage of total revenue despite recording significant increases (+40%).

DIRECTORS’ REPORT

18

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

In the first nine months of 2014 the Agency and P.A. area recorded a €1.2 million decline in revenue (-17.6%) compared to the same period of the previous year. PUBLISHING AREA RESULTS in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

% change

Circulation/other revenue

110,674

116,187

-4.7%

Revenue from advertising

49,299

53,432

-7.7%

159,974 (8,606)

169,619 (11,520)

-5.7% 25.3%

-5.4%

-6.8%

1.4 p.p.

(11,097)

(15,391)

27.9%

Revenue Gross operating profit (loss) GOP/GOL margin % Operating profit (loss)

System Area – Advertising sales System is the division acting as the advertising sales agency for the Group’s main media and for some third-party media.

SYSTEM AREA REVENUE in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

% change

Group revenue

61,118

64,541

-5.3%

Non-captive revenue

16,555

14,947

10.8%

Total

77,673

79,488

-2.3%

Market performance The advertising market as a whole closed the first nine months of 2014 with a 3.2% decrease. TV, with a share of 57%, remains in line with Internet (+0.1%). Printed media confirmed a decline of 10.3%, and -8.7% for magazines, with Radio recording a drop of -3.1%. (Source: Nielsen Media Research – January-September 2014). Area performance The reference market (press, radio and Internet) recorded a 6.7% decline, whilst the System area result was better (-2.3%), with revenue of €77.7 million. For printed media the agency saw a decrease (-5.5%) much lower than that of the market (-9.7%). This result is attributable to an increase in advertising revenue on major international publications for over €5.4 million and to the launch in September of the new monthly magazine How To Spend It Italia. Il Sole 24 ORE closed the period up to September with a more limited decrease compared to that recorded by daily newspapers in the first nine months of the year (-8.8% Il Sole; -10.3% total daily newspapers). The commercial and financial segments recorded lower decreases than daily newspapers in general. A positive effect came from the improved performance of fashion sector investors, which through the supplement How To Spend It now have a more articulated product mix

DIRECTORS’ REPORT

19

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

available. The Finance/Insurance and Professional Services segments, which represent 45% of revenue from advertising space, closed the first nine months of the year with a positive balance (+8.3%). Financial advertising closed with a -2.3% decrease due to the market having a more “wait and see” approach. After a half year characterised by new stock market listings and share capital increases, the third quarter saw the suspension or postponement of certain previously announced initiatives. Disclosure notices relating to such financial transactions came to a sudden halt. Legal advertising saw a 17.2% decrease, also due to the temporary suspension of mandatory notices in printed media. Radio 24 closed the first nine months of the year with a 1.9% growth, contrary to the radio market which recorded a decline (3.1%). This result was achieved through the quality of the publishing products, a targeted sales policy and ongoing development of special projects and initiatives. Business advertising from the broadcaster’s core sectors - finance/insurance, automotive and professional services - increased. These sectors represent 53% of total revenue. The Internet result was positive with revenue increasing by 2.3% in a market that remained essentially stable (+0.1%). Net of the Funds segment, the Group’s web sites recorded advertising revenue up 2.6% on the figure at 30 September 2013. Gross operating profit (loss) improved by over €2.5 million (+94.5%) compared to 30 September 2013, reaching €-0.1 million (€-2.7 million in 2013) as a result of organisation streamlining and cost containment. SYSTEM AREA RESULTS in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

% change

Circulation/other revenue

301

263

14.4%

Revenue from advertising

77,372

79,226

-2.3%

Revenue

77,673

79,488

-2.3%

Gross operating profit (loss)

(152)

(2,735)

94.5%

GOP/GOL margin %

-0.2%

-3.4%

3.2 p.p.

Operating profit (loss)

(158)

(2,742)

94.2%

DIRECTORS’ REPORT

20

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Training and Events Area The Training and Events Area provides specialist post-university training to young graduates, managers and professionals and organises annual conferences and events on a contract basis for large customers. Included in this area are the activities of the subsidiaries Newton Management Innovation S.p.A. (a management consulting and training company) and Newton Lab s.r.l. (an event organising and multimedia content management company).

TRAINING AREA REVENUE BY SEGMENT in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

% change

Business school

8,305

7,664

8.4%

Annual Training and Events

1,315

1,373

-4.2%

Newton Man. Innov. and Newton Lab products Training for Professionals and SMEs

8,958 723

6,402 1,231

39.9% -41.2%

19,302

16,669

15.8%

Total

Market performance The training market estimates a turnover of €300 million, excluding financed training (source: Asfor 2013). The 2014 forecasts indicate that training resources will remain stable, essentially remaining at 2013 levels. Classroom training continues to be the most used format, but the use of new technologies is also confirmed. Area performance Revenue from the Training BU grew by 15.8% compared to the same period in 2013, reaching €19.3 million. Business school revenue totalled €8.3 million, up 8.4% compared to 30 September 2013, with 123 initiatives involving over 4,200 participants. An important result was achieved by the Part Time Masters course, with revenue up by 23%. Revenue from Newton Management Innovation and Newton Lab products rose by an aggregate 39.9%, mainly due to the acquisition of a number of new customers. The gross operating profit (loss) reached €1.7 million, up 13.1% on the same period last year, particularly as a result of the increase in sales, the improved product mix and the continued cost containment action. TRAINING AREA RESULTS in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

% change

Circulation/other revenue

19,302

16,669

15.8%

Revenue

19,302

16,669

15.8%

Gross operating profit (loss)

1,669

1,475

13.1%

GOP/GOL margin %

8.6%

8.9%

-0.2 p.p.

Operating profit (loss)

1,526

1,302

17.1%

DIRECTORS’ REPORT

21

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Culture Area This Area includes Group activities in the Culture segment, through 24 ORE Cultura S.r.l., and works in the area of the production of publishing content in two segments: the production of exhibitions and book publication. As at 30 September 2014, the Culture Area recorded revenue of €12.3 million, double that of the same period of 2013 (+99.8%). This increase is due to the exhibitions attracting more visitors (1,135 million visitors compared to 511 thousand in the same period of 2013) and to a greater number of exhibitions organised (Warhol Milano, Pollock, Brain, Kandinskij, Munch, Modigliani Roma, Klimt, Luini, Preraffaelliti, Warhol Roma and Chagall in 2014; Picasso, Modigliani, Mirò Genova, Manet, Desire for Freedom, Homo Sapiens and Pollock in 2013). The Area’s gross operating profit (loss) improved by €2.4 million (+93.5%) compared to the same period in 2013. This result is due to an improved business performance and to overheads containment. In the first nine months of 2014 the following exhibitions ended: Pollock e gli Irascibili, Warhol Milano, Munch, Kandinskij, Modigliani Roma, Brain, Klimt Milano, Luini, Preraffaelliti and the exhibition in Rome dedicated to Warhol. The Milan exhibition dedicated to Marc Chagall was inaugurated on 16 September. 24 ORE Cultura continues its development of multi-channel publishing projects and international growth. Synergies intensified between add-on products and important national and international newspapers. B2B publishing activities for important customers are also worthy of note.

CULTURE AREA RESULTS in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

% change

Circulation/other revenue Revenue from advertising

12,051 235

6,148 -

96.0% 100.0%

Revenue

12,286

6,148

99.8%

Gross operating profit (loss)

(165)

(2,533)

93.5%

GOP/GOL margin %

-1.3%

-41.2%

39.9 p.p.

Operating profit (loss)

(204)

(2,616)

92.2%

DIRECTORS’ REPORT

22

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

SIGNIFICANT EVENTS IN THE FIRST NINE MONTHS OF 2014 The disposal of the Business Media business unit to Tecniche Nuove S.p.A. was completed on 30 January. Business Media was part of the Publishing division and managed B2B integrated communication activity targeting SMEs in specific sectors, including agrifood, retail distribution, building and welfare, directly gathering advertising through dedicated sales forces. Disposal of the Business Media business unit was finalised on 30 January 2014 in accordance with a contractual agreement signed on 16 December 2013. On 31 January 2014 after the conclusion of negotiations the newspaper’s editorial board signed a union agreement governing the 14% solidarity contract for journalists, the retirement and early retirement of 38 journalists and the revision of certain company policies. The agreement signed with the polygraphics unitary union bodies on 21 and 22 November 2013 for the reorganisation of the Milan and Carsoli plants became effective on 1 March 2014. This agreement envisages raising the solidarity percentage from 16% to 35%-40%. On 11 March 2014, the Board of Directors approved the 2014-2018 Plan, the first year of which is represented by the 2014 budget, which envisages organic growth. The prospects for development reflected in the plan are accompanied by significant objectives linked to the review and innovation strategy for the product and services portfolio, particularly digital. The plan envisages implementation of the strategy that places customers at the heart of Group initiatives, in particular: -

maintenance of the newspaper’s market leadership and the enhancement of this asset in Group business development;

-

development of an innovative product offering system based on the integration of Group products targeting specific market segments;

-

focus on high-end segments and high-profitability products and the resulting diversification of sales channels based on customers served;

-

revision of company processes and ongoing cost optimisation.

These objectives will make it possible to redefine the supply/services system by making it more consistent with the disclosure requirements of the various customer segments and the power of the brand. On 29 April 2014, the Shareholders’ Meeting agreed to fully cover the parent Il Sole 24 ORE S.p.A.’s loss for the year of €81,909,000 from the following equity items: -

retained earnings for €406,000;

-

share premium reserve for €81,503,000.

On 28 May 2014 the Group sold the entire Software area, coinciding with the Software Solutions operating segment identified by the Group according to IFRS 8 - Operating segments, to Team System. The arrangement was finalised on the basis of the preliminary sale contract with the buyer, signed on 15 April 2014. The enterprise value recognised to the buyer is €117.5 million. The equity value, i.e. the price net of the provisional net financial position negative by €13.0 million, was €104.5 million and this amount was paid by the buyer as follows:

DIRECTORS’ REPORT

23

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

 

€82.0 million paid on the effective date; and €22.5 million to be paid on 15 November 2020, under the terms and conditions of the Vendor Loan which also envisages interest accruing on this amount at 8% per year.

On the effective date of the sale, the Group collected €14.6 million for the assignment of the financial receivable due from TSS (formerly 24 ORE Software). The total collected as a result of this series of transactions was €96.6 million. The price was later adjusted after definition of the net financial position, which was agreed between the parties and adjusted by € million to give a final figure of €14.0 million. The profit/loss on discontinued operations takes into account this adjustment to the net financial position. On 17 April 2014 Il Sole 24 ORE S.p.A. established Il Sole 24 ORE - Trading Network S.p.A. On 26 May 2014 the parent transferred to Il Sole 24 ORE - Trading Network S.p.A. all agency agreements between Il Sole 24 ORE and the Tax&Legal agents network existing at the date of transfer and relating to the promotion and sale of TSS products (formerly 24 ORE Software). In turn, acting as agent, on 28 May 2014 Il Sole 24 ORE - Trading Network S.p.A. signed an agency agreement with TSS (formerly 24 ORE Software), acting as principal, for the distribution without representation of TSS (formerly 24 ORE Software) products. A similar agreement was signed between Il Sole 24 ORE and Il Sole 24 ORE - Trading Network S.p.A. for representation of the Group’s publishing products. On 12 September Il Sole 24 ORE launched the Italian edition of How To Spend It, the international magazine of the Financial Times which for 20 years has been the point of reference for elegance, fashion and lifestyle. The Italian edition proposes content translated from English and original content produced by Il Sole 24 ORE for Italian readers. On 26 September 2014, Milano Cultura S.C. A R.L. was established with a share capital of €120 thousand. The company is jointly owned by 24 ORE Cultura S.r.l. and Mondadori Electa S.p.A., each holding 50% of the share capital. Established as a consortium, its purpose is to arrange and implement exhibitions, cultural awareness, communications and marketing projects relating to the world of art, culture and tourism.

DIRECTORS’ REPORT

24

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

EVENTS AFTER 30 SEPTEMBER 2014 On 23 October 2014 the Company signed an agreement for a committed revolving cash credit facility for a total of €50 million to support funding needs associated with normal company activities and operations and the rescheduling of the Company’s current financial borrowings. The facility was granted by a pool of banks, including Banca IMI S.p.A., Banca Popolare di Milano S.c.ar.l., Banca Popolare di Sondrio S.c.p.A., Banca Monte dei Paschi di Siena S.p.A. and Credito Valtellinese S.C., and has a 3-year duration from the date of signing. The interest rate is the Euribor for the period plus an initial spread of 5.50% and a spread reduction mechanism linked to the improvement of certain Group financial indicators. The facility does not envisage collateral or mandatory guarantees and has financial covenants to be reported at consolidated level, typical of similar loans. 30 October saw the launch of Italy24, the new digital daily newspaper in English that reports on Italy as seen by Italy with articles by Il Sole 24 ORE journalists. Italy24 is available on all devices in responsive mode, targeting users interested in understanding developments in Italy: institutional investors and financial intermediaries, professionals, operators in the cultural sector and public and international organisations. The topics covered range from politics to the economy, from financial markets to real estate, government decisions to parliamentary measures, from the arts to leisure. The news, commentaries and editorials from Il Sole 24 ORE experts are enhanced by video clips, photo galleries and interactive maps. Italy24 represents an important step in developing the internationalisation of the content of Italy’s leading economic and financial daily newspaper. On 10 November the new, innovative PlusPlus24Fisco database was launched, which brings together all the legislative, case law, legal practices and legal theory sources of the Group on tax matters, revolutionising working methods and making use of information tools. For the first time the product is associated with the sale of integrated information and leisure services (through integration with the Culture Area).

DIRECTORS’ REPORT

25

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

FINANCIAL STATEMENTS Highlights of income statement HIGHLIGHTS OF THE CONSOLIDATED INCOME STATEMENT Jan-Sep 2014

Jan-Sep 2013 Restated

(1)

220,981

233,558

9,457

10,168

(2)

(79,008)

(86,018)

507

(7,338)

(11,356)

(6,052)

(130,149)

(139,187)

(24,432)

(24,713)

(3,654)

(4,205)

(17,653)

(23,785)

(11,331)

(11,967)

4

22

in thousands of euro

Revenue from sales and services Other operating income Personnel expense Change in inventories Purchase of raw materials and consumables Services Other operating costs Provisions and allowances for impairment Gross operating profit (loss)

(3)

Depreciation, amortisation and impairment losses Net gains on disposal of intangible assets and property, plant and equipment Operating profit (loss)

(4)

(28,980)

(35,731)

Financial income (expenses)

(5)

(783)

(1,072)

Income (expenses) from investments Profit (loss) before tax Income taxes

(6)

Profit (loss) from continuing operations Profit (loss) from discontinued operations Profit (loss) for the period Profit (loss) attributable to non-controlling interests Profit (loss) attributable to owners of the parent

DIRECTORS’ REPORT

(7)

13

(220)

(29,749)

(37,023)

(1,354)

6,894

(31,103)

(30,129)

20,499

(681)

(10,604)

(30,809)

44

(456)

(10,648)

(30,353)

26

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Statement of financial position CONSOLIDATED STATEMENT OF FINANCIAL POSITION in thousands of euro

Note

30.09.2014

31.12.2013

Property, plant and equipment

46,453

52,193

Goodwill

18,147

75,010

Intangible assets

56,510

82,039

20

865

909

1,186

ASSETS Non-current assets

Investments in associates and joint ventures Available-for-sale financial assets Other non-current assets

26,401

3,795

Deferred tax assets

55,826

70,097

204,265

285,185

6,380 130,106 10,879 5,657 28,682

6,005 139,260 10,575 5,750 8,575

(9)

181,704

170,165

(10)

-

1,300

385,969

456,650

Total

(8)

Current assets Inventories Trade receivables Other receivables Other current assets Cash and cash equivalents Total Assets held for sale TOTAL ASSETS

DIRECTORS’ REPORT

27

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONT.) in thousands of euro

Note

30.09.2014

31.12.2013

Share capital

35,124

35,124

Equity reserves

98,814

180,316

EQUITY AND LIABILITIES Equity Equity attributable to owners of the parent

Hedging and translation reserves

(38)

(76)

14,757

15,251

Retained earnings (loss brought forward)

(27,993)

(32,819)

Profit (loss) attributable to owners of the parent

(10,648)

(76,213)

Total

110,016

121,582

226

265

Other reserves

Equity attributable to non-controlling interests Capital and reserves attributable to non-controlling interests Profit (loss) attributable to non-controlling interests Total Total equity

(11)

44

78

269

343

110,286

121,925

16

371

26,005

27,802

Non-current liabilities Non-current financial liabilities Employee benefit obligations Deferred tax liabilities Provisions for risks and charges Other non-current liabilities Total

(12)

7,620

12,362

11,269

11,310

34

701

44,944

52,546

27,315

56,652

53 159,700 2,945 40,727 230,740 275,684

105 146,345 10,367 64,533 278,003 4,175 334,724

385,969

456,650

Current liabilities Bank overdrafts and loans - due within one year Financial liabilities held for trading Trade payables Other current liabilities Other payables Total Liabilities held for sale Total liabilities TOTAL EQUITY AND LIABILITIES

DIRECTORS’ REPORT

(13) (10)

28

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Statement of cash flows STATEMENT OF CASH FLOWS Jan-Sep 2014

Jan-Sep 2013 Restated

(9,294)

(36,051)

(10,142)

10,959

44

(456)

11,331

11,967

(2)

198

(20,499)

681

98

(1,300)

1,187

(821)

48

308

783

1,072

(3,132)

(689)

(16,559)

(22,636)

(377)

7,338

(27,096)

24,015

27,922

(30,112)

(210)

(279)

Other changes in net working capital

(16,799)

(23,598)

Total cash flow used in operating activities [d=a+b+c]

(35,994)

(47,728)

Cash flow used in investing activities [e]

88,206

(8,817)

Investments in intangible assets and property, plant and equipment

(6,741)

(8,657)

-

(67)

159

54

95,000

-

(212)

(147)

(11,695)

27,599

(1,408)

(1,072)

(188)

(1,084)

(9,038)

29,690

102

(121)

Dividends paid

(214)

(132)

Change in capital and reserves

(822)

228

43

90

(170)

-

40,517

(28,946)

(14,766)

23,731

25,751

(5,214)

40,517

(28,946)

in thousands of euro

Note

Profit (loss) before tax attributable to owners of the parent [a] Adjustments [b] Profit (loss) attributable to non-controlling interests Depreciation, amortisation and impairment losses (Gains) losses Profit (loss) from discontinued operations Change in provisions for risks and charges Change in employee benefit obligations Change in deferred and current taxes Financial income and expense Other adjustments Changes in net working capital [c] Change in inventories Change in trade receivables Change in trade payables Income taxes paid

Acquisition of investments in subsidiaries Disposal of intangible assets and property, plant and equipment Amounts collected on disposal of subsidiaries Other changes in investing activities Cash flow from/(used in) financing activities [f] Net financial interest paid Change in medium/long-term bank loans Change in short-term bank loans Change in non-current financial assets

Change in equity attributable to non-controlling interests Other changes in financing activities Cash flows used during the period [g=d+e+f] Opening cash and cash equivalents Closing cash and cash equivalents Increase (decrease) for the period

DIRECTORS’ REPORT

(14)

29

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Net financial position NET FINANCIAL POSITION in thousands of euro

Note

30.09.2014

31.12.2013

28,529

8,575

(27,162)

(56,652)

1,367

(48,078)

Non-current financial liabilities

(16)

(371)

Fair value changes in financial hedging instruments

(53)

(105)

Medium-long term net financial position (indebtedness)

(68)

(476)

1,299

(48,553)

Cash and cash equivalents Bank overdrafts and loans - due within one year Short-term net financial position

Net financial position

DIRECTORS’ REPORT

(15)

30

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

COMMENTARY General information The share capital of the Parent totals €35,123,787, represented by 90,000,000 ordinary shares and 43,333,213 special category shares. Their breakdown is as follows: -

90,000,000 ordinary shares owned by Confindustria, accounting for 67.5% of all shares;

-

40,031,186 special category shares listed in the standard segment (Class 1) of the Milan screen-based equity market (MTA – Mercato Telematico Azionario) of Borsa Italiana S.p.A., accounting for 30.0% of all shares.

-

3,302,027 special-category treasury shares, accounting for 2.5% of all shares.

The company by-laws contain provisions whereby the controlling shareholders of the Issuer may not be changed. In particular, in accordance with Article 8 of the by-laws, shareholders may not hold more special category shares than those that represent one fiftieth of the share capital plus one share, with the exception of the Issuer owning them as treasury shares. Il Sole 24 ORE S.p.A. special category shares are currently listed in the Standard (Class 1) segment on the MTA of Borsa Italiana S.p.A. The stock identification codes are:

STOCK IDENTIFICATION CODES Name

Il Sole 24 ORE S.p.A.

ISIN

IT0004269723

Alphanumerical code

S24.MI

Reuters code

S24.MI

Bloomberg code

S24 IM

The companies included in the scope of consolidation at 30 September 2014 were: -

Il Sole 24 ORE S.p.A., the Parent, which acts both as the holding company for majority investments in Group companies, and as an operating company, by performing core business activities (general, financial and professional news and information, press agency, etc.);

-

Il Sole 24 ORE UK Ltd., which mediates the sale of advertising space in the United Kingdom;

-

24 ORE Cultura S.r.l., specialised in products dedicated to art and photography and in the organisation of shows and events;

-

Il Sole24 ORE – Trading Network S.p.A., which performs agency activities for the distribution of Group and third-party products;

-

Shopping 24 S.r.l., an e-commerce and online marketing company;

-

Newton Management Innovation S.p.A., a company active in training services;

DIRECTORS’ REPORT

31

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

-

Newton Lab S.r.l., a company active in training services. The company is indirectly controlled through Newton Management Innovation S.p.A.;

-

BacktoWork 24 S.r.l., specialised in the production and development of communications projects through the creation and management of a portal that aims to bring together managers and small businesses; The company is indirectly controlled through Shopping 24 S.r.l.

-

Alinari 24 ORE S.p.A. (in liquidation).

Compared with the latest approved financial statements, the changes to the scope of consolidation were as follows: -

On 17 April 2014 Il Sole 24 ORE S.p.A. established Il Sole 24 ORE - Trading Network S.p.A., with a 100% interest in the share capital of €120 thousand and acquiring control. Establishment of the company formed part of the Software Area disposal transaction. On 26 May 2014 the parent transferred all agency agreements between Il Sole 24 ORE S.p.A. and the Tax&Legal agents network existing at the date of transfer and relating to the promotion and sale of TSS S.p.A. products (formerly 24 ORE Software S.p.A.). In turn, acting as agent, on 28 May 2014 Il Sole 24 ORE - Trading Network S.p.A. signed an agency agreement with TSS S.p.A. (formerly 24 ORE Software S.p.A.), acting as principal, for the distribution without representation of TSS S.p.A. (formerly 24 ORE Software S.p.A.) products. A similar agreement was signed between Il Sole 24 ORE S.p.A. and Il Sole 24 ORE - Trading Network S.p.A. for representation of the Group’s publishing products.

-

Disposal by Il Sole 24 ORE S.p.A. of the 100% investment in 24ORE Software S.p.A. share capital to TeamSystem S.p.A. was finalised on 28 May 2014, and the related legal and economic effects began from that date. The part of the scope of consolidation subject to disposal covers 24 ORE Software S.p.A., including investments in subsidiaries, associates and other companies, and the Software and Management Services business unit of Il Sole 24 ORE S.p.A. in relation to the sale of software products and systems. This includes all the Group’s software activities and coincides with the Software Solutions operating segment identified by the Group in accordance with IFRS 8 “Operating segments”. The transaction led to the deconsolidation of 24 ORE Software S.p.A. and Diamante S.p.A.

-

As a result of the disposal of the Software Solutions operating segment, the figures presented in the income statement and the statement of cash flows for the period were restated with respect to the figures already published, based on reclassification of the operating profit (loss) from the operating assets sold, as illustrated in Note 7. For further information, reference should be made to Note 41 in the Half-Yearly Financial Report as at 30 June 2014.

-

With effect from 1 May 2014 Fabbrica24 S.r.l. was merged into Shopping 24 S.r.l, which holds 100% of the share capital.

The registered and administrative offices of Il Sole 24 ORE S.p.A. are located at Via Monte Rosa 91, Milan, Italy. Confindustria (the Confederation of Italian Industry) controls the parent.

DIRECTORS’ REPORT

32

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Format, content and accounting standards The interim management statement as at 30 September 2014 was prepared on the assumption that the Company is operated on a going concern basis and in accordance with the recognition and measurement criteria set out in International Accounting Standards (IAS/IFRS), consistent with those used to prepare the last annual financial statements. The interim management statement was prepared pursuant to art. 154-ter of Italian Legislative Decree no. 58 of 24 February 1998, introduced pursuant to art. 1 of Italian Legislative Decree no. 195 of 6 November 2007. The interim management statement was not subject to audit. The financial statements presented include: 1. Consolidated income statement for the first nine months of 2014, with comparison data for the same period of 2013. This income statement is in abridged form, grouping revenue items with respect to the financial statements as at 31 December 2013, details of which are provided in the related notes; 2. Consolidated statement of financial position as at 30 September 2014, with comparison data from the latest approved financial statements; 3. Statement of cash flows for the first nine months of 2014, with comparison data for the same period of 2013; 4. Net financial position as at 30 September 2014, with breakdown of assets and liabilities into short-term or medium-term components and with comparison data from the latest approved financial statements. As a result of the disposal of the Software Solutions operating segment, the figures presented in the highlights of the consolidated income statement and the statement of cash flows for the period were restated with respect to the figures already published, based on reclassification of the operating profit (loss) from the operating assets sold, as illustrated in Note 7. For further information, reference should be made to Note 41 in the Half-Yearly Financial Report as at 30 June 2014. Lastly, note that the consolidated interim results of the 24 ORE Group are affected by seasonal elements, particularly with regard to sales of the daily newspaper, advertising revenue and the performance of the professional publishing segment. Such seasonality is particularly felt in the third quarter of the year, which is historically the most critical of the calendar year. The following section provides an illustration of the financial statements, with an indication of the most significant changes and related causes for the most important items.

DIRECTORS’ REPORT

33

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

NOTES TO THE FINANCIAL STATEMENTS Income Statement (1) Revenue Revenue totalled €220,981 thousand, down 5.4% compared with the same period of the previous year. Net of the disposal of Business Media, revenue increased by €1,814 (+0.8%). The breakdown by operating segment is provided below. REVENUE BY OPERATING SEGMENT Jan-Sep 2014

Jan-Sep 2013 Restated

Change

% change

Publishing System Training Culture Other areas Business Media BU Eliminations

159,974 77,673 19,302 12,286 1,269 676 (50,198)

169,619 79,488 16,669 6,148 1,695 15,067 (55,129)

(9,645) (1,815) 2,633 6,138 (427) insig. 4,930

-5.7% -2.3% 15.8% 99.8% -25.2% insig. 8.9%

Group (Consolidated)

220,981

233,558

(12,577)

-5.4%

in thousands of euro

(2) Personnel Personnel expense was €79,008 thousand, compared to €86,018 thousand for the same period last year. The improvement amounted to €7,011 thousand (8.2%), of which €1,600 thousand the effect of the employee solidarity agreements and the average headcount 145 lower compared to 30 September 2013. Disposal of the Business Media business unit and its 113 full time equivalent staff to Tecniche Nuove S.p.A. was finalised on 30 January 2014. Employees as at 30 September 2014 numbered 1,220, compared with 1,381 as at 31 December 2013. The number of employees by category is as follows: EMPLOYEES Jan-Sep 2014

Jan-Sep 2013 Restated

Change

AVERAGE HEADCOUNT Number

%

Number

%

Number

%

Managers

48.6

4.0%

56.6

4.1%

(8.0)

-14.2%

Journalists

352.1

28.7%

390.3

28.5%

(38.2)

-9.8%

White-collars

739.3

60.3%

827.8

60.4%

(88.5)

-10.7%

Blue-collars

86.4

7.0%

96.6

7.0%

(10.1)

-10.5%

1,226.4

100.0%

1,371.3

100.0%

(144.9)

-10.6%

Total

DIRECTORS’ REPORT

34

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

(3) Gross operating profit (loss) The interim result of gross operating profit (loss) before depreciation and amortisation, impairment losses on fixed assets and capital gains/losses from asset disposals, was negative at €17,653 thousand, compared to the gross operating loss of €23,785 thousand as at 30 September 2013.

(4) Operating profit (loss) The operating loss was €28,980 thousand, an improvement of €6,751 thousand compared to the same period of the previous year. The total depreciation, amortisation and impairment losses for the first nine months of 2014 was €11,331 thousand, compared to the 2013 figure of €11,967 thousand.

(5) Financial income (expenses) FINANCIAL INCOME (EXPENSES) in thousands of euro

Financial income from investment of surplus cash Other financial income Foreign exchange gains Total income Foreign exchange losses Financial expenses on short-term borrowings Financial expenses on medium-/long-term borrowings Other financial expenses Total expenses Total

Jan-Sep 2014

Jan-Sep 2013 Restated

Change

% change

52 959 32 1,043

29 381 19 429

23 578 13 614

80.5% 151.7% 66.9% 143.1%

(80)

(49)

(31)

-63.7%

(894)

(774)

(120)

-15.5%

(8) (843) (1,825)

(5) (673) (1,501)

(3) (170) (324)

-46.2% -25.3% -21.6%

(783)

(1,072)

290

27.0%

Net financial income and expenses were negative for €783 thousand and are broken down as follows: -

financial expenses of €1,825 thousand, which rose mainly as a result of the increase in financial expenses on short-term borrowings in relation to the greater use of current account overdrafts and short-term credit facilities, and due to the securitisation of trade receivables.

-

financial income of €1,043 thousand on cash resources. The value increased due to the 8% annual interest on the vendor loan (€625 thousand at 30 September 2014).

(6) Income taxes Income taxes are calculated using the rate expected to be applied at the end of the year. Total taxes were negative by €1,354 thousand despite the loss caused by the impact of IRAP.

DIRECTORS’ REPORT

35

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

The taxes as at 30 September 2014 compare with a positive figure of €6,894 thousand in the first nine months of 2013. The previous year, in fact, benefited from the recognition of deferred tax assets of €8,104 thousand. In the reporting period the Group has not recognised additional deferred tax assets over and above those already recognised, except those for which recoverability is guaranteed by specific regulations.

(7) Profit (loss) from discontinued operations On 28 May 2014 the Group sold the entire Software area to TeamSystem S.p.A., i.e.: -

24 ORE Software S.p.A., including associates and its subsidiary Diamante S.p.A.;

-

Software Sole business unit, relating to the marketing of software products and systems

coinciding with the Software Solutions operating segment identified by the Group in accordance with IFRS 8 “Operating segments”. The enterprise value recognised to the buyer on assets sold is €117,500 thousand. The equity value, i.e. the price net of the provisional net financial position negative by €13,016 thousand, was €104,484 thousand and this amount was paid by the buyer as follows:  €81,984 thousand on the effective date;  €22,500 million to be paid on 15 November 2020, under the terms and conditions of the Vendor Loan which also envisages interest accruing on this amount at 8% per year. On the effective date of the sale, in addition to the €81,984 thousand collected, the Group collected €14,659 thousand for the assignment to the Software Area buyer of the financial receivable due from TSS (formerly 24 ORE Software). The total collected as at 28 May 2014 as a result of this series of transactions was €96,643 thousand. The amount recognised in the statement of cash flows relating to sale of the Software Area was €95 million, different to the amount actually collected (€96,643 thousand) as a result of the provisional net financial position, a negative €13,016 thousand, and assignment of the financial receivable mentioned above (€14,659 thousand). The price was later adjusted after definition of the net financial position, which was agreed between the parties and adjusted by € million to give a final figure of €14,039 thousand. The profit/loss on discontinued operations takes into account this adjustment to the net financial position. The profit from discontinued operations as at 30 September 2014 totalled €20,499 thousand, with the following breakdown:

DIRECTORS’ REPORT

36

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

PROFIT (LOSS) FROM DISCONTINUED OPERATIONS in thousands of euro

Jan-Sep 2014

Jan-Sep 2013

Enterprise value

117,500

-

Carrying amount of assets sold

93,996

-

Gain

23,504

-

Costs to sell

(1,605)

-

Gain

21,899

-

Net financial position of assets sold

(1,399)

(681)

PROFIT (LOSS) FROM DISCONTINUED OPERATIONS

20,499

(681)

For further information, reference should be made to the Half-Yearly Financial Report as at 30 June 2014.

Statement of financial position The statement of financial position can be summarised in the following items: HIGHLIGHTS OF THE STATEMENT OF FINANCIAL POSITION in thousands of euro

30.09.2014

31.12.2013

Non-current assets Current assets Assets held for sale Total assets

204,265 181,704 385,969

285,185 170,165 1,300 456,650

Equity attributable to owners of the parent

110,016

121,582

269

343

Total equity

110,286

121,925

Non-current liabilities Current liabilities Liabilities held for sale Total liabilities

44,944 230,740 275,684

52,546 278,003 4,175 334,724

Total equity and liabilities

385,969

456,650

Equity attributable to non-controlling interests

(8) Non-current assets Non-current assets amounted to €204,265 thousand compared with €285,185 thousand as at 31 December 2013, for a decrease of €80,920 thousand due mainly to disposal of the Software area. Goodwill recognised in the statement of financial position amounts to €18,147 thousand, down €56,863 thousand on 31 December 2013 following the Software area disposal. Property, plant, equipment and intangible assets decreased by €31,269 thousand, of which €23,954 thousand the effect of the change in scope of consolidation associated with disposal of the Software area. Amortisation of intangible assets and depreciation of property, plant and equipment for €11,331 thousand, partially offset by the investments, for €6,741 thousand overall.

DIRECTORS’ REPORT

37

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

The changes in property, plant, equipment and intangible assets as at 30 September 2014 were as follows:

PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Changes in Reclassifications scope of and other consolidation changes

in thousands of euro

Opening balance

Property, plant and equipment

52,193

991

(50)

(5,764)

19

Intangible assets

82,039

5,750

(109)

(5,567)

(10)

134,231

6,741

(159)

(11,331)

9

Purchases

Disposals Amort./Depr.

(131)

Software Area disposal

Closing balance

(805)

46,453

(2,444) (23,149)

56,510

Total (2,575) (23,954) 102,963

Investments in intangible assets amounted to €5,750 thousand and refer mainly to software for management and administration systems. The investments in property, plant and equipment totalled €991 thousand and relate mainly to hardware. Depreciation of property, plant and equipment and amortisation of intangible assets amounted to €11,331 thousand, calculated in relation to their estimated useful life, which did not change compared to the latest approved financial statements. The changes in the scope of consolidation refer to the change in property, plant and equipment and intangible assets between 1 January 2014 and 28 May 2014 relating to Software Area assets included in the disposal to TeamSystem. The property, plant and equipment sold as part of the sale of the Software Area amount to €805 thousand. The value of the intangible assets sold as part of this transaction was €23,149 thousand. Other non-current assets increased by €22,606 thousand due to the agreement to dispose of the investment in 24 ORE Software to Team System, which envisages that part of the consideration (€22,500 thousand) is paid on 15 November 2020 (the vendor loan). Deferred tax assets (DTAs) fell by €14,272 thousand as a result of the Software area disposal and following the conversion of DTAs for €2,128 thousand into tax credits.

(9) Current assets Current assets amounted to €181,704 thousand as compared with €170,165 thousand at the start of the year, for an increase of €11,539 thousand attributable to the increase by €20,107 thousand in cash and cash equivalents, partly offset by the decrease in trade receivables for €9,154 thousand.

(10) Assets and liabilities held for sale As at 31 December 2013, assets held for sale amounted to €1,300 thousand and liabilities held for sale were €4,175 thousand.

DIRECTORS’ REPORT

38

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

These assets and liabilities referred to the Business Media business unit, which formed part of the Publishing Division and managed B2B integrated communication activity targeting SMEs in specific sectors, including agrifood, retail distribution, building and welfare, directly gathering advertising through dedicated sales forces. Disposal of the Business Media business unit was finalised on 30 January 2014 in accordance with a contractual agreement signed on 16 December 2013. The assets of the business unit refer to publications and web portals that had a carrying amount prior to the disposal of €4.1 million. These assets were transferred for a value of €1.2 million and therefore written down in the financial statements as at 31 December 2013 by €2.9 million. The liabilities of the business unit totalling €12.0 million refer to employee and agent-related items (post-employment benefits and other payables), transferred at their carrying amount, and one liabilities recognised to the counterparty for €7.8 million. Ancillary charges on the transaction amounted to €0.7 million. In the financial statements as at 31 December 2013, therefore, a loss associated with the transaction is recorded for €11.4 million, recognised in full in the second half of 2013 and broken down as follows: - Write-down of web portal publications for €2.9 million - Recognition of liabilities for €7.8 million - Ancillary costs on the transaction for €0.7 million. The transaction is subject to a balance of payments currently being defined as regards the values of the assets and liabilities sold.

(11) Equity The equity of the Group totalled €110,016 thousand, recording a decrease compared to 31 December 2013 due to the following changes:

DIRECTORS’ REPORT

39

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

STATEMENT OF CHANGES IN EQUITY in thousands of euro

Balance at 31 December 2013 Income/expenses recognised directly in equity Reserve for postemployment benefit Fair value changes in hedging instruments Fair value of stock granting Taxes on expenses and income recognised in equity

Retained earnings (Loss brought forward)

Profit (loss) for the period

Equity attributable to owners of the parent

Equity attributable to noncontrolling interests

Total equity

15,251 (32,819) (76,213)

121,582

343

121,925

-

(1,186)

-

(1,186)

-

-

52

-

52

-

-

-

-

-

-

Share capital

Equity reserves

Revaluation reserve

Hedging and translation reserve

35,124

180,316

-

(76)

-

-

-

-

(1,186)

-

-

-

-

52

-

-

-

-

-

Other reserves

-

-

-

(14)

326

-

-

312

-

312

Total income/expenses recognised directly in equity

-

-

-

38

(861)

-

-

(823)

-

(823)

Profit (loss) for the period

-

-

-

-

-

- (10,648)

(10,648)

44 (10,604)

Total income/expenses recognised in the year

-

-

-

38

(861)

- (10,648)

(11,470)

44 (11,426)

Change in 2013 profit (loss)

- (81,503)

-

-

-

5,290

76,213

-

-

-

Dividends/allocation of reserves

-

-

-

-

-

(97)

-

(97)

(117)

(214)

Change in reserves

-

-

-

-

367

(367)

-

-

-

-

35,124

98,813

-

(38)

14,757 (27,993) (10,648)

110,015

269

110,286

Balance at 30 September 2014

(12) Non-current liabilities Non-current liabilities amounted to €44,944 thousand compared with €52,546 thousand at the start of the year, for a decrease of €7,602 thousand due mainly to disposal of the Software area.

(13) Current liabilities Current liabilities totalled €230,740 thousand, down €47,263 thousand from the €278,003 thousand reported at the beginning of the year as a result of deconsolidation of the Software area. Bank overdrafts and loans recorded a significant decrease of €29,337 thousand.

(14) Statement of cash flows Total cash flows were positive by €40.5 million compared to the total for the same period last year (negative by €28.9 million). Cash flow used in operating activities was a negative €36.0 million, compared to the negative cash flow of €47.7 million as at 30 September 2013. This was mainly due to the positive change in operating profit (loss) which was a negative €10.6 million, compared to the negative €30.3 million of the same period last year. The changes in net working capital include non-recurring expenses of €19.5 million, relating to disposal of the Business Media business unit for €10.9 million,

DIRECTORS’ REPORT

40

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

reimbursement of amounts withheld as guarantee for the purchase of Esa Software for €5.4 million and outlay relating to restructuring expenses for €3.1 million. Net of outflows for non-recurring expenses, net working capital improved by €2.9 million. Cash flow used in investing activities was positive at €88.2 million, compared to a negative €8.8 million the previous year, of which €95.0 million referred to the amount collected, net of cash flow transferred, on disposal of the Software area and €6.8 million outlay for operating investments. Cash flow from/(used in) financing activities was negative by €11.7 million, compared to the positive €27.6 million for the same period last year which had benefited from start-up of the securitisation.

(15) Net financial position The net financial position stood at €1.3 million, up €49.9 million compared to the start of the year (€-48.6 million as at 31 December 2013), due mainly to the overall collection of €96.6 million on disposal of the Software Area. The amount collected was partly absorbed by operations of €16.5 million, investments of €6.7 million and the payment of non-recurring charges of €19.5 million, of which €10.9 million due to sale of the Business Media business unit, €5.4 million to the reimbursement of amounts withheld as guarantee for the purchase of Esa Software and €3.1 million in outlay relating to restructuring expenses. Since the start of the year, net of payments of non-recurring charges, net working capital improved by €2.9 million.

DIRECTORS’ REPORT

41

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

ATTACHED STATEMENTS Seasonality of Group business The Group’s business is subject to seasonality, consisting of a slowdown in revenues – both from circulation and, above all, advertising – in the summertime. QUARTERLY RESULTS in thousands of euro

1st quarter 2013

2nd quarter 2013

3rd quarter 2013

4th quarter 2013

1st quarter 2014

2nd quarter 2014

3rd quarter 2014

Revenue Gross operating profit (loss)

83,312

73,645

61,534

85,730

84,071

79,048

57,186

(7,694)

(8,610)

(7,816)

(18,371)

1,420

(2,654)

(15,237)

Operating profit (loss)

(11,845)

(12,402)

(11,542)

(29,819)

(1,976)

(6,729)

(19,087)

The figures illustrated above are on a like-for-like basis, merely provided for reference purposes and may not be used in forecasting future results.

DIRECTORS’ REPORT

42

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

OUTLOOK Again in the first few months of 2014, the recession has continued to have a negative impact on revenue and on publishing industry margins. In 2013, GDP decreased by 1.9% and the growth forecasts for 2014 predict that Italian economy’s exit from the recession will be even more difficult, with a further decline in GDP by 0.4% (source: Confindustria Study Centre). The 2014 forecasts for the advertising market suggest a negative trend and the latest estimates from the leading Media Centres indicate a complex market down further on 2013. The third quarter was strongly affected by seasonal phenomena, though remaining in line with forecasts, mainly as a result of the lower volume of revenue achieved in July and August. For the last quarter of the year the Group continues to focus on action to develop revenue, also continuing with the launch of new products, such as Italy24 and the new PlusPlus24 Fisco database, and with process optimisation and cost reduction, expecting to achieve positive margin levels in this quarter. Overall, for this year it is forecast that revenue will increase compared to the previous year, particularly due to the growth in revenue from digital products, supported by increasing integration of all Group content targeting professionals, along with a decrease in revenue from traditional printed publications and a positive contribution from the Culture and Training areas. Advertising revenue is forecast to remain essentially stable compared to the previous year, also as a result of the new publishing initiatives and the continued development of digital and radio. As things currently stand, and in the absence of currently unforeseeable events, the Group continues to closely monitor the reference scenario, which is still burdened by a high degree of uncertainty particularly as regards advertising market performance. Considering this environment, the gross operating profit (loss) is expected to improve considerably this year compared to that recorded in 2013. The sale of the Group’s Software Area resulted in a cash inflow of €96.6 million, which allowed recognition of a positive net financial position as at 30 September 2014.

Milan, 11 November 2014 The Chairman of the Board of Directors Benito BENEDINI (signed on the original)

DIRECTORS’ REPORT

43

INTERIM MANAGEMENT STATEMENT AS AT 30 SEPTEMBER 2014

Declaration pursuant to Article 154-bis, paragraph 2, Italian Legislative Decree no. 58 of 24 February 1998, as amended The Corporate Financial Reporting Manager, Valentina Montanari, hereby certifies that the economic and financial data in this interim management statement is consistent with the corporate books and accounting records.

Milan, 11 November 2014 Corporate financial reporting manager Valentina MONTANARI (signed on the original)

DIRECTORS’ REPORT

44