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12072 N796 A 2 Presentation Transcript

  • 1. Il Sole 24 ORE This document has been prepared by UBS Limited Case study NEITHER THIS DOCUMENT NOR ANY PART OR COPY OF THIS DOCUMENT MAY BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR IN CANADA, JAPAN OR AUSTRALIA
  • 2. THIS DOCUMENT HAS BEEN PREPARED BY ITS AUTHORS INDEPENDENTLY OF IL SOLE 24 ORE S.P.A. (THE " COMPANY "), , MEDIOBANCA - BANCA DI CREDITO FINANZIARIO S.P.A. (" MEDIOBANCA "), AND UBS LIMITED (" UBS ") OR ANY OTHER MEMBER OF THE UNDERWRITING GROUP OR ANY OF THEIR RESPECTIVE AFFILIATES IN THE PROPOSED OFFERING (THE " OFFERING ") OF PREFERRED SHARES ( AZIONI DI CATEGORIA SPECIALE ) OF THE COMPANY. UBS LTD, WHO MAY ACT IN CONNECTION WITH THE OFFERING, HAS NO AUTHORITY WHATSOEVER TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OR WARRANTY ON BEHALF OF THE COMPANY, MEDIOBANCA, UBS, ANY OTHER MEMBER OF THE UNDERWRITING GROUP OR ANY OF THEIR RESPECTIVE AFFILIATES IN CONNECTION WITH THE OFFERING OR OTHERWISE. IN PARTICULAR, THE OPINIONS AND PROJECTIONS EXPRESSED HEREIN ARE ENTIRELY THOSE OF UBS LTD AS PART OF ITS NORMAL RESEARCH ACTIVITY AND NOT AS A MANAGER OR UNDERWRITER OF ANY OFFER OR AS AN AGENT OF, OR FINANCIAL ADVISER, TO THE COMPANY, MEDIOBANCA, UBS, ANY OTHER MEMBER OF THE UNDERWRITING GROUP OR ANY OF THEIR RESPECTIVE AFFILIATES OR ANY OTHER PERSON. UBS LTD HAS NOT INDEPENDENTLY VERIFIED THE INFORMATION GIVEN IN THIS DOCUMENT. ACCORDINGLY, NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE ACCURACY, COMPLETENESS OR FAIRNESS OF THE INFORMATION OR OPINIONS CONTAINED IN THIS DOCUMENT. NONE OF UBS LTD, THE COMPANY, MEDIOBANCA, UBS, ANY OTHER MEMBER OF THE UNDERWRITING GROUP OR ANY OF THEIR RESPECTIVE AFFILIATES, DIRECTORS, MEMBERS, OFFICERS OR EMPLOYEES OR ANY OTHER PERSON ACCEPTS ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT (EXCEPT IN RESPECT OF WILFUL DEFAULT). THIS DOCUMENT DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER FOR SALE OR SUBSCRIPTION OF OR SOLICITATION OF ANY OFFER TO BUY OR SUBSCRIBE FOR ANY SECURITIES NOR SHALL IT OR ANY PART OF IT FORM THE BASIS OF OR BE RELIED ON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER. THE OFFER SHALL BE MADE BY THE FINAL OFFERING MEMORANDUM TO BE PUBLISHED IN DUE COURSE IN CONNECTION WITH THE OFFERING. ANY APPLICATION FOR PREFERRED SHARES IN THE COMPANY SHOULD BE MADE SOLELY ON THE BASIS OF THE INFORMATION TO BE CONTAINED IN THE FINAL OFFERING MEMORANDUM. THIS DOCUMENT HAS BEEN FORWARDED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED OR REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. NEITHER THIS DOCUMENT NOR ANY COPY OR PORTION HEREOF MAY BE TAKEN, TRANSMITTED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, IN AUSTRALIA, JAPAN, CANADA OR THE UNITED STATES OR TO ANY RESIDENT THEREOF. THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. ANY FAILURE TO COMPLY WITH THESE RESTRICTIONS MAY CONSTITUTE A VIOLATION OF THE LAWS OF ANY SUCH OTHER JURISDICTIONS. FOR THE PURPOSES OF THIS PARAGRAPH, THE TERM "UNITED STATES" HAS THE MEANING GIVEN TO IT IN REGULATION S UNDER THE US SECURITIES ACT OF 1933. BY ACCEPTING THIS DOCUMENT YOU AGREE TO BE BOUND BY THE FOREGOING LIMITATIONS. THIS DOCUMENT IS FOR DISTRIBUTION IN THE UNITED KINGDOM ONLY TO PERSONS FALLING WITHIN ARTICLE 19, ARTICLE 47, ARTICLE 49 AND ARTICLES 50 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 AND ONLY WHERE THE CONDITIONS CONTAINED IN THOSE ARTICLES HAVE BEEN, OR WILL AT THE RELEVANT TIME BE, SATISFIED. THIS DOCUMENT IS CONFIDENTIAL AND IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, FURTHER DISTRIBUTED TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. THIS DOCUMENT IS FOR DISTRIBUTION IN ITALY ONLY TO PROFESSIONAL AND/OR QUALIFIED INVESTORS AS DEFINED IN ANY AND ALL APPLICABLE SECURITIES LAWS AND REGULATIONS. THEREFORE THIS DOCUMENT MAY NOT BE DISTRIBUTED TO (I) A MEMBER OF THE GENERAL PUBLIC; (II) DISTRIBUTION CHANNELS, THROUGH WHICH INFORMATION IS, OR IS LIKELY TO BECOME AVAILABLE TO A LARGE NUMBER OF PERSONS; OR (III) INDIVIDUALS OR ENTITIES FALLING OUTSIDE THE DEFINITIONS OF PROFESSIONAL AND/OR QUALIFIED INVESTORS AS SPECIFIED ABOVE.
  • 3. Table of contents
    • SECTION 1 The Company 5
    • SECTION 2 Market Outlook 12
    • SECTION 3 Group Strategy 16
    • SECTION 4 Forecasts 20
    • SECTION 5 Valuation 25
  • 4. Il Sole 24 ORE — Story in a nutshell
    • A great Italian brand in Consumer & Financial Publishing and Professional Publishing , with highly valuable readership
    • Earnings outlook 2006–10E: Top line CAGR 6% (o/w organic 3%)
    • EBITDA CAGR 13% (o/w 8% organic)
    • Net adj. profit CAGR 23%
    • Favorable momentum , as a few actions recently taken and the Group reorganization are bringing benefits from 2007
    • Rationale of the offer (100% primary): funding external growth (mostly Italy, Professional Publishing). Float will be 26–30%, listed special shares will have 2% ownership limit
    • Valuation —UBSe value range is €687–782 million (pre-money equity), i.e. a post-money mkt cap of €1.0–1.1 billion, corresponding 08E EV/EBITDA of 8.6–9.9x , P/E of 21–24x, EFCF yield of 5.2–5.9%
    • The key driver in the post-money scenario will be the timing and details of re-investment. Recent track record in M&A (€85m invested in 2006–07E) is reassuring: avg EV/EBITDA paid was 8.2x
  • 5. Shareholders and planned offer
    • Major shareholder is Confindustria (Italian Industry Confederation)
    • Listed shares will be “special shares” with 2% ownership limit
    • Float will be 26–30% (depending on over-allotment)
    • Offer will be 100% primary (UBSe est. proceeds €310–350 million )
    Source: UBS estimates Notes: 1 Confindustria only holds ordinary shares 2 All Shares held by Il Sole 24 ORE and the market following the Global Offering are special shares 100.0 133.3 35.1 100.0 98.2 Total 26.3 (30.2) 35.1(40.3) – 35.1 – – – – Market  2 6.2 (2.3) 8.2 (3.0) – – – 8.4 8.2 – Il Sole 24 ORE  2 67.5 _ 90.0 – _ 91.6 _ 90.0 Confindustria  1 % Special sh. Ordinary sh. Special sh. Ordinary Sh. % Special Sh. Ordinary Sh. m. shares Number of shares Post-Offer (and greenshoe) Offered shares Number of share Pre-Offer
  • 6. SECTION 1 The Company NEITHER THIS DOCUMENT NOR ANY PART OR COPY OF THIS DOCUMENT MAY BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR IN CANADA, JAPAN OR AUSTRALIA
  • 7. The businesses Two core divisions, a strong captive adv arm, two minor businesses Consumer & Financial Publishing
    • The leading Italian financial daily (346k copies / day)
    • Add-ons, magazines, free press: all launched in the last two years
    • EBIT margin at 10–11%
    Advertising (“System”)
    • Focused on the Group products, third parties are marginal (mostly web adv)
    • Key top line / margin driver, after reorganization of H1 07
    Professional Publishing
    • Main product line is Tax & Legal
    • A few acquisitions in 2006–07
    • EBIT margins at 16% and growing
    • Key growth area for future acquisitions
    Radio & Multimedia
    • Radio listeners and adv revenues in strong acceleration, no margin yet
    • Multimedia is two-fold: a) Real time financial info service under pressure; b) On line adv and e-commerce ok but marginal. Division with no margins
  • 8. Contribution by division in perspective
    • Consumer & Financial Publishing includes:
    Two core divisions, a strong captive adv arm, two minor businesses Revenues (€m) EBITDA (€m) Source: UBS estimates
    • The Professional Publishing will represent more than half of g roup margin by 2008E
    Source: UBS estimates Source: UBS estimates 8 Daily (Milan and Rome) End-2006 24 Minuti Free press Quarterly 2007 House 24 Monthly 2006 I Viaggi del sole Bi-monthly 2006 Nova 24 Review Monthly 2006 English 24 8 Monthly 2001 Ventiquattro Magazines 63 Irregular (spot or collections) 2005 Books, CDs Add-ons 216 Daily 1965 Il Sole 24 ORE (and related inserts) Newspaper Revenues 2007E (€m) Frequency Launch Titles Product 51 51 50 40 13 o/w advertising 186 181 176 156 133 o/w subs./circ. 238 232 227 195 147 Total 8 8 8 8 8 Education/training 48 45 43 28 16 Software solution 85 84 83 69 36 Business Media 96 94 92 90 86 Tax & legal 2010E 2009E 2008E 2007E 2006 (€m)
  • 9. Consumer & Financial Publishing
    • Strong B2B components (Fiscal & legal contents, working tool)
    • Resilient & loyal readership (48% of circulation is subscriptions via mail or at newstand)
    • Scale benefits being the largest financial title in one country
    • Sizeable synergies with Professional Publishing
    • Highly valuable / not fully exploited readership (based on avg income and education)
    • Unexploited growth potential from
      • niche to be covered with specific inserts, magazines
      • higher cover price (the only financial daily priced as generalists)
    • Cost cutting program
    Different from most of others, generalist and financial ones Subscriptions/total circ. Total circ. (000s copies/day) EBIT margin of key peers Source: UBS estimates
  • 10. Professional Publishing
    • Organic growth: Professional Publishing is a “real growth” segment outside Italy
    The growing segment of the industry
    • Margin upside: divisional margins still below leading-large-scale-EU players
    • M&A potential and benefits: external growth should accelerate and bring scale benefits, synergies are “visible”
    Material room for consolidation Company war chest is €200–250 million pre-offer and >€600 million post offer Organic growth key peers EBIT margin of Il Sole 24 ORE vs. avg key peers Source: UBS estimates Source: UBS estimates
  • 11. Radio
    • The Group radio ( Radio 24 ) has been a great success story (unique format News & Talk ) and post re-launch of 2006, listeners are up 18% (H1 07) vs. 2005
    • The advertising revenues (up 15% in H1 07) are “ monetizing ” the higher listener level
    • Target of listener is very consistent with the other Group’s products: some further upside on adv rates, supported by “ premium ” listeners
    • Low music component is a “defensive” element
    • but
    • Further upside in penetration of daily listeners is limited (c . 2 million vs. current 1.85 million), but will be supported by improving population coverage
    • Margin potential is limited, being a one channel radio: long term 10% EBITDA vs. c .  50% for Edit. L’Espresso. Today EBITDA-EBITA break-even, while EBIT affected by high amortization of radio frequencies (equal to 75% of revenues)
    A great commercial success with limited earnings upside
  • 12. Multimedia
    • Real time financial information— leadership with Italian retail banks but strong price pressure (Borsa Italiana is key data supplier and competitor)
    • On-line advertising and e-commerce— The www.ilsole24ore.com website is first (43% reach) in the Financial News & Information segment and third (10% reach) in the overall News & Information segment. Revenues come from advertising and from fees on e-commerce (mostly of Group’s products)
    • News agency— now integrated with free-press
    Multimedia division revenues (€m)—mix changing towards online Source: UBS estimates A transforming division 1 2 3
  • 13. SECTION 2 Market Outlook NEITHER THIS DOCUMENT NOR ANY PART OR COPY OF THIS DOCUMENT MAY BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR IN CANADA, JAPAN OR AUSTRALIA
  • 14. Market Outlook
    • Saturation of the FTA TV share—a positive for publishers
    • Add-on products: a shrinking market—a negative for most publishers
    • Still room for freesheets
    The Italian advertising market Source: UBS estimates The add-on products revenues: key players Freesheet titles circulation Three trends to outline in Italy: 1,075 E-Polis, CdS Anteprima 3,238 total 860 Metro 1,118 Leggo 860 City 400 24MInuti 2006E (000s copies/day)
  • 15. Newspaper market
    • Il Sole 24 ORE is expected to outperform the newspaper market
    Financial titles should have ‘easier life’
    • … and to be more ‘defensive’ than generalist titles
    Outlook of the Italian newspaper market FT circulation vs. UK market (000s copies) WSJ circulation vs. US market (000s copies) Source: UBS estimates, Company data Source: UBS estimates, UPA, Nielsen Metro, Caltagirone Ed, RCS Media Group, E-Polis +9% / +10% +17.7% € 80m (all adv) Freesheet RCS Media Group, Edit L’ Espresso, La Stampa +4.5% / +5% +5.3% € 230m (all adv) Magazines RCS Media Group, Edit, L’ Espresso, Il Giornale -10% / -11% -3% € 475m (all circ) Add-ons – +1.7% / +3.8% +1.9% € 1.6bn – Advertising – +0% / +0% +0.6% € 1.2bn – C irculation RCS Media Group, Edit L’ Espresso, Caltagirone Ed, Class Ed +1% / +2.2% +1.3% € 2.8bn Newspaper RCS MediaGroup, Edit L’Espresso +0%/+0.8% +1.3% € 3.6bn Newspaper Competitors Outlook (2006–09E CAGR / 2007 / 06 y / y) Recent growth (2004–06 CAGR) Mkt size (2006)
  • 16. Professional Publishing Two thirds of newspaper mkt, but room for consolidation Outlook of the Italian professional publishing market Source: UBS estimates, UPA, Nielsen Organic growth of key intl peers vs. Italian mkt and Il Soler 24 ORE Source: UBS estimates
    • Tax & Legal and software the fast growing segments, with material consolidation scope
    • Our assumptions of growth are below those of international peers
    SDA Bocconi +2.5% +4.5% € 380m Education Zucchetti, Wolters Kluwer, Team System +2% +1% € 1bn Software (relevant segments) Reed Elsevier, Tecniche Nuove +0% +0% € 400m (incl adv) Business media (technical) Wolters Kluwer, Giuffre’, Maggioli +3% +3% € 570m Tax and legal Wolters Kluwer, Giuffre’, Maggioli +2% +1.8% € 2.3bn Professional publishing Competitors Outlook (2006–09E CAGR) Recent growth (2004–06 CAGR) Mkt size (2006)
  • 17. SECTION 3 Group Strategy NEITHER THIS DOCUMENT NOR ANY PART OR COPY OF THIS DOCUMENT MAY BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR IN CANADA, JAPAN OR AUSTRALIA
  • 18. Recent Events Shifted gear: a few actions are fuelling earnings growth
    • Reorganization of the advertising division ( “ System ” ) in H1 2007
    • Cost cutting program launched in H2 2006
    • New product launched in the Consumer & Financial Publishing over 2006–07: add-ons, four magazines, the freesheet, new inserts
    • Acquisitions in the Professional Publishing division (€85 million invested in last 18 million)
    • Completion of a sizeable capex plan (full colour available since H2 06, last “ leg ” planned in 2008)
    • H1 2007 results offer evidence of early results: +12% top line (+8% organic), +16% EBITDA (+14% organic)
    • The rationale of the planned offer (100% primary) is funding external growth (mostly Italy, Professional Publishing)
  • 19. Track record in M&A The multiples paid so far are not demanding Deals announced in 2006–07: avg EV / EBITDA paid is 8.2x Source: Company data, UBS estimates. All in €m if not stated 10 72 85 Total committed 0 1 nm 1 5 nm 5 30% Diamante Q4 07 0 0 nm 2 3 0 3 55% Alinari Q4 07 (E) 10 71 8.2 82 Only controlling stakes Total YTD 2 10 6.7 13 13 (3) 16 100% STR Aug-07 0 0 nm 1 3 nm 3 30% Blogosfere Jul-07 2 13 6.5 12 12 4 8 100% Data Ufficio Jul-07 5 42 8.6 47 47 6 40 100% GPP Mar-07 0 2 37.5 2 4 0 4 57% Motta Arti Grafiche Dec-06 0 2 13.5 4 4 0 4 100% Motta Architettura Oct-06 0 2 nm 3 22 nm 22 15% El Economista Feb-06 2006 EBITDA 2006 revenues EV / EBITDA (x) Impact net debt EV Net debt (cash) Equity value Stake Target Timing
  • 20. Use of proceeds—Re-investment scenarios
    • Re-investment will be a key driver of the post-money scenario
    • We see room for a material scale-up of the business, with positive impact on rating
    Source: UBS estimates 5.7% 6.2% 6.3% 6.7% EFCF yield 19.9 18.4 18.3 16.9 PE (x) 11.2 9.0 8.9 8.5 EV / EBITDA (x) 65 70 62 67 EFCF (2008E) 57 62 54 59 Net profit (2008E) 140 152 135 145 EBITDA (2008E) 2.0 2.0 2.0 2.0 Net debt / EBITDA ( 283 ) ( 310 ) ( 271 ) ( 294 ) Net cash (debt) 1 , 133 1 , 133 994 994 Equity 1 , 346 1 , 372 1 , 204 1 , 227 EV Re-leverage scenario (2x net debt / EBITDA) 5.4% 5.8% 5.9% 6.3% EFCF yield 21.3 19.6 19.5 18.1 PE (x) 9.5 8.9 8.8 8.3 EV / EBITDA (x) 61 66 59 63 EFCF (2008E) 53 58 51 55 Net profit (2008E) 124 134 119 128 EBITDA (2008E) 1.0 1.0 1.0 1.0 Net debt / EBITDA ( 122 ) ( 135 ) ( 115 ) ( 127 ) Net cash (debt) 1 , 133 1 , 133 994 994 Equity 1 , 184 1 , 197 1 , 048 1 , 060 EV Re-leverage scenario (1x net debt / EBITDA) 5.1% 5.5% 5.6% 6.0% EFCF yield 22.8 21.0 20.9 19.4 PE (x) 9.9 9.2 9.0 8.4 EV / EBITDA (x) 58 62 56 59 EFCF (2008E) 50 54 48 51 Net profit (2008E) 108 117 104 111 EBITDA (2008E) n m n m nm nm Net debt / EBITDA 40 40 40 40 Net cash (debt) 1 , 133 1 , 133 994 994 Equity 1 , 073 1 , 073 935 935 EV 351 351 308 308 Proceeds re-invested 100% proceeds re-invested (€m) 4.6% 4.8% 5.1% 5.3% EFCF yield 25.4 24.3 23.1 22.1 PE (x) 9.9 9.5 8.9 8.5 EV / EBITDA (x) 52 55 51 53 EFCF 45 47 43 45 Net profit (2008E) 90 95 88 92 EBITDA (2008E) n m n m nm nm Net debt / EBITDA 216 216 194 194 Net cash (debt) 1 , 133 1 , 133 994 994 Equity 898 898 781 781 EV 175 175 154 154 Proceeds re-invested 50% proceeds re-invested (€m) 10x 8x 10x 8x Multiple of target companies (EV / EBITDA) Top of UBS range (€351m) Bottom of UBS range (€308m) Il Sole 24 ORE valuation (offer proceeds)
  • 21. SECTION 4 Forecasts (pre-money) NEITHER THIS DOCUMENT NOR ANY PART OR COPY OF THIS DOCUMENT MAY BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR IN CANADA, JAPAN OR AUSTRALIA
  • 22. Key drivers The key drivers and risk factors of top line and margins Source: UBS estimates See above plus web-based adv exposure Advertising: Consolidation of clients - Increasing competition Price pressure - financial info services Strong online advertising - online Multimedia: Premium listeners to be fully “ monetized ” Shortage of frequencies - Cost inflation Growing listeners Radio: Synergies from integration of new businesses Scale effect + Smoother tradition to new media (web,   electronic) Impact of acquisitions M& A + More resilient than consumer publishers Organic growth above consumer publishing Professional publishing : Free press due to break-even in 2009 / 10E Advertising upside from new titles and free   press Launch cost decreasing - Saturation of the add-on segment Free press launched in November 2006, gaining   momentum - New entrants in il sole 24 ore niches “ Young ” titles (mostly launched in 2006–07) - Magazines / free press Product innovation (inserts) Cost cutting plan Circulation and readership weakness Full colour impact Increasing competition from smaller players ( Italia   Oggi ) + High “ professional ” readership Advertising re-positioning Weakening advertising from financial services   segment + Higher than peers’ subscription revenues Cover price gap to “ generalists ” - Newspaper Consumer and financial publishing: Potential risks Visibility issues (+ / -) Growth drivers Division
  • 23. Revenues 2006–10E CAGR is +6%, o / w 3% organic Source: UBS estimates 2.3% 2.1% 7.0% 14.3% 5.1% 6.0% % change 653 638 625 584 511 486 458 Total group 4.2% 4.6% 6.6% 14.9% 1.6% 1.4% % change ( 189 ) ( 181 ) ( 173 ) ( 163 ) ( 141 ) ( 139 ) -137 Corporates & intra-group adj. 2.7% 2.7% 6.9% 14.5% 4.3% 4.9% % change 842 819 798 746 652 625 596 Total gross 6.2% 2.8% ( 1.3 ) % ( 6.3 ) % ( 9.2 ) % ( 9.3 ) % % change 43 41 40 40 43 47 52 Multimedia 5.0% 4.0% 7.0% 12.9% 9.7% 0.4% % change 16 16 15 14 12 11 11 Radio 4.4% 4.8% 6.7% 11.0% 1.4% 0.4% % change 236 226 216 203 183 180 179 System (advertising) 2.4% 2.4% 16.1% 33.2% 2.0% 1.4% % change 238 232 227 195 147 144 142 Professional publishing 1.1% 1.3% 2.1% 10.0% 10.2% 14.8% % change 308 305 301 295 268 243 212 Consumer & fin. publishing 2010E 2009E 2008E 2007E 2006 2005 2004 ( €m )
  • 24. Costs
    • Labour is the largest single cost item
    Reducing cost of launches of magazines and freesheet Source: UBS estimates 25.6% 25.6% 25.4% 24.5% 26.5% 27.6% 26.6% % revenues 167 163 159 143 135 134 122 Cost of labour 8.1% 8.2% 8.4% 8.8% 10.1% 10.5% 10.1% % revenues 53 52 52 51 52 51 46 Other operating costs 1.4% 1.4% 1.4% 2.0% 1.7% 2.8% 2.4% % revenues 9 9 9 12 9 14 11 Contributions & others 12.3% 12.3% 12.5% 12.9% 14.3% 14.8% 12.9% % revenues 80 78 78 75 73 72 59 o / w printing & distr. 46.5% 46.5% 46.9% 47.9% 48.7% 48.2% 46.7% % revenues 303 297 293 280 249 234 214 Costs of services 7.8% 7.8% 8.0% 8.7% 5.5% 5.6% 6.4% % revenues 51 50 50 51 28 27 30 o / w paper 8.8% 8.8% 9.0% 9.7% 6.6% 6.8% 7.6% % revenues 57 56 56 56 34 33 35 Raw materials 2010E 2009E 2008E 2007E 2006 2005 2004 ( €m )
  • 25. Financials
    • Tax rate is very high, as business is concentrated in Italy and labour cost is very high (i.e. high IRAP)
    • We expect it to fall to c . 48% overtime, due to benefits of recent fiscal changes and changing business mix
    • Capex will ease from this year. We assume the last “ leg ” of one off investments in 2008E (€14 million for full colour project and radio frequencies)
    • FCF is expected to grow from €18 million of 2007E to €45 million in 2009E and €48  million in   2010E
    FCF growing by 2.6x in three years Source: UBS estimates Source: UBS estimates High tax rate vs. peers (2007E) Tax rate, 2004 – 10E Group capex and FCF outlook
  • 26. SECTION 5 Valuation NEITHER THIS DOCUMENT NOR ANY PART OR COPY OF THIS DOCUMENT MAY BE DISTRIBUTED DIRECTLY OR INDIRECTLY IN THE UNITED STATES OR IN CANADA, JAPAN OR AUSTRALIA
  • 27. Stock positioning A balanced positioning between plus and minus
    • Earnings growth at top of industry
    • Business visible and resilient
    • Unexploited growth options (adv, new products, cover prices)
    • No currency exposure
    • Trophy asset
    • Unfavorable tax-rate rel. to peers
    • Lack of M&A appeal in S / M term
    • 2% ownership limit
    • Rigid cost structure
    Plus Minus Italian publishers (affected by relatively high tax rates) trades at premium on P / Es and small discount on EV / multiples DMGT example suggests that limited voting rights do not necessarily hit the stock rating
  • 28. Peers
    • Need to select appropriate peers
    • Given the group positioning and asset quality we compare it to best in class
    K ey peer group includes Pearson, Wolters, Reed, Espresso Source: UBS estimates 11.4% 9.8% 11.8 13.1 8.6 10.6 7.8 9.2 Consumer publishers 7.5% 6.7% 15.0 16.3 9.2 10.4 7.9 8.7 Avg selected consumer publ. 8.8% 7.6% 13.9 15.8 9.5 11.0 8.3 9.5 8 , 801 765 Pearson 6.1% 5.8% 16.0 16.7 8.8 9.5 7.2 7.7 1 , 525 3.5 L'Espresso 7.6% 6.9% 12.9 15.7 10.0 11.1 9.0 10.0 Professional publishers 7.3% 6.6% 12.9 14.5 10.8 12.0 9.4 10.4 Avg selected prof. publishers 8.3% 7.5% 12.2 13.4 9.66 10.9 8.6 9.6 6 , 406 21.7 Wolters-Kluwer 6.3% 5.7% 13.7 15.5 11.9 13.2 10.2 11.3 19 , 570 601 Reed Elsevier plc 2009E 2008E 2009E 2008E 2009E 2008E 2009E 2008E (€m) (local) EFCF yield P / E (adj.) EV / EBITA EV / EBITDA Mkt cap Price
  • 29. EV Multiples – SOTP Outcome is equity value at €751–729 million (pre-money) Source: UBS estimates SOTP based on mkt EV multiples Notes: 1 Radio is valued on the back of frequencies cost 2 Mostly represented by the stakes in Borsa Italiana and Ecoprensa 729 751 Equity (pre-money) 19 19 Peripheral assets 2 40 40 Net cash (debt) as of December 2008E 669 692 11.3x 59.3 9.5x 72.9 Total group EV ( 164 ) ( 86 ) 11.3x ( 14.5 ) 9.5x ( 9.1 ) Corporate costs 833 778 11.3x 73.7 9.5x 81.9 Total divisions % of group 1 4 7.0 0.1 5.0x 0.8 Multimedia 75 67 nm 0.0 nm 0.7 Radio   1 833 774 11.3x 73.6 9.6x 80.4 Total core divisions 509 447 12.0x 42.5 10.4x 42.8 Professional publishing 323 327 10.4x 31.1 8.7x 37.6 Consumer & financial publishing EV (driven by EV / EBITA) EV (driven by EV / EBITDA) Multiple EBITA Multiple    EBITDA ( €m )
  • 30. P / E and DCF P / E suggests equity value of €687 million , DCF €737–782 million (pre-money) Source: UBS estimates Equity value driven by peers’ P / E Source: UBS estimates DCF —k ey assumptions and outcomes (€m) Notes: 1 Equal to 2007E P / E divided by 2006–09E adj. EPS CAGR. Target P / E and PEG are weighted on the basis of contribution to growth Notes: 1 Mostly represented by the stakes in Borsa Italiana and in Ecoprensa 1.7x 1.7x 1.5x 2.7x PEG 1 € 687m 28.5x 17% € 24.1m 16.4x 16.5x 16.7x P / E (UBS adj.) Equity 200 7E multiples EPS CAGR (2007–10E) Adj. net profit (2007E) (15 consumer/ 85 prof.) 2007E 2007E II Sole 24 ORE Weighted Professional publ. Consumer publ. 782 770 755 737 Equity value (pre-money) 19 19 19 19 Peripheral assets  1 40 40 40 40 Net cash (Dec. 2008E) 722 711 696 677 Entity value 8.8x 8.6x 8.4x 8.2x Implied exit multiple (EV / EBITDA) 488 477 463 445 Terminal value 235 234 233 232 PV of CF 2009–15E 8.08% 8.17% 8.29% 8.45% WACC 15% 10% 5% 0% Net debt / EV
  • 31. Valuation range (pre-money)
    • This implies 2008E EV / EBITDA of 8.6–9.9x, P / E 21–24x, EFCF yield 5.2–5.9%
    Pre-money range is €687–782 million Source: UBS estimates 6.5% 5.9% 19.0x 21.2x 9.7x 10.6x 8.0x 8.6x 687 627 2007E PEG at 1.7x P / E adj. to growth 6.1% 5.5% 20.2x 22.5x 10.4x 11.3x 8.5x 9.2x 729 669 EV / EBITA driven 5.9% 5.4% 20.8x 23.2x 10.7x 11.7x 8.8x 9.5x 751 692 EV / EBITDA driven SOTP 6.0% 5.5% 20.4x 22.8x 10.5x 11.4x 8.6x 9.3x 737 677 U n-leveraged/WACC 8.45% 5.7% 5.2% 21.7x 24.2x 11.2x 12.2x 9.2x 9.9x 782 722 15% debt/EV; WACC 8.08% DCF 2009E 2008E 2009E 2008E 2009E 2008E 2009E 2008E pre-money pre-money Drivers / assumptions Methodology EFCF yield P / E (adj.) EV / EBITA EV / EBITDA Equity EV ( €m )
  • 32. A break-up scenario
    • Break-up scenario based on recent deals suggests equity value above €1.1 billion
    • We do not consider this scenario as likely in the short-medium term
    Another invaluable and overvalued “ trophy ” ? Source: UBS estimates Break-up value Recent deals in the sector Source: UBS estimates Note: 1 Mostly represented by the stakes in Borsa Italiana and in Ecoprensa 1 , 166 1 , 138 Equity (pre-money) 19 19 Peripheral assets 1 40 40 Net cash (debt) December 2008E 1 , 107 1 , 079 18.7x 59.3 14.8x 72.9 Total Group EV ( 271 ) ( 134 ) 18.7x ( 14.5 ) 14.8x ( 9.1 ) Corporate costs 1 , 378 1 , 213 18.7x 73.7 14.8x 81.9 Total divisions 1 4 7.0x 0.1 5.0x 0.8 Multimedia 75 67 nm 0.0 nm 0.7 Radio 689 621 16.2x 42.5 14.5x 42.8 Professional publishing 689 588 22.1x 31.1 15.6x 37.6 Consumer & financial publishing EV (driven by EV / EBITA) EV (driven by EV / EBITDA) Multiple EBITA Multiple EBITDA ( €m ) 24.9 13.9 3.6 € 1100m 2007 RCS Mediagroup Recoletos 30.3 20.8 3.3 € 941m 2004 Retos Cartera Recoletos 20.0 18.0 1.9 c€240m 2007 LVMH Les Echos 16.2 14.5 3.4 c€250m 2005 Wolters Kluwer De Agostini 21.5 15.0 2.4 $5300m 2007 News Corp Dow Jones EV / EBITA (x) EV / EBITDA (x) EV / Sales (x) Price Date Bidder Asset
  • 33. The post-money scenario
    • Post-money multiples assuming no-reinvestment (30% of mkt cap is cash)
    • Post-money multiples assuming re-investment of all proceeds (still no re-leverage)
    Re-investment assumptions are key for P / E and EFCF yield Source: UBS estimates. Table assumes full exercise of over-allotment (greenshoe) and that 100% of proceeds are re-invested at an average post synergy EV / EBITDA multiple of 9x. The 2008E EFCF is restated for €14 million one-off capital expenditures Source: UBS estimates. Table assumes full exercise of over-allotment (greenshoe). The 2008E EFCF is restated for €14 million one-off capital expenditures 6.2% 5.8% 18.5x 20.2x 9.7x 10.4x 8.2x 8.7x 994 935 2007E PEG at 1.7x P / E adj. to growth 6.0% 5.5% 19.3x 21.0x 10.1x 10.8x 8.6x 9.1x 1 , 055 996 EV / EBITA driven 5.8% 5.4% 19.7x 21.4x 10.3x 11.1x 8.7x 9.3x 1 , 088 1 , 029 EV / EBITDA driven SOTP 5.9% 5.5% 19.4x 21.1x 10.2x 10.9x 8.6x 9.2x 1 , 067 1 , 008 un-leveraged / WACC 8.45% 5.7% 5.3% 20.2x 21.9x 10.6x 11.4x 9.0x 9.6x 1 , 133 1 , 073 15% debt / EV; WACC 8.08% DCF 2009E 2008E 2009E 2008E 2009E 2008E 2009E 2008E post-money Post-money Drivers / assumptions Methodology EFCF yield P / E (adj.) EV / EBITA EV / EBITDA Equity EV ( €m ) 5.1% 4.7% 23.4x 25.8x 9.7x 10.6x 8.0x 8.6x 994 627 2007E PEG at 1.7x P / E adj. to growth 4.8% 4.4% 24.6x 27.1x 10.4x 11.3x 8.5x 9.2x 1 , 055 669 EV / EBITA driven 4.7% 4.3% 25.2x 27.8x 10.7x 11.7x 8.8x 9.5x 1 , 088 692 EV / EBITDA driven SOTP 4.8% 4.4% 24.8x 27.4x 10.5x 11.4x 8.6x 9.3x 1 , 067 677 un-leveraged / WACC 8.45% 4.6% 4.2% 26.1x 28.8x 11.2x 12.2x 9.2x 9.9x 1 , 133 722 15% debt / EV; WACC 8.08% DCF 2009E 2008E 2009E 2008E 2009E 2008E 2009E 2008E post-money Post-money Drivers / assumptions Methodology EFCF yield P / E (adj.) EV / EBITA EV / EBITDA Equity EV ( €m )
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