ANNUAL REPORT 2010-2011 - Bayard Group

GROUP MANAGEMENT REPORT
Financial year 2010-2011

Economic backdrop

The French print media was hit by the most severe economic blow in
recent history yet it managed a difficult recovery in 2010.
Paid print media sales dipped a mere 1.1% in 2010 from 2009, much
less than from 2008 to 2009 [Source: étude DGMIC].

The circulation of France’s main publications was flat from July 2010 to
June 2011, whereas national dailies dropped around 1% [Source: OJD].
Print subscription sales grew slightly from the previous year.
Newsstand sales have dropped 7% in volume and 4% in value terms
since July 2010 year to date [Source: Presstalis], following seven
negative years in a row.

The relative recovery of the advertising market has not allowed media
print to restore pre-crisis sales levels. Magazine advertising volume rose
4.5% from July 2010 to June 2011, against a 1.1% decline in the case of
national dailies [Source: Kantar Media]. Though the first quarter of 2011
was favorable, there was a sharp slowdown in the second quarter.

First-half 2011 trends in the United States were down: magazine
circulation sagged 1.4% and newsstand dropped 9.2% from first-half
2010 [Source: Audit Bureau of Circulations].

France’s youth book market has shrunk 3% in value terms since July 2010
year to date.
The market remained driven by online sales, which were up 10.5%,
whereas bookstores were down 2.7% and mass retail declined 8.6%.
Sales in specialty stores slipped 0.7% [Source: GFK].

GROUP BUSINESS

Highlights

The group has built a new project, re-asserted its values and goals, set 3
to 5-year objectives and launched action plans. It is thus making every
effort to adjust to the market in terms of business fundamentals as well
as readership expectations and new usages.

The renovation of the editorial content was extended, taking the digital
dimension board whenever appropriate (from an editorial as well as
marketing/sales standpoint) : examples include the bi-media proposition
of la Croix in France, new youth and adult readership books, more senior
services in the Netherlands, the new parish line-up in the United States…
The group carried out more and more digital experiments and test
programs.

The group cast further efforts on modernizing its editorial and writing
systems, customer relations and technologies needed to roll out digital.

Cooperation was intensified with the group’s partners and between
industries, between businesses and between France and international
operations. The renovation of the youth editorial proposition in Germany
in the fall of 2011, the merge of regional sales network management
and the creation of the Bayard/Milan BD Kids label are fine illustrations.

The group’s book promotion-distribution organization has been
significantly enhanced, with a change in the book promotion-distribution
at éditions Milan in order to embark on the development of a more
extensive catalog and the integration of Sofédis into the promotiondistribution
platform of the Gallimard group, which enables Bayard to
further develop sales across traditional book sales circuits while adopting
a digital approach with resolve.

RESULTS

Consolidated sales

The disposal of Sofédis has an impact on the comparison of the
FY 2009/2010 books with those of 2010/2011. Like-for–like proforma
2009/2010 sales have been established.

Consolidated sales amounted to 377.5 M€, versus 408.5 M€ in 2009/2010
and 386.0 M€ in 2009/2010 on a proforma basis. They were down 2.2%
on a same-scope basis.

Sales of the group’s French companies amounted to 314.1 M€ (83% of
total sales), down 1.7% like-for-like. Sales of the group’s foreign companies
amounted to 63.4 M€, down 4.6%.

Print circulation sales reached 255.4 M€, down 2.5% like-for-like, due to
the further decline of certain subscriber portfolios. But newsstand sales in
France increased for Bayard Jeunesse magazines.

Group advertising revenues (9.8% of total sales) were flat overall, but
with plusses and minuses: senior print performed well in France (+3.2%),
whereas the daily and parent magazine sales declined.

Book sales were up 1.8%, owing to outstanding sales at Bayard Editions
(Lumière du Monde, Des hommes et des dieux).

Results

The group’s operating margin amounted to 11.3 M€ in FY 2010/2011,
versus 14.2 M€ in FY 2009/2010, and 10.9 M€ on a same-scope basis
(excluding Sofédis).

The group’s operating profit reached 3.9 M€, versus 4.5 M€ in
FY 2009/2010, and 1.1 M€ like-for-like. This includes 5.6 M€ in
restructuring costs, against 7.8 M€ in 2009/2010.

The financial result amounted to -1.2 M€, versus +0.6 M€ in 2009/2010.
The variation was primarily due to forex and the devaluation of the Dollardenominated
debt instruments held by Bayard Presse Investissement
from its subsidiaries.

Exceptional income amounted to +21.1 M€, versus -1.4 M€ in
2009/2010. It mainly includes capital gains from the September 2010
disposal of Sofédis.

Depreciation of goodwill and acquired intangible assets amounted to
4.7 M€ versus 6.8 M€ in FY 2009/2010. As a reminder, two assets were
depreciated for 2.1 M€ on June 30, 2010.

A net tax expense of 0.1 M€ was booked in FY 2010/2011.

Net group profit amounted to 21.0 M€, versus 3.9 M€ in FY 2009/2010.

Group equity amounted to 40.1 M€, versus 19.9 M€ at the end of June
2010.

Cash and balance sheet

The group’s cash position was in a structural surplus position, owing to
strong working capital generated by subscriptions.

Optional and firm hedging covered forex risk related to financial assets in
Canadian and US Dollars.

Net cash minus financial debt amounted to 29.2 M€, versus 22.2 M€ as at
June 30, 2010.

Long-term financial debt shrank 0.9 M€ from 24.3 M€ to 23.4 M€.
Free cash amounted to 52.6 M€ as at June 30, 2011, versus 46.5 M€ as at
June 30, 2010.

Cashflow from operating activities amounted to 3.3 M€, versus 12.8 M€ in
FY 2009/2010.
The drop was due to 7.8 M€ in adaptation costs cashed out, versus
2.0 M€ in 2009/2010. Excluding adaptation costs and on a same-scope
basis cashflow was flat.

Working capital requirement dropped 2.4 M€ in 2010/2011.
Deferred subscription income dropped from 86.3 M€ as at June 30, 2010 to
83.3 M€ as at June 30, 2011 ; the economic variation (excluding forex and
scope variations) was -2.5 M€.

Cash relating to investments and disposals amounted to a 7.1 M€
contribution.

The group used a leaseback to finance the facilities in Montrouge. The
total amount was 6,0 M€ in 2008. The leaseback was restated in the
consolidated accounts, with a net book value recognized as tangible assets
of 4.2 M€ and a 2.6 M€ loan in liabilities as at June 30, 2011.

OUTLOOK

Significant events since the close
of the financial year

There has been no significant event since the close of the financial period.

Foreseeable future

Following the adoption of its new Project, the group is pursuing its extensive
editorial, technical and marketing/sales projects.

The 2011/2012 budget shows a recovery in sales and a sales reinvestment
effort which will essentially bear fruit in 2012/2013 and contribute to
heightening the visibility of the group’s flagship brands.

The group should at least be profitable against external costs that have
grown sharply two years in a row.

Net cash should be up from June 2011, with a significant improvement in
cashflow.

Priority objectives include digital integration, the modernization of facilities
and processes and the enhancement of the organization with a view to
achieving cooperation that can generate more and more value for the
readers, the company, its staff and all those who contribute efforts and
creative work.