home > report on operations > financial position > Review of Balance Sheet

Income Statement

The Parent Company income statement for 2009 recorded a net loss of 79.9 million euros, against a loss of 37.0 million euros in 2008.

The following section provides an overview of the main items of the Income Statement and the reasons behind the more significant changes from the previous year, taking into account the merger by incorporation of the company Rai Click, which did not have significant effects.

Revenues from sales and services

Revenues from sales and services consist of licence fees, advertising revenues and other commercial revenues. They totalled 2,969.9 million euros, up 16.4 million euros (+0.6%) on 2008.

Licence fees (1,645.4 million euros). These include licence fees for the current year as well as those for previous years, collected through coercive payment following legal registration, as highlighted in the following table.

The total increase (+1.6%) is mainly attributable to an increase in the perunit licence fee from 106.00 euros to 107.50 euros (+1.4%), with the remainder accounted for by an increase in the number of paying subscribers.



Once again, in 2009 the licence fee paid in Italy continues to be the lowest in Western Europe. By way of example, the table shows the annual licence fee, in Euros, in force in selected European countries.



Advertising revenues 908.6 million euros) show a drop of 187.1 million euros (-17.1%) on 2008. This decline in advertising revenues is largely determined by the severe international financial recession which characterised the end of 2008 and the whole of 2009, causing significant contractions in the Italian and international economy. This led to a considerable reduction in advertising investments, strong accentuated in 2009 by big sporting events, which had characterised the previous year. The reference market (TV and Radio) showed an overall decline of about 9.9% (source Nielsen) in 2009.



Other revenues show an increase of 177.3 million euros (+74.3%), owing mainly to the sale to third parties, during the year, of the pay TV rights to broadcast the 2010 and 2014 World Cup matches and other minor FIFA events, for the sum of 175 million euros.
Other factors, of little significance when considered individually, are highlighted in the table on the right. Positive items included the effects of the agreement entered into with a leading sports company, booked to Sale of rights to utilise archive materials to football clubs, while negative items included lower revenues from Telephone services and Sale of rights.
As shown in the table on the right, the relative weights of the three components on total revenues from sales and services show an increase in the Licence Fees and Other revenues items compared with the totals for the previous year, to the detriment of the Advertising component.



Operating costs

These total 2,754.7 million euros, rising 49.6 million euros, 1.8%, compared with 2008, as detailed below.

The item includes internal costs (labour cost) and external costs, regarding ordinary business activities, according to the following classification.

External goods and services - This caption includes purchases of goods and services required to make programmes of immediate use (purchases of consumables, external services, artistic collaborations, etc), filming rights for sports events, copyright, services from subsidiaries, running costs (rental and hire fees, telephone and postage costs, cleaning, maintenance, etc.) and other operating costs (direct and indirect taxes, contribution to the Authority, the public broadcasting concession fee, etc.).

As shown in the table, the caption shows an increase of 48.7 million euros (+2.7%), determined by the cost of the pay TV rights to broadcast the 2010 and 2014 World Cup matches and lesser FIFA events equating to 169.3 million euros subject to the aforementioned sale to third parties.

Net of this component, the caption amounts to 1,681.8 million euros, with a reduction of 120.6 million euros, mainly from the reduction in costs for the purchase of filming rights, mostly relating to sports broadcasting rights (-143.2 million euros). In relation to this, the absence in 2009, as in all other odd years, of important four-yearly sports events (European Cup Football Championships and the Olympic Games), which had influenced the Income Statement by 164.6 million euros, should be signalled.



Personnel costs � These amount to 903.6 million euros, up by a total of 0.9 million euros on the total at 31 December 2008 (0.1%), as detailed in the right-hand table.



As for the previous year, the personnel cost containment trend was confirmed, recording figures well below the level of inflation.

This result is due to various managerial interventions. First of all, the positive effects of incentives in 2008 and the new incentives in 2009 made it possible to offset the economic impact deriving from the stabilisation of those on temporary work contracts and to significantly limit the physiological growth of labour costs deriving from contractual renewals, meritocratic policies and rises related to length of service.

Alongside incentive policies, interventions on all the variable captions (overtime, rises ad remuneration policies) weighed positively on the containment of labour costs, as did the reduction of the severance pay fund revaluation index.

Personnel on payroll at 31 December 2009 amounted to 9,953, up 79 on the same date of the previous year.

The average number of employees, including those on fixed-term contracts, came to 11,829, with an increase of 131 compared to the previous year, due to an increase of 77 members of staff on permanent contracts and an increase of 54 in the number of staff on fixedterm contracts.

Gross Operating Margin

The Gross Operating Margin, as a consequence of the above, is positive for 230.6 million euros, down 32.5 million euros, or 12.4%, on the previous year.

Amortisation of programmes

This caption is related to investments in programmes, which during 2009 amounted to 287.6 million euros, down 29.1 million euros (-9.2%), mainly due to TV fiction series which ends the growth trend that has characterised previous years.



Amortisation charged for the year in relation to the above captions, amounted to 261.2 million euros, rising 6.2 million euros (+2.4%) compared with the previous year. This albeit modest growth was due to the positive influence during the year in progress of the major investments made in previous years.



Depreciation and other amortisation

This is linked to investments in tangible non-current assets and other investments, the movements of which during 2009, highlighted in the following table, presented an overall increase (+5.3 million euros).



Depreciation and other amortisation charged for the year in relation to the above captions amount to 78.2 million euros, with a drop of 12.2 million euros compared with 2008, referring almost entirely to tangible non-current assets, in relation to the progressive completion of the amortisation of assets acquired in the past, in the presence of a contained level of investment.



Other net income (charges)

This caption comprises costs/revenues not directly related to the Company's core business and, in 2009, highlights net charges of 35.4 million euros (net prior-year income of 28.0 million euros). In greater detail, it comprises provisions for risks and charges (29.0 million euros), expenses for repeatusage programmes which it is not expected will be used or repeated (25.4 million euros), provisions for the company supplementary pension fund for former employees (9.7 million euros), partially offset by net prior-year income (30.6 million euros). The drop in the caption compared to 2008 (-63.4 million euros) is largely referable to the absence of net prior-year income originated in the previous year by the results of a transaction regarding copyright.

Operating Result

The results described above for operating revenues and costs led to a deterioration in the operating result, from �54.2 million euros in the previous year to -144.2 million euros this year, with a drop of 90.0 million euros.

Net financial income

Net financial income shows a gain of 1.3 million euros (3.1 million euros in 2008). The caption shows the economic effects of financial operations and comprises bank interest expense and income as well as that relating to Group companies and net income/expense in relation to exchange rates.

The details show a drop in net interest payable to banks of 1.2 million euros against higher financial exposure to third parties, partly offset by a reduction in the rates applied. Low market interest rates also determined a relevant change (-4.6 million euros) in interest income originating from the loan to the associated companies, despite the high loan granted to them.

Exchange rate differences, mainly generated by the acquisition of rights to sports events in US dollars, were positive despite being for a limited amount, thanks to hedging activities carried out in previous years, which limited the significant oscillations recorded by the exchange rate during the year.

The average cost of loans with banks and other financial institutions, made up of credit line on current accounts, "hot cash" and stand-by loans, dropped considerably in relation to the significant reduction in the money market reference rates, setting at 2.3%.



Income from equity investments

As indicated in the table below, the caption amount to a total of 47.8 million euros and includes the dividends collected during the period considered valid for the results of the previous year (49.8 million euros) ad the reductions of the value of equity investments for losses totalled during the year (2.2 million euros).



Net exceptional financial income (expense)

This caption, which highlights net exceptional income of 1.7 million euros (net income of 1.0 million Euros in 2008), was originated by expenses (6.7 million euros) for incentivised resignation linked to the implementation of the 2008 � 2010 three-year plan exceeding the fund provided in 2007, partially offset by proceeds linked to the disclosure of credit for the reimbursement of IRES following the introduction of the law that made the IRAP paid during the tax years between 2004 � 2007 (4.2 million euros) partly deductible and to the recognition of tax credit for research and development costs sustained in 2008 (0.6 million euros).

Income taxes

The caption has a positive value of 16.9 million euros determined by the balance between current and deferred taxes, as detailed in the table.

As regards the IRES tax, no amount was booked as the year's result for tax purposes was negative.

IRAP, amounting to 26.7 million euros, shows a decrease of 2.8 million euros compared with the previous year, determined by a lower taxable amount.

Deferred tax liabilities determine a positive effect of 13.8 million euros (11.5 million euros in 2008), as a consequence of the reversal of the temporary differences of income deriving from the higher amortisation applied in 2007 for tax purposes only.

Deferred tax assets (29.8 million euros) originated from the booking of IRES credits for 26.9 million euros deriving from the year's negative taxable income, which is offset by the positive taxable income of subsidiaries, including within the scope of tax consolidation mechanism for tax year 2009.



Balance Sheet

Non-current assets



Tangible non-current assets amount to 333.9 million euros and are represented by land and industrial buildings for 38.5%.

The decrease of 11.1 million euros with respect to 2008 represents the balance between investment (59.6 million euros), eliminations (0.3 million euros) and depreciation (70.4 million euros).



The investments in programmes is mainly represented by films (360.4 million euros), which accounted for the greater part of investments during the year (257.9 million euros).

The change from the previous year (+0.9 million euros) is the net result of the following factors:

- investments for 299.4 million euros;
- amortisation for 273.1 million euros;
- writedown of programmes for 25.4 million euros.

Equity investments fell slightly (-1.6 million euros) largely due to the writedown of the investments in Rai Corporation and NewCo Rai International following the losses recorded by the company.





Other non-current assets are shown in the following table.



Working capital

The change from 2008 (+63.4 million euros) is due mainly to normal developments in the business.

Major changes relate to:
- Trade receivables: show an increase of 191.3 million euros, owing mainly to the booking of the amount receivable for the aforementioned sale of pay TV broadcasting rights (115.5 million euros) and higher amounts receivable for services rendered to the Government under contract (72.8 million euros);
- Trade payables: up 124.0 million euros largely due to the booking of the cost of pay TV broadcasting rights sold but not yet liquidated (87.0 million euros) and higher amounts payable to subsidiaries (40.1 million euros);
- Provisions for risks and charges show a reduction of 25.4 million euros, mainly owing to uses/releases of funds provided during previous years net of provisions to the funds during the year.

It should be noted that Trade receivables comprise, net of the relative writedowns, accounts receivable from subsidiaries, mainly Sipra, and from public entities and institutions.



Net financial position

The year-end net financial position is positive, despite the decline compared to the previous year (52.5 million euros compared with 196.8 million euros in 2008), and is comprised as follows.

The reduction of net available funds is due to the decrease in revenues from advertising and the liquidation of receivables in relation to services rendered to Government by contract.



These effects were partly offset by income from the aforementioned sale of pay TV broadcasting rights, outlays for important sporting events and operating expenses.

The average financial position is positive by about 66 million euros, down from the previous year (139 million euros), as a consequence of the financial profile described above.

The analysis carried out on the basis of the balance sheet and income statement ratios highlighted that:
- the net invested capital coverage ratio, calculated as the ratio between net invested capital and net equity is 0.89 (0.66 in 2008);
- the current ratio, identified as the ratio between current assets (inventories, current assets, cash and cash equivalents and financial receivables) and current liabilities (current liabilities and financial debts), is 1.09 (1.25 in 2008);
- the self-coverage ratio of fixed assets, calculated as the ratio of shareholders' equity to cu rrent assets, is 0.45 (0.51 in 2008).

The financial risks to which the Company is exposed are monitored using appropriate computerised and statistical instruments. A policy regulates financial management in accordance with best international practice, the aim being to preserve the corporate value by taking an adverse attitude towards risk, pursued via active monitoring of the exposure and the implementation of suitable hedging strategies, also acting on behalf of the Group companies.

In particular:
- The exchange risk is significant in relation to the exposure in US dollars generated by the acquisition of sports events rights and the funding of the associated company Rai Corporation. These commitments generated payments for about 70 million dollars during 2009. Operation takes place from the date of subscription to the commercial commitment, often lasting several years, and aims to defend the counter value in euros of commitments estimated at the time of order or in the budget. Hedging strategies are implemented using financial derivative instruments � such as forward purchases, swaps, and options structures � without ever taking on an attitude of financial speculation. The group policy envisages numerous operating limits to be observed by the hedging activity.
- The interest rate risk is also regulated by the company policy, particularly for medium/long-term exposure with specific operating limits. At the moment, the financial position does not contain significant long-term exposures, but sees short periods of operational liquidity alternating with overdraft positions, hedged with reversible credit lines or stand-by loans, for which it was deemed unnecessary to activate hedging operations.
- The credit risk on cash deployment is limited in that the company policy envisages only the use, for limited periods of cash timing differences, of low-risk financial instruments with parties with high ratings. Only tied deposits or sight deposits with remunerations close to the Euribor rate were used during 2009.
- As regards the liquidity risk, it should be noted that the company has shortterm credit lines with the banking system, amounting to about 500 million euros. A stand-by loan for 200 million euros with a duration of three years was taken out in February 2009 with a group of seven Italian and international banks. The overall loans are sufficient to cover overdrafts although the procedure for liquidating the four deferred repayments by the Ministry of the Economy and Finance can generate tensions in the event of significant delays with respect to the quarter-end dates established by contract. To cope with the significant investments required by the DTT project (particularly considering the reduction in public funding), the company applied to the European Investment Bank for a medium/longterm loan, by virtue of the innovative nature and general interest of the new infrastructure.