2006 Annual Report PDF File - Cir

cirgroup.com

2006 Annual Report PDF File - Cir

CONSOLIDATED FINANCIAL STATEMENTS,

STATUTORY FINANCIAL STATEMENTS

AND ANNUAL REPORT


C O N T E N T S

ADMINISTRATIVE BODIES 4

LETTER TO THE SHAREHOLDERS 7

MANAGEMENT REPORT 9

1. PERFOMANCE OF THE GROUP 14

2. PERFORMANCE OF THE PARENT COMPANY 18

3. CHART RECONCILING THE FIGURES OF THE PARENT COMPANY WITH THOSE OF THE

CONSOLIDATED FINANCIAL STATEMENTS 19

4. PERFORMANCE OF THE VARIOUS BUSINESS SECTORS 21

5. OTHER ACTIVITIES 27

6. SIGNIFICANT EVENTS WHICH OCCURRED AFTER THE CLOSE OF THE YEAR 29

7. OTHER INFORMATION 30

8. PROPOSED ALLOCATION OF NET INCOME FOR THE YEAR 33

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31 2006

1. BALANCE SHEET 36

2. INCOME STATEMENT 37

3. CASH FLOW STATEMENT 38

4. STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 39

5. EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 41

CONSOLIDATED FINANCIAL STATEMENTS OF DIRECTLY CONTROLLED SUBSIDIARIES 93

STATUTORY FINANCIAL STATEMENTS OF THE PARENT COMPANY AS OF DECEMBER 31 2006

1. BALANCE SHEET 104

2. INCOME STATEMENT 105

3. CASH FLOW STATEMENT 106

4. STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 107

5. EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS 109

FINANCIAL STATEMENTS OF DIRECTLY CONTROLLED SUBSIDIARIES 145

LIST OF INVESTMENTS AT DECEMBER 31 2006 171

REPORT OF THE BOARD OF STATUTORY AUDITORS 179

REPORT OF THE INDEPENDENT AUDITORS 187


COMPAGNIE INDUSTRIALI RIUNITE

Limited-liability corporation - Share capital € 391,688,733.50 - Registered Office: Strada Volpiano, 53 - 10040 Leinì (Turin) - www.cirgroup.it

R.E.A. n. 3933 - Turin Company Register / Fiscale Code / VAT no. 00519120018

Company subject to the management and coordination action of COFIDE S.p.A.

Head Office: Via Ciovassino, 1 - 20121 Milan - Tel. +39 02 72270.1

Office in Rome: Via del Tritone, 169 - 00187 Rome - Tel. +39 06 692055.1


BOARD OF DIRECTORS

Chairman CARLO DE BENEDETTI (1) (5)

Chief Executive Officer RODOLFO DE BENEDETTI (2)

and General Manager

Directors

Secretary to the Board

GIAMPIO BRACCHI

FRANCO DEBENEDETTI

PIERLUIGI FERRERO (3)

GIOVANNI GERMANO (5)

FRANCO GIRARD (3)

PAOLO MANCINELLI (6) (7)

LUCA PARAVICINI CRESPI (6)

CLAUDIO RECCHI (6) (7)

MASSIMO SEGRE (4)

GUIDO TABELLINI (8)

UMBERTO ZANNI (5)

FRANCA SEGRE

BOARD OF STATUTORY AUDITORS

Chairman

Statutory Auditors

Reserve Auditors

PIETRO MANZONETTO

LUIGI NANI

RICCARDO ZINGALES

MARCO REBOA

GIANLUCA PONZELLINI

LUIGI MACCHIORLATTI VIGNAT

INDEPENDENT AUDITORS

PRICEWATERHOUSECOOPERS S.p.A.

Notice pursuant to the recommendation contained in Consob Circular no.

DAC/RM/97001574 of February 20 1997:

(1) Power to sign all documents relating to ordinary and extraordinary administration

with single signature except for those reserved by law to the Board of Directors

(2) Power to sign all documents relating to ordinary administration with single signature

(3) Power to sign all documents specified in mandate with joint signature

(4) Power to sign all documents specified in mandate with single signature

(5) Member of the Compensation Committee

(6) Member of the Internal Control Committee

(7) Member of the Surveillance Body

(8) Lead Independent Director

4


CIR S.p.A.

101 st Year of Business

ANNUAL GENERAL MEETING OF SHAREHOLDERS

Turin, April 26 2007, 1 st call

Turin, April 27 2007, 2 nd call

NOTICE OF THE ORDINARY AND EXTRAORDINARY

ANNUAL GENERAL MEETING OF SHAREHOLDERS

All Shareholders are invited to attend the Ordinary and Extraordinary Meeting of the Shareholders of the Company

to be held in the Centro Congressi dell’Unione Industriale di Torino, in Turin - Via Fanti 17, on April 26 2007 at

10.30 a.m., at the first call, and on April 27 2007 at the same time and place, if a second call is necessary, in order to

discuss and pass resolution on the following:

AGENDA

Ordinary Session

1. Annual Report and Financial Statements as of December 31 2006

Report of the Board of Statutory Auditors.

Resolutions pertaining to the above

2. Proposal to revoke the resolution adopted on April 27 2006 authorizing the buy-back of the Company’s own

shares and the disposal of the same. Proposal for a new authorization.

3. Proposal regarding the approval of the incentive program for the year 2007.

4. Proposal to amend the regulations of Stock Option Plans March 7 2000, September 13 2000 and January 30

2001.

Extraordinary Session

5. Proposal to amend the Company Bylaws partly to bring them into line with Law 262/2005 and subsequent

amendments: specifically, the amendment of articles 4, 8, 9, 10, 12, 15, 16, 19 and 20 of the Bylaws.

Resolutions pertaining to and resulting from the above.

Shareholders have a right to take part in the Shareholders’ Meeting provided that their intermediaries have notified

their attendance, in accordance with the terms of Art. 34-bis of Consob Resolution no. 11768 and subsequent

amendments and additions. at least two working prior to the meeting.

Any holders of shares that have not yet been dematerialized should present their share certificates to an authorized

intermediary for input into the centralized clearing system in electronic form, in accordance with the provisions of

Article 51 of Consob Resolution no. 11768 and subsequent amendments and additions, and should request that

notification as above be sent within the required time limit.

As from April 11 2007 Shareholders may obtain a copy of the documentation relating to the items on the Agenda

from the Company offices or from Borsa Italiana S.p.A..

The Financial Statements of the Company as of December 31 2006 and the Consolidated Financial Statements of

the Group as of the same date will be available as from March 30 2007 from the Company offices or from Borsa

Italiana S.p.A..

THE BOARD OF DIRECTORS

Notice of this meeting was published in the newspapers: "Il Sole-24 Ore" and "la Repubblica"of March 24 2007

5


LETTER TO OUR SHAREHOLDERS

Dear Shareholders,

In November 2006 we celebrated the first thirty years of CIR. Thirty years of building and

promoting in CIR and its subsidiaries that which today is recognized as “our” Business Culture,

which considers human capital as the most important factor to guarantee lasting success in any

business activity. The spirit and values that underpinned the company when it was established are

still valid today and are a firm point of reference for all those who have worked with us and those

who work with us today.

Thirty years in which we have continued to project ourselves into the future and anticipate some

of the great evolutionary trends of industry and the economy, always selecting new investment

opportunities with the aim of helping to create fresh value for our shareholders.

The ever faster evolution of the environment surrounding us compels us to adapt our organization

and our positioning continually but we never distort their nature. The main objective of our role

in allocating investment capital has always been to continue to create value and this we do by

defining strategies and checking that business plans are being implemented, in conjunction with

the managers of the operating companies.

Today we can say that we have completed our transformation from a traditional holding company

into a modern Group able to create and sustain new businesses in high-growth sectors following

an investment logic of creating deep value in the medium-long term.

Towards our shareholders we take full responsibility for the decisions we make, some big and

some small, and we are entirely answerable for the credibility of our business plans and the

objectives that we set ourselves. We are committed to achieving successful results so that over

time we can build up and strengthen the relationship of trust between CIR and its Stakeholders.

Today CIR holds a portfolio of assets balanced between companies operating in mature business

sectors with consolidated positions in the market and good profitability, and businesses that have

started up more recently, are interesting opportunities for allocation of capital, have promising

growth prospects but with profitability that has not yet reached satisfactory levels due to the

relative immaturity of the business.

Every company in our Group has a business plan agreed on with those who are directly

responsible for its management and the prerogatives of top management of the investee

companies are respected in every way. It is an essential condition if we too are to fulfil the

expectations of our shareholders that these business plans contribute to the creation of value in

the medium-long term in a realistic and credible way.

We operate in three broad business sectors: Energy (Sorgenia), Media (Espresso), and

Automotive components (Sogefi), plus the Healthcare sector, which has been developed more

recently, and a new area of investment which is Innovative Finance (Jupiter and Oakwood).

7


During 2006 the performance of our subsidiaries was very satisfactory and in some cases was

better than we had expected.

In particular Sorgenia, which has become our principal investment, has been continuing its

expansion in the power generating business: the new Termoli plant has started operating to

capacity and work has begun on the construction of the Modugno plant. Recently the new

business plan for 2007-2010 was approved, involving further expansion with the construction of

new plants with particular attention devoted to those with a low impact on the environment and

those using renewable sources. The Espresso Group has confirmed its position both as top

newspaper and top private radio broadcaster with good levels of profitability. Sogefi, despite

operating in an unfavourable market environment, has again confirmed its leadership in the filter

and suspension components sectors and has improved its net profitability for the fifth year

running. The acquisition of Anni Azzurri by HSS has enabled us to become the number one

private operator in the field of care for the elderly.

Our recent acquisition of 47% of the capital of Oakwood Financial Investments has further

strengthened our commitment in the innovative financial service business where our new

company Jupiter Finance is already operating in the field of non-performing loans.

Investors who have given us their trust by becoming our shareholders share our medium-long

term time horizon for achieving a return on their investment. Calculated in terms of average

annual return, our stock has given a return of 22.1% over the last 3 years and of 20.2% over the

last 10 years.

Our goal for 2007 is to pursue and give concrete support to the development of our new

businesses and at the same time to strengthen our commitment to the successful rollout of the

individual business plans of investee companies.

The Chairman

Carlo De Benedetti

Chief Executive Officer

Rodolfo De Benedetti


MANAGEMENT REPORT ON THE PERFORMANCE OF OPERATIONS

IN FINANCIAL YEAR 2006

Dear Shareholders,

In 2006 the CIR Group reported consolidated net income of € 101.1 million, up by 15.3% from

€ 87.7 million in 2005. Consolidated revenues came in at € 4,136.8 million, showing an increase

of 22.3% from € 3,382.7 million in the previous year.

The year saw further consolidation of the growth strategies of the Group which strengthened considerably

its presence in the utilities sector and at the end of the year made a new investment in

the financial sector.

This confirms the strategy of CIR which is pursuing the objective of creating value for its shareholders

in the medium-long term with the launch of new business initiatives in sectors considered

to be of potential interest and through the management of its investments in businesses where it

already has a presence. This strategy is carried out by constantly developing the business and continually

seeking to optimize profitability.

In putting this strategy into practice CIR has maintained a prudent approach, following a financial

policy that guarantees a balanced ratio of its own resources to those of third parties, thus maintaining

a solid financial structure.

CIR considers that the most important factor to guarantee lasting success in the business activities

in which it has invested and is continuing to invest is having human capital of a very high professional

level which with its capabilities, intuition and strategic vision can make a very positive contribution

to reaching the common objective of the creation of value for the whole Group.

The current configuration of the Group includes four main business sectors: utilities (electricity

and gas), media (publishing, radio and television), automotive components (filters and suspension

systems) and healthcare (residences for the elderly, hospitals and rehabilitation centres).

The Group has also identified an investment opportunity in a sector considered of potential interest,

that of non-performing loans. 2006 was the first full year of operation of Jupiter Finance, the

company created at the end of 2005, with the aim of acquiring from financial institutions and

managing portfolios of non-performing loans. In 2006 the company acquired over 50 portfolios

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9


for a total amount of approximately € 40 million and a nominal value of approximately € 340 million.

In January 2007, continuing to implement its strategy of expansion in businesses with a high

growth potential and of value creation, the Group made an important investment - the acquisition

with a prime financial institution of the standing of Merrill Lynch of joint control of the company

Oakwood Financial Investments, specializing in innovative retail financial services aimed at nonconforming

or non-prime clients, meaning those who do not fulfil the traditional criteria for being

given loans. Oakwood currently operates through five companies: three in Britain, one in Australia

and one in Italy. On completion of the deal CIR invested approximately € 100 million, with a

commitment to support the development of new initiatives for a further investment estimated at

around € 50 million.

All the businesses described above are aimed at achieving the objective of continuing growth in

the value of the investments over the medium-long term. The economic results for each period do

not always reflect this growth in a linear way and a comparison over a short time frame may not

be very representative, considering all the events of an extraordinary nature that can affect the results

from time to time.

*****

To make it easier to evaluate the profitability of the Group, the performance of 2006 is presented

below through a breakdown of the economic contribution and the balance sheet structures of the

operating groups and of the holding company, which contains the figures for CIR and CIR International.

As has already been mentioned, consolidated net income for 2006 came in at € 101.1 million up

from € 87.7 million in 2005.

The contribution of the operating groups to this result rose by € 6.9 million (+ 6.6%) from € 104.7

million in 2005 to € 111.6 million in 2006 while the contribution of the financial subsidiaries declined

from € 16.2 million in 2005 to € 15 million in 2006.

The result of the holding company in 2006 was a negative € 25.5 million and compares with a net

loss of € 33.2 million in 2005, which included non-recurring charges of € 16.1 million.

Apart from overheads, this result was determined by:

- Net financial charges of € 21.1 million due to the higher average cost of the gross debt compared

with the average return on financial investments;

- Dividends, gains and losses from trading securities for € 4.3 million consisting mainly of

gains on investments in private equity funds for € 20.5 million offset by write-downs of financial

assets for € 16.4 million.

The results of the operating groups for financial year 2006 are illustrated below for each of the

main business sectors.

In the utilities sector the Energia group adopted the new name of Sorgenia in July 2006 with the

aim of giving maximum value to its positioning and to the role that it intends to take in the Italian

free market for electricity and gas, defining itself as a provider sensitive to environmental issues.

In 2006 the Sorgenia group was engaged in the roll-out of its industrial program which involves

investment in the period up to 2010 of over € 1.8 billion in addition to the € 0.9 billion invested

up to 2006. This investment will finance a significant expansion in the sector of power generation

10

Management Report


with particular attention being devoted to low environmental impact and renewable sources. In

2006 the consolidated revenues of the group rose by 56.4% reaching € 1,916.1 million thanks to

the good performance of sales of both electricity and natural gas and consolidated net income

reached € 56.3 million, up from € 29.1 million in the previous year (+93,5%).

In the media sector in 2006 the Espresso group reported consolidated revenues of € 1,102.6 million

(+2.1% from 2005) and posted consolidated net income of € 103.6 million compared with

€ 116.3 million in the previous year. The rise in advertising and the good performance of circulation

offset the decline in the sale of add-ons. Again in 2006 the daily news title la Repubblica confirmed

its ranking as number one newspaper in Italy for number of readers and the Espresso

group’s radio stations confirmed their leadership in terms of audience.

The Sogefi Group, top Italian producer of automotive components, confirmed its leadership in

Europe in the two sectors in which it operates: filters and suspension components. In an unfavourable

market environment due to the decline in business of several important clients, in 2006 the

group confirmed sales revenues of over one billion euro (€ 1,018.6 million), while at the same

time improving its net profitability for the fifth year running, posting consolidated net income of

€ 50.8 million, up by 13.7% from € 44.7 million in 2005. In the next few years the group plans to

expand its business both in Asian markets (China, Korea and India) and in the North American

market, continuing to maintain among its strategic objectives possible acquisitions in the automotive

components sector.

During 2006 HSS – Holding Sanità e Servizi continued to develop its operations with a view to

consolidating its presence in the healthcare sector.

In 2006 the Group reported consolidated revenues of € 99.2 million up from € 53.8 million in

2005 (+ 84.4%). The net result was a negative € 4.4 million (due to higher financial expense and

non-recurring costs for acquisitions) which compares with a net loss of € 1.4 million in 2005.

In June 2006 the company HSS acquired 100% of Anni Azzurri, the company specializing in the

construction and management of residences for the elderly and present in four regions with eleven

residences and 1,600 beds.

This deal together with other smaller acquisitions made during 2006 was an important step forward

in the roll-out of the strategy of the HSS group which intends to develop further in the Italian

healthcare market through fresh acquisitions.

Apart from a breakdown by business sector of the economic and financial results of the Group,

the charts on the following pages also show a breakdown of the contribution of the main subsidiaries

to the aggregate results of the holding (CIR and CIR International).

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12

Management Report

BREAKDOWN OF INCOME STATEMENT BY BUSINESS SECTOR AND CONTRIBUTIONS TO THE RESULTS OF THE GROUP

(in milllions of euro)

CONSOLIDATED Revenues Costs of Other operating Adjustments to Amortization, Net financial Dividends, Income Income (Loss) Net income Net income

Net income

(loss)

productionncome & expense to value of depreciation and income and gains and taxes from assets (loss) Minority (loss) for the for the Group

investments write-downs expenses losses from held for interests Group

valued at trading and disposal

equity

valuation

AGGREGATE

of securities

Sorgenia group 1,916.1 (1,861.6) 32.6 33.0 (7.7) (8.4) 0.5 (34.8) -- (36.6) 33.1 16.8

Espresso group 1,102.6 (899.8) 0.3 1.4 (41.2) (19.0) (0.6) (39.8) -- (49.8) 54.1 59.1

Sogefi group 1,018.6 (869.8) (15.1) (0.3) (49.3) (11.0) 1.9 (21.6) -- (23.7) 29.7 26.3

HSS group 99.2 (88.4) (4.4) -- (4.1) (3.3) -- (2.9) (0.9) 1.0 (3.8) (1.1)

Other subsidiaries 0.3 (3.5) 0.7 -- (0.1) 0.7 -- 0.5 -- (0.1) (1.5) 3.6

2006

2005

Total operating subsidiaries 4,136.8 (3,723.1) 14.1 34.1 (102.4) (41.0) 1.8 (98.6) (0.9) (109.2) 111.6 104.7

Financial subsidiaries -- (2.2) -- -- -- (0.5) 20.9 -- -- (3.2) 15.0 16.2

Total subsidiaries 4,136.8 (3,725.3) 14.1 34.1 (102.4) (41.5) 22.7 (98.6) (0.9) (112.4) 126.6 120.9

Holding companies (CIR and CIR International)

Revenues -- -- --

Costs of production (22.1) (22.1) (20.7)

Other operating income and expense 4.8 4.8 2.8

Adjustments to the value of

investments valued at equity -- -- --

Amortization, depreciation and write-downs (0.5) (0.5) (0.2)

Net financial income and expense (21.1) (21.1) (13.0)

Dividends, gains and losses from trading and valuation of securities 4.3 4.3 8.7

Income taxes 9.1 9.1 5.3

Total holding companies (CIR and CIR International)

before non-recurring items -- (22.1) 4.8 -- (0.5) (21.1) 4.3 9.1 (25.5) (17.1)

Non-recurring items -- -- -- -- -- -- -- -- -- (16.1)

Consolidated total for the Group 4,136.8 (3,747.4) 18.9 34.1 (102.9) (62.6) 27.0 (89.5) (0.9) (112.4) 101.1 87.7


CONSOLIDATED BALANCE SHEET FIGURES BY BUSINESS SECTOR

(in millions of euro)

31.12.2006

31.12.2005

CONSOLIDATED Fixed assets Other net Net working Net financial Total Minority Shareholders' Shareholders'

non-current assets capital position shareholders' of which: shareholders' equity - Group equity - Group

AGGREGATE and liabilities equity equity

Sorgenia group 734.1 222.3 186.1 (596.9) (*) 545.6 293.8 251.8 220.9

Espresso group 907.0 (158.8) 87.8 (262.7) 573.3 279.6 293.7 279.5

Sogefi group 367.2 (58.2) 113.0 (126.3) 295.7 132.4 163.3 145.6

HSS group 170.7 5.0 (0.9) (110.7) 64.1 9.9 54.2 21.2

Other subsidiaries 0.3 11.7 47.6 (12.2) 47.4 4.0 43.4 27.6

Total subsidiaries 2,179.3 22.0 433.6 (1,108.8) 1,526.1 719.7 806.4 694.8

Holding companies (CIR and CIR International)

Fixed assets 103.0 103.0 103.0 81.4

Other net non-current assets and liabilities 107.3 107.3 107.3 58.3

Net working capital (14.7) (14.7) (14.7) (9.3)

Net financial position 258.2 258.2 258.2 359.8

Consolidated total - Group 2,282.3 129.3 418.9 (850.6) 1,979.9 719.7 1,260.2 1,185.0

( *) The financial position includes the free cash flow of Energia Holding S.p.A.

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1. PERFORMANCE OF THE GROUP

Consolidated revenues for 2006 totalled € 4,136.8 million, up from € 3,382.7 million in 2005,

with a rise of € 754.1 million (+22.3%).

Consolidated revenues can be broken down by business sector as follows:

(in millions of euro)

Change

2006 % 2005 % absolute %

Utilities

Sorgenia Group 1,916.1 46.3 1,225.2 36.2 690.9 56.4

Media

Espresso Group 1,102.6 26.7 1,079.9 31.9 22.7 2.1

Automotive components

Sogefi Group 1,018.6 24.6 1,023.4 30.3 (4.8) (0.5)

Healthcare

HSS Group 99.2 2.4 53.8 1.6 45.4 84.4

Other sectors 0.3 -- 0.4 -- (0.1) (25.0)

Total consolidated revenues 4,136.8 100.0 3,382.7 100.0 754.1 22.3

of which: ITALY 3,213.9 77.7 2,471.2 73.1 742.7 30.1

ABROAD 922.9 22.3 911.5 26.9 11.4 1.3

The highlights of the consolidated income statement are as follows:

(in millions of euro) 2006 % 2005 %

Revenues 4,136.8 100.0 3,382.7 100.0

Consolidated gross operating margin (EBITDA) 442.4 10.7 370.0 10.9

Consolidated operating result (EBIT) 339.5 8.2 275.1 8.1

Financial management result (35.6) (0.9) (20.5) (0.6)

Income taxes (89.5) (2.2) (64.7) (1.9)

Income (loss) from assets held for disposal (0.9) -- -- --

Net income including minority interests 213.5 5.2 189.9 5.6

Minority interests (112.4) (2.7) (102.2) (3.0)

Net result of the Group 101.1 2.4 87.7 2.6

The consolidated gross operating margin (EBITDA) in 2006 was € 442.4 million (10.7% of

revenues) compared to € 370 million in 2005 (10.9% of revenues), with a rise of € 72.4 million

(+ 19.6%). This result was determined mainly by the following factors:

A significant improvement of approximately € 65 million reported by the Sorgenia group, due

to the development of the generating business;



The continuing profitability of the Sogefi group;

A reduction in the profitability of the Espresso group of around € 18 million, mainly due to

the absence of paper subsidies, which were not renewed for financial year 2006.

14 Management Report

14 M tR t


The consolidated operating margin (EBIT) in 2006 was a positive € 339.5 million (8.2% of

revenues) up from € 275.1 million (8.1% of revenues) in 2005, with a rise of 23.4%.

The financial management result was determined by net financial expense that rose from € 48.2

million in 2005 to € 62.6 million mainly due to the rise in debt, and to dividends and net gains

from trading securities for € 27 million (€ 27.7 million in 2005).

The consolidated balance sheet highlights of the CIR Group at December 31 2006, prepared

according to a “managerial” format with a comparison with the same situation at December 31

2005 is as follows:

(in millions of euro) 31.12.2006 31.12.2005

Fixed assets 2,282.3 1,997.9

Other net non-current assets and liabilities 129.3 74.9

Net working capital 418.9 248.8

Net invested capital 2,830.5 2,321.6

Net financial debt (850.6) (465.2)

Total shareholders’ equity 1,979.9 1,856.4

Shareholders’ equity of the Group 1,260.2 1,185.0

Minority interests 719.7 671.4

Net invested capital at December 31 2006 amounted to € 2,830.5 million compared to € 2,321.6

million at December 31 2005, with a rise of € 508.9 million mainly due to the considerable investment

made during the year by the Sorgenia and HSS groups in particular.

The net financial debt position at December 31 2006 showed a balance of € 850.6 million (compared

to € 465.2 million at December 31 2005), which was the result of the following:

- a financial surplus for CIR and CIR International of € 258.2 million which compares with

€ 359.8 million at December 31 2005. The reduction of € 101.6 million which took place during

the year was mainly due to disbursements for the buyback of own shares and for investment

in private equity funds and in shareholdings for approximately € 119 million, only partially

offset by the positive balance of € 14 million between dividends received and those paid

out;

- total debt of the operating groups of € 1,108.8 million, up from € 825 million at December 31

2005. The increase of € 283.8 million was mainly due to the investments made by the Sorgenia

group for the construction of new power stations and to the acquisition of Anni Azzurri by the

HSS group.

Total shareholders’ equity at December 31 2006 stood at € 1,979.9 million compared with

€ 1,856.4 million at December 31 2005, with a rise of € 123.5 million after the distribution of

€ 37.5 million of dividends by CIR and a total of € 53.3 million by the subsidiaries to their minority

shareholders.

The shareholders’ equity of the Group rose from € 1,185 million at December 31 2005 to

€ 1,260.2 million at December 31 2006, with a net rise of € 75.2 million.

Minority interests rose from € 671.4 million at December 31 2005 to € 719.7 million at December

31 2006, with a rise of € 48.3 million.

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The net financial debt and shareholders’ equity figures at December 31 2006 include € 127.1 million

resulting from the fair value adjustment of available-for-sale securities, which are held mainly

by the company Medinvest. In fact the accounting treatment of Medinvest involves recognizing

any changes in the fair value of the funds directly to shareholders’ equity. The total net increase

during 2006, excluding foreign exchange differences, was € 20.7 million compared to € 13.6 million

in 2005.

Since inception (April 1994) performance has been particularly satisfactory up to and including

2006, giving the portfolio a weighted average annual return in dollar terms of 9.7%. In 2006 too,

performance gave a positive return, net of commissions, of 11.3%.

The evolution of consolidated shareholders’ equity is given in the Explanatory Notes to the Financial

Statements.

The consolidated cash flow statement for 2006, prepared according to a “managerial” format

which, unlike the format used in the statements attached, shows the changes in net financial position

instead of the changes in cash and cash equivalents, and can be broken down as follows:

(in millions of euro) 2006 2005

SOURCES OF FUNDS

Net income for the period including minority interests 213.5 189.9

Amortization, depreciation and write-downs and other non-monetary changes 109.3 79.4

Self-financing 322.8 269.3

Change in working capital (174.0) (89.9)

CASH FLOW GENERATED BY CURRENT OPERATIONS 148.8 179.4

Capital increases 10.4 26.0

TOTAL SOURCES 159.2 205.4

APPLICATIONS

Net investments in fixed assets (434.5) (443.9)

Buy-back of own shares (15.6) (35.9)

Payment of dividends (90.8) (75.9)

Other changes (3.7) (39.4)

TOTAL APPLICATIONS OF FUNDS (544.6) (595.1)

FINANCIAL SURPLUS (DEFICIT) (385.4) (389.7)

NET FINANCIAL POSITION AT THE BEGINNING OF THE PERIOD (465.2) (75.5)

NET FINANCIAL POSITION AT THE END OF THE PERIOD (850.6) (465.2)

The composition of the net financial debt figure, given in the Explanatory Notes to the Financial

Statements, includes the following items: the cash and cash equivalents, securities, financial receivables

and available-for-sale financial assets (including the hedge funds held by Medinvest)

classified as current assets, net of bank liabilities, borrowings and bonds.

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Management Report


Net financial debt rose from € 465.2 million at the start of the year to € 850.6 million at December

31 2006. The change is mainly attributable to the investment flows to the Sorgenia group and the

HSS group in particular.

Self-financing rose by over 20% compared with last year and was partly absorbed by the change

in working capital which rose mainly because of the higher turnover of the Sorgenia group.

Also during the year dividends were paid out for € 90.8 million, shares were bought back for

€ 15.6 million and other “applications” were made for € 3.7 millions.

At December 31 2006 the Group had 11,102 employees.

Management Report

17


2. PERFORMANCE OF THE PARENT COMPANY

The parent company CIR S.p.A. closed financial year 2006 with net income of € 36.7 million

(compared with € 4.8 million in 2005 which was penalized for € 16.1 million by tax charges relating

to prior periods).

Shareholders’ equity at December 31 2006 stood at € 940.7 million compared with € 953.2 million

at December 31 2005.

The key income statement figures of CIR S.p.A. for 2006, with a comparison with those of 2005,

are as follows:

(in millions of euro) 2006 2005

Net operating costs (12.5) (12.3)

Other operating costs and amortization (2.3) (1.8)

Financial management result 42.4 29.7

Result before taxes and non-recurring items 27.6 15.6

Taxes from prior periods -- (16.1)

Income taxes 9.1 5.3

Net income 36.7 4.8

Net operating costs for 2006, which amounted to € 12.5 million (€ 12.3 million in 2005), include

charges resulting from the IAS/IFRS treatment of stock option plans for € 2.2 million. This compares

with € 5.7 million in 2005 (of which € 3.8 million referred to extraordinary stock option

plans).

Other operating costs amounted to € 2.3 million and compare with € 1.8 million in 2005.

The financial management result includes the dividends of subsidiaries, which totalled € 61.1 million

in 2006 compared to € 42.8 million in 2005.

Lastly, 2006 benefited from a positive net tax position of € 9.1 million, compared with € 5.3 million

in 2005, as a result taking part in the group fiscal consolidation as from 2004.

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Management Report


The key balance sheet figures of CIR S.p.A. at December 31 2006, compared with the situation

at December 31 2005, is as follows:

(in millions of euro) 31.12.2006 31.12.2005

Fixed assets 966.7 917.6

Other net non-current assets and liabilities (0.1) 0.0

Net working capital 42.3 15.6

Net invested capital 1,008.9 933.2

Net financial position (68.2) 20.0

Shareholders’ equity 940.7 953.2

The net financial position at December 31 2006 was a position of net debt of € 68.2 million which

compares with a net financial surplus of € 20 million at December 31 2005. The change of € 88.2

million was mainly due to an investment in own shares for approximately € 16 million, shareholdings

for € 47 million, loans made to subsidiaries for approximately € 29 million, net dividends received

for € 23 million and operating costs for € 8 million.

The decrease in shareholders ‘equity from € 953.2 million at December 31 2005 to € 940.7 million

at December 31 2006 was mainly caused by the distribution of dividends for € 37.5 million

and the effects of the IAS/IFRS treatment of own share buybacks which were only partially offset

by the net income for the period.

At December 31 2006 there were 34,094,000 own shares held in the portfolio, equal to 4.37% of

capital, for a total value of € 76.9 million, compared with 27,216,642 at December 31 2005.

3. CHART RECONCILING THE ACCOUNTING FIGURES OF THE PARENT COM-

PANY AND THOSE OF THE CONSOLIDATED ACCOUNTS

The following chart shows the reconciliation of the results for the year and the shareholders’ equity

of the Group with the figures of the parent company.

(in thousands of euro)

Shareholders’ equity

31.12.2006

Net result

2006

Figures of the parent company CIR S.p.A. 940,738 36,697

- Dividends from companies included in consolidation (61,046) (61,046)

- Reversal of valuations and cover of losses on investments in companies

included in the consolidation 1,193 1,193

- Net contribution of consolidated companies 325,534 126,334

- Difference between carrying value of subsidiaries and portion of consolidated

shareholders’ equity, net of contributions 55,794 --

- Other consolidation adjustments (2,058) (2,058)

Consolidated figures, Group’s share 1,260,155 101,120

Management Report

19


MAIN EQUITY INVESTMENTS OF THE GROUP

AS OF DECEMBER 31 2006

SORGENIA

58.2% (*)

Utilities

ESPRESSO

52.2%

Media

SOGEFI

58.4%

Automotive Components

HSS

85.3%

Healthcare

(*) Percentage of indirect control through Energia Holding

20

Management Report


4. PERFORMANCE OF THE BUSINESS SECTORS

UTILITIES SECTOR

On July 18 2006 the Extraordinary Meeting of the Shareholders of the company Energia voted to

change the name of the company to Sorgenia. The choice of the new brand was an important step

forward in the evolution of the project that began in 1999 and aims to give greater value to the positioning

of the company and the role that it is pursuing in the free market in Italy for electricity

and gas. Sorgenia projects itself to the market as an operator sensitive to the environment, capable

of operating in a clean, careful and responsible way, establishing an open and transparent dialogue

with the client, who is offered solutions to eliminate waste and use energy in a more efficient

manner.

In 2006 the Sorgenia group reported consolidated revenues of € 1,916.1 million, with a rise of

56.4% on 2005, (in which they totalled € 1,225.2 million), to which higher sales volumes of electricity

contributed substantially (+35.6%) and natural gas to a lesser degree (+5.5%).

The Sorgenia group reported consolidated net income of € 56.3 million in 2006 compared with

€ 29.1 million in the previous period (+93.5%).

The consolidated revenues can be broken down as follows:

(in millions of euro) 2006 2005 Change

Values % Values % %

Electricity 1,258.3 65.7 750.9 61.3 67.6

Natural gas 648.7 33.9 472.8 38.7 37.2

Other revenues 9.1 0.4 1.5 n.s. n.s.

TOTAL 1,916.1 100.0 1,225.2 100.0 56.4

A widespread sales network throughout the country, the possibility of accessing different segments

of clients in the free market, the use of new sales channels and offering new solutions devoted

to energy efficiency in particular, all these factors enabled the Sorgenia group to increase its

client base tenfold, closing 2006 with 150,000 customers, up from 15,000 at the end of 2005.

The consolidated gross operating margin (EBITDA) more than doubled, rising from € 55.1 million

(4.5% of sales) in 2005 to € 120.4 million (6.3% of sales).

This sharp rise was due in particular to the entry into production of the Termoli power station and

to the contribution of the new combined cycles of the subsidiary Tirreno Power at Torrevaldaliga,

which started fully operating during 2006. Since Tirreno Power is consolidated into Sorgenia using

the equity method, the EBITDA of the Sorgenia group includes its share of the net income of

that company (Tirreno Power is 50% controlled by Energia Italiana, in which Sorgenia holds a

62% stake).

The consolidated operating income for 2006 was € 112.7 million, up from € 52.3 million in the

previous period.

The consolidated net financial position of the Sorgenia group at December 31 2006 showed net

debt of € 601.9 million compared to € 429.9 million at December 31 2005. This increase was due

mainly to the investments made to roll out its business plan, in particular those in the construction

of the Modugno power plant, on which building work started in the second half of 2006.

Management Report

21


At December 31 2006 the group had 208 employees compared with 148 at December 31 2005.

The Board of Directors of Sorgenia S.p.A., which met on February 26 2007, proposed distributing

dividends for a total of € 9.3 million, against € 8 million the previous year, corresponding to a

dividend of € 0.0115 per share up from € 0.010 in 2005.

The Sorgenia group is engaged in the roll-out of its industrial plan which involves significant expansion

in the electricity generating sector, with particular attention being devoted to sources with

a low environmental impact and to renewables. The industrial objectives of the program include

the construction of four combined cycle power plants fired by natural gas, each with an output of

770 MW; the completion of the repowering of the power plants of the subsidiary Tirreno Power;

the construction of 450 MW of wind plant and investment in the photovoltaic solar sector. These

projects will require investment going forward to 2010 for over € 1.8 billion.

The second half of 2006 saw the Termoli (Cb) power plant enter full operation. This is the first of

the four power plants planned and work continued on the construction of the Modugno plant in

Puglia. In September the authorization process was completed for the Aprilia plant (Lazio), with

the favourable opinion expressed by the Service Conference and the issue of the final authorization

decree on October 2 2006 by the Ministry of Economic Development. This authorization

joins the one already obtained for the Bertonico-Turano Lodigiano plant (Lombardy).

As far as the Tirreno Power repowering is concerned, the conversion to a 760 MW combined cycle

of a section of the Vado Ligure plant is going ahead according to schedule and is expected to

start operating during 2007. A new 380 MW combined cycle module is also being constructed at

Napoli Levante and this one should start operating in 2008.

In 2006 Tirreno Power reported revenues of € 988.4 million, up by 27.9% from € 772.7 in 2005,

with a net production volume of approximately 11.6 TWh (10.9 TWh in 2005). The gross operating

margin rose by 38.9%, coming in at € 229 million compared to € 164.9 million in 2005. Net

income more than quadrupled, rising from € 15.4 million in 2005 to € 57.4 million in 2006.

As already indicated, Sorgenia is also developing generating projects from renewable sources,

with particular attention being devoted to the construction of wind and photovoltaic solar plants.

Soluxia, its wholly owned subsidiary set up to design and build photovoltaic plants, has already

obtained from the GSE (Electricity Services Management), admission to incentive feed-in tariffs

for 15 new photovoltaic plants each with an output of 1 MW, located in various regions of the

South of Italy, with a total installed capacity of approximately 15 MW. On the subject of wind energy,

Sorgenia has obtained authorization for projects with a total output of 62 MW – Minervino

Murge (Bari) for 18 MW, Castelnuovo di Conza (Salerno) for 10 MW and San Gregorio Magno

(Salerno) for 34 MW.

MEDIA SECTOR

The Espresso group closed 2006 with consolidated revenues of € 1,102.6 million up from

€ 1,079.9 million in 2005 (+2.1%).

Consolidated net income came in at € 103.6 million compared to € 116.3 million in the previous

year and benefited this year again (for the last time) from the recognition of deferred tax assets relating

to the previous losses of the subsidiary Elemedia.

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Management Report


The revenues of the group can be broken down as follows:

(in millions of euro) 2006 2005 Change

Values % Values % %

Circulation 458.9 41.6 466.6 43.2 (1.6)

Advertising 615.8 55.9 585.7 54.2 5.1

Other revenues 27.9 2.5 27.6 2.6 1.1

TOTAL 1,102.6 100.0 1,079.9 100.0 2.1

Consolidated advertising revenues, which rose by 5.1%, benefited also from the competitive advantage

that the Espresso group derives from being the only company in Italy in the media sector

to be able to offer advertisers multimedia advertising, with a portfolio of published titles that are

all leaders in their respective markets.

Circulation revenues declined by 1.6% compared with 2005 on account of lower sales of optional

products (22 million printed and multimedia add-ons in 2006 compared with almost 26 million in

2005).

The negative impact of strikes on revenues was however offset by the good performance of the

circulation of la Repubblica, (628 thousand average copies per day) and L’espresso (395 thousand

copies per week), and by the rise in price of certain local papers to one euro. This change did not

produce any further negative effects on the performance of circulation which reached a total of

452 thousand average copies per issue.

All the media of the group performed well even in terms of readers and traffic.

For the fifth time running La Repubblica confirmed its ranking as the most widely read newspaper

in Italy with over 3 million readers and the trend is a rising one. The readers of L’espresso are

more than 2.3 million and the local papers clocked up 3.2 million readers.

In December the group’s internet website network reached 9.5 million unique users and 339 million

page views. The number of visitors to Repubblica.it rose during the year by 45% reaching 6.7

million, more than one third of all Italian users of the web.

The listening figures of the radio stations were also positive, with an overall rise of 4% on 2005:

Radio Deejay confirmed its position as the number one private broadcaster in Italy on an average

day with 5.8 million listeners which rise to 13.7 million over the whole week; the audience of Radio

Capital is now over 2 million people on an average day and 6.6 million over a seven day period,

while m2o now clocks up 1.1 million listeners per day and 2.9 million per week (Audiradio).

These listening figures also rewarded the music television channel All Music which in October,

according to research carried out by IPSOS, had over 2.8 million viewers in the 15-34 age group,

claiming the position as the young people’s broadcaster with the highest audience increase over

the last few months.

Consolidated operating income declined from € 177.5 million in 2005 to € 163.3 million in 2006.

If the effect of subsidized paper purchases is netted out of the 2005 figures, the operating result

for that year would be € 156.9 million giving a rise of 0.8% in 2006 with a ratio to sales stable at

over 14%, despite the decline in optional products, the margins of which were still significant but

reduced by the declining trend of the market.

Management Report

23


The consolidated net financial position at December 31 2006 showed net debt of € 262.7 million,

up from € 252.6 million at December 31 2005 thanks to the good performance of operating cash

flow (€ 121.9 million).

Consolidated shareholders’ equity rose from € 550 million at December 31 2005 to € 562.8 million

at December 31 2006.

At December 31 2006 there were 3,384 employees on the group payrolls, down by 13 from 3,397

at December 31 2005.

The Board of Directors of the parent company Gruppo Editoriale L’Espresso, which met on February

21 2007, proposed the distribution of a dividend of € 0.16 per share (€ 0.145 in 2005).

National newspapers

Revenues of the national daily sector totalled € 539.8 million, up from € 524 million in 2005

(+3%).

The operating result of this area was € 64.9 million and compares with a result for 2005 (net of

subsidies for the purchase of paper which were no longer given in 2006) of € 69.7 million with a

decline of € 4.8 million due to the cost of designing and launching new titles and to the 4.5% rise

in the price of paper.

Local newspapers

Consolidated revenues of this sector totalled € 260.5 million, which was in line with the figure for

the previous year (+0.2%).

The operating result of the area declined from € 49.5 million (19% of revenues) in 2005 to € 46.7

million (17.9% of revenues) in 2006, penalized by the absence of € 2.6 million in the form of subsidies.

Excluding these subsidies, profitability was unchanged at 18%.

Periodicals

The periodicals area reported revenues of € 118.1 million, down by 5.7% from € 125.2 million in

2005.

The operating result was € 12.2 million, up from € 6.9 million in 2005. The ratio of operating income

to sales rose from 9.2% last year to 10.3% in 2006, thanks mainly to the rise in advertising

and to the positive contribution of optional products.

Radio

In 2006 the group radio stations increased their revenues by 3.8% from € 75.4 million in 2005 to

€ 78.3 million.

Operating income rose from € 34.1 million in 2005 to € 34.6 million, with a ratio to sales of

44.2%.

In 2006 the three broadcasters of the group invested a lot in the circulation of published content

on different platforms, confirming their collaboration with the TV group All Music and strengthening

the internet business.

In the early months of this current year advertising revenues have continued to grow for all the

media of the group, circulation is performing well, while optional add-ons have declined compared

with previous years because the market is saturated and competition is becoming more and

more aggressive.

From the above scenario, management expects advertising revenues to grow while revenues and

margins on optional products decline. Consolidated net income for the year 2007 should in any

24

Management Report


case be lower than that of 2006 since there is of no longer the benefit of any deferred tax assets

relating to losses of subsidiaries in prior periods.

AUTOMOTIVE COMPONENTS SECTOR

The consolidated revenues of the Sogefi group in 2006 came in at € 1,018.6 million, substantially

in line with the previous year’s figure of € 1,023.4 million, in a market environment that was not

particularly favourable due to a decline in the business of several important clients.

The further growth of sales volumes in South American countries largely offset the decline in

revenues in the European and US markets.

Consolidated net income was € 50.8 million, up by 13.7% from € 44.7 million in 2005.

The breakdown of consolidated sales of the Sogefi group by business sector is as follows:

(in millions of euro) 2006 2005 Change

Values % Values % %

Filters 527.2 51.7 518.5 50.7 1.7

Suspension components and precision springs 491.6 48.3 504.9 49.3 (2.6)

Intercompany elimination (0.2) -- 0.0 -- --

TOTAL 1,018.6 100.0 1,023.4 100.0 (0.5)

The profitability of industrial management actually rose in both divisions (Filters and Suspension

components) despite being burdened by rises in energy prices and in the prices of components in

aluminium and other alloys used in the special steels for the suspension business.

Consolidated EBITDA was € 128.5 million in 2006 (12.6% of sales), with an improvement of

1.3% from € 126.9 million (12.4% of sales) last year. The latter result was negatively impacted by

industrial restructuring charges (€ 5.2 million), write-downs of fixed assets (€ 4.3 million) and

non-recurring expense for paying management bonuses for results achieved in recent years (€ 2.3

million). By contrast the year 2006 benefited from capital gains of € 4 million, mainly due to the

sale of a factory in Spain.

Consolidated EBIT was € 83.5 million (8.2% of sales), up by 3.1% from € 81 million (7.9% of

sales) in 2005.

In 2006 the result before taxes and minority interests was € 74.9 million, up by 11.6% from € 67.1

million in 2005, thanks to lower financial expenses, higher gains from recovering withholding tax

on foreign dividends in prior periods and a capital gain from the sale of a shareholding investment.

At December 31 2006 the consolidated net financial position showed net debt of € 126.3 million,

with an improvement of € 41 million compared with the figure of € 167.3 million at December 31

2005.

The group had 6,168 employees on its payroll at December 31 2006 compared to 6,171 at December

31 2005.

Management Report

25


The Board of Directors of Sogefi, which met on February 27 2007, proposed distributing a dividend

of € 0.20 per share (€ 0.175 in 2005).

Sales revenues of the filter division in 2006 came in at € 527.2 million, up from 518.5 million in

2005 (+1.7%). The division improved its economic results both in Europe and in South America,

thanks to the good performance of sales in the aftermarket sector during the latter months of the

year.

EBITDA came to € 70.2 million (13.3% of sales) up from € 68.5 million (13.2% of sales) in 2005,

while EBIT rose to € 51.9 million (9.8% of sales) from € 50 million (9.6% of sales) in 2005.

The suspension components division reported sales revenues of € 491.6 million in 2006, down

from € 504.9 million in 2005 (-2.6%), following the decline in production volumes of French vehicle

manufacturers. Despite this, profitability improved: EBITDA rose by 3.6% to € 63.4 million

(12.9% of sales) from € 61.2 million in 2005 (12.1% of sales). EBIT reached € 37.4 million (7.6%

of sales) with a rise of 8.4% from € 34.5 million (6.8% of sales) in 2005.

No change is expected this year in the main markets in which the group operates: the European

market is stable, and the South American market is still growing. In the markets where there is

less presence (US and China) the evolution of demand should be positive with orders from new

clients. Since, however, there is likely to be more tension on the steel and energy fronts, management

strategy will continue to be based on increasing efficiency and defending profit margins.

HEALTHCARE SECTOR

In 2006 the HSS group continued to develop and manage the new initiatives it has undertaken in

this sector. In June a 100% acquisition was made of Anni Azzurri, the company specializing in the

construction and management of residences for the elderly, which in 2005 reported consolidated

sales revenues of approximately € 50 million and is present in four regions with 11 residences and

a total of 1,600 beds.

In the second half of 2006 there were two acquisitions – of the companies Meia (which manages

four residences for the elderly in Piedmont) and Medipass, which purchases and manages advanced

technology in public and private hospitals. At the close of the year the company Physioclinic,

which operates in the development of competitive and amateur sports rehabilitation, was

sold to minority shareholders.

In 2006 the HSS group reported revenues of € 99.2 million, up from € 53.8 million in the previous

year (+84.4%). Confirming the trend already evident in the final months of 2005, in 2006 the

group achieved a positive EBIT figure of € 2.3 million compared with a negative figure of € 0.7

million in 2005.

The net result was a negative € 4.4 million (compared with a net loss of € 1.4 million in 2005) and

was affected by higher net financial expense (from € 0.3 million in 2005 to € 3.3 million in 2006)

due to the rise in debt and to non-recurring costs for acquisitions made.

At December 31 2006 the HSS group showed net financial debt of € 110.7 million compared with

a net financial surplus of € 4.2 million at December 31 2005. The change was mainly due to the

acquisition of Anni Azzurri, which involved a disbursement of approximately € 60 million for the

shares plus the debt taken on for some € 90 million, to other acquisitions for approximately € 25

million and to a capital increase of € 40 million.

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Management Report


In line with the strategy followed so far, for part of the properties belonging to Anni Azzurri a

preliminary contract of sale was signed in February 2007 for an amount of € 50 million and

they were posted to assets held for disposal.

At December 31 2006 consolidated shareholders’ equity amounted to € 63.5 million.

The business of the HSS group is currently directed at managing four kinds of services:

1) Residences and nursing homes (RSAs), through the companies Villa Margherita, which

manages three residences, Casaverde (eight residences), Meia (five residences) and Anni

Azzurri (eleven residences);

2) Psychiatric services, with the company Redancia which manages seven psychiatric care

communities;

3) Rehabilitation, with the company Rehab specializing in functional recovery and rehabilitation;

4) Hospital management, with the company Ospedale di Suzzara (controlled by HSS) which in

2004 was awarded management of the Presidio Ospedaliero F.lli Montecchi di Suzzara

(Mantua) and with the company Medipass, which manages diagnostic imaging units in public

and private hospitals.

Currently the HSS group manages a total of 3,400 beds.

The employees of the group totalled 1,302 at December 31 2006.

5. OTHER ACTIVITIES

JUPITER FINANCE – This company was set up on September 2 2005 with the aim of acquiring

portfolios of non-performing loans from financial institutions and managing them.

The current phase of regulatory discontinuity, following the Basel2 agreements and the introduction

of the new international accounting standards, offers an interesting opportunity to enter a

business sector with the potential for high growth, as examples of the development of this business

in advanced markets demonstrate (US, Japan, UK and Germany).

The company aims to become an independent industrial partner of Italian banks and businesses in

the management of non-performing loans, both for bloc sales on a non-recourse basis and for programs

of optimization of a credit portfolio over a period of time, acting as services in the broadest

sense of the term.

Target segments include: distressed bank loans (loan agreements), problem securitized loans, consumer

credit in arrears (credit cards and personal loans), irrecoverable receivables of industrial

companies and public administrations, overdue leasing (with purchase of asset) and mortgage receivables.

In line with the scheduled growth plan, in 2006 more than 50 portfolios of non-performing loans

were acquired from banks and consumer credit companies for an overall sum of approximately

€ 40 million and a gross book value of around € 340 million.

During 2006 the company started collecting the receivables it had acquired using servicing companies.

At December 31 2006 the total amount recovered was according to plan.

CIR VENTURES – At the end of 2006 the portfolio of CIR Ventures, the venture capital fund of the

Group, contained investments in seven companies of which six in the United States and one in Israel.

These companies all operate in the sector of information and communications technology.

The fair value of these investments at December 31 2006 totalled 14.8 million dollars.

Management Report

27


During 2006 the stake in the Italian company Iriscube was sold to the company Reply and two

new investments were made in the Californian companies Active Optical Mems, which operates

in the sector of advanced components for fibre optics communication networks, and Home Robots,

which develops robotized devices that aid home cleaning.

In December 2006 the sale was announced of the stake in Bitfone to Hewlett-Packard and the deal

was successfully completed in February 2007.

The management activity of the fund is still mainly directed towards supporting the companies in

the portfolio and identifying opportunities for taking profit. The prospects for the evolution of the

business of these companies remain cautiously optimistic within a scenario of a general improvement

in the technology sector.

DRY PRODUCTS – The early part of 2006 saw the completion of the sale of the investment in Ricciarelli,

the only company of the Dry Products group still operating in the sector of machinery for

the food industry at a price of € 3.6 million, which was in line with its carrying value. With this

transaction the CIR group has now terminated its program of gradual disinvestment from this sector,

which was no longer considered strategic.

INVESTMENTS IN PRIVATE EQUITY FUNDS - Through its subsidiary CIR International the CIR

group holds a diversified portfolio of funds and minority private equity holdings, of which the fair

value determined on the basis of the NAV provided by the various funds was approximately € 87

million at December 31 2006. Remaining commitments outstanding as of the same date amounted

to € 20 million. During 2006 approximately € 17.6 million of realized gains were recognized to

the accounts.

Investors in this kind of fund undertake to provide asset managers with a predetermined

amount. The fund managers have a limited time (approximately 5 years) to identify and make

the investments following their strategy, requiring from investors the amounts they had paid

in. The duration of these investment vehicles is generally limited to about 10 years and proceeds

from the sale of investments are immediately distributed to the investors.

The investment strategies of these funds follow various procedures, the main one being the acquisition

of controlling shareholdings often using significant leverage.

Risk on private equity investments is reduced by a process of diversification based on criteria that

include, among other things, establishing a maximum amount for each individual commitment.

At December 31 2006 CIR had invested in some 25 funds mainly denominated in euro and in dollars.

The exchange rate risk on dollar investments has been hedged.

28

Management Report


6. SIGNIFICANT EVENTS WHICH OCCURRED AFTER THE CLOSE OF THE YEAR

With regard to the principal events which have taken place since December 31 2006 and the outlook

for business in this current year, detailed information has already been given in the section of

the report on the performance of the business sectors.

In January 2007, through its subsidiary CIR International, CIR finalized the acquisition of a

47.4% shareholding, in joint control with Merrill Lynch, in Oakwood Financial Investments, with

a disbursement of approximately € 100 million and a further commitment of € 50 million.

The Oakwood Group specializes in the creation, acquisition and management of retail finance

companies and concentrates on the non-conforming or non-prime client sector, i.e. those clients

that do not meet the traditional criteria for obtaining mortgages, consumer credit, vehicle loans

and leasing solutions.

Oakwood currently operates in the Australian, British and Italian markets through five companies:

three of these were set up between 2001 and 2006 by management (Pepper Homeloans in Australia,

One World Leasing and Edeus in Britain), while controlling stakes were acquired in the other

two (Ktesios in Italy and Blue Motor Finance in Britain). Details of these are as follows:

1. Pepper Homeloans, founded in 2001, based in Sydney is currently the third largest lender of

residential non-conforming mortgages in Australia and to date has issued 5 securitizations;

2. One World Leasing, set up in 2003, based in Manchester UK, specializes in originating small

ticket leases;

3. Ktesios, control of which was acquired during 2006, is based in Rome and is one of the leading

Italian distributors of salary-secured personal loans;

4. Blue Motor Finance, based in Warrington (UK), originates non-conforming auto loans. The majority

stake in this company was also acquired in 2006;

5. Edeus, launched in September 2006, is based in Essington (UK) and specializes in offering

non-conforming residential mortgages. Edeus uses highly advanced technology that enables

brokers to complete mortgages much faster than they could with traditional methods.

As far as own share deals are concerned, it should be pointed out that between January 1 2007 and

today (March 13 2007) CIR bought back 2,950,000 of its own shares for a total of € 8.5 million.

As of today, therefore, treasury stock held amounts to 37,044,000 equal to 4.7% of share capital.

It should also be noted that between January 1 2007 and today 2,312,800 shares have been issued

in exercise of options by the beneficiaries of existing stock option plans. After this operation the

share capital consisted of 782,791,867 shares with a nominal value of € 0.50 each, for a total

value of € 391,395,933.50.

Management Report

29


7. OTHER INFORMATION

Information on shares held by Directors, General Managers and Statutory Auditors

The chart below gives the information required by Art. 79 of Consob Resolution no. 11971

of May 14 1999 and subsequent amendments and additions.

SHARES HELD BY DIRECTORS, STATUTORY AUDITORS AND GENERAL MANAGERS

Last name and first name Company in which shares are held Number of Number of Number of Number of shares Notes

shares shares shares owned at end

owned at end bought sold of this year

of previous year

DE BENEDETTI CARLO CIR S.p.A. 358,708,621 -- -- 358,708,621 (1)

DE BENEDETTI CARLO GRUPPO EDITORIALE L’ESPRESSO S.p.A. 218,826,235 1,950,000 -- 220,776,235 (2)

DE BENEDETTI CARLO SOGEFI S.p.A. 65,194,962 -- -- 65,194,962 (3)

DE BENEDETTI RODOLFO CIR S.p.A. 6,710,000 337,500 -- 7,047,500

PIASER ALBERTO CIR S.p.A. 94,000 180,000 274,000 --

DEBENEDETTI FRANCO CIR S.p.A. 375,000 -- -- 375,000

FERRERO PIERLUIGI CIR S.p.A. 315,000 100,000 65,000 350,000

FERRERO PIERLUIGI GRUPPO EDITORIALE L’ESPRESSO S.p.A. 30,000 -- -- 30,000

FERRERO PIERLUIGI SOGEFI S.p.A. 10,000 10,000 10,000 10,000

GERMANO GIOVANNI SOGEFI S.p.A. 2,012,000 -- -- 2,012,000

GERMANO GIOVANNI SOGEFI S.p.A. 1,004,312 -- -- 1,004,312 (4)

GIRARD FRANCO CIR S.p.A. 128,000 -- -- 128,000

GIRARD FRANCO SOGEFI S.p.A. -- 10,000 -- 10,000

GIRARD FRANCO GRUPPO EDITORIALE L’ESPRESSO S.p.A. -- 10,000 -- 10,000

PARAVICINI CRESPI LUCA CIR S.p.A. 333,333 -- -- 333,333

SEGRE MASSIMO GRUPPO EDITORIALE L’ESPRESSO S.p.A. 3,000 -- -- 3,000

(1) Indirectly owned through COFIDE S.p.A.

(2) At December 31 2006 the shares are owned through the following subsidiaries:

CIR S.p.A. 218,825,235

ROMED S.p.A. 1,000

(3) Indirectly owned through CIR S.p.A.

(4) Indirectly owned through Siria S.r.l.

Transactions with companies of the Group and related parties

During the period CIR S.p.A. provided management and strategic support services to its

subsidiaries and affiliates which involved, among other things, supplying administrative

and financial services, making loans, and issuing guarantees.

Transactions with the controlling parent company consisted of providing services of an

administrative and financial nature and being supplied with management support and

communication services. The main concern of CIR and its counterparties in relation to

these services is to ensure quality and a high level of efficiency of the services rendered,

which derive from CIR’s specific knowledge of the businesses of the Group.

Transactions between companies of the Group are settled at normal market conditions on

the basis of the quality and the specific nature of the services rendered.

30

Management Report


The most significant financial transactions between CIR and its subsidiaries are analysed in

detail in the Explanatory Notes particularly under the item Miscellaneous receivables,

Other payables and Financial receivables with subsidiaries in the Balance Sheet and under

the items Miscellaneous revenues and income, Financial expenses and Dividends in the Income

Statement.

Regarding the main equity transactions reference is made to the appropriate sections of the

explanatory notes.

It should be pointed out that the CIR Group did not enter into any transactions with related

parties, according to Consob’s definition, of a non-typical or unusual nature beyond normal

business administration or such as to have any significant impact on the economic, financial

or equity situation of the Group.

The code of conduct governing transactions with related parties was defined by the Board

of Directors of the Company in September 2002.

National tax consolidation

As is known, the new Income Tax Consolidation Act (TUIR) introduced the possibility for

companies belonging to the same group to determine a single total income figure corresponding

more or less to the sum of the taxable income of the various companies (parent

company and subsidiaries controlled directly and/or indirectly for at least 50% according to

certain requisites) and thus to calculate a single income tax figure for the income of the

companies of the group. In the last few months of 2004 the Boards of Directors of 28 companies

belonging to the Espresso, Sorgenia, Sogefi and HSS subgroups voted to take part in

the “CIR Tax Consolidation”, signing a general agreement (“General Rules of the CIR Tax

Consolidation”), which sets out the rights and obligations of CIR and its subsidiaries, resulting

from their taking part in the tax consolidation.

At December 31 2006 there were 26 companies taking part in the CIR tax consolidation.

Report on Corporate Governance

It should be noted that the full text of the “Annual Report on Corporate Governance” for

the year 2006 was approved – in its entirety – by the Board of Directors convened to approve

the Financial Statements for the year ended December 31 2006.

This Report will be available to anybody who requests it, according to the conditions stipulated

by Borsa Italiana for publishing the same. The Report will also be available on the

website of the Company.

In relation to D.Lgs. 231/01, issued with the aim of bringing regulations on the subject of

the administrative liability of entities into line with international agreements signed by Italy,

on March 7 2003 the Board of Directors of the Company approved the adoption of a

Code of Ethics of the CIR Group, published as an attachment to the “Annual Report on

Corporate Governance”, which defines the values which the Group follows in the achievement

of its objectives and establishes binding principles of conduct for its Directors, employees

and those who have a relationship with the Group. Moreover, on September 5

2003, the Board of Directors of the company approved the “Organization Model – the Or-

Management Report

31


ganizational and Management Model as defined by D.Lgs. no. 231/01”, in line with the instructions

laid down in the decree which aimed to ensure correctness and transparency in

the conduct of business and corporate activities.

On April 27 2006 the Board of Directors approved an update to the Organizational and

Management Model as defined by D.Lgs. no. 231/01 which was needed after law no. 62 of

April 18 2005 took effect. This law amended decree 231/2001 inserting art. 25-sexties

which establishes fines for offences involving the abuse of privileged information and manipulation

of the market.

Lastly it should be noted that the companies of the Group have complied with the provisions

of Art. 2497-bis of the Civil Code.

Preparation of “Security Policy Document (DPS)”

D.Lgs. no. 196/03, giving instructions on the protection of personal information, stipulates

that by March 31 of each year the organization responsible for the treatment of personal information

draw up a formal security policy document containing, among other things, appropriate

information regarding the following:

- the list of the types of treatment of personal information carried out by the organization;

- the distribution of responsibilities and tasks within the sphere of the treatment of such

information;

- a description of the measures to be taken to guarantee the integrity and the availability

of the information and the protection of the areas set aside for storing it and making it

accessible;

- the description of the criteria and the procedures for restoring access to the said information

in the event of it being destroyed or damaged;

- the description of the criteria to be adopted in order to guarantee that the minimum

measures of security are followed when the treatment of personal information is entrusted,

in conformity with the Civil Code, to someone outside the structure of the Officer

Responsible.

Article 26 of the Technical Rules states that the preparation or amendment of the Security

Policy Document must be mentioned in the Annual Report accompanying the Financial

Statements if required.

The Security Policy Document was updated with the support of specialist consultants in

this field who have been certified as BS7799 lead auditors by the British Standard Institute.

Other

The company CIR S.p.A. – Compagnie Industriali Riunite has its registered office in Strada

Volpiano 53, Leinì (To), Italy and its operating headquarters in Via Ciovassino 1, Milan,

Italy.

CIR shares, which have been quoted on the Milan Stock Exchange since 1973, since 2004

have been traded on the Blue-chip segment (Reuter code: CIRX.MI, Bloomberg code CIR

IM).

This Annual Report for the period January 1 – December 31 2006 was approved by the

Board of Directors on March 13 2007.

32

Management Report


PROPOSED ALLOCATION OF NET INCOME FOR THE YEAR

Dear Shareholders,

The Financial Statements for the year ended December 31 2006 that we are submitting to your approval

closed with net income of € 36,697,002.36.

We propose:

. making 2.5% of distributable net income, amounting to € 917,425.06, available to the Board of

Directors in accordance with Art. 23 of the Company Bylaws.

. distributing a dividend of € 0.050 to each of the shares in circulation with dividend rights as of

January 1 2006 (with the exclusion of own shares held as treasury stock), using the distributable

part of the net income for the year of € 35,779,577.30, which is equal to € 36,697,002.36 minus

the amount of € 917,425.06 made available to the Board of Directors and making up the difference

from the item “Retained earnings”.

The proposed allocation of the net income for the year:

¨

¨

takes into account the provisions of Art. 2357 ter, 2nd paragraph, of the Civil Code which stipulates

that the dividend rights on own shares be allocated pro rata to the other shares;

will take into account the dividend entitlement of the 4,941 shares servicing 810 former Sasib

privileged shares, the conversion of which has not yet been requested.

It should be pointed out that the actual amounts allocated to dividends and the withdrawal from the

“Retained earnings” reserve will be based on the number of own shares held as treasury stock and

the ordinary shares in circulation as of the date of the Shareholders’ Meeting, in case any further

shares are bought back in the meantime or any new shares are issued in execution of the exercise of

options by beneficiaries of the various stock option plans outstanding.

THE BOARD OF DIRECTORS

Milan, March 13 2007

Management Report

33


CIR Group

Consolidated Financial Statements

as of December 31 2006

BALANCE SHEET

INCOME STATEMENT

CASH FLOW STATEMENT

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Consolidated Financial Statements

35


1. CONDOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS Notes 31.12.2006 31.12.2005

NON-CURRENT ASSETS 2,742,536 2,401,558

INTANGIBLE ASSETS (9.a) 951,009 864,436

TANGIBLE ASSETS (9.b) 1,091,030 897,972

REAL-ESTATE INVESTMENTS (9.c) 17,604 6,944

INVESTMENTS IN COMPANIES VALUED AT EQUITY (9.d) 214,163 221,042

OTHER EQUITY INVESTMENTS (9.e) 8,530 7,529

OTHER RECEIVABLES (9.f) 250,991 261,403

SECURITIES (9.g) 98,583 59,841

DEFERRED TAX ASSETS (9.h) 110,626 82,391

CURRENT ASSETS 2,984,189 2,775,594

INVENTORIES (10.a) 217,082 162,864

WORK IN PROGRESS 1,685 933

TRADE RECEIVABLES (10.b) 996,477 790,744

OTHER RECEIVABLES (10.c) 273,992 201,362

FINANCIAL RECEIVABLES (10.d) 21,354 26,513

SECURITIES (10.e) 654,248 467,959

AVAILABLE-FOR-SALE FINANCIAL ASSETS (10.f) 372,867 362,930

CASH AND CASH EQUIVALENTS (10.g) 446,484 762,289

ASSETS HELD FOR SALE (2.c) 47,589 17,143

TOTAL ASSETS 5,774,314 5,194,295

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

SHAREHOLDERS' EQUITY 1,979,912 1,856,383

SHARE CAPITAL (11.a) 390,240 389,621

RESERVES (11.b) 367,779 401,794

RETAINED EARNINGS (LOSSES) (11.c) 401,016 305,945

NET INCOME FOR THE YEAR 101,120 87,675

SHAREHOLDERS' EQUITY - GROUP 1,260,155 1,185,035

MINORITY INTERESTS 719,757 671,348

NON-CURRENT LIABILITIES 2,288,420 2,186,453

BONDS (12.a) 1,187,750 1,199,251

OTHER BORROWINGS (12.b) 758,514 654,785

OTHER PAYABLES 1,178 21

DEFERRED TAX LIABILITIES (9.h.) 137,743 126,260

PERSONNEL OBLIGATIONS (12.c) 166,554 163,671

PROVISIONS FOR RISKS AND LOSSES (12.d) 36,681 42,465

CURRENT LIABILITIES 1,469,640 1,137,983

BANK OVERDRAFT FACILITIES 265,180 54,962

OTHER BORROWINGS (13.a) 134,134 175,881

TRADE PAYABLES (13.b) 748,901 649,766

OTHER PAYABLES (13.c) 273,962 213,768

PROVISIONS FOR RISKS AND LOSSES (12.d) 47,463 43,606

LIABILITIES HELD FOR SALE (2.c.) 36,342 13,476

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,774,314 5,194,295

36

Consolidated Financial Statements


2. CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

Notes 2006 2005

REVENUES FROM SALES AND SERVICES (14) 4,136,769 3,382,661

CHANGE IN INVENTORIES 2,206 (1,691)

COSTS FOR PURCHASE OF GOODS (15.a) (2,457,185) (1,818,934)

COSTS FOR SERVICES (15.b) (711,792) (674,847)

PERSONNEL COSTS (15.c) (575,342) (545,777)

OTHER OPERATING INCOME (15.d) 80,263 92,443

OTHER OPERATING EXPENSE (15.e) (66,651) (82,448)

ADJUSTMENTS TO THE VALUE OF INVESTMENTS VALUED AT EQUITY (9.d.) 34,154 18,596

AMORTIZATION, DEPRECIATION AND WRITE-DOWNS (102,938) (94,894)

INCOME BEFORE INTEREST AND TAXES ( E B I T ) 339,484 275,109

FINANCIAL INCOME (16.a) 67,176 83,512

FINANCIAL EXPENSES (16.b) (129,763) (131,657)

DIVIDENDS 1,470 396

GAINS FROM TRADING SECURITIES (16.c) 96,539 93,094

LOSSES FROM TRADING SECURITIES (16.d) (54,030) (65,527)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS (16,958) (297)

INCOME BEFORE TAXES 303,918 254,630

INCOME TAXES (17) (89,478) (64,753)

INCOME AFTER TAX FROM OPERATING ACTIVITY 214,440 189,877

NET INCOME/(LOSS) FROM BUSINESSES HELD FOR DISPOSAL (932) --

NET INCOME FOR THE YEAR INCLUDING MINORITY INTERESTS 213,508 189,877

- NET INCOME - MINORITY INTERESTS (112,388) (102,202)

- NET INCOME - GROUP 101,120 87,675

BASIC EARNINGS PER SHARE (in euro) 0.1351 0.1156

DILUTED EARNINGS PER SHARE (in euro) 0.1343 0.1149

Consolidated Financial Statements

37


3. CONSOLIDATED CASH FLOW STATEMENT

(in thousands of euro)

2006 2005

OPERATING ACTIVITY

NET INCOME FOR THE PERIOD INCLUDING MINORITY INTERESTS 213,508 189,877

ADJUSTMENTS:

AMORTIZATION, DEPRECIATION AND WRITE-DOWNS 102,938 94,894

SHARE OF THE RESULT OF COMPANIES VALUED AT EQUITY (34,154) (18,596)

ACTUARIAL VALUATION OF STOCK OPTION PLANS 9,726 11,000

CHANGE IN PERSONNEL PROVISIONS AND PROVISIONS FOR RISKS AND LOSSES 956 (8,179)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 16,958 297

INCREASE/(REDUCTION) IN NON-CURRENT RECEIVABLES AND PAYABLES (12,763) (29,673)

(INCREASE)/REDUCTION IN NET WORKING CAPITAL (174,004) (89,935)

OTHER NON-MONETARY CHANGES 39,960 (8,219)

CASH FLOW FROM OPERATING ACTIVITY 163,125 141,466

of which:

- interest received (paid) (70,679) (38,024)

- payment of income taxes (50,909) (92,700)

INVESTMENT ACTIVITY

(PURCHASE) SALE OF SECURITIES (210,573) (266,468)

NET DISBURSEMENT FOR ACQUISITIONS OF COMPANIES (73,752) (119,213)

NET PROCEEDS FROM DISPOSALS 637 7,426

PURCHASE OF FIXED ASSETS (361,395) (322,610)

CASH FLOW FROM INVESTMENT ACTIVITY (645,083) (700,865)

FINANCING ACTIVITY

PROCEEDS FROM CAPITAL INCREASES 10,372 26,000

OTHER CHANGES IN SHAREHOLDERS' EQUITY (3,666) (20,608)

BONDS -- (294,966)

PROCEEDS/(REPAYMENT) OF OTHER BANK BORROWINGS 55,640 268,967

FINANCIAL RECEIVABLES - JOINT VENTURES -- (21,924)

BUY-BACK OF OWN SHARES (15,564) (35,878)

DIVIDENDS PAID OUT (90,847) (75,930)

CASH FLOW FROM FINANCING ACTIVITY (44,065) (154,339)

INCREASE (DECREASE) IN NET CASH AND CASH EQUIVALENTS (526,023) (713,738)

NET CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 707,327 1,421,065

NET CASH AND CASH EQUIVALENTS AT END OF PERIOD 181,304 707,327

38

Consolidated Financial Statements


4. STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY

(in thousands of euro) Attributable to Shareholders of the Parent Company

Minority Total

Share Reserves Retained Net income Total interests

capital earnings (losses) for the year

BALANCE AT JANUARY 1 2005 388.279 374.528 201.274 155.247 1.119.328 583.332 1.702.660

Capital increases 1.342 2.273 -- -- 3.615 22.385 26.000

Dividends to Shareholders -- -- -- (38.009) (38.009) (37.921) (75.930)

Portion of income available to Board of Directors -- -- -- (708) (708) -- (708)

Retained earnings -- -- 116.530 (116.530) -- -- --

AGM Resolution to buy back own shares -- 11.859 (11.859) -- -- -- --

Fair value of hedging instruments -- 1.424 -- -- 1.424 1.291 2.715

Fair value of securities -- 47.373 -- -- 47.373 -- 47.373

Securities fair value reserve recognized to

income statement -- (7.608) -- -- (7.608) -- (7.608)

Buy-back of own shares -- (35.879) -- -- (35.879) -- (35.879)

Notional value of stock option plans -- 5.737 -- -- 5.737 -- 5.737

Effects of equity changes in subsidiaries -- (7.087) -- -- (7.087) (4.523) (11.610)

Currency translation adjustments -- 9.174 -- 9.174 4.582 13.756

Net income for the year -- -- -- 87.675 87.675 102.202 189.877

BALANCE AT DECEMBER 31 2005 389.621 401.794 305.945 87.675 1.185.035 671.348 1.856.383

Capital increases 619 1.076 -- -- 1.695 8.677 10.372

Dividends to Shareholders -- -- -- (*) (37.520) (37.520) (53.327) (90.847)

Retained earnings -- -- 50.155 (50.155) -- -- --

Cancellations of AGM resolution of April 27

2005 to buy-back own shares -- (54.816) 54.816 -- -- -- --

Fair value of hedging instruments -- 478 -- -- 478 357 835

Fair value of securities -- 33.075 -- -- 33.075 -- 33.075

Securities fair value reserve recognized to

income statement -- (16.893) -- -- (16.893) -- (16.893)

Buy-back of own shares -- (**) (5.664) (9.900) -- (15.564) -- (15.564)

Notional value of stock option plans -- 2.213 -- -- 2.213 -- 2.213

Effects of equity changes in subsidiaries -- 20.751 -- -- 20.751 (18.953) 1.798

Currency translation adjustments -- (14.235) -- (14.235) (733) (14.968)

Net income for the year -- -- -- 101.120 101.120 112.388 213.508

BALANCE AT DECEMBER 31 2006 390.240 367.779 401.016 101.120 1.260.155 719.757 1.979.912

(*) Annual General Meeting of April 27 2006: dividend per share € 0.05

(**) Reduction of the reserve for "Buy-back of own shares" (note 11.b. consolidated financial statements and note 7.b. statutory financial statements of CIR S.p.A.)

Consolidated Financial Statements

39


EXPLANATORY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. STRUCTURE AND CONTENT OF THE FINANCIAL STATEMENTS

These consolidated financial statements have been prepared in accordance with IAS/IFRS international

accounting standards supplemented by the interpretations of the Standing Interpretation

Committee issued by the International Accounting Standards Boards (IASB).

The consolidated financial statements for the year ended December 31 2006 include the Parent

company CIR S.p.A. (hereinafter “CIR”) and the companies that the latter controls.

The consolidated Financial Statements for the year ended December 31 2006 were prepared using

the statements of the individual companies included in the consolidation, i.e. their statutory financial

statements (known as “individual” or “separate” in IAS/IFRS terminology), or else consolidated

into subgroups, examined and approved by their respective boards and amended and restated

where necessary in order to bring them into line with the accounting principles listed below

and with Italian regulations.

These financial statements were prepared in thousands of euro, which is the “functional” and

“presentation” currency of the Group according to the terms of IAS 21, except where expressly

indicated otherwise.

2. CONSOLIDATION PRINCIPLES

2.a.

Consolidation methods

Controlled companies (subsidiaries):

All the companies in which the Group exercises control according to the terms of IAS 27, SIC 12

and IFRIC Interpretation 2 are considered controlled companies. In particular, companies and investment

funds are considered as controlled companies when the Group has the power to make

decisions regarding financial and operating policy. The existence of this power is presumed to exist

where the Group possesses the majority of the voting rights of a company, including potential

voting rights that are exercisable without any restrictions.

The controlled companies are fully consolidated as from the date on which the Group took control

and they are de-consolidated when such control ceases to exist.

Consolidation is carried out using the full line-by-line consolidation method. The main criteria

adopted for the application of this method are the following:

- the book value of the holding is eliminated against the appropriate portion of shareholders’ equity

and the difference between acquisition cost and the shareholders’ equity of the subsidiaries is

posted, where the conditions exist, to the items of assets and liabilities included in the consolidation.

Any remaining part is recognized to the statement of income when it is negative or to the

“Goodwill” item of the assets when it is positive. Goodwill is then subjected to an impairment test

to determine its recoverable value;

- significant transactions between consolidated companies are eliminated as are payables, receivables

and unrealized income resulting from transactions between companies of the Group, net of

any tax effects;

- minority equity and their portion of net income for the period are shown in special items of the

consolidated balance sheet and income statement.

Consolidated Financial Statements

41


Affiliated companies

All those companies in which the Group has a significant influence, without having control, in accordance

with the terms of IAS 28, are considered as affiliated companies or affiliates. Significant

influence is presumed to exist when the Group holds a percentage of the voting rights of between

20% and 50% (excluding cases where there is joint control).

The consolidated financial statements include the part attributable to the Group of the results of

the affiliates, accounted for using the equity method starting from the date on which the Group

acquires substantial influence over the affiliate and they are de-consolidated when such influence

ceases to exist. Whenever the part attributable to the Group of the losses of the affiliate exceeds

the carrying value of the investment in the accounts, the value of the investment is written off and

the share of any further losses is not recognized except to the extent to which the Group has the

obligation to answer for them.

The accounting principles of the affiliate are amended, where necessary, in order to make them

compatible with the accounting principles adopted by the Group.

Joint ventures

All companies in which the Group exercises control jointly with another company according to

the terms of IAS 31 are considered as joint ventures. It is presumed that joint control exists when

the Group owns half of the voting rights of a company.

The most significant joint venture belonging to the Group is Tirreno Power. International accounting

standards give two methods for consolidating joint ventures:

. the reference method, which involves pro-rata consolidation:

. the alternative method with allows them to be consolidated using the equity method.

The Group has adopted the equity method.

2.b.

Translation of foreign companies’ financial statements into euros

The translation into euros of the financial statements of foreign subsidiaries not belonging to the

single currency, none of which has an economy subject to hyperinflation according to the definition

given in IAS 29, is carried out at the year-end exchange rate for the balance sheet and at the

period average exchange rate for the income statement. Any exchange rate differences resulting

from the translation of shareholders’ equity at the year-end exchange rate and from the translation

of the income statement at the average rate for the period are recorded in a separate component of

the shareholders’ equity entitled “Other reserves”.

The main exchange rates used are the following:

31.12.2006 31.12.2005

Average rate 31.12.2006 Average rate 31.12.2005

US Dollar 1.2556 1.317 1.2441 1.1797

UK Sterling 0.6729 0.6715 0.6838 0.6853

Swedish Krona 9.2524 9.0408 9.2773 9.3888

Brazilian Real 2.7292 2.8133 3.0062 2.7432

Argentine Peso 3.8565 4.0450 3.6323 3.5727

Chinese Renminbi 10.004 10.2796 10.1792 9.5202

Slovene Tolar 239.8082 239.8082 239.8082 239.2345

42

Consolidated Financial Statements


2.c.

Consolidation area

The consolidated financial statements as of December 31 2006 and the consolidated financial

statements for the previous year of the Group are the result of the consolidation at those dates of

the Parent Company CIR and of all the companies directly or indirectly controlled, jointly controlled

or affiliated, with the exception of any companies being wound up. The assets and liabilities

of companies scheduled for disposal are reclassified in the items of assets and liabilities that

show such an eventuality.

Specifically, in 2006 the assets as above refer mainly to the properties belonging to the HSS group

and which are scheduled for disposal while the liabilities are mainly the borrowings associated

with these properties.

The HSS group has extended its consolidation through the acquisitions of the Anni Azzurri Group

(Residenze Anni Azzurri S.r.l., Residenze Anni Azzurri Monza S.p.A, La Nuova Palma S.r.l., Sodemare

S.A.) and of the companies Medipass S.p.A. and Meia S.r.l.. In addition the group has increased

its percentage of ownership of a company which it had already controlled since 2005

(Cima S.r.l. subsequently incorporated into Redancia S.r.l.). The following chart gives the main

figures as of December 31 2006 of the acquired companies.

(in thousands of euro) Residenze Anni Azzurri Group Medipass S.p.A. Meia S.r.l.

Fixed assets 150,724 14,923 3,484

Working capital 10,769 4,063 (588)

Net financial debt (124,047) (16,443) (566)

Non-current liabilities (19,102) (1,311) (701)

Shareholders’ equity 18,344 1,232 1,629

As far as the Dry Products group is concerned, in the first half of 2006 the sale of the stake in Ricciarelli

was finalized for a price of € 3.6 million, which was in line with its carrying value. With

this deal the CIR group completed its program of gradual disinvestment from this sector which in

the consolidated financial statements for 2005 was classified under assets and liabilities held for

disposal.

The list of equity investments included in the consolidation, with an indication of the method u-

sed, and of those excluded is given in the appropriate section of this document.

3. ACCOUNTING PRINCIPLES APPLIED

3.a. Intangible assets (IAS 38)

Intangible assets are recognized only if they can be separately identified, if it is probable that they

will generate future economic benefits and if the cost can be measured reliably.

Intangible assets with a finite useful life are valued at purchase or production cost net of depreciation

and impairment.

Intangible assets are initially recognized at purchase or production cost. Purchase cost is represented

by the fair value of payments and any additional cost directly incurred for preparing the asset

for use. The purchase cost is the equivalent price in cash as of the date of the acquisition and,

Consolidated Financial Statements

43


where payment is deferred beyond normal terms of credit, the difference compared with the cash

price is recognized as interest for the whole period of deferment.

Amortization is calculated on a straight-line basis following the expected useful life of the asset

and starts when the asset is ready for use.

The carrying value of intangible assets is maintained as long as there is evidence that this value

can be recovered through use; to this end at least once a year an impairment test is carried out to

check that the intangible asset is able to generate future cash flows.

Intangible assets with an indefinite useful life are not amortized but are constantly monitored for

any permanent loss of value. It is mainly the newspaper and magazine titles and frequencies of the

Espresso Group that are considered as intangible assets with an indefinite useful life.

Development costs are recognized as intangible assets when their cost can be measured reliably,

when there is a reasonable assumption that the asset can be made available for use or for sale and

that it is able to generate future benefits. Once a year or any time there are reasons which justify

it, capitalized costs are subjected to an impairment test.

Research costs are charged to the income statement as and when they are incurred.

Trademarks and licenses, which are initially recognized at cost, are subsequently accounted for

net of amortization and any impairment. The period of amortization is defined as the lower of the

contractual duration for use of the license and the useful life of the asset.

Software licenses, including associated costs, are recognized at cost and are recorded net of amortization

and of any impairment.

Goodwill represents the excess of the cost of an acquisition over the fair value of the subsidiaries

and affiliates at the date of their acquisition, with reference to the net values of their assets and liabilities

identifiable as of the date of the acquisition.

After initial recognition, goodwill is valued at cost less any impairment.

Goodwill resulting from acquisitions made after March 31 2004 is no longer amortized whereas

goodwill already recorded prior to that date is no longer amortized as from January 1 2004.

Goodwill always refers to identified income-producing assets, the ability of which to generate income

and cash flows is constantly monitored for any impairment.

3.b. Tangible assets (IAS 16)

Tangible assets are recognized at purchase price or at production cost net of accrued depreciation.

Cost includes associated expenses and any direct and indirect costs incurred at the moment of acquisition

and necessary to make the asset ready for use. Financial expense relating to loans for

long-term investments are capitalized until the date when the assets start operating.

Where there are contractual or compulsory obligations for decommissioning, removing or clearing

sites where fixed assets are installed, the value recognized includes an estimate of costs that will

be incurred on disposal of the same, discounted to present value.

Fixed assets are depreciated on a straight-line basis for each year in relation to their remaining

useful life.

Land, assets in process and payments on account are not subject to depreciation.

Extraordinary maintenance costs which determine an increase in the value, the functionality or the

useful life of the assets, such as costs for improvements, renovations and conversions which in-

44

Consolidated Financial Statements


crease value, are allocated directly to the assets to which they refer and are depreciated over the

residual useful of the assets.

Ordinary maintenance costs are charged to the income statement.

Real estate and land that are not used for instrumental or operating purposes are classified under a

special item of assets and are accounted for on the basis of the terms of IAS 40 “Investment properties”

(see paragraph 3.e. below).

Should there be any events which one can assume will cause a lasting reduction in the value of an

asset, its carrying value is checked against its recoverable value, which is the higher of fair value

and its value in use. Fair value is defined on the basis of values expressed by the active market, by

recent transactions or from the best information available to determine the potential amount obtainable

from the sale of the asset. Value in use is determined from the net present value of cash

flows resulting from the use expected of the same asset, applying the best estimates of its residual

useful life and a rate that also takes into account the implicit risk of the specific business sectors in

which the Group operates. This valuation is carried out for each individual asset or for the smallest

identifiable cash generating unit (CGU).

Where there is a negative difference between the values stated above and the carrying value, the

asset’s carrying value is written down, while as soon as the reasons for such loss in value cease to

exist the asset then undergoes an upward revaluation. Write-downs and revaluations are posted to

the income statement.

3.c.

Public entity grants

Any grants from a public entity are recognized when there is a reasonable degree of certainty that

the receiving company will comply with all the conditions stipulated for such a grant, independently

of whether or not there is a formal resolution awarding the said grant, and the certainty that

the grant will actually be received.

Capital contributions are recognized in the balance sheet either as deferred income, which is posted

to the income statement on the basis of the useful life of the asset for which it has been

granted so that the depreciation can be reduced, or else they are deducted directly from the asset to

which they refer.

Any State grants obtained in the form of reimbursement of expenses and costs already incurred or

with the purpose of providing immediate support for the beneficiary company without there being

any future related costs, are recognized as income in the period in which they can be claimed.

3.d. Leasing contracts (IAS 17)

Leasing contracts for assets where the lessee substantially assumes all the risks and rewards of

ownership are classified as finance leases. Where there are such finance lease contracts outstanding

the asset is recognized at the lower of its fair value and the present value of the minimum

lease payments stipulated in the relevant contracts. The total lease payments are allocated between

the liability and finance charges so as to achieve a constant rate on the finance balance outstanding.

The residual lease payments, net of financial expenses, are classified as borrowings. The

interest expense is charged to the income statement over the lease period. Assets acquired with financial

leasing contracts are depreciated to an extent consistent with the nature of the asset.

Consolidated Financial Statements

45


The leasing contracts in which the lessor substantially retains the risks and rewards of ownership

are, on the other hand, classified as operating leases and payments made under such leases are

charged to the income statement on a straight-line basis over the period of the lease.

In the event of a sale and lease-back agreement, any difference between the price of sale and the

carrying value of the asset is not recognized to the income statement unless there is a loss representing

an impairment of the asset itself.

3.e. Investment property/real estate investments - (IAS 40)

An investment property is a property, either land or building – or part of a building – or both, o-

wned by the owner or by the lessee, through a financial leasing agreement, for the purpose of receiving

lease payments or for obtaining a gain on the capital invested or for both of these reasons,

rather than for the purpose of directly using it for the production or supply of goods or services or

for administration of the company or for sales, in ordinary business activities.

The cost of an investment property is represented by its purchase price, any improvements made,

and any replacement and extraordinary maintenance.

For self-constructed investment property an estimation is made of all costs incurred as of the date

on which the construction or the development was finished. Until that date the conditions set forth

in IAS 16 apply.

In the event of an asset held through a finance lease contract, the initial cost is determined according

to IAS 17 from the lower of the fair value of the property and the present value of the minimum

lease payments due.

The Group has opted for the cost method to be applied to all investment property held. According

to the cost method, estimation is made net of depreciation and of any impairments.

At the moment of disposal or in the event of permanent non-use of the assets, all related income

and expenses will be charged to the income statement.

3.f. Impairment of assets (IAS 36)

Periodically and whenever events or changes in circumstance make it appropriate, tangible and

intangible assets are subjected to an impairment test to see whether they have undergone any loss

in value.

The impairment test consists of an estimate of the recoverable value of the asset and a subsequent

comparison with its net carrying amount. If the recoverable value is lower than the carrying

amount, the latter is written down and the impairment loss is charged to the income statement.

If at a later date the reasons for the write-down cease to exist, the original carrying amount is restored

with the relative entry to the income statement.

3.g.

Other equity investments

Investments in companies where the Parent Company does not exercise a significant influence are

accounted under IAS 39 and are therefore classified as available-for-sale investments and are

measured at fair value or at cost if the estimation of fair value or market price is not reliable.

46

Consolidated Financial Statements


3.h. Receivables and payables (IAS 32, 39 and 21)

Receivables are recognized at amortized cost and measured at their presumed realization value,

while payables are recognized at amortized cost.

Receivables and payables in foreign currencies, which are originally recognized at the spot rates

of the transaction date, are adjusted to the year-end spot exchange rates and any exchange gains

and losses are recognized to the income statement: if the net of such adjustments is a gain the

amount is recorded in a specific equity reserve and cannot be distributed until it is realized.

3.i. Securities (IAS 32 and 39)

In accordance with IAS 32 and IAS 39 investments in companies other than subsidiaries and affiliates

are classified as available-for-sale financial assets and are measured at fair value.

Gains and losses resulting from fair value adjustments are recorded in a separate component of

equity. When there are impairment losses or when the assets are sold, the gains and losses recognized

previously to shareholders’ equity are then posted to the income statement.

This category also includes financial assets either bought or issued for trading purposes or

classified at fair value through profit and loss in application of the fair value option.

For a more complete description of the treatment of financial instruments we would refer readers

to the note specially prepared on the subject.

3.l. Income taxes (IAS 12)

Current taxes are recorded and determined on the basis of a realistic estimate of taxable income

following current tax regulations of the country in which the company is based and taking into account

any exemptions that apply and any tax credits that can be claimed.

Deferred taxes are calculated on the basis of time differences, which are taxable or deductible, between

the carrying values of assets and liabilities and their tax bases and are classified under noncurrent

assets and liabilities.

A deferred tax asset is recognized to the extent that it is probable that future taxable profit will be

available against which the temporary differences can be utilized.

The carrying value of deferred tax assets is subject to periodic analysis and is reduced to the extent

to which it is no longer probable that there will be sufficient taxable income to allow the

benefit of this deferred asset to be utilized.

3.m. Inventories (IAS 2)

Inventories are stated at the lower of purchase or production cost, calculated using the weighted

average cost method, and the net realizable value.

3.n. Work in progress (IAS 11)

Contracted work in progress refers to specific projects in progress that have been requested by external

clients.

Consolidated Financial Statements

47


Contractual revenues and their related costs are recognized according to their percentage of completion.

Revenues include any price revision included in the contract. When it is likely that total

costs will exceed contractual revenues, the expected loss is immediately recognized to the income

statement.

If the outcome of a construction contract cannot be reliably estimated, the contractual income is

recognized in relation to the costs incurred, provided that it is likely that such costs can be recovered.

3.o. Cash and cash equivalents (IAS 32 and IAS 39)

Cash and cash equivalents include cash in hand, call deposits and short-term and high-liquidity

financial assets, which are easily convertible into cash and which have a risk of change in value

that is irrelevant.

3.p.

Shareholders’ equity

Ordinary shares are recorded at nominal value. Costs directly attributable to the issuance of new

shares are deducted from the shareholders’ equity reserves, net of any related tax benefit.

Own shares are classified in a special item which is deducted from reserves; any subsequent

transaction of sale, re-issuance or cancellation will have no impact on the income statement but

will affect only shareholders’ equity.

Unrealized gains and losses, net of tax, on financial assets classified as available for sale are recorded

under shareholders’ equity in the fair value reserve.

The reserve is reversed to the income statement when the asset is realized or when a permanent

loss of value is recognized.

The hedging reserve is formed from the fair value movements of derivatives which, under IAS 39,

have been designated as “cash flow hedging instruments” or as instruments hedging net investments

in foreign operations”.

The portion of the profit and loss considered as “effective” is recognized to shareholders’ equity

and is reversed to the income statement as and when the elements hedged are in turn recognized to

the income statement, i.e. when the subsidiary is sold.

When a subsidiary prepares its financial statements in a currency different from the Group’s functional

currency, the subsidiary’s financial statements are translated accounting any differences resulting

from such translation in a special reserve. When the subsidiary is sold the reserve is reversed

to the income statement with a detail of any gains or losses resulting from the subsidiary’s

disposal.

The item “Retained earnings (losses)” includes accrued income and losses and the transfer of balances

from other equity reserves when these become free of any “limitations” to which they have

been subject.

This item also shows the cumulative effect of the changes in accounting principles and/or the correction

of errors which are accounted for in accordance with IAS 8.

48

Consolidated Financial Statements


3.q. Financial liabilities (IAS 32 and IAS 39)

Loans are initially recognized at cost, represented by their fair value net of ancillary costs incurred.

Subsequently loans are measured at amortized cost calculated by applying the effective

interest rate, taking into consideration any issuance costs incurred and any premium or discount

applied at the time in which the instrument is settled.

3.r. Provisions for risks and losses (IAS 37)

Provisions for risks and losses refer to liabilities which are extremely likely but where the amount

and/or maturity is uncertain. These are the result of past events which will cause a future cash outflow.

Provisions are recognized exclusively in the presence of a current obligation, either legal or

constructive, towards third parties which implies an outflow and when a reliable estimate of the

amount involved can be made. The amount recognized as a provision is the best estimate of the

outflow required to fulfil the obligation as of the date of the financial statements. The provisions

recognized are re-examined at the closing date of each accounting period and are adjusted to represent

the best current estimate. Changes in the estimate are recognized to the income statement.

When the estimated outflow relating to the obligation is expected in a time horizon longer than

normal payment terms and the discount factor is significant, the provision represents the present

value, discounted at a risk-free interest rate, of the expected future outflows to discharge the obligation.

Contingent assets and liabilities (possible assets and liabilities, or those not recognized because no

reliable estimate can be made) are not recognized. However specific disclosure on such items is

given.

3.s. Revenue recognition (IAS 18)

Revenues from the sale of goods are recognized at the moment when the goods change hands and

the risks and benefits are transferred. Revenues are recognized net of returns, discounts and rebates.

Revenues for the rendering of services are recognized at the moment when the service is

rendered, with reference to the state of completion of the activity as of the date of the financial

statements.

Income from dividends, interest and royalties are recognized as follows:

- Dividends, when the shareholder’s right to receive payment is established (with an offset in receivables

at the resolution date);

- Interest, using the effective interest rate method (IAS 39);

- Royalties, on an accruals basis, in accordance with the substance of the relevant contractual

agreement.

3.t. Employee benefits (IAS 19)

Benefits to be paid to employees after the termination of their employment and other long term

benefits are subject to actuarial valuation.

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49


Following this methodology, liabilities recognized represent the present value of the obligation

adjusted for any actuarial gains or losses which have not been accounted for.

The instruments underlying the above mentioned benefits can be distinguished between “defined

contribution plans” and “defined benefit plans”, where in the first case the obligation of the company

is limited to paying the contributions (to Government, to funds or to other separate legal entities)

and is determined on the basis of the contributions owed, while in the second case liabilities

are determined on the basis of actuarial calculations.

Actuarial gains and losses for the defined benefit pension plans are recognized in the income

statement, pro rata on the basis of the remaining working life of the employees covered by the

plan, for the part in excess of 10% of the greater of the fair value of any assets servicing the plan

and the present value of the associated liability, in accordance with the so called corridor method.

For other long-term benefits, actuarial gains and losses are recognised to income statement.

IFRS 2 “Share-based payments” issued in February 2005 but applicable as from January 1 2005

stated in its transition instructions that application would be retrospective for all transactions

where the assignation of stock option took place after November 7 2002 and for which, as of the

date of its taking effect, the vesting conditions contained in the various plans had not yet been satisfied.

In compliance with this principle the CIR Group measures the notional cost of stock options and

recognizes it to the income statement under personnel costs during the vesting period of the benefit,

with a corresponding posting to the appropriate reserve in shareholders’ equity.

The cost of the option is determined at the grant date of the plan applying special models and multiplying

by the number of options exercisable over the respective period, which is evaluated with

the aid of appropriate actuarial variables.

3.u. Derivative financial instruments (IAS 32 and 39)

Derivative financial instruments are measured at fair value.

The Group uses derivatives mainly to hedge risks, in particular interest rate, foreign exchange and

commodity price risks. The hedging purpose of the derivative is formally documented and the degree

of “effectiveness” of the hedge is specified.

For accounting purposes hedging transactions can be classified as:

- fair value hedges – where the effects of the hedge are recognized to the income statement.

- cash flow hedges – where the effective portion of the hedge is recognized directly to shareholders’

equity while the non-effective part is recognized to income statement.

- hedge of a net investment in a foreign operation – where the effective portion of the hedge is

recognized directly to shareholders’ equity while the non-effective part is recognized to the income

statement.

3.v. Foreign currency translation (IAS 21)

The Group’s functional currency is the euro, which is the currency in which its financial statements

are prepared and published.

The companies of the Group prepare their financial statements in the currencies that are used in

their respective countries.

Transactions carried out in foreign currencies are initially recognized at the spot exchange rate on

the date of the transaction.

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Consolidated Financial Statements


At the date of the close of the reporting period monetary assets and liabilities denominated in foreign

currency are translated at the spot exchange rate prevailing on that date.

Non-monetary items measured at historical cost in a foreign currency are translated using the historical

exchange rate prevailing on the date of the transaction.

Non-monetary items measured at fair value are translated using the spot exchange rate at the date

on which the measurements are determined for the financial statements.

The assets and liabilities of the companies within the Group whose functional currency is not the

euro are valued using the following procedures:

- assets and liabilities are translated using the spot exchange rate prevailing at the date of the

close of the reporting period;

- costs and revenues are translated using the average exchange rate for the period;

Exchange rate differences are recognized directly to a special reserve under shareholders’ equity

in a special reserve.

Should an investment in a foreign operation be sold, the accumulated exchange rate differences

recognized in the equity reserve are reversed to the income statement.

3.w. Adoption of new accounting standards

In financial year 2006 the Group adopted the following Principles, Interpretations and Updates to

the standards already published:

- IAS 39 – Financial instruments Recognition and Measurement. This principle was amended by

Regulation no. 1864 of November 15 2005 effective January 1 2006 (fair value option), which

partially revised the classification of financial assets and liabilities; in particular the revision

limited the use of the initial designation option for financial assets and liabilities other than derivatives

and those held for trading, as items measured at fair value directly to the income statement

to those instruments that meet the following requirements:

a) The fair value option designation eliminates or significantly reduces an accounting mismatch,

or

b) A group of financial assets, financial liabilities, or both are managed and their performance

is evaluated on a fair value basis, in accordance with a documented investment risk management

strategy, and

c) An instrument contains an implicit derivative which meets particular conditions.

- IAS39 – Financial instruments. Recognition and measurement. This principle was amended by

Regulation no. 2106 of December 21 2005 which partly revised the basic assumptions regarding

intercompany transactions,

- IFRS6 – Exploration for and Evaluation of Mineral Resources. This principle is not relevant for

the business of the Group;

- IFRIC4 – Checking the requisites for a contract to be considered as a leasing contract;

- IFRIC5 – Rights to interest arising from decommissioning, restoration and environmental rehabilitation

funds. This interpretation is not relevant for the Group;

- IFRIC6 – Liabilities arising from Participating in a Specific market: Waste electrical and Electronic

Equipment. This interpretation is not relevant for the Group.

Moreover the Group did not opt for the early adoption of the following Principles, Interpretation

and Updates to principles already published, which will become obligatory in the next few years:

- IFRIC7 – Applying the Restatement Approach under IAS 29. This interpretation will take effect

for financial years following March 1 2006. This interpretation is not relevant for the Group;

-IFRIC8 – Scope of IFRS2. This interpretation will take effect for financial years following May 1

2006. This interpretation is not relevant for the Group;

Consolidated Financial Statements

51


- IFRIC9 – Reassessment of Embedded Derivatives. This interpretation will take effect for financial

years following June 1 2006. The interpretation is not relevant for the Group.

- IFRIC10 – Interim Financial Reporting and Impairment. This interpretation will take effect for

financial years following November 1 2006;

- IFRS7 – Financial instruments: Disclosures. This principle introduces new information to be

provided for financial instruments and will take effect as from January 1 2007.

3.z. Earnings per share (IAS 33)

Basic earnings per share are determined by dividing the net income attributable to the ordinary

shareholders of the Parent Company by the weighted average number of ordinary shares in circulation

during the period.

Diluted earnings per share are calculated by adjusting the weighted average number of ordinary

shares in circulation to take into account the effect of all potential ordinary shares, resulting for

example from the possibility of the exercise of stock options assigned, which can have a dilutive

effect.

4. FINANCIAL INSTRUMENTS

Financial instruments take on a particular significance in the economic and financial structure of

the CIR Group; for this reason, in order to give a better and clearer understanding of financial issues,

it was considered useful to devote a special section to the accounting treatment of IAS 32

and IAS 39.

According to IAS 32 financial instruments are classified in four categories:

a) Financial instruments that are valued at fair value through profit and loss (FVTPL) in application

of the fair value option, which are held for trading purposes;

b) Investments held to maturity (HTM);

c) Loans and receivables (L&R);

d) Available-for-sale financial assets (AFS).

Classification depends on Financial Management’s intended use of the financial instrument in the

business context and each involves a different measurement for accounting purposes; financial

transactions are recognized on the basis of their value date.

Financial instruments at fair value through profit and loss

Instruments are classified as such if they satisfy one of the following conditions:

- they are held for trading purposes;

- they are a financial asset designated on adoption of the fair value option, the fair value of

which can be reliably determined.

Trading generally means frequent buying and selling with the aim of generating profit on price

movements in the short term.

Derivatives are included in this category unless they are designated as hedge instruments.

The initial designation of financial instruments, other than derivatives and those held for trading,

as instruments at fair value through profit and loss in adoption of the fair value option is limited to

those instruments that meet the following conditions:

52

Consolidated Financial Statements


a) The fair value option designation eliminates or significantly reduces an accounting mismatch,

or;

b) A group of financial assets, financial liabilities, or both are managed and their performance

is evaluated on a fair value basis, in accordance with a documented investment risk management

strategy, and

c) An instrument contains an implicit derivative which meets particular conditions.

The designation of an individual instrument to this category is definitive, is made at the moment

of initial recognition and cannot be modified.

Investments held to maturity

This category includes non-derivative instruments with fixed payments or payments that can be

determined and that have a fixed maturity, and which it is intended and possible to hold until maturity.

These instruments are measured at amortized cost and constitute an exception to the general

measurement principle of fair value.

Amortized cost is determined by applying the effective interest rate of the financial instrument,

taking into account any discounts or premiums received or paid at the moment of purchase, and

recognizing them throughout the whole life of the instrument until its final maturity.

Amortized cost represents the initial recognition value of a financial instrument, net of any capital

repayments and of any impairment, plus or minus the cumulated amount of the differences between

its initial net value and the nominal amount at maturity calculated using the effective interest

rate method.

The effective interest rate method is a calculation criterion used to assign financial expenses to

their appropriate time period.

The effective interest rate is the rate that gives a correct present value to expected future cash

flows until maturity, so as to obtain the net present carrying value of the financial instrument.

If even one single instrument belonging to this category is sold before maturity, for a significant

amount and where there is no special justification for this, the tainting rule is applicable and requires

that the whole portfolio of securities classified as Held To Maturity be reclassified and

measured at fair value, and this category cannot be used in the two following years.

Loans and receivables

This refers to financial instruments which are not derivatives, have payments that are either fixed

or can be determined, which are not quoted on an active market and which are not intended to be

traded.

This category includes trade receivables (and payables), which are classified as current assets or

liabilities with the exception of the part due in over 12 months from the date of the financial statements.

The measurement of these instruments is made by applying the method of amortized cost, using

the effective interest rate and taking into account any discounts or premiums obtained or paid at

the moment of acquisition and recognizing them throughout the whole life of the instrument until

its final maturity.

Available-for-sale financial assets

This is a “residual” category which includes non-derivative financial instruments that are designated

as available for sale and are not included in any of the previous categories.

Consolidated Financial Statements

53


Financial instruments held for trading are recognized at their fair value plus any transaction costs.

Gains and losses are recognized to a special equity reserve until the financial instruments are sold

or have been impaired. In such cases the profit or loss accrued under shareholders’ equity is released

to the income statement.

Fair value is the amount for which an asset can be exchanged or a liability can be settled, between

knowledgeable, willing parties in a transaction at arm’s length.

In the case of securities listed on regulated liquid markets, the fair value is the bid price at the

close of trading on the last day of the accounting period.

Where no market prices are available, fair value is determined either on the basis of the fair value

of another financial instrument that is substantially similar or by using appropriate financial techniques

(for example the discounted cash flow method).

Investments in financial assets can be eliminated from the balance sheet, or derecognized, only

when the contractual rights to receive their respective financial cash flows have expired or when

the financial asset is transferred to third parties together with all its associated risks and rewards.

5. FINANCIAL RISK MANAGEMENT

The CIR Group operates in different sectors of industry and services both at the domestic and the

international level and as a result its businesses are exposed to different kinds of financial risk, including

market risk (exchange rate and price risk), credit risk, liquidity risk and interest rate risk.

In order to minimize these risks the Group uses derivative instruments for hedging purposes.

Risk management is carried out by the central finance and treasury function on the basis of policies

approved by the Management of CIR and passed on to the subsidiaries on July 25 2003.

Market risk

Foreign currency risk

Some companies of the Group (Sogefi in particular) are exposed to foreign exchange risk resulting

from their use of difference currencies. Exchange rate movements in the foreign currencies

can affect the fair value of their assets and liabilities.

This risk is however limited by the fact that the companies operate in the local currency, they are

active both in their home markets and abroad and in the event of such a need arising financial resources

are raised locally.

Regarding the net investment in Medinvest Plc, expressed in USD, a specific hedging strategy is

followed with purpose of hedging the net investment from the volatility of the spot EUR/USD exchange

rate used to translate the subsidiary’s net investment into the functional currency of the

Group, i.e. the euro.

Price risk

The Group is exposed to price risk on its commodities, such as paper, cellulose products, steel,

plastic products, aluminium, oil and gas.

These risks are managed centrally by the individual sub-holdings through the diversification of

their sourcing and, where deemed necessary, through suitable derivative hedging products.

54

Consolidated Financial Statements


Credit risk

Credit risk can be evaluated both in commercial terms in relation to client type, contractual conditions

and concentration of sales, and also in financial terms in relation to the type of counterparty

of financial transactions. Within the Group there are no significant concentrations of credit risk.

Adequate policies were put in place several years ago to ensure that sales are made to clients with

an appropriate credit rating. Counterparties for derivatives instruments and cash transactions are

exclusively financial institutions with a high credit rating. The Group also has policies which limit

credit exposure to single financial institutions.

Liquidity risk

Prudent management of liquidity risk implies maintaining sufficient liquidity and tradable securities

as well as having the availability of financial resources obtainable through an adequate supply

of credit lines.

The Group respects the maturity dates of its commitments systematically, which allows it to operate

in the market with flexibility and the availability of funds in order to maintain a correct balance

between funding and the application of its financial resources.

Interest rate risk (fair value risk and cash flow risk)

Interest rate risk is caused by movements in interest rates in the market which can change the fair

value of the cash flows of financial assets or liabilities.

Interest rates on leasing contracts are determined at the commencement of the contract and there

is no exposure to a change in the fair value of the interest rate.

Interest rate risk mainly affects long-term bond issues, which having been issued at a fixed rate,

expose the Group to the risk of a change in the fair value of the bonds due to interest rates movements.

Following risk management policies, the Parent Company and the subsidiaries have entered into

various IRS contracts throughout the years in order to hedge fair value interest rate risk on their

bond issues and loan agreements.

Derivative instruments are recognized at their fair value.

The accounting models for hedging transactions are as follows:

- fair value hedges if they are subject to price changes in the market value of the underlying asset

or liability;

- cash flow hedges if they are entered into to protect from the risk of changes in cash flows resulting

from an existing asset and liability, or from a future transaction.

- hedges of a net investment in a foreign operation if they are entered into to hedge the net investments

from the exchange rate risk arising from the translation of equity denominated in

currencies other than the functional currency of the Group.

For derivative financial instruments classified as fair value hedges, gains and losses resulting from

both the determination of their own market value and the fair value adjustment of the element underlying

the hedge are recognized to the income statement.

For derivative instruments classified as cash flow hedges (for example interest rate swaps), the effective

portion of gains and losses due to changes in their fair value are recognized directly to

shareholders’ equity while any non-effective portion is recognized to the income statement.

Consolidated Financial Statements

55


For derivative financial instruments classified as hedges of a net investment in a foreign operation

the effective portion of gains and losses due to changes in their fair value are recognized directly

to shareholders’ equity while any non-effective portion is recognized to the income statement.

Hedge accounting specifies that derivatives for hedging purposes be accompanied by a hedging

relationship which documents the individual instrument being hedged, and gives the degree of effectiveness

of the hedging strategy in relation to the instrument being hedged.

The effectiveness of the hedges is assessed regularly and the effective part is posted to shareholders’

equity while any non-effective part is recognized to the income statement. More specifically,

the hedge is considered effective when the change in fair value or in the cash flows of the item being

hedged is “almost entirely” offset by the change in the fair value or the cash flows of the

hedging instrument and the actual results are in a range of between 80% and 125%.

At December 31 2006 the Group had the following derivatives contracts outstanding, which were

recognized under hedge accounting and are shown at their notional value:

(a) Interest rate swaps hedging bonds:

Fixed/floating IRS contracts with a notional value of € 400 million maturing in March 2009

entered into by CIR International,

(b) Forward sales of foreign currency on the investment in Medinvest Plc.:

10 forward contracts selling USD and buying EURO for a total of USD 415 million entered

into by CIR International.

(c) Interest rate swaps on bank loans for the value of € 20 million relating to the Sorgenia group,

maturing on October 15 2010;

(d) 3 forward sales of GBP 4.3 million maturing March 2007 and 2 forward sales of USD 20.8

million maturing in March 2007, entered into by the Sogefi group;

(e) Interest rate swaps on bank loans for the value of € 15 million maturing in September 2007

and € 20 million maturing in December 2008 relating to the Sogefi group.

56

Consolidated Financial Statements


FINANCIAL RISK MANAGEMENT

(in thousands of euro) 12345 Total

INTEREST BEARING

Fixed Rate

Trade receivables 664 4,636 -- -- -- -- 5,300

Other receivables 78,045 -- -- -- 48,967 12,049 139,061

Financial receivables 16,975 -- -- -- -- -- 16,975

Securities 66,064 7,059 1,099 172 -- -- 74,394

Available-for-sale financial assets -- -- -- -- -- -- --

Cash and cash equivalents 160,044 -- -- -- -- -- 160,044

Bank overdraft facilities (2,794) -- -- -- -- -- (2,794)

Bonds (3,362) (654) (414,878) (719) (199,430) (568,707) (1,187,750)

Other borrowings (29,565) (17,015) (16,618) (16,803) (16,074) (53,282) (149,357)

Trade payables (579) -- -- -- -- -- (579)

Other payables (143) -- -- -- -- -- (143)

Floating Rate

Trade receivables -- -- -- -- -- -- --

Other receivables 279 -- 170,552 -- -- 170,831

Financial receivables -- -- -- -- -- -- --

Securities 34,214 7,526 -- 12,058 50,259 190,597 294,654

Available-for-sale financial assets -- -- -- -- -- -- --

Cash and cash equivalents 286,078 -- -- -- -- -- 286,078

Bank overdraft facilities (262,386) -- -- -- -- -- (262,386)

Bonds -- -- -- -- -- -- --

Other borrowings (53,524) (138,136) (107,995) (128,796) (140,817) (123,207) (692,475)

Trade payables -- -- -- -- -- -- --

Other payables -- -- -- -- -- -- --

NON INTEREST BEARING

Trade receivables 991,177 -- -- -- -- -- 991,177

Other receivables 205,399 8,666 -- -- -- 1,026 215,091

Financial receivables 4,379 -- -- -- -- -- 4,379

Securities 266,552 -- -- -- 9,890 107,341 383,783

Available-for-sale financial assets 372,867 -- -- -- -- -- 372,867

Cash and cash equivalents 362 -- -- -- -- -- 362

Bank overdraft facilities -- -- -- -- -- -- --

Bonds -- -- -- -- -- -- --

Other borrowings (50,816) -- -- -- -- -- (50,816)

Trade payables (748,322) -- -- -- -- -- (748,322)

Other payables (266,465) (1,466) (7,066) -- -- -- (274,997)

In accordance with the requirements of IAS 32 paragraph 74, the above chart shows the information

on interest rate risk with a breakdown by asset and liability group and by year of maturity.

This information was extrapolated from the balance sheet as of December 31 2006 and is shown

over a time horizon of 5 years on the basis of the way the interest accrues.

Consolidated Financial Statements

57


6. ACCOUNTING PRINCIPLES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

The criteria for making estimates and measurements are re-examined on a regular basis and are

based on historical experience and on other factors such as expectations of possible future events

that are reasonably likely to take place.

If the initial application of a principle affects the current year or the previous one, its effect is recognized

by indicating the change resulting from any transitional rules, the nature of the change,

the description of the transitional rules, which may also affect future years, and the amount of any

adjustments relating to years preceding those being presented.

If a voluntary change of a principle affects the current or previous year this effect is shown by indicating

the nature of the change, the reasons for the adoption of the new principle, the amount of

any adjustments made for years preceding those being presented.

In the event of a new principle/interpretation issued but not yet endorsed, an indication is given of

the fact, of its potential impact, the reason for the principle/interpretation, the date on which it will

take effect and the date on which it will first be applied.

A change in accounting estimates involves an indication of the nature and the impact of the

change. Estimates are used mainly to show impairment of assets recorded, provisions made for

risks, employees benefits, taxes and other provisions and reserves. Estimates and assumptions are

reviewed regularly and the effects of any such changes are reflected in the income statement.

Lastly, the treatment of accounting errors involves an indication of the nature of the error, the a-

mount of the adjustments to be made at the beginning of the first accounting period after it was

discovered.

7. NON-CURRENT ASSETS HELD FOR SALE (IFRS 5)

A non-current asset is held for sale if its carrying value will be recovered principally through a

sale rather than through use. For this condition to be satisfied the asset must be immediately sellable

in its present condition and the sale must be considered as highly likely.

The assets or groups of assets for disposal that are classified as held for sale are valued at the lower

of their carrying value and fair value less costs to sell.

Individual assets or assets belonging to a group classified as held for sale are not amortized.

The above assets are shown in the financial statements in a single item of the income statement

giving the profits and losses net of taxes resulting from the sale. Similarly the assets and liabilities

must be shown on a separate line of the Balance Sheet.

58

Consolidated Financial Statements


8. INFORMATION ON THE BUSINESS SECTORS

The business sectors coincide with the Groups of companies in which CIR S.p.A. holds a controlling

stake. These are:

- the Sorgenia group: utilities;

- the Espresso group: media;

- the Sogefi group: automotive components;

- the HSS group: healthcare.

Geographically speaking, with the exception of the Sogefi group, all the business activities are

carried out in Italy.

An analysis of the income contribution and the balance sheet and equity figures for the primary

sector is given in the Management Report, while the breakdown of revenues by geographical

segment (secondary sector) is given in the Explanatory Notes to the Financial Statements in the

section regarding revenues (note 14).

The breakdown by geographical area of the businesses, investments, amortization and writedowns,

as required by IAS 14, is given in the following chart.

(in thousands of euro) Businesses Investments Amortization /

Write-downs

Italy 4,489,149 391,957 62,249

Other European countries 1,701,199 31,642 40,639

North America 42,148 5,659 5,042

South America 70,360 6,249 4,012

Asia 7,474 185 836

Other countries -- -- --

Consolidation adjustments (536,016) (1,144) (9,840)

Total assets 5,774,314 434,548 102,938

Consolidated Financial Statements

59


BALANCE SHEET: NOTES

9. NON-CURRENT ASSETS

9.a. INTANGIBLE ASSETS

2005 Opening balances

Changes for the period

Balance Purchases Combinations

01.01.2005

sales of business

(in thousands of euro) increases decreases

Start-up and expansion costs 166 14 -- --

Capitalized development costs

- purchased -- -- -- --

- produced internally 14,449 6,881 -- --

Industrial patents and intellectual

property rights 3,144 1,640 -- (2)

Concessions, licenses, trademarks & similar rights 11,975 4,330 324 (359)

Publication titles 400,244 2 -- --

Frequencies 58,695 19,152 118,209 --

Goodwill 176,238 11,551 44,398 --

Assets in process and advance payments

- purchased 335 923 -- --

- produced internally 681 622 -- --

Others 1,114 794 -- (4)

Total 667,041 45,909 162,931 (365)

2006

Opening balances

Changes for the period

Original Accrued amortization Balance Purchases Combinations

costs and write-downs 31.12.2005

sales of business

(in thousands of euro) increases decreases

Start-up and expansion costs 3,199 (3,168) 31 -- -- --

Capitalized development costs

- purchased -- -- -- -- -- --

- produced internally 34,805 (18,934) 15,871 6,469 -- --

Industrial patents and intellectual

property rights 21,794 (18,869) 2,925 418 -- --

Concessions, licenses, trademarks & similar rights 52,807 (40,579) 12,228 4,104 70 (9)

Publication titles 400,245 -- 400,245 -- -- --

Frequencies 195,961 -- 195,961 5,025 -- --

Goodwill 284,067 (52,572) 231,495 34,540 39,501 (451)

Assets in process and advance payments

- purchased 2,135 -- 2,135 4,783 -- --

- produced internally 1,519 -- 1,519 235 -- --

Others 10,303 (8,277) 2,026 1,625 -- 34

Total 1,006,835 (142,399) 864,436 57,199 39,571 (426)

Intangible assets rose from € 864,436 thousand at December 31 2005 to € 951,009 thousand at December 31 2006.

The item Goodwill rose during the period mainly as a result of the acquisition of the Anni Azzurri group by HSS

and of the acquisition of further shares in Gruppo Editoriale L'Espresso by CIR S.p.A..

60

Consolidated Financial Statements


Changes in the period

Closing Balances

Exchange rate Other Net Amortization and Original Accrued amortization Balance

differences changes disposals write-downs costs and write-downs 31.12.2005

costs

7 (146) -- (10) 3,199 (3,168) 31

-- -- -- -- -- -- --

755 (1,233) -- (4,981) 34,805 (18,934) 15,871

29 -- -- (1,886) 21,794 (18,869) 2,925

110 100 -- (4,252) 52,807 (40,579) 12,228

-- -- (1) -- 400,245 -- 400,245

-- -- (95) -- 195,961 -- 195,961

-- (692) -- -- 284,067 (52,572) 231,495

--

-- 877 -- -- 2,135 -- 2,135

31 185 -- -- 1,519 -- 1,519

111 195 (1) (183) 10,303 (8,277) 2,026

1,043 (714) (97) (11,312) 1,006,835 (142,399) 864,436

Changes in the period

Closing Balances

Exchange rate Other Net Amortization and Original Accrued amortization Balance

differences changes disposals write-downs costs and write-downs 31.12.2006

costs

-- (16) -- (4) 38 (27) 11

-- -- -- -- -- -- --

(144) 1,145 (22) (5,508) 44,743 (26,932) 17,811

(2) 85 (1) (1,580) 19,916 (18,071) 1,845

(49) 1,097 (337) (5,484) 57,110 (45,490) 11,620

-- -- -- -- 400,245 -- 400,245

-- -- (414) -- 200,572 -- 200,572

1 57 -- -- 359,739 (54,596) 305,143

(70) (1,976) -- -- 4,872 -- 4,872

(19) -- (33) -- 1,702 -- 1,702

(44) 3,970 -- (423) 15,129 (7,941) 7,188

(327) 4,362 (807) (12,999) 1,104,066 (153,057) 951,009

Consolidated Financial Statements

61


AMORTIZATION RATES

Description %

Capitalized development costs 20-33%

Industrial patents and intellectual property rights 4-20%

Concessions, licences, trademarks and similar rights 16-30%

Other intangible assets 16-30%

A more detailed analysis of the main items of intangible assets is given in the following charts.

Publication titles:

(in thousands of euro) 31.12.2006 31.12.2005

la Repubblica 229,952 229,952

Il Piccolo / Messaggero Veneto 104,527 104,527

Other local newspapers 61,222 61,222

Other titles 4,544 4,544

Total 400,245 400,245

Frequencies:

(in thousands of euro) 31.12.2006 31.12.2005

Radio frequencies 63,491 58,937

Television frequencies 137,081 137,024

Total 200,572 195,961

Goodwill:

(in thousands of euro) 31.12.2006 31.12.2005

Gruppo Editoriale L’Espresso S.p.A. 116,307 98,447

Sogefi S.p.A. 91,293 91,292

Energia Holding S.p.A. 23,602 22,463

Holding Sanità e Servizi S.p.A. 73,941 19,293

Total 305,143 231,495

62

Consolidated Financial Statements


For the purposes of carrying out the impairment test on goodwill, the estimate of the value recoverable

for each cash generating unit, as defined by IAS 38, was carried out on the basis of the

value in use calculated by discounting to net present value, at an appropriate discount rate, the future

cash flows generated by the unit in its productive phase and at the moment of its disposal

(discounted cash flow method).

The cash flows of the single operating units were extrapolated from the budgets and forecasts

made by management. These plans were then processed on the basis of economic trends recorded

in previous years and using the forecasts made by top analysts on the outlook for the respective

markets and more in general on the evolution of each business sector.

In order to determine the discount rate to use, an estimate was made of the weighted average cost

of capital invested (WACC) net of inflation, gross of taxes and independently of the financial

structure of the individual company/subgroup.

The impairment tests carried out using the cash flow method and other methods of valuation

showed that there had been no losses of value.

Consolidated Financial Statements

63


9.b. TANGIBLE ASSETS

2005 Opening balances Changes during the period

Net balance Purchases Combinations

01.01.2005

sales of businesses

(in thousands of euro) increases decreases

Land 26,217 268 -- (1,213)

Buildings used for business 122,622 1,747 4,246 (12,506)

Property, plant and equipment 311,250 22,164 6,217 (7,325)

Power stations 5,232 26 -- --

Industrial and commercial equipment 13,060 5,609 284 (101)

Other assets 36,658 16,316 1,245 (1,299)

Assets in process and advance payments 243,264 185,380 -- --

Total 758,303 231,510 11,992 (22,444)

2006

Opening balances

Changes during the period

Original Accrued depreciation Net balance Purchases Combinations

cost and write-downs 31.12.2005

sales of businesses

(in thousands of euro) increases decreases

Land 26,533 (152) 26,381 1,206 2,775 --

Buildings used for business 202,408 (89,028) 113,380 2,240 43,785 --

Property, plant and equipment 917,526 (613,797) 303,729 24,290 14,098 (82)

Power stations 5,928 (949) 4,979 255 501 --

Industrial and commercial equipment 100,800 (84,094) 16,706 5,723 2,309 (249)

Other assets 153,349 (111,494) 41,855 15,189 16,422 (195)

Assets in process and advance payments 390,942 -- 390,942 149,369 2,517 --

Total 1,797,486 (899,514) 897,972 198,272 82,407 (526)

DEPRECIATION RATES

Description %

Buildings used for business 3.00%

Plant and machinery 10.00-25.00%

Other assets:

- Electronic office equipment 20.00%

- Furniture and fittings 12.00%

- Motor vehicles 25.00%

64

Consolidated Financial Statements


Changes during the period

Closing balances

Capitalized Exchange rate Other Net Depreciation and Original Accrued depreciation Balance

financial differences changes disposals write-downs cost and write-downs 31.12.2005

expenses

cost

-- 319 1,238 (448) -- 26,533 (152) 26,381

-- 2,032 2,659 (837) (6,583) 202,408 (89,028) 113,380

-- 6,465 24,596 (360) (59,278) 917,526 (613,797) 303,729

-- -- -- -- (279) 5,928 (949) 4,979

-- 200 4,730 (215) (6,861) 100,800 (84,094) 16,706

-- 337 382 (1,309) (10,475) 153,349 (111,494) 41,855

7,118 445 (45,253) (12) -- 390,942 -- 390,942

7,118 9,798 (11,648) (3,181) (83,476) 1,797,486 (899,514) 897,972

Changes during the period

Closing balances

Capitalized Exchange rate Other Net Depreciation and Original Accrued depreciation Balance

financial differences changes disposals write-downs cost and write-downs 31.12.2006

expenses

cost

-- (60) 77 (215) -- 30,306 (142) 30,164

1,500 42 30,149 (712) (7,474) 276,868 (93,958) 182,910

609 (2,662) 30,360 (1,101) (58,041) 975,864 (664,664) 311,200

16,292 -- 322,185 -- (3,781) 345,161 (4,730) 340,431

98 (55) 4,281 (1,002) (7,302) 103,120 (82,611) 20,509

-- (420) 1,975 (791) (12,964) 190,782 (129,711) 61,071

-- (255) (397,346) (482) -- 145,230 (485) 144,745

18,499 (3,410) (8,319) (4,303) (89,562) 2,067,331 (976,301) 1,091,030

Consolidated Financial Statements

65


9.c. REAL ESTATE INVESTMENTS

2005 Opening balances

Changes during the period

Net balance Purchases Combinations

01.01.2005

sales of businesses

(in thousands of euro) increases decreases

Real estate 268 -- -- --

Total 268 -- -- --

2006

Opening balances

Changes during the period

Original Accrued depreciation Net balance Purchases Combinations

cost and write-downs 31.12.2005

sales of businesses

(in thousands of euro) increases decreases

Real estate 7,050 (106) 6,944 3,119 -- --

Total 7,050 (106) 6,944 3,119 -- --

Real-estate investments rose from € 6,944 thousand at December 31 2005 to € 17,604 thousand at

December 31 2006. The increases during the period refer to the completion of renovation work on

a building situated in the centre of Milan, carried out during the year for € 3,119 thousand and

reclassified in this item from Assets in process and advance payments for € 7,918 thousand.

Its carrying value corresponds substantially to market value.

DEPRECIATION RATES

Description %

Buildings 3.00%

66

Consolidated Financial Statements


Changes during the period

Closing balances

Capitalized Exchange rate Other Net Depreciation and Original Accrued depreciation Balance

financial differences changes disposals write-downs cost and write-downs 31.12.2005

expenses

cost

-- -- 6,782 -- (106) 7,050 (106) 6,944

-- -- 6,782 -- (106) 7,050 (106) 6,944

Changes during the period

Closing balances

Capitalized Exchange rate Other Net Depreciation and Original Accrued depreciation Balance

financial differences changes disposals write-downs cost and write-downs 31.12.2006

expenses

cost

-- -- 7,918 -- (377) 18,087 (483) 17,604

-- -- 7,918 -- (377) 18,087 (483) 17,604

Consolidated Financial Statements

67


LEASING

The position of assets under leasing as of December 31 2006 and of restrictions applied to tangible

assets on account of guarantees and commitments is as follows:

(in thousands of euro) Gross leasing amount Accrued depreciation Restrictions for

guarantees and commitments

2006 2005 2006 2005 2006 2005

Land 3,556 827 -- -- 1,851 2,678

Buildings 54,403 14,844 4,340 2,914 36,573 6,939

Property, plant and equipment 32,382 24,104 12,999 11,408 569,392 251,558

Other assets 2,937 1,498 804 477 4,910 341,069

9.d.

INVESTMENTS IN COMPANIES VALUED AT EQUITY

(in thousands of euro)

2005 % Balance Increases Decreases Dividends Contributions Other Balance

01.01.2005 Loss Income changes 31.12.2005

Aire/Tirreno Power (*) 50.00 170,688 -- -- -- -- 19,762 3,295 193,745

Le Scienze S.p.A. 50.00 185 -- -- (121) -- 284 -- 348

Saire S.r.l. 50.00 348 -- -- -- -- 15 -- 363

Editoriale La Libertà S.p.A. 35.00 22,691 -- -- (875) -- 917 (190) 22,543

Altrimedia S.p.A. 35.00 683 -- -- (140) -- 128 -- 671

Allevard Ressorts Composites S.A. 50.00 392 -- -- -- (20) -- -- 372

KS Automotive Suspensions

Asia Private Ltd 50.00 5,562 -- -- -- (2,490) -- (72) 3,000

Total 200,549 -- -- (1,136) (2,510) 21,106 3,033 221,042

(*) On June 30 2005 the merger by incorporation of Aire into Tirreno Power became effective. Following the merger by incorporation of the controlling company

(a reverse merger), Tirreno Power is now controlled equally by Energia Italiana and Eblacea

(in thousands of euro)

2006 % Balance Increases Decreases Dividends Contributions Other Balance

31.12.2005 Loss Income changes 31.12.2006

Aire/Tirreno Power 50.00 193,745 -- -- (39,960) -- 33,018 252 187,055

Le Scienze S.p.A. 50.00 348 -- (285) -- -- 129 -- 192

Saire S.r.l. 50.00 363 -- -- -- -- 16 -- 379

Editoriale La Libertà S.p.A. 35.00 22,543 -- (875) -- -- 1,072 -- 22,740

Editoriale Corriere di Romagna S.r.l. 49.00 -- 2,940 -- -- -- 41 -- 2,981

Altrimedia S.p.A. 35.00 671 -- (105) -- -- 149 -- 715

Allevard Ressorts Composites S.A. 50.00 372 -- -- -- (271) -- -- 101

KS Automotive Suspensions

Asia Private Ltd -- 3,000 -- (3,000) -- -- -- -- --

Total 221,042 2,940 (4,265) (39,960) (271) 34,425 252 214,163

68

Consolidated Financial Statements


9.e.

OTHER EQUITY INVESTMENTS

(in thousands of euro) % 31.12.2006 31.12.2005

Dumenil Leblé Belgium (in liquidation) 100.00 298 331

Ansa S. Coop. A.R.L. 17.32 2,209 2,209

E-Ink Corporation 0.26 1,481 1,481

Tecnoparco Valbasento 20.00 516 516

Emittenti Titoli S.p.A. 5.44 132 132

Anemon S.p.A. -- -- 1,763

Others -- 3,894 1,097

Total 8,530 7,529

The investments in subsidiaries refer to companies being liquidated. These are recorded in the financial

statements at cost, written down where appropriate to reflect loss of value and are considered

to be substantially equivalent to the fair value of the same.

9.f.

OTHER RECEIVABLES

The item “Other receivables” had a balance at December 31 2006 of € 250,991 thousand compared

with € 261,403 thousand at December 31 2005 and refers for € 169,905 thousand

(€ 163,008 thousand at December 31 2005) to the long-term loan made by Energia Italiana to Tirreno

Power at market conditions to finance its development plan. At December 31 2006 this item

also included € 48,967 thousand (€ 81,546 thousand at December 31 2005) of tax assets referring

to VAT rebates requested by the Sorgenia group. The decrease compared with the previous year

is due to the rebate received by Energia Molise S.p.A..

9.g.

SECURITIES

“Securities” totalled € 98,583 thousand at December 31 2006 compared with € 59,841 thousand

at December 31 2005 and refer entirely to investments in private equity funds. These funds were

measured at fair value recognizing to the fair value reserve an amount of € 20,352 thousand

(€ 12,482 thousand at December 31 2005). During the year the portion of the fair value reserve

relating to these funds charged to the income statement € 5,378 thousand. At December 31 2006

the remaining investment committed to private equity funds was € 20,000 thousand.

9.h.

DEFERRED TAXES

The amounts refer to taxes resulting from temporary differences deductible and from losses carried

forward, which are deemed to be recoverable.

Consolidated Financial Statements

69


The breakdown of “Deferred tax assets and liabilities” by type of temporary difference, is as follows:

(in thousands of euro) 2006 2005

Amount

Amount

of temporary

differences

Tax

effect

of temporary

differences

Tax

effect

Temporary difference liabilities from:

- write-down of current assets 46,286 16,257 37,362 13,208

- write-down of fixed assets 40,816 14,096 29,419 15,104

- revaluation of current liabilities 8,545 2,734 24,845 7,669

- revaluation of personnel provisions 38,484 12,676 9,332 3,069

- revaluation of provisions for risks and losses 41,041 13,366 63,232 18,179

- write-down of financial instruments 10,810 3,644 12,029 4,094

- tax losses of prior periods 143,379 47,853 64,100 21,068

Total deferred tax assets 329,361 110,626 240,319 82,391

Temporary difference assets from:

- revaluation of current assets 4,626 1,499 3,300 1,117

- revaluation of fixed assets 356,276 128,871 325,895 117,159

- write-down of current liabilities 4,704 1,513 6,995 1,850

- valuation of personnel provisions 7,558 2,504 6,871 2,282

- write-down of provisions for risks and losses 2,391 806 191 633

- revaluation of financial instruments 6,905 2,550 8,755 3,219

Total deferred tax liabilities 382,460 137,743 352,007 126,260

Net deferred taxes (27,117) (43,869)

The deferred taxes credited directly to shareholders’ equity during the period amounted to € 528

thousand.

Earlier losses not utilized for the calculation of deferred taxes refer to the Espresso group for € 18

million, the company CIR International for € 541.5 million that can be carried forward indefinitely

and the Sogefi group for € 10 million. It should be pointed out that no deferred tax assets

were calculated for these losses because at present conditions are such that there is no certainty

that they can be recovered.

70

Consolidated Financial Statements


10. CURRENT ASSETS

10.a. INVENTORIES

Inventories can be broken down as follows:

(in thousands of euro) 31.12.2006 31.12.2005

Raw materials, secondary materials and consumables 76,973 72,304

Work in progress and semi-finished goods 13,033 13,579

Finished goods and merchandise 127,043 76,948

Advance payments 33 33

Total 217,082 162,864

Inventories of finished goods and merchandise rose mainly as a result of the higher volumes of

gas stored for marketing and sale by Sorgenia S.p.A..

The value of stocks is shown net of any write-down made either in past periods or in this current

one and take into account the degree of obsolescence of finished goods, merchandise and secondary

materials.

10.b. TRADE RECEIVABLES

(in thousands of euro) 31.12.2006 31.12.2005

Receivables - clients 988,534 784,505

Receivables – subsidiaries 6,914 5,665

Receivables – affiliated companies 1,029 574

Total 996,477 790,744

“Receivables - clients” are non-interest bearing and have an average maturity in line with market

conditions. The net increase is mainly due to the increase in revenues.

Trade receivables are shown net of any write-downs accounting for credit risk. During 2006 provisions

were made to the reserve for the write-down of receivables for the sum of € 10,515 thousand

compared with € 7,228 thousand in 2005.

“Receivables - subsidiaries” represent intercompany receivables not eliminated because they refer

to companies not fully consolidated line-by-line. The balance at December 31 2006 refers mainly

to receivables from CIGA Luxembourg.

10.c. OTHER RECEIVABLES

(in thousands of euro) 31.12.2006 31.12.2005

Financial receivables from affiliated companies -- 256

Tax receivables 163,862 146,327

Receivables – others 110,130 54,779

Total 273,992 201,362

Consolidated Financial Statements

71


“Tax receivables” amounted to € 163,862 thousand up from € 146,327 thousand at December 31

2005. The rise in the balance of this item is mainly due to the higher VAT receivable of Energia

Molise S.p.A. linked to the investment in the Termoli power plant and to higher duties due to increased

volumes in the Sorgenia group.

10.d.

FINANCIAL RECEIVABLES

“Financial receivables” declined from € 26,513 thousand at December 31 2005 to € 21,354 thousand

at December 31 2006 and refer essentially to the fair value of outstanding interest rate swap

contracts on Bonds.

10.e.

SECURITIES

This item consists of the following categories of securities:

(in thousands of euro) 31.12.2006 13.12.2005

Italian Government securities or equivalent securities 25,208 41,093

Investments funds or similar funds 248,578 53,939

Bonds 49,947 97,203

Certificates of deposit and miscellaneous securities 330,515 275,724

Total 654,248 467,959

(in thousands of euro) 31.12.2006 31.12.2005

Of which held for trading 607,568 438,429

Of which in application of the fair value option due to the presence of an implied derivative

46,680 29,530

Total 654,248 467,959

The fair value of the item “Securities” involved a negative adjustment to the statement of income

of € 13.7 million, of which € 10.9 million referred to securities held for trading.

10.f. AVAILABLE-FOR-SALE FINANCIAL ASSETS

This item refers in its entirety to shares in hedge funds and redeemable shares in asset management

companies held by Medinvest which collects excess liquidity that the Group has available

on a regular basis. The degree of liquidity of the investment is a function of the time required for

the redemption of the funds in which Medinvest invests, which normally varies from one to three

months.

Diversification between categories of funds give the performance of Medinvest a low level of

volatility.

Assigning a fair value to the funds held by Medinvest meant making an adjustment to the value

of these funds which at December 31 2006 amounted to € 146,075 thousand (€ 136,524 thousands

at December 31 2005). The effects of this valuation on CIR’s shareholders’ equity for the

amount pertaining to the Group total € 127,115 thousand (€ 118,803 thousand at December 31

72

Consolidated Financial Statements


2005). The amount of fair value recognized to the income statement after the sale of some of the

funds came to € 11,508 thousand.

To cover the exchange rate risk resulting from the translation of the part of the equity of Medinvest

denominated in $USD into the functional currency of the Group, hedging contracts were entered

into, the effects of which are indicated under item 11.b. “Reserves” in the breakdown of the

”Translation reserve”.

10.g. CASH AND CASH EQUIVALENTS

Cash and cash equivalents decreased from € 762,289 thousand at December 31 2005 to € 446,484

thousand at December 31 2006.

A breakdown of the change during the period is given in the cash flow statement.

11. SHAREHOLDERS’ EQUITY

11.a. SHARE CAPITAL

Share capital rose from € 389,620,833.50 at December 31 2005 (comprising 779,241,667 shares

each with a nominal value € 0.50) to € 390,239,533.50 (780,479,067 shares) at December 31

2006 as a result of the issuance of 1,237,400 shares in execution of the exercise of option rights

by beneficiaries of stock option plans.

At December 31 2006 the Company was holding 34,094,000 of it own shares (4.37% of share

capital) for a total value of € 76,884 thousand, up from 27,216,642 shares for a total value of

€ 61,320 thousand at December 31 2005.

In application of IAS 32, as from January 1 2005 the treasury stock held by the Parent Company

is being deducted from shareholders’ equity.

The share capital is fully subscribed and paid in. No shares carry any rights, privileges or restrictions

on the distribution of dividends, except for the own shares held a treasury stock.

It should be pointed out that Board of Directors has been given the power for a period of five

years starting from April 27 2005 to increase the share capital either in one or several tranches up

to a maximum of € 500 million (nominal value) and for a further maximum of € 20 million

(nominal value) in favour of employees of the Company and of its subsidiaries and parent companies.

Regarding stock option plans, at December 31 2006 there were 41,710,600 options in circulation,

corresponding to the same number of shares.

The total notional cost of the stock options assigned to employees, which was posted to a special

equity reserve, totalled € 2,213 thousand at December 31 2006.

Consolidated Financial Statements

73


11.b. RESERVES

The evolution and breakdown of the item “Reserves” is given below:

(in thousands of euro) Additional Legal Fair value Translation Stock option Other Total

paid-in reserve reserve reserve reserve reserves reserves

capital

Balance at January 1 2005 7,699 115,969 89,761 (1,389) 1,915 160,573 374,528

Capital increases 2,273 -- -- -- -- -- 2,273

Shareholder resolution to buy back own shares (3,553) -- -- -- -- 15,412 11,859

Fair value recognition of hedging instruments -- -- 1,424 -- -- -- 1,424

Fair value recognition of securities -- -- 47,373 -- -- -- 47,373

Fair value reserve recognized to income statement -- -- (7,608) -- -- -- (7,608)

Buy-back of own shares -- -- -- -- -- (35,879) (35,879)

Recognition of notional cost of stock options -- -- -- -- 5,737 -- 5,737

Effects of equity changes in subsidiaries -- -- -- -- -- (7,087) (7,087)

Currency translation adjustments -- -- -- 9,174 -- -- 9,174

Balance at December 31 2005 6,419 115,969 130,950 7,785 7,652 133,019 401,794

Capital increases 1,076 -- -- -- -- -- 1,076

Cancellation of AGM resolution of April 27 2005 to buy

back own shares 16,422 -- -- -- -- (71,238) (54,816)

Fair value recognition of hedging instruments -- -- 478 -- -- -- 478

Fair value recognition of securities -- -- 33,075 -- -- -- 33,075

Fair value reserve recognized to income statement -- -- (16,893) -- -- -- (16,893)

Buy-back of own shares -- -- -- -- -- (5,664) (5,664)

Recognition of notional cost of stock options -- -- -- -- 2,213 -- 2,213

Effects of equity changes in subsidiaries -- -- -- -- -- 20,751 20,751

Currency translation adjustments -- -- -- (14,235) -- -- (14,235)

Balance at December 31 2006 23,917 115,969 147,610 (6,450) 9,865 76,868 367,779

The “Additional paid-in capital” reserve totalled € 23,917 thousand at December 31 2006 compared

to € 6,419 thousand at December 31 2005. The change is due to the subscription of stock

option plans for € 1,076 thousand and for € 16,422 thousand is due to the resolution adopted on

April 27 2006 by the Ordinary Shareholders’ Meeting which cancelled the previous resolution of

April 27 2005 to buy back own shares, giving a new authorization for eighteen months from the

aforesaid date to buy back a maximum of 25,000,000 shares at a minimum price per share of

€ 0.50 and a maximum of € 4.00.

The “Fair value reserve” totalled € 147,610 thousand at December 31 2006 and referred for

€ 20,352 thousand to the valuation of “Securities” in item 9.g., for € 127,115 thousand to the

valuation of “Available-for-sale financial assets” in item 10.f. and for € 143 thousand to the

valuation of hedging instruments.

74

Consolidated Financial Statements


The “Translation reserve” totalled € 6,450 thousand at December 31 2006 and consisted of the

following breakdown:

(in thousands of euro)

(in thousands of euro) 31.12.2005 Increases Decreases 31.12.2006

Sogefi group 5,952 -- (976) 4,976

CIR Ventures 1,032 -- (3,246) (2,214)

Medinvest 36,435 -- (33,658) 2,777

Medinvest hedging effect (35,726) 23,645 -- (12,081)

Others 92 -- -- 92

Total 7,785 23,645 (37,880) (6,450)

The item “Other reserves” at December 31 2006 comprised the following:

(in thousands of euro)

Reserve for capital increases 3

Extraordinary reserve 21

Consolidation reserve 76,844

Total 76,868

The movement of treasury stock during the period was as follows:

(in thousands of euro) Number of shares Value

Balance at December 31 2005 27,216,642 61,320

Increases 6,877,358 15,564

Balance at December 31 2006 34,094,000 76,884

11.c. RETAINED EARNING (LOSSES)

The changes in Retained earnings (losses) are shown in the “Chart showing changes in Shareholders’

equity”.

Consolidated Financial Statements

75


12. NON-CURRENT LIABILITIES

12.a. BONDS

The detail of the item “Bonds”, net of intercompany elimination, is as follows:

(in thousands of euro)

Effective rate 31.12.2006 Fair value

at 31.12.2006

31.12.2005 Fair value

at 31.12.2005

CIR S.p.A. Bond issue 5.75% 2004/2024 5.90% 266,382 252,445 266,225 262,502

CIR International S.A. Bond issue 6.375% 2003/2011 6.03% 198,677 194,620 199,162 203,870

CIR International S.A. Bond issue 5.25% 1999/2009 5.41% 414,192 414,192 424,769 424,769

Gruppo Editoriale L’Espresso S.p.A. Bond issue

5.125% 2004/2014 4.82% 308,499 295,452 309,095 315,558

Total 1,187,750 1,156,709 1,199,251 1,206,699

In application of IAS 32 and 39, at January 1 2005 the original values of bonds issued were written

down to account for expenses incurred and bond issuance discounts. Liabilities relating to fixed/floating

interest rate swaps entered into for hedging purposes were also recognized for an

amount of € 5.3 million.

At December 31 2006 CIR International was holding a nominal € 30,000 thousand (unchanged

from December 31 2005) of the CIR 5.75% Bond issue 2004/2024.

12.b. OTHER BORROWINGS

(in thousands of euro) 31.12.2006 31.12.2005

Loans from banks secured by collateral 170,304 134,812

Other loans from banks 558,140 496,319

Leasing 16,305 19,799

Other borrowings 13,765 3,855

Total 758,514 654,785

The item “Other loans from banks” consists mainly of the following items:

- € 59,000 thousand granted in 2003 to Energia Italiana by Banca Monte dei Paschi di Siena for

the acquisition of Tirreno Power, with a maturity of January 2010 and a floating rate of Euribor

plus 150 basis points;

- € 24,500 thousand made during 2004 to Sorgenia, with a maturity of June 2009 - a syndicated

loan organized by Banca Popolare di Vicenza with a floating rate of Euribor plus 140 basis

points;

- € 30,000 thousand made on December 23 2005 to Sorgenia by Centrobanca with a maturity of

December 2009 at a floating rate;

- € 254,776 thousand, € 141,673 thousand of which were paid out during the year to Energia Molise

by Banca Monte dei Paschi di Siena in relation to the construction of the Termoli thermoelectric

power plant, maturing 2014 with a floating rate, and a non-recourse basis;

- € 10,000 thousand, which refers to the share of a loan made to Sorgenia by Banca Monte dei

Paschi di Siena at a floating rate and a maturity of 2011;

- € 50,000 thousand, made to Sorgenia by Intesa BCI at a floating rate with a maturity of 2011;

76

Consolidated Financial Statements


- € 40,000 thousand, made during 2003 to Sogefi, as partial drawdown of a syndicated loan facility

of € 100,000 thousand, with a maturity of December 2008 and a floating rate of Euribor plus

60 basis points;

- € 29,900 thousand, as partial drawdown of a loan agreement of € 50,000 thousand, entered into

by Sogefi S.p.A. during the year with a maturity of September 2011 and a floating rate of Euribor

plus 22.5 basis points;

- € 29,800 thousand, as partial drawdown of a loan agreement of € 100,000 thousand, entered into

by Sogefi S.p.A. during the year with a maturity of September 2011 and a floating rate of Euribor

plus 22.5 basis points.

12.c. PERSONNEL OBLIGATIONS

The detail of this item is the following:

(in thousands of euro) 31.12.2006 31.12.2005

Employee severance and leaving indemnity fund (TFR) 126,794 120,431

Retirement fund and similar obligations 39,805 43,240

Total 166,554 163,671

(in thousands of euro) 31.12.2006 31.12.2005

Starting balance 163,671 157,759

Provisions made for work done during the period 18,924 16,522

Increases for interest 5,416 5,804

Actuarial income or expense (781) 1,763

Benefits paid out (25,734) (17,153)

Increases or decreases due to changes in consolidation area 5,018 (1,809)

Other changes 40 785

Closing balance 166,554 163,671

In compliance with IAS 19, personnel funds were valued using special actuarial methods based

on demographic, economic and financial factors.

The application of the corridor method generated an actuarial cost not recognized to the Income

Statement of € 5,008 thousand.

The data used for calculating the TFR fund, Pensions funds and the Defined Benefit Plan included

in the item “Retirement funds and similar obligations” are summarized in the following

chart:

TFR and Defined Benefit Provisions

Annual discount rate for calculating present value 4.0% - 4.25%

Annual inflation rate 2%

Annual rate of pay increases 2% - 3%

Annual rate of TFR increase 3%

Annual payout probability rate 4%

Voluntary resignation rate

2% - 5% of staff

Consolidated Financial Statements

77


Pension Funds

Annual discount rate for calculating present value 4.8%

Annual inflation rate 2.8%

Annual rate of pay increases 3.25% - 4%

Return on assets servicing the plan 3.25% - 6%

Retirement age 63

STOCK OPTION PLANS OUTSTANDING AT DECEMBER 31 2006

The following chart shows the stock option plans of the Parent Company CIR S.p.A..

Options in circulation

at the beginning of the year

Options awarded

during the year

Options exercised

during the year

Options in circulation

at the end of the year

Options exercisable

at the end of the year

No. of

options

Weighted

average

strike price

No. of

options

Weighted

average

strike price

No. of

options

Weighted

average

strike price

No. of

options

Weighted

average

strike price

Average

duration

(years)

No. of

options

Weighted

average

strike price

Stock Option Plan March 7 2000 3,110,000 3.70 -- -- -- -- 3,110,000 3.70 3.75 3,110,000 3.70

Stock Option Plan September 13 2000 70,000 4.06 -- -- -- -- 70,000 4.06 4.25 70,000 4.06

Stock Option Plan January 30 2001 1,743,000 2.62 -- -- -- -- 1,743,000 2.62 4.75 1,743,000 2.62

Stock Option Plan September 7 2001 2,359,600 1.28 -- -- 100,800 1.28 2,258,800 1.28 5.00 2,258,800 1.28

Stock Option Plan March 14 2002 578,600 1.20 -- -- 70,300 1.20 508,300 1.20 5.75 508,300 1.20

Stock Option Plan September 13 2002 769,400 1.02 -- -- 82,300 1.02 687,100 1.02 6.17 687,100 1.02

Stock Option Plan March 7 2003 1,141,800 0.84 -- -- 436,500 0.84 705,300 0.84 6.75 468,550 0.84

Stock Option Plan September 5 2003 1,353,800 1.13 -- -- 99,000 1.13 1,254,800 1.13 7.17 747,700 1.13

Stock Option Plan March 12 2004 2,031,900 1.60 -- -- 91,500 1.60 1,940,400 1.60 7.75 1,075,100 1.60

Stock Option Plan June 8 2004 3,500,000 1.60 -- -- -- -- 3,500,000 1.60 2.46 3,500,000 1.60

Stock Option Plan September 6 2004 2,212,100 1.56 -- -- 96,600 1.56 2,115,500 1.56 8.17 921,800 1.56

Stock Option Plan March 11 2005 4,407,800 2.34 -- -- 175,400 2.34 4,232,400 2.34 8.75 1,663,000 2.34

Stock Option Plan September 6 2005 2,790,000 2.49 -- -- 85,000 2.49 2,705,000 2.49 9.17 752,000 2.49

Stock Option Plan 2006 1 st tranche 2,765,000 2.50 -- -- 2,765,000 2.50 10.01 331,800 2.50

Stock Option Plan 2006 2 nd tranche 2,765,000 2.47 -- -- 2,765,000 2.47 10.50 -- --

Total 26,068,000 2.03 5,530,000 2.49 1,237,400 1.37 30,360,600 2.14 6.98 17,837,150 2.08

TREASURY STOCK HELD

Stock Option Plan January 11 2005 11,550,000 2.15 -- -- 200,000 2.15 11,350,000 2.15 3.33 11,350,000 2.15

Total 11,550,000 2.15 -- -- 200,000 2.15 11,350,000 2.15 3.33 11,350,000 2.15

Grand total 37,618,000 2.07 5,530,000 2.49 1,437,400 1.48 41,710,600 2.14 5.99 29,187,150 2.11

78

Consolidated Financial Statements


12.d. PROVISIONS FOR RISKS AND LOSSES

The breakdown and changes in the non-current part of these provisions is as follows:

(in thousands of euro)

Provision for

disputes in progress

Provision for

restructuring charges

Provisions for

miscellaneous risks

Balance at December 31 2005 19,925 15,597 6,943 42,465

Sums set aside during the period 2,938 5,488 2,680 11,106

Withdrawals (1,696) (14,941) (1,520) (18,157)

Exchange rate differences (140) 14 (11) (137)

Other changes (3,952) (253) 5,609 1,404

Balance at December 31 2006 17,075 5,905 13,701 36,681

Total

The breakdown and changes in the current part of these provisions is as follows:

(in thousands of euro)

Provision for

disputes in progress

Provision for

restructuring charges

Provisions for

miscellaneous risks

Balance at December 31 2005 5,326 2,829 35,451 43,606

Sums set aside during the period 1,961 2,301 11,671 15,933

Withdrawals (3,341) (1,327) (6,957) (11,625)

Other changes 2,867 253 (3,571) (451)

Balance at December 31 2006 6,813 4,056 36,594 47,463

Total

Apart from the libel disputes regarding the Espresso group, which are typical of all publishing

businesses, the Provision for disputes in progress includes risks for disputes of a commercial nature

and labour disputes.

The Provision for restructuring charges includes sums set aside for restructuring action that has

been announced to the parties concerned and in particular refers to the production reorganization

programs of the Sogefi group.

The Provisions for miscellaneous risks is mainly to cover tax disputes outstanding with local tax

authorities.

13. CURRENT LIABILITIES

13.a. OTHER BORROWINGS

(in thousands of euro) 31.12.2006 31.12.2005

Loans from banks secured by collateral 43,339 12,023

Other loans from banks 30,211 109,811

Leasing 2,602 2,910

Other borrowings 57,752 50,887

Loans from subsidiaries 230 250

Total 134,134 175,881

Consolidated Financial Statements

79


The item “Other loans from banks” at December 31 2005 included a loan of € 80,000 thousand

made in 2001 to Sogefi and repaid in December 2006.

13.b. TRADE PAYABLES

(in thousands of euro) 31.12.2006 31.12.2005

Payables - subsidiaries 16,928 16,560

Payables - affiliated companies 639 694

Payables - suppliers 730,658 629,809

Advance payments 627 2,052

Payables in the form of notes 49 651

Total 748,901 649,766

The item “Payables - subsidiaries” refers mainly to the trade payable due by Sorgenia S.p.A. to

Tirreno Power S.p.A..

Trade payables are settled on average between 60 and 90 days and are not subject to interest.

13.c. OTHER PAYABLES

(in thousands of euro) 31.12.2006 31.12.2005

Due to employees 65,913 58,617

Tax payables 111,267 60,555

Social security payables 34,385 32,635

Other payables 62,397 61,961

Total 273,962 213,768

80

Consolidated Financial Statements


INCOME STATEMENT: NOTES

14. REVENUES

BREAKDOWN BY BUSINESS SECTOR

(in millions of euro) 2006 2005 Change

amount % amount % %

Utilities 1,916.1 46.3 1,225.2 36.2 56.4

Media 1,102.6 26.7 1,079.9 31.9 2.1

Automotive components 1,018.6 24.6 1,023.4 30.3 (0.5)

Healthcare 99.2 2.4 53.8 1.6 84.4

Others 0.3 -- 0.4 -- n.s.

Total consolidated revenues 4,136.8 100.0 3,382.7 100.0 22.3

BREAKDOWN BY GEOGRAPHICAL AREA

(in millions of euro)

2006 Total Italy Other European North South Asia Other

revenues countries America America Countries

Utilities 1,916.1 1,913.3 2.8 -- -- -- --

Media 1,102.6 1,102.6 -- -- -- -- --

Automotive components 1,018.6 98.5 757.5 25.1 123.4 9.6 4.5

Healthcare 99.2 99.2 -- -- -- -- --

Others 0.3 0.3 -- -- -- -- --

Total consolidated revenues 4,136.8 3,213.9 760.3 25.1 123.4 9.6 4.5

Percentage 100.0% 77.7% 18.4% 0.6% 3.0% 0.2% 0.1%

(in millions of euro)

2005 Total Italy Other European North South Asia Other

revenues countries America America Countries

Utilities 1,225.2 1,225.2 -- -- -- -- --

Media 1,079.9 1,079.9 -- -- -- -- --

Automotive components 1,023.4 111.9 756.2 29.9 112.2 9.7 3.5

Healthcare 53.8 53.8 -- -- -- -- --

Others 0.4 0.4 -- -- -- -- --

Total consolidated revenues 3,382.7 2,471.2 756.2 29.9 112.2 9.7 3.5

Percentage 100.0% 73.1% 22.3% 0.9% 3.3% 0.3% 0.1%

The types of products marketed by the Group and the nature of the business sectors in which it

operates mean that revenues flows are reasonably linear throughout the year and are not subject to

any particular cyclical phenomena provided that the basis of consolidation remains unchanged.

Consolidated Financial Statements

81


15. OPERATING COSTS AND REVENUES

15.a. COSTS FOR THE PURCHASE OF GOODS

This item rose from € 1,818,934 thousand in 2005 to € 2,457,185 thousand in 2006.

The increase recorded (+35.1%) is mainly attributable on the one hand to the Sorgenia group, being

closely connected to the rate of revenue growth in the utilities sector (+56.4%), and on the

other hand to the Sogefi group as a result of the rise in the cost of steel and in production volumes.

15.b. COSTS FOR SERVICES

This item rose from € 674,847 thousand in 2005 to € 711,792 thousand in 2006, as can be seen

from the following breakdown:

(in thousands of euro) 2006 2005

Technical and professional consulting 95,407 83,977

Distribution and transportation costs 45,727 47,508

Outsourcing 110,514 127,524

Other expenses 460,144 415,838

Total 711,792 674,847

The rise in costs for services (+5.5%) was however in part due to the increased turnover of the

Group which in turn led to a greater need for external services.

15.C. PERSONNEL EXPENSES

Personnel expenses totalled € 575,342 thousand in 2006 (€ 545,777 thousand in 2005).

The Group had an average of 10,654 employees in 2006.

(in thousands of euro) 2006 2005

Salaries and wages 396,869 375,378

Social security contributions 121,902 117,329

Severance and leaving indemnity 14,099 14,800

Retirement and similar benefits 4,007 5,238

Valuation of stock option plans 9,726 11,000

Other costs 28,739 22,032

Total 575,342 545,777

82

Consolidated Financial Statements


15.d. OTHER OPERATING REVENUES

This item can be broken down as follows:

(in thousands of euro) 2006 2005

State grants and contributions 6,608 21,916

Capital gains on disposals 5,008 1,201

Non-recurring gains and other income 68,647 69,326

Total 80,263 92,443

The item “Non-recurring gains and other income” was positively affected by the penalties billed

by the Sorgenia group to the EPC Contractor as “liquidated damage cost”.

15.e. OTHER OPERATING COSTS

This item can be broken down as follows:

(in thousands of euro) 2006 2005

Write-downs and losses on receivables 12,070 10,289

Provisions made for risks and losses 9,430 13,018

Indirect taxes 17,589 15,727

Taxes relating to prior periods 24 16,371

Restructuring charges 5,234 12,513

Capital losses on disposal of assets 209 1,172

Non-recurring losses and other charges 22,095 13,358

Total 66,651 82,448

The balance of the item “Taxes relating to prior periods” for 2005 included € 16,059 thousand of

taxes for the year 1989, relating to charges and tax credits concerning voting rights on shares.

These tax liabilities were the result of an unfavourable ruling by the Tax Commission against

which an appeal has been lodged.

The item “Restructuring charges” went down by € 7,279 thousand from the previous year because

less restructuring was carried out than in the previous year mainly in the Sogefi group.

Consolidated Financial Statements

83


16. FINANCIAL INCOME AND EXPENSES

16.a. FINANCIAL INCOME

The item “Other income” includes the following:

(in thousands of euro) 2006 2005

Interest income on bank accounts 15,048 18,813

Interest on securities 20,924 14,446

Other interest income 14,968 14,404

Interest rate derivatives 4,801 16,728

Gains from exchange rate differences 3,721 12,867

Other financial income 7,714 6,254

Total 67,176 83,512

16.b. FINANCIAL EXPENSES

This item includes the following:

(in thousands of euro) 2006 2005

Interest expense on bank accounts 27,759 14,608

Interest expense on bonds 63,455 75,169

Other interest expense 21,638 19,533

Interest rate derivatives 944 1,187

Losses from exchange rate differences 8,352 6,498

Other financial expenses 7,615 14,662

Total 129,763 131,657

The item “Interest rate derivatives” for the sum of € 944 thousands includes € 101 thousand which

refers to the net fair value estimation of hedging transactions.

16.c GAINS FROM TRADING SECURITIES

The breakdown of “Gains from trading securities” is the following:

(in thousands of euro) 2006 2005

Shares and options - subsidiaries 1,069 5,646

Shares and options - other companies 44,536 50,621

Other securities and other gains 50,934 38,827

Total 96,539 93,094

84

Consolidated Financial Statements


16.d. LOSSES FROM TRADING SECURITIES

The breakdown of “Losses from trading securities” is the following:

(in thousands of euro) 2006 2005

Shares and options - subsidiaries 2,384 4,175

Shares and options - other companies 40,061 49,957

Other securities and other losses 11,585 11,395

Total 54,030 65,527

17. INCOME TAXES

Income taxes can be broken down as follows:

(in thousands of euro) 2006 2005

Current taxes 104,447 77,483

Deferred taxes (14,969) (12,730)

Total 89,478 64,753

The following chart shows the reconciliation of the ordinary tax rate and the effective tax rate for

financial year 2006:

(in thousands of euro) 2006

Pre-tax income resulting from financial statements 303,918

Theoretical income taxes 100,294

Tax effect of non-deductible costs 13,508

Tax effect of losses of prior periods that generate deferred tax assets in the period (39,491)

Tax effect of losses of prior periods that did not generate deferred tax assets 2,763

Tax effect on interest rate differentials of foreign companies (6,065)

Non-taxable grants (998)

Other (8,629)

Income taxes 61,382

Average effective tax rate 20.20%

Theoretical tax rate 33.00%

IRAP and other taxes 28,096

Total taxes from financial statements 89,478

18. EARNINGS PER SHARE

The basic earnings per share is calculated by dividing the net income for the period attributable to

ordinary Shareholders by the weighted average number of shares in circulation. The diluted earnings

per share is calculated by dividing the net income for the period attributable to ordinary

Consolidated Financial Statements

85


Shareholders by the weighted average number of ordinary shares in circulation during the period,

adjusted for the capital dilution effects of any options outstanding. The calculation of the shares in

circulation does not include own shares held as treasury stock.

The company has only one category of potential ordinary shares, which are those shares resulting

from the stock options assigned to employees.

To determine the average number of options, the average fair value of the shares for the period

under examination (financial year 2006) was used. The average fair value of CIR ordinary shares

in 2006 was € 2.391 compared to an average fair value of € 2.311 in 2005.

The following chart shows the information on the shares used to calculate the basic and diluted

earnings per share.

2006 2005

Net income attributable to the Shareholders (in thousands of euro) 101,120 87,675

Weighted average number of ordinary shares in circulation 748,300,414 758,420,760

Earnings per share (euro) 0.1351 0.1156

2006 2005

Net income attributable to the Shareholders (in thousands of euro) 101,120 87,675

Weighted average number of ordinary shares in circulation 748,300,414 758,420,760

Weighted average number of options 38,608,367 35,125,550

Fair value of weighted average number of options 4,575,961 4,891,852

Adjusted weighted average number of shares circulation 752,876,375 763,312,612

Diluted earnings per share (euro) 0.1343 0.1149

OTHER INFORMATION

19. GUARANTEES AND COMMITMENTS

At December 31 2006 the guarantee and commitment position was as follows:

CIR S.p.A.

- Guarantees issued in favour of the ENI group following the agreements for the supply of Norwegian

and Libyan gas starting from October 2001. Supply contracts generally include take or

pay clauses with purchase price revision based on the trend of certain oil products. These

clauses are substantially in line with normal market conditions;

- Guarantees in favour of Inland Revenue for VAT credits totalling € 6,781 thousand;

- Government securities pledged as collateral for financial option transactions for a total of

€ 19,500 thousand;

- Commitments for investment in private equity funds made by CIR International for € 20,000

thousand.

86

Consolidated Financial Statements


Sorgenia Group

Guarantees issued

As collateral for loans obtained by the companies Energia Molise S.p.A. and Energia Modugno

S.p.A. (a loan currently being finalized), the shares of the two companies have been pledged in

favour of the lenders for € 78,000 thousand (equal to 100% of the capital) and € 24,458 thousand

(equal to 90% of the capital) respectively.

Guarantees

These refer to guarantees issued by banks in favour of suppliers of electricity and gas to protect

supply contracts.

Commitments

Sorgenia S.p.A. has also issued a guarantee in favour of the banks lending to Energia Molise

S.p.A., following the administrative appeals pending with the Molise Administrative Court

(TAR). This commitment for the amount of € 305,986,273 corresponds to the principal amount of

the loan obtained by Energia Molise S.p.A. at December 31 2006.

Espresso group

Guarantees issued totalled € 8,507 thousand and referred to guarantees made by the parent company

of the Group and the subsidiaries Elemedia, Editoriale La Nuova Sardegna and A. Manzoni

& C. for the lease of their respective premises and by the subsidiary Ksolutions in favour of Public

Administration clients with whom they have service contracts.

Commitments outstanding, for a total of € 3,351 thousand, referred to:

- contracts for the purchase of plant and equipment (€ 2,213 thousand) mainly for Repubblica

and Editoriale La Nuova Sardegna as part of the full-colour project;

- risks linked to a ruling in the court case in which Editoriale FVG is involved (€ 1,138 thousand).

Sogefi group

Operating Leases

For accounting purposes, leasing and hire contracts are classified as operating leases when the following

conditions apply:

- a significant part of the risks and benefits of ownership are maintained by the lessor;

- there are no options giving the right to buy the leased property at a price that does not represent

the presumed market value of the same at the close of the period ;

- the duration of the contract does not extend over most of the useful life of the property rented

or hired.

The rental payments for operating leases are recognized to the income statement in line with the

underlying contracts.

The main operating lease recorded refers to a contract signed by the American subsidiary Allevard

Spring U.S.A. Inc. for the lease of the production site situated in Prichard (West Virginia). The

contract terminates on October 27 2018 and the remaining instalments total USD 4,792 thousand,

of which USD 386 thousand by the end of the year.

Consolidated Financial Statements

87


Against this contract Sogefi S.p.A. has issued a guarantee for approximately 50% of the remaining

lease instalments which is renewed at the end of each year on the basis of the remaining

amount. There are no restrictions of any kind connected with this kind of leasing and at the end of

the contract the US company will have the right to buy the property at a market price.

Future lease payments in relation to the operating lease contracts of the Sogefi group at December

31 2006 are as follows:

(in thousands of euro) 2006 2005

Up to 1 year 4,265 3,831

Over 1 year but up to 5 11,594 8,589

Over 5 years 3,148 3,487

Total 19,007 15,907

Commitments for investments

At December 31 2006 there were commitments for investments for a total of € 1,014 thousand.

Guarantees issued

The detail of these guarantees is as follows:

(in thousands of euro) 2006 2005

Guarantees in favour of third parties 3,008 2,601

Other guarantees in favour of third parties 9,714 9,714

Collateral security provided for debt shown on the balance sheet 5,681 5,905

Guarantees issued refer to borrowings and are recognized at the value of the commitment outstanding

as of the date of these accounts.

The item Other guarantees in favour of third parties refers to the commitment of LPDN GmbH

towards the employee pension fund of the two business divisions at the time of the acquisition

made in 1996. This commitment is covered by contractual obligations on the part of the vendor, a

prime German economic operator.

Collateral security refers to bonds or privileges granted to lenders against loans obtained for the

purchase of assets.

Other risks

At December 31 2006 the Sogefi group had assets belonging to third parties on the premises of its

companies for € 4,700 thousand.

20. JOINT VENTURES

The only company of the Group consisting of a joint venture is Tirreno Power. International accounting

standards give two methods for consolidating holdings in joint ventures:

. the reference method, which involves consolidation pro-rata;

. the alternative method allowed, which is the equity method.

The Group has adopted valuation according to the equity method for the sake of consistency with

the way the accounts have been presented until now.

88

Consolidated Financial Statements


The chart below shows the key financial figures according to Italian accounting principles for the

company Tirreno Power:

(in millions of euro) Financial year Financial year Change in Change

2006 2005 absolute terms %

Income Statement

Electricity sold (TWh) 12.4 11.7 0.7 6.0

Revenues from sales and services 988.4 772.7 215.7 27.9

Gross operating margin (EBIT) 229.0 164.9 64.1 38.9

Net income 57.4 15.4 42.0 272.7

31.12.2006 31.12.2005 Change in

absolute terms

Balance Sheet

Net capital invested 1,260.9 1,286.4 25.5

Net financial debt 978.2 981.2 (3.0)

Shareholders’ equity 282.7 305.2 (22.5)

No. of employees 626 651 25.0

The pertinent part of the earnings of Tirreno Power, consolidated using the equity method on the

basis of values determined by the application of IAS/IFRS accounting standards, totalled € 33

million in 2006, up from € 19.8 million in 2005.

In accordance with the terms of the revised IAS 38, the goodwill of Tirreno Power was subjected

to an impairment test at December 31 2006.

21. BUSINESS COMBINATIONS

Regarding business combinations, it should be remembered that on June 7 2006 the HSS group

acquired the Anni Azzurri group.

The following chart shows the balance sheet of the Anni Azzurri group at June 30 2006:

(in thousands of euro)

Asset items

Equity and liability items

Intangible assets 103,750 TFR Fund 5,014

Tangible assets 882 Payables 148,389

Financial assets 117,308 Total payables 153,403

Total fixed assets 221,940 Shareholders’ equity 91,370

Current assets 22,833

Total assets 244,773 Total equity and liabilities 244,773

The excess amount paid for acquiring the identifiable assets and liabilities as well as any potential

liabilities as of the date of the acquisition represents goodwill which in the case of the Anni

Azzurri group was recognized to the extent of € 50,615 thousand.

Consolidated Financial Statements

89


During July 2006 the HSS group also acquired the companies Meia S.r.l. and Medipass S.p.A..

The financial highlights at December 31 2006 of these companies are shown in the following

chart:

(in thousands of euro) Medipass S.p.A. Meia S.r.l.

Fixed assets 14,923 3,484

Working capital 4,063 (588)

Net financial debt (16,443) (566)

Non-current liabilities (1,311) (701)

Shareholders’ equity 1,232 1,629

From the acquisition of the above companies goodwill was recognized for € 2,840 thousand and €

5,050 thousand respectively, which adequately represents the capacity of the companies to generate

future income and which were subjected to an impairment test at the end of the year.

22. NET FINANCIAL POSITION

The net financial position can be broken down as follows:

(in thousands of euro) 31.12.2006 31.12.2005

A. Cash and bank deposits 446,484 762,289

B. Other free cash flow 372,867 362,930

C. Securities held for trading 654,248 467,959

D. Cash and cash equivalents (A) + (B) + (C) 1,473,599 1,593,178

E. Current financial receivables 21,354 26,513

F. Current bank borrowings (*) (338,730) (176,796)

G. Current part of non-current debt (60,353) (53,797)

H. Other current borrowings (231) (250)

I. Current financial debt (F) + (G) + (H) (399,314) (230,843)

J. Net current financial position (I) + (E) + (D) 1,095,639 1,388,848

K. Non-current bank borrowings (**) (728,444) (631,131)

L. Bonds issued (1,187,750) (1,199,251)

M. Other non-current borrowings (**) (30,070) (23,654)

N. Non-current financial debt (K) + (L) + (M) (1,946,264) (1,854,036)

O. Net financial position (J) + (N) (850,625) (465,188)

(*) The amount of € 73,350 thousand (€ 338,730 - € 265,180) is included in the Balance Sheet under the item “Other borrowings”..

(**) Classified under the item “Other borrowings” – Non-current liabilities

23. LEGAL DISPUTES

Some companies of the Group have legal proceedings outstanding against which their respective

Boards have set aside risk provisions for amounts considered to be appropriate, taking into account

the opinion of their consultants, based on the degree of likelihood that significant liabilities

will actually occur.

90

Consolidated Financial Statements


24. CHART SHOWING THE KEY FIGURES OF THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

COFIDE S.p.A.

(Art. 2497-bis paragraph 4 Civil Code)

BALANCE SHEET

(in euro)

ASSETS 31.12.2005

NON-CURRENT ASSETS 571,317,323

CURRENT ASSETS 116,11,365

TOTAL ASSETS 687,28,688

LIABILITIES AND SHAREHOLDERS’ EQUITY 31.12.2005

SHAREHOLDERS’ EQUITY 569,283,982

NON-CURRENT LIABILITIES 10,096,075

CURRENT LIABILITIES 108,548,631

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 687,928,688

INCOME STATEMENT

(in euro)

2005

MISCELLANEOUS REVENUES AND INCOME 1,816,056

COSTS FOR PURCHASE OF GOODS (63,256)

COSTS FOR SERVICES (2,545,774)

PERSONNEL COSTS (1,185,374)

OTHER OPERATING COSTS (363,560)

AMORTIZATION, DEPRECIATION AND WRITE-DOWNS (45,925)

OPERATING RESULT (2,387,833)

FINANCIAL INCOME 1,834,854

FINANCIAL EXPENSES (4,029,905)

DIVIDENDS 20,315,131

GAINS FROM TRADING SECURITIES 31,800

LOSSES FROM TRADING SECURITIES (296,860)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS (59,352)

INCOME / (LOSS) BEFORE TAXES 15,407,835

INCOME TAXES 15,817

NET INCOME (LOSS) FOR THE YEAR 15,423,652

The financial highlights of the parent company COFIDE S.p.A. are shown in the chart above,

which is required by article 2497-bis of the Civil Code, and are extrapolated from the financial

statements of that company for the year ended December 31 2005. For a correct and full understanding

of the equity and financial situation of COFIDE S.p.A. at December 31 2005, and of the

results the company obtained in the year ended as of that date, we would refer readers to the financial

statements in question which of course include the Report of the Statutory Auditors and

that of the Independent Auditors and are available at the Company offices or with Borsa Italiana.

Consolidated Financial Statements

91


CIR GROUP

Consolidated Financial Statements of directly controlled subsidiaries

as of December 31 2006

SORGENIA GROUP

ESPRESSO GROUP

SOGEFI GROUP

HSS GROUP

93


SORGENIA GROUP

CONSOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS 31.12.2006 31.12.2005

NON-CURRENT ASSETS

Intangible assets 13,011 8,554

Tangible assets 507,524 365,042

Investments in companies valued at equity 187,055 193,745

Other equity investments 2,899 2,284

Other non-current receivables 219,710 246,063

Advance taxes 11,004 6,051

TOTAL NON-CURRENT ASSETS 941,203 821,739

CURRENT ASSETS

Inventories 65,956 18,995

Trade current receivables 444,818 275,891

Other current receivables 117,142 46,844

Cash and cash equivalents 59,756 17,968

Shareholder receivables for capital to be called up 420 495

TOTAL CURRENT ASSETS 688,092 360,193

TOTAL ASSETS 1,629,295 1,181,932

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

SHAREHOLDERS'EQUITY

Share capital 8,077 8,009

Other accrued reserves 371,613 358,002

Payments on account dividends minority shareholders (8,513) --

Net income (loss) for the year 69,217 36,802

Retained earnings (losses) - group 76,709 55,180

TOTAL SHAREHOLDERS'EQUITY 517,103 457,993

of which:

SHAREHOLDERS' EQUITY - GROUP 396,906 345,188

MINORITY INTERESTS 120,196 112,805

NON-CURRENT LIABILITIES

Deferred tax liabilities 1,337 739

Personnel provisions 1,730 1,535

Provisions for risks and losses 5,358 --

Non-current bank borrowings 428,276 412,703

TOTAL NON-CURRENT LIABILITIES 436,701 414,977

CURRENT LIABILITIES

Current bank borrowings 233,347 35,137

Other current borrowings 9 1,081

Current trade payables 379,110 256,528

Other current liabilities 52,927 12,703

Provisions for current risks and losses 10,098 3,513

TOTAL CURRENT LIABILITIES 675,491 308,962

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,629,295 1,181,932

94


SORGENIA GROUP

CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

2006 2005

SALES REVENUES 1,916,085 1,225,178

Change in inventories 46,812 11,817

Costs for purchase of goods (1,847,333) (1,211,854)

Costs for services (42,624) (15,116)

Personnel costs (18,715) (12,544)

Other operating income 49,249 49,468

Other operating costs (16,098) (11,509)

Adjustments to the value of investments valued at equity 33,018 19,762

Amortization, depreciation and write-downs (7,731) (2,883)

OPERATING INCOME (LOSS) 112,663 52,319

Financial income 12,509 12,034

Financial expenses (21,322) (14,283)

Dividends 24 25

INCOME (LOSS) BEFORE TAXES FROM

OPERATING ACTIVITY 103,874 50,095

Income taxes (34,657) (13,293)

INCOME (LOSS) AFTER TAXES FROM

OPERATING ACTIVITY 69,217 36,802

Income (Loss) from businesses sold -- --

NET INCOME (LOSS) FOR THE YEAR 69,217 36,802

of which:

- NET INCOME (LOSS) - MINORITY INTERESTS 56,264 29,061

- NET INCOME (LOSS) - THE GROUP 12,953 7,741

95


ESPRESSO GROUP

CONSOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS 31.12.2006 31.12.2005

Intangible assets with indefinite useful life 638,163 633,552

Other intangible assets 4,432 4,476

Intangible assets 642,595 638,028

Tangible assets 233,337 249,975

Investments valued at equity 27,007 23,925

Other equity investments 4,043 4,072

Non-current receivables 3,075 2,610

Deferred tax asset receivables 68,667 47,494

NON-CURRENT ASSETS 978,724 966,104

Inventories 35,631 32,186

Trade receivables 285,804 266,391

Securities 50 52

Financial receivables 37,205 59,921

Other receivables 25,437 22,631

Cash and cash equivalents 172,643 204,942

CURRENT ASSETS 556,770 586,123

TOTAL ASSETS 1,535,494 1,552,227

LIABILITIES 31.12.2006 31.12.2005

Share capital 65,150 65,072

Reserves 344,215 342,462

Retained earnings (losses) 49,828 26,138

Net income (loss) for the year 103,561 116,336

Total equity - Group 562,754 550,008

Minority interests 10,526 10,775

SHAREHOLDERS' EQUITY 573,280 560,783

Borrowings 413,898 432,606

Provisions for risks and losses 12,018 13,369

TFR and other personnel provisions 107,704 104,954

Deferred tax liability payables 110,818 102,556

NON-CURRENT LIABILITIES 644,438 653,485

Borrowings 21,517 25,015

Provisions for risks and losses 12,500 10,029

Trade payables 175,989 196,707

Taxes payable 22,769 16,145

Other payables 85,001 90,063

CURRENT LIABILITIES 317,776 337,959

TOTAL LIABILITIES 962,214 991,444

TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY 1,535,494 1,552,227

96


ESPRESSO GROUP

CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

2006 2005

Revenues 1,102,565 1,079,919

Change in product inventories (327) 2,094

Other operating income 17,284 34,454

Purchasing costs (171,407) (158,921)

Service costs (439,622) (433,297)

Other operating expenses (17,021) (19,463)

Valuation of investments at equity 1,407 1,344

Personnel costs (288,464) (283,890)

Amortization, depreciation and write-downs (41,165) (44,772)

Operating income (loss) 163,250 177,468

Net financial income (expenses) (19,601) (25,560)

Income before taxes 143,649 151,908

Taxes (39,750) (35,116)

NET INCOME 103,899 116,792

Net income - minority interests (338) (456)

Net income - the group 103,561 116,336

Basic earnings per share 0.243 0.271

Diluted earning per share 0.234 0.262

97


SOGEFI GROUP

CONSOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS 31.12.2006 31.12.2005

CURRENT ASSETS

Cash and cash equivalents 51,519 55,390

Securities and financial assets held for trading 160 2,116

Working capital

Inventories 111,709 107,793

Trade receivables 226,992 232,803

Other receivables 6,010 4,250

Tax receivables 10,952 13,824

Other assets 2,391 2,438

TOTAL WORKING CAPITAL 358,054 361,108

TOTAL CURRENT ASSETS 409,733 418,614

NON-CURRENT ASSETS

FIXED ASSETS

Land 15,623 15,972

Property, plant and machinery 229,176 239,249

Other tangible assets 4,450 4,684

Of which in leasing 18,259 19,605

Intangible assets 117,403 113,878

TOTAL FIXED ASSETS 366,652 373,783

OTHER NON-CURRENT ASSETS

Equity investments in affiliated companies 101 3,372

Other financial assets available for sale 450 443

Financial receivables 301 --

Other receivables 5,305 3,540

Advance taxes 26,819 26,779

TOTAL OTHER NON-CURRENT ASSETS 32,976 34,134

TOTAL NON-CURRENT ASSETS 399,628 407,917

NON-CURRENT ASSETS HELD FOR SALE 2,646 --

TOTAL ASSETS 812,007 826,531

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

CURRENT LIABILITIES

Current bank borrowings 13,278 26,353

Current portion of long-term borrowings and other loans 18,578 93,876

of which leasing 1,186 1,213

TOTAL SHORT-TERM FINANCIAL DEBT 31,856 120,229

Other short term borrowings for cash flow hedges -- 132

TOTAL SHORT-TERM FINANCIAL DEBT AND CASH FLOW HEDGES 31,856 120,361

Trade and other payables 234,514 224,050

Taxes payable 8,210 7,897

Other current liabilities 2,359 2,558

TOTAL CURRENT LIABILITIES 276,939 354,866

NON-CURRENT LIABILITIES

TOTAL MEDIUM/LONG-TERM DEBT AND CASH FLOW HEDGES

Bank borrowings 128,402 83,549

Other medium/long-term borrowings 18,000 20,755

of which leasing 15,306 17,199

TOTAL MEDIUM/ LONG-TERM DEBT 146,402 104,304

Other medium/long-term debt for cash flow hedges -- 139

TOTAL MEDIUM/LONG-TERM DEBT AND CASH FLOW HEDGES 146,402 104,443

OTHER LONG-TERM LIABILITIES

Long term provisions 68,465 83,969

Other payables -- 21

Deferred tax liabilities 24,478 21,946

TOTAL OTHER LONG-TERM LIABILITIES 92,943 105,936

TOTAL NON-CURRENT LIABILITIES 239,345 210,379

SHAREHOLDERS' EQUITY

Share capital 58,826 58,338

Reserves and retained earnings (losses) 170,013 143,930

Net Income (loss) for the year - group 50,767 44,660

TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO THE PARENT COMPANY 279,606 246,928

Minority interests 16,117 14,358

TOTAL SHAREHOLDERS' EQUITY 295,723 261,286

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 812,007 826,531

98


SOGEFI GROUP

CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

2006 2005

Sales revenues 1,018,579 1,023,421

Variable sales costs 653,215 657,636

CONTRIBUTION MARGIN 365,364 365,785

Manufacturing and R&D overheads 114,264 115,641

Amortization and depreciation 45,036 45,911

Distribution, marketing and sales fixed costs 37,719 39,362

Administrative costs and overheads 61,761 59,237

OPERATING INCOME 106,584 105,634

Restructuring costs 5,234 12,637

Capital losses (gains) on disposals (3,969) (75)

Exchange rate (gains) losses 843 (58)

Other non-operating costs (revenues) 21,010 12,150

- of which non-recurring 6,547 --

EBIT 83,466 80,980

Net financial expenses (income) 10,182 11,547

Losses (gains) from equity investments (1,594) 2,349

INCOME BEFORE TAXES AND MINORITY INTERESTS 74,878 67,084

Income taxes 21,543 21,179

NET INCOME BEFORE MINORITY INTERESTS 53,335 45,905

Loss (income) attributable to Minority Interests (2,568) (1,245)

NET INCOME OF THE GROUP 50,767 44,660

Earning per share (euro):

Basic 0.457 0.406

Diluted 0.454 0.404

99


HSS GROUP

CONSOLIDATED BALANCE SHEET *

(in thousands of euro)

ASSETS 31.12.2006 31.12.2005

NON-CURRENT ASSETS 175.576 31.541

INTANGIBLE ASSETS 74.589 19.707

TANGIBLE ASSETS 96.168 11.130

OTHER EQUITY INVESTMENTS 10 9

OTHER RECEIVABLES 1.332 240

SECURITIES 1.252 --

DEFERRED TAX ASSETS 2.225 455

CURRENT ASSETS 52.852 32.609

INVENTORIES 1.044 585

TRADE RECEIVABLES 39.252 13.495

OTHER RECEIVABLES 3.898 1.404

CASH AND CASH EQUIVALENTS 8.658 17.125

NON-CURRENT ASSETS HELD FOR SALE 44.943 --

TOTAL ASSETS 273.371 64.150

LIABILITIES AND SHAREHOLDERS'EQUITY 31.12.2006 31.12.2005

SHAREHOLDERS' EQUITY 64.060 27.774

SHARE CAPITAL 4.286 2.428

RESERVES 69.635 30.716

RETAINED EARNINGS (LOSSES) (10.435) (5.933)

TOTAL EQUITY - GROUP 63.486 27.211

MINORITY INTERESTS 574 563

NON-CURRENT LIABILITIES 83.271 11.802

OTHER BORROWINGS 74.825 10.304

OTHER PAYABLES 1.178 --

DEFERRED TAX LIABILITIES 917 676

PERSONNEL PROVISIONS 6.351 822

CURRENT LIABILITIES 89.698 24.574

BANK OVERDRAFT FACILITIES 9.776 694

BONDS -- --

OTHER BORROWINGS 34.763 1.942

TRADE PAYABLES 31.266 17.377

OTHER PAYABLES 12.571 4.287

PROVISIONS FOR RISKS AND LOSSES 1.322 274

LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS

HELD FOR DISPOSAL 36.342 --

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 273.371 64.150

* This consolidated balance sheet was prepared solely for the purpose of drawing up the CIR Consolidated Financial Statements, since the parent company HSS S.p.A.

is exempt from the obligation to prepare consolidated accounts according to Art. 27 of D.L. no. 127/91

100


HSS GROUP

CONSOLIDATED INCOME STATEMENT *

(in thousands of euro)

2006 2005

REVENUES FROM SALES AND SERVICES 99.189 53.798

CHANGE IN INVENTORIES 161 --

COSTS FOR PURCHASE OF GOODS (8.308) (4.884)

COSTS FOR SERVICES (57.071) (39.474)

PERSONNEL COSTS (23.162) (7.108)

OTHER OPERATING INCOME 1.752 1.915

OTHER OPERATING EXPENSE (6.111) (3.796)

ADJUSTMENTS TO THE VALUE OF INVESTMENTS

VALUED AT EQUITY -- --

AMORTIZATION DEPRECIATION AND WRITE-DOWNS (4.110) (1.143)

OPERATING RESULT - (EBIT) 2.340 (692)

FINANCIAL INCOME 372 263

FINANCIAL EXPENSES (3.656) (550)

DIVIDENDS -- --

GAINS FROM TRADING SECURITIES -- --

LOSSES FROM TRADING SECURITIES -- --

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- --

INCOME/(LOSS) BEFORE TAXES (944) (979)

INCOME TAXES (2.934) (397)

INCOME/(LOSS) FROM DISCONTINUED OPERATIONS

AND BUSINESSES HELD FOR DISPOSAL (933) --

NET INCOME/(LOSS) FOR THE PERIOD INCLUDING MINORITY INTERESTS (4.811) (1.376)

- NET INCOME/LOSS - MINORITY INTERESTS (379) (14)

- NET INCOME/LOSS - THE GROUP (4.432) (1.362)

* The consolidated income statement was prepared solely for the purpose of drawing up the CIR Consolidated Financial Statements since the parent company HSS S.p.A.

is exempt from the obligation to prepare consolidated accounts according to Art. 27 of D.L. no. 127/91

101


CIR S.p.A.

Statutory Financial Statements

as of December 31 2006

BALANCE SHEET

INCOME STATEMENT

CASH FLOW STATEMENT

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

CIR S.p.A.

103


1. BALANCE SHEET

(in euro)

ASSETS Notes 31.12.2006 31.12.2005

NON-CURRENT ASSETS 968,361,309 919,464,511

INTANGIBLE ASSETS (5.a) 80,583 55,667

TANGIBLE ASSETS (5.b) 4,575,792 11,911,546

REAL-ESTATE INVESTMENTS (5.c) 17,604,580 6,944,487

EQUITY INVESTMENTS (5.d) 944,482,717 898,728,609

MISCELLANEOUS RECEIVABLES (5.e) 188,832 211,859

DEFERRED TAX ASSETS (5.f) 1,428,805 1,612,343

CURRENT ASSETS 357,257,579 409,885,235

MISCELLANEOUS RECEIVABLES (6.a) 86,031,991 52,328,165

of which with related parties (6.a) 34,450,292 6,522,269

BONDS (6.b) 206,493,818 180,962,954

CASH AND CASH EQUIVALENTS (6.c) 64,731,770 176,594,116

TOTAL ASSETS 1,325,618,888 1,329,349,746

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

SHAREHOLDERS' EQUITY 940,738,402 953,217,713

SHARE CAPITAL (7.a) 390,239,534 389,620,834

RESERVES (7.b) 311,985,099 369,175,921

RETAINED EARNINGS (LOSSES) (7.c) 201,816,767 189,622,482

NET INCOME FOR THE YEAR 36,697,002 4,798,476

NON-CURRENT LIABILITIES 297,378,012 297,286,488

BONDS (8.a) 295,640,119 295,483,269

DEFERRED TAX LIABILITIES (5.f) 179,863 340,908

PERSONNEL OBLIGATIONS (8.b) 1,558,030 1,462,311

CURRENT LIABILITIES 87,502,474 78,845,545

BANK OVERDRAFT FACILITIES 1,903 --

BORROWINGS FROM RELATED PARTIES (9.a) 43,756,650 42,102,350

OTHER PAYABLES (9.b) 40,709,217 33,708,491

PROVISIONS FOR RISKS AND LOSSES (9.c) 3,034,704 3,034,704

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,325,618,888 1,329,349,746

104 CIR S.p.A.


2. INCOME STATEMENT

(in euro)

Notes

2006 2005

MISCELLANEOUS REVENUES AND INCOME (10) 6,276,030 7,149,870

of which from related parties (10) 5,560,164 5,296,000

COSTS FOR SERVICES (11) (9,719,835) (8,874,996)

of which with related parties (11) (1,955,000) (1,777,000)

PERSONNEL COSTS (12) (9,090,746) (10,567,262)

OTHER OPERATING COSTS (13) (1,771,695) (1,552,276)

AMORTIZATION, DEPRECIATION AND WRITE-DOWNS (547,683) (211,994)

OPERATING INCOME (LOSS) (14,853,929) (14,056,658)

FINANCIAL INCOME (14) 12,728,507 12,213,754

FINANCIAL EXPENSES (15) (20,958,308) (19,092,713)

of which with related parties 1,953,683 1,335,446

DIVIDENDS (16) 61,079,051 42,791,314

of which from related parties (16) 61,045,596 42,747,274

GAINS FROM TRADING SECURITIES (17) 1,520,047 688,750

LOSSES FROM TRADING SECURITIES (18) (4,913,463) (282,188)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS (19) (6,972,689) (6,710,323)

INCOME / (LOSS) BEFORE TAXES AND NON-RECURRING CHARGES 27,629,216 15,551,936

TAX EXPENSES FROM PRIOR PERIODS (20) -- (16,058,875)

INCOME / (LOSS) BEFORE TAXES 27,629,216 (506,939)

INCOME TAXES (21) 9,067,786 5,305,415

NET INCOME FOR THE YEAR 36,697,002 4,798,476

BASIC EARNINGS PER SHARES (in euro) 0.0490 0.0063

EARNINGS PER SHARE (in euro) 0.0487 0.0063

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105


3. CASH FLOW STATEMENT

(in euro)

2006 2005

OPERATING ACTIVITY

NEET INCOME FOR THE YEAR 36,697,002 4,798,476

ADJUSTMENTS:

AMORTIZATION, DEPRECIATION AND WRITE-DOWNS 547,683 211,994

LOSSES/(GAINS) FROM THE SALE OF EQUITY INVESTMENTS

AND CURRENT SECURITIES 4,135,940 4,179,031

ACTUARIAL VALUATION OF STOCK OPTION PLANS 2,212,607 5,736,787

PROVISIONS TO SEVERANCE AND LEAVING INDEMNITY FUND (TFR) 239,739 232,368

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 6,972,689 6,710,323

(INCREASE) REDUCTION IN NET WORKING CAPITAL (24,846,430) 7,908,220

of which with related parties (27,928,023) 10,291,090

OTHER NON-MONETARY CHANGES -- (9,328,415)

CASH FLOW FROM OPERATING ACTIVITY 25,959,230 20,448,784

of which:

- interest received (paid out) (6,182,035) (8,765,173)

- dividends received 61,079,051 42,791,314

- inflows (disbursements) for income taxes * 9,527,755 3,602,464

INVESTING ACTIVITY

PURCHASE OF CURRENT SECURITIES (35,440,285) (63,581,537)

PURCHASE OF FIXED ASSETS (50,850,254) (26,292,766)

CASH FLOW FROM INVESTING ACTIVITY (86,290,539) (89,874,303)

FINANCING ACTIVITY

PROCEEDS FROM CAPITAL INCREASES 1,695,042 3,614,613

PAYMENT OF SEVERANCE AND LEAVING INDEMNITY (144,020) (132,280)

BUY-BACK OF OWN SHARES (15,563,782) (35,878,184)

DIVIDENDS PAID TO SHAREHOLDERS (37,520,180) (38,008,840)

OTHER CHANGES -- 507,757

CASH FLOW FROM FINANCING ACTIVITY (51,532,940) (69,896,934)

INCREASE (DECREASE) IN NET CASH AND CASH EQUIVALENTS (111,864,249) (139,322,453)

NET CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 176,594,116 315,916,569

NET CASH AND CASH EQUIVALENTS AT END OF PERIOD 64,729,867 176,594,116

* The amounts refer to current tax receivables received from the tax consolidation

106

CIR S.p.A.


4. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(in euro) Share Reserves Retained Net income Total

capital earnings (losses) for the year

BALANCE AT JANUARY 1 2005 388,278,784 385,186,096 213,553,049 26,644,945 1,013,662,874

Capital increases 1,342,050 2,272,563 -- -- 3,614,613

Dividends to Shareholders -- -- (12,071,908) (25,936,932) (38,008,840)

Portion of net income available to Board of Directors -- -- -- (708,013) (708,013)

AGM resolution to buy back own shares -- 11,858,659 (11,858,659) -- --

Buy-back of own shares -- (35,878,184) -- -- (35,878,184)

Notional recognition of stock options -- 5,736,787 -- -- 5,736,787

Net income for the year -- -- -- 4,798,476 4,798,476

BALANCE AT DECEMBER 31 2005 389,620,834 369,175,921 189,622,482 4,798,476 953,217,713

Capital increases 618,700 1,076,342 -- -- 1,695,042

Dividends to Shareholders -- -- (32,721,704) (4,798,476) (37,520,180)

Cancellations of AGM resolution of April 27

2005 to buy-back own shares -- (54,815,390) 54,815,390 -- --

Buy-back of own shares -- (*) (5.664.381) (9,899,401) -- (15,563,782)

Notional recognition of stock options -- 2,212,607 -- -- 2,212,607

Net income for the year -- -- -- 36,697,002 36,697,002

BALANCE AT DECEMBER 31 2006 390,239,534 311,985,099 201,816,767 36,697,002 940,738,402

(*) Reduction of the reserve for "Buy-back of own shares" (note 11.b. consolidated financial statements and note 7.b. statutory financial statements of CIR S.p.A.)

CIR S.p.A.

107


EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT

COMPANY

1. ACCOUNTING PRINCIPLES APPLIED

These financial statements have been prepared in accordance with international accounting standards

(IAS/IFRS) and their respective interpretations (Standing Interpretation Committee) published

by the International Accounting Standards Boards (IASB) and are expressed in euro.

1.a. Intangible assets (IAS 38)

Intangible assets are recognized only if they can be separately identified, if it is probable that they

will generate future economic benefits and if the cost can be measured reliably.

Intangible assets with a finite useful life are valued at purchase or production cost net of depreciation

and impairment.

Intangible assets are initially recognized at purchase or production cost. Purchase cost is represented

by the fair value of payments and any additional cost directly incurred for preparing the asset

for use. The purchase cost is the equivalent price in cash as of the date of the acquisition and,

where payment is deferred beyond normal terms of credit, the difference compared with the cash

price is recognized as interest for the whole period of deferment.

Amortization is calculated on a straight-line basis following the expected useful life of the asset

and starts when the asset is ready for use.

The carrying value of intangible assets is maintained as long as there is evidence that this value

can be recovered through use; to this end at least once a year an impairment test is carried out to

check that the intangible asset is able to generate future cash flows.

Intangible assets with an indefinite useful life are not amortized but are constantly monitored for

any permanent loss of value. It is mainly the newspaper and magazine titles and frequencies of the

Espresso Group that are considered as intangible assets with an indefinite useful life.

Development costs are recognized as intangible assets when their cost can be measured reliably,

when there is a reasonable assumption that the asset can be made available for use or for sale and

that it is able to generate future benefits. Once a year or any time there are reasons which justify

it, capitalized costs are subjected to an impairment test.

Research costs are charged to the income statement as and when they are incurred.

Trademarks and licenses, which are initially recognized at cost, are subsequently accounted for

net of amortization and any impairment. The period of amortization is defined as the lower of the

contractual duration for use of the license and the useful life of the asset.

Software licenses, including associated costs, are recognized at cost and are recorded net of amortization

and of any impairment.

CIR S.p.A.

109


1.b. Tangible assets (IAS 16)

Tangible assets are measured at purchase price or at production cost and are recognized net of any

accrued depreciation.

Cost includes associated expenses and any direct and indirect costs incurred at the moment of acquisition

and necessary to make the asset ready for use.

Fixed assets are depreciated on a straight-line basis for each year in relation to their remaining

useful life.

For some categories the values determined in this way can be doubled in the first three years of

use. This is a technical and economic kind of depreciation which has no tax effect. The total net

values are considered to be representative of the remaining useful life of the various assets.

Extraordinary maintenance costs which determine an increase in the value or the functionality or

the useful life of the assets, such as costs for improvements, renovations and conversions which

increase value, are allocated directly to the assets to which they refer and are depreciated over the

residual useful of the assets.

Ordinary maintenance costs are charged to the income statement.

Real estate (investment properties) not held for instrumental or operating purposes is classified

under a special item of assets and is accounted for on the basis of the terms of IAS 40 “Investment

properties”.

Should there be any events which one can assume will cause a lasting reduction in the value of an

asset, its carrying value is checked against its recoverable value, which is the higher of fair value

and value in use.

Fair value is defined on the basis of values expressed by the active market, by recent transactions

or from the best information available to determine the potential amount obtainable from the sale

of the asset.

Value in use is determined from the net present value of cash flows resulting from the use expected

of the same asset, applying the best estimates of its residual useful life and a rate that also

takes into account the implicit risk of the specific business sectors in which the Group operates.

This valuation is carried out for each individual asset or for the smallest identifiable cash generating

unit (CGU).

Where there is a negative difference between the values stated above and the carrying value then

the asset’s carrying value is written down, while as soon as the reasons for such loss in value

cease to exist then the asset is revaluated. Write-downs and revaluations are posted to the income

statement.

1.c. Real estate investments/investment property (IAS 40)

An investment property is a property, either land or building – or part of a building – or both, o-

wned by the owner or by the lessee, with a financial leasing agreement, for the purpose of receiving

lease payments or for obtaining a gain on the capital invested or for both of these reasons, ra-

110

CIR S.p.A.


ther than for the purpose of directly using it for the production or supply of goods or services or

for administration of the company or for sales, in ordinary business activities.

The cost of an investment property is represented by its purchase price, any improvements made,

and any replacement and extraordinary maintenance.

According to the cost method, estimation is made net of depreciation and of any impairment.

At the moment of disposal or in the event of permanent non-use of the assets, all related income

and expenses will be charged to the income statement.

1.d. Impairment of tangible assets (IAS 36)

Periodically and whenever events or changes in circumstance make it appropriate, tangible assets

are subjected to an impairment test to see whether they have undergone any loss in value.

The impairment test consists of an estimate of the recoverable value of the asset which is then

compared with its net carrying amount. If the recoverable value is lower than the carrying amount,

the latter is written down and the impairment loss is charged to the statement of income.

If at a later date the reasons for the write-down cease to exist, the original carrying amount is restored

and with the relative gain posted to the income statement.

1.e. Investments in subsidiaries (IAS 27)

In accounting for investments in subsidiaries the cost method was adopted rather than fair value

measurement.

1.f.

Other equity investments

Investments in companies where the Company does not exercise a significant influence are accounted

under IAS 39 and are therefore classified as available-for-sale investments and are measured

at fair value or at cost if it is not possible to determine a fair value or a market price.

1.g. Receivables and payables (IAS 32 and 39)

Receivables are recognized at amortized cost and measured at their presumed realization value,

while payables are recognized at amortized cost.

Receivables and payables in foreign currencies, which are originally recognized at the spot rates

of the transaction date, are adjusted to the year-end spot exchange rates and any exchange gains

and losses are recognized to the income statement. Any net gain is recorded in a specific equity

reserve and cannot be distributed until it is realized.

1.h. Securities (IAS 32 and 39)

In accordance with IAS 32 and IAS 39 investments in companies other than subsidiaries and affiliates

are classified as available-for-sale financial assets and are measured at fair value.

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111


Gains and losses resulting from fair value adjustments are recorded in a special equity reserve. In

the event of permanent losses of value or of disposal, the gains and losses recognized previously

to shareholders’ equity are then posted to the income statement.

This category also includes financial assets either bought or issued and then held for trading

purposes or classified at fair value through profit and loss in application of the so-called fair

value option.

For a more complete description of the treatment of financial instruments we would refer readers

to the note specially prepared on the subject.

1.i. Income taxes (IAS 12)

Current taxes are recorded and determined on the basis of a realistic estimate of taxable income

according to current tax regulations and taking into account any exemptions that apply.

Deferred taxes are calculated on the basis of time differences, which are taxable or deductible, between

the carrying values of assets and liabilities and their tax bases and are classified under noncurrent

assets and liabilities.

A deferred tax asset is recognized to the extent that it is probable that future taxable profit will be

available against which the temporary differences can be utilized.

The carrying value of deferred tax assets is subject to periodic analysis and is reduced to the extent

to which it is no longer probable that there will be sufficient taxable income to allow the

benefit of this deferred asset to be utilized.

1.l. Cash and cash equivalents (IAS 32 and 39)

Cash and cash equivalents include cash in hand, call deposits and short-term and high-liquidity

financial assets, which are easily convertible into cash and which have a risk of change in value

that is irrelevant.

1.m. Shareholders’ equity

Ordinary shares are recorded at nominal value. Costs directly attributable to the issuance of new

shares are deducted from the shareholders’ equity reserves, net of any related tax benefit.

Own shares are classified in a special item and are deducted from reserves; any subsequent transaction

of sale, re-issuance or cancellation will have no impact on the income statement but will

affect only shareholders’ equity.

Unrealized gains and losses, net of tax, on financial assets classified as “available for sale” are recorded

in shareholders’ equity in the fair value reserve.

The reserve is reversed to the income statement when the asset is realized or when a permanent

impairment loss to the said asset is recognized.

The item “Retained earnings (losses)” includes accrued income and losses and the transfer of balances

from other equity reserves when these become free of any limitations to which they have

112

CIR S.p.A.


een subject. This item also shows the cumulative effect of the changes in accounting principles

and/or the correction of errors which are accounted for in accordance with IAS 8.

1.n. Borrowings (IAS 32 and 39)

Loans are initially recognized at cost, represented by their fair value net of ancillary costs incurred.

Subsequently loans are measured at amortized cost calculated by applying the effective

interest rate, taking into consideration any issuance costs incurred and any premium or discount

applied at the time in which the instrument is settled.

1.o. Provisions for risks and losses (IAS 37)

Provisions for risks and losses refer to liabilities which are extremely likely but where the amount

and/or maturity is uncertain. These are the result of past events which will cause a future disbursement.

Provisions are recognized exclusively in the presence of a current obligation, either

legal or constructive, towards third parties which implies an outflow and when a reliable estimate

of the amount involved can be made. The amount recognized as a provision is the best estimate of

the outflow required to fulfil the obligation as of the date of the financial statements. The provisions

recognized are re-examined at the closing date of each accounting period and are adjusted to

represent the best current estimate. Changes in the estimate are recognized to the income statement.

When the estimated disbursement relating to the obligation is expected in a time horizon longer

than normal payment terms and the discount factor is significant, the provision represents the present

value, discounted at a risk-free interest rate, of the expected future payments necessary to discharge

the obligation.

Contingent assets and liabilities (possible assets and liabilities, or those not recognized because no

reliable estimate can be made) are not recognized. However specific disclosure on such items is

given.

1.p. Revenue recognition (IAS 18)

Revenues for the rendering of services are recognized at the moment when the service is rendered,

with reference to the state of completion of the activity as of the date of the financial statements.

Dividend and interest income are recognized as follows:

- Dividends, when the shareholder’s right to receive payment is established (with an offset in receivables

at the resolution date);

- Interest, using the effective interest rate method (IAS 39).

1.q. Employee benefits (IAS 19)

Benefits to be paid to employees after the termination of their employment and other long term

benefits are subject to actuarial valuation.

Following this methodology, liabilities recognized represent the present value of the obligation

adjusted for any actuarial gains or losses which have not been accounted for.

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113


The instruments underlying the above mentioned benefits can be distinguished between “defined

contribution plans” and “defined benefit plans”, where in the first case the obligation of the company

is limited to paying the contributions (to Government, to funds or to other separate legal entities)

and is determined on the basis of the contributions owed, while in the second case liabilities

are determined on the basis of actuarial calculations.

1.r. Derivative instruments (IAS 32 and 39)

Derivative financial instruments are measured at fair value.

Derivatives not for hedging purposes are classified as financial instruments at fair value through

profit and loss (FVTPL).

The classification of a derivative as a hedge must be formally documented and the degree of “effectiveness”

of the hedge must be specified.

For accounting purposes hedging transactions can be classified as:

- Fair value hedges – where the effects of the hedge are recognized to the income statement;

- Cash flow hedges – where the effective portion of the hedge is recognized directly to shareholders’

equity while the non-effective part is recognized to income statement;

- Hedges of a net investment in a foreign operation – where the effective portion of the hedge is

recognized directly to shareholders’ equity while the non-effective part is recognized to the income

statement.

As of December 31 2006 there were no hedging derivatives on the books.

1.s. Foreign currency translation (IAS 21)

The Company’s functional currency is the euro, which is the currency in which its financial statements

are prepared and published.

Transactions carried out in foreign currencies are initially recognized at the spot exchange rate on

the date of the transaction.

At the date of the close of the reporting period monetary assets and liabilities denominated in foreign

currency are translated at the spot exchange rate prevailing on that date.

Non-monetary items measured at historical cost in a foreign currency are translated using the historical

exchange rate prevailing on the date of the transaction.

Non-monetary items measured at fair value are translated using the spot exchange rate at the date

on which the measurements are determined for the financial statements.

There were no assets or liabilities in foreign currencies recorded in the financial statements as of

December 31 2006.

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CIR S.p.A.


1.t.

Adoption of new accounting standards

It should be stated that in financial year 2006 the Group adopted the following Principles, Interpretations

and Updates to the standards already published:

- IAS 39 – Financial instruments Recognition and Measurement. This principle was amended by

Regulation no. 1864 of November 15 2005 effective January 1 2006 (fair value option), which

partly revised the classification of financial assets and liabilities; in particular the revision limited

the use of the initial designation option for financial assets and liabilities other than derivatives

and those held for trading, as items measured at fair value directly to the income statement to

those instruments that meet the following requirements:

a) The fair value option designation eliminates or significantly reduces an accounting mismatch,

or

b) A group of financial assets, financial liabilities, or both is managed and its performance is

evaluated on a fair value basis, in accordance with a documented investment risk management

strategy, and

c) An instrument contains an implicit derivative that fulfils particular conditions.

- IAS39 – Financial instruments. Recognition and measurement. This principle was amended by

Regulation no. 2106 of December 21 2005 which partly revised the basic assumptions regarding

intercompany transactions;

- IFRS6 – Exploration for and Evaluation of Mineral Resources. This principle is not relevant for

the business of the Group;

- IFRIC4 – Checking the requisites for a contract to be considered as a leasing contract;

- IFRIC5 – Rights to interest arising from decommissioning, restoration and environmental rehabilitation

funds. This interpretation is not relevant for the Group;

- IFRIC6 – Liabilities arising from Participating in a Specific market: Waste Electrical and Electronic

Equipment. This interpretation is not relevant for the Group.

Moreover the Group did not opt for the early adoption of the following Principles, Interpretations

and Updates to principles already published, which will become obligatory in the next few years:

- IFRIC7 – Applying the Restatement Approach under IAS 29. This interpretation will take effect

for financial years following March 1 2006. This interpretation is not relevant for the Group;

IFRIC8 – Scope of IFRS2. This interpretation will take effect for financial years following May 1

2006. This interpretation is not relevant for the Group;

- IFRIC9 – Reassessment of Embedded Derivatives. This interpretation will take effect for financial

years following June 1 2006. The interpretation is not relevant for the Group.

- IFRIC10 – Interim Financial Reporting and Impairment. This interpretation will take effect for

financial years following November 1 2006;

- IFRS7 – Financial instruments: Disclosures. This principle introduces new information to be

provided for financial instruments and will take effect as from January 1 2007.

1.u. Earnings per share (IAS 33)

Basic earnings per share are determined by dividing the net income attributable to the ordinary

shareholders of the Parent Company by the weighted average number of ordinary shares in circulation

during the period.

Diluted earnings per share are calculated by adjusting the weighted average number of ordinary

shares in circulation to take into account the effect of all potential ordinary shares.

CIR S.p.A.

115


2. FINANCIAL INSTRUMENTS

Financial instruments take on a particular significance in the economic and financial structure of

the CIR Group; for this reason, in order to give a better and clearer understanding of financial issues,

it was considered useful to devote a special section to the accounting treatment of IAS 32

and IAS 39.

According to IAS 32 financial instruments are classified in four categories:

a) Financial instruments that are valued at fair value through profit and loss (FVTPL) in application

of the fair value option, which are held for trading purposes;

b) Investments held to maturity (HTM);

c) Loans and receivables (L&R);

d) Available-for-sale financial assets (AFS).

Classification depends on Financial Management’s intended use of the financial instrument in the

business context and each involves a different measurement for accounting purposes; financial

transactions are recognized on the basis of their value date.

Financial instruments at fair value through profit and loss

Instruments are classified as such if they satisfy one of the following conditions:

- They are held for trading purposes;

- They are a financial asset designated on adoption of the fair value option, the fair value of

which can be reliably determined.

Trading generally means frequent buying and selling with the aim of generating profit on price

movements in the short term.

Derivatives are included in this category unless they are designated as hedge instruments.

The initial designation of financial instruments, other than derivatives and those held for trading,

as instruments at fair value through profit and loss in adoption of the fair value option is limited to

those instruments that meet the following conditions:

a) Designation according to the fair value option eliminates or significantly reduces accounting

mismatches;

b) A group of financial assets, financial liabilities or both are managed and their performance

is measured on the basis of their fair value following a documented investment risk strategy,

and

c) An instrument contains an implicit derivative which meets particular conditions.

The designation of an individual instrument to this category is definitive, is made at the moment

of initial recognition and cannot be modified.

Investments held to maturity

This category includes non-derivative instruments with fixed payments or payments that can be

determined and that have a fixed maturity, and which it is intended and possible to hold until maturity.

These instruments are measured at amortized cost and constitute an exception to the general

measurement principle of fair value.

Amortized cost is determined by applying the effective interest rate of the financial instrument,

taking into account any discounts or premiums received or paid at the moment of purchase, and

recognizing them throughout the whole life of the instrument until its final maturity.

Amortized cost represents the initial recognition value of a financial instrument, net of any capital

repayments and of any impairment, plus or minus the cumulated amount of the differences be-

116

CIR S.p.A.


tween its initial net value and the nominal amount at maturity calculated using the effective interest

rate method.

The effective interest rate method is a calculation criterion used to assign financial expenses to

their appropriate time period.

The effective interest rate is the rate that gives a correct present value to expected future cash

flows until maturity, so as to obtain the net present carrying value of the financial instrument.

If even one single instrument belonging to this category is sold before maturity, for a significant

amount and where there is no special justification for this, the tainting rule is applicable and requires

that the whole portfolio of securities classified as Held To Maturity be reclassified and

measured at fair value, and this category cannot be used in the two following years.

Loans and receivables

This refers to financial instruments which are not derivatives, have payments that are either fixed

or can be determined, which are not quoted on an active market and which are not intended to be

traded.

This category includes trade receivables (and payables), which are classified as current assets with

the exception of the part due in over 12 months from the date of the financial statements.

The measurement of these instruments is made by applying the method of amortized cost, using

the effective interest rate and taking into account any discounts or premiums obtained or paid at

the moment of acquisition and recognizing them throughout the whole life of the instrument until

its final maturity.

Available-for-sale financial assets

This is a “residual” category which includes non-derivative financial instruments that are designated

as available for sale and are not included in any of the previous categories.

Financial instruments held for trading are recognized at their fair value plus any transaction costs.

Gains and losses are recognized to a separate item of equity until the financial instruments are

sold or have been impaired. In such cases the profit or loss accrued under shareholders’ equity is

released to the income statement.

Fair value is the amount for which an asset can be exchanged or a liability can be settled, between

knowledgeable, willing parties in a transaction at arm’s length.

In the case of securities listed on regulated markets, the fair value is the bid price at the close of

trading on the last day of the accounting period.

Where no market prices are available, fair value is determined either on the basis of the fair value

of another financial instrument that is substantially similar or by using appropriate financial techniques

(for example the discounted cash flow method).

Investments in financial assets can be eliminated from the balance sheet, or derecognized, only

when the contractual rights to receive their respective financial cash flows have expired or when

the financial asset is transferred to third parties together with all its associated risks and rewards.

4. FINANCIAL RISK MANAGEMENT

Financial risk management is carried out by the central finance and treasury function of the group

headed by the Company, on the basis of policies approved by Management. Reference should

therefore be made to the appropriate section of the Explanatory Notes to the Consolidated Financial

Statements for a full description of this area.

CIR S.p.A.

117


FINANCIAL RISK MANAGEMENT

(in thousands of euro) 12345 Total

INTEREST BEARING

Fixed Rate

Trade receivables -- -- -- -- -- -- --

Other receivables 5,550 -- -- -- -- -- 5,550

Financial receivables -- -- -- -- -- -- --

Securities 45,065 -- 1,099 -- -- 46,164

Available-for-sale financial assets -- -- -- -- -- -- --

Cash & cash equivalents -- -- -- -- -- -- --

Bank overdraft facilities -- -- -- -- -- -- --

Bonds -- -- -- -- -- (295,640) (295,640)

Other borrowings (43,757) -- -- -- -- -- (43,757)

Trade payables -- -- -- -- -- -- --

Other payables -- -- -- -- -- -- --

Floating Rate

Trade receivables -- -- -- -- -- -- --

Other receivables -- -- -- -- -- -- --

Financial receivables -- -- -- -- -- -- --

Securities -- 7,526 -- 12,058 19,980 61,334 100,898

Available-for-sale financial assets -- -- -- -- -- -- --

Cash and cash equivalents 64,732 -- -- -- -- -- 64,732

Bank overdraft facilities (2) -- -- -- -- -- (2)

Bonds -- -- -- -- -- -- --

Other borrowings -- -- -- -- -- -- --

Trade payables -- -- -- -- -- -- --

Other payables -- -- -- -- -- -- --

NON INTEREST BEARING

Trade receivables 29,383 -- -- -- -- -- 29,383

Other receivables 51,098 -- -- -- -- 188 51,286

Financial receivables -- -- -- -- -- -- --

Securities 39,532 -- -- -- 9,890 10,010 59,432

Available-for-sale financial assets -- -- -- -- -- -- --

Cash and cash equivalents -- -- -- -- -- -- --

Bank overdraft facilities -- -- -- -- -- -- --

Bonds -- -- -- -- -- -- --

Other borrowings -- -- -- -- -- -- --

Trade payables (4,474) -- -- -- -- -- (4,474)

Other payables (36,234) -- -- -- -- (36,234)

In accordance with the requirements of IAS 32 paragraph 74, the above chart shows the information

on interest rate risk with a breakdown by asset and liability group and by year of maturity.

This information is shown over a time horizon of 5 years on the basis of the way the interest accrues.

118

CIR S.p.A.


5. ACCOUNTING PRINCIPLES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

The criteria for making estimates and measurements are re-examined on a regular basis and are

based on historical experience and on other factors such as expectations of possible future events

that are reasonably likely to take place.

If the initial application of a principle affects the current year or the previous one, its effect is recognized

by indicating the change resulting from any transitional rules, the nature of the change,

the description of the transitional rules, which may also affect future years, and the amount of any

adjustments relating to years preceding those being presented.

If a voluntary change of a principle affects the current or previous year this effect is shown by indicating

the nature of the change, the reasons for the adoption of the new principle, and the

amount of any adjustments made for years preceding those being presented.

In the event of a new principle/interpretation issued but not yet endorsed, an indication is given of

the fact, of its potential impact, the reason for the principle/interpretation, the date on which it will

take effect and the date on which it will first be applied.

A change in accounting estimates involves an indication of the nature and the impact of the

change. Estimates are used mainly to show impairment of assets recorded, provisions made for

risks, employees benefits, taxes and other provisions and reserves. Estimates and assumptions are

reviewed regularly and the effects of any such changes are reflected in the income statement.

Lastly, the treatment of accounting errors involves an indication of the nature of the error, the a-

mount of the adjustments to be made at the beginning of the first accounting period after it was

discovered.

CIR S.p.A.

119


BALANCE SHEET

5. NON-CURRENT ASSETS

5.a INTANGIBLE ASSETS

2005

Opening balances

Original Accrued amortization Balance

(in thousands of euro) cost and write-downs 01.01.2005

Concessions, licenses, trademarks and similar rights 406 (347) 59

2006

Opening balances

Original Accrued amortization Balance

(in thousands of euro) cost and write-downs 31.12.2005

Concessions, licenses, trademarks and similar rights 421 (365) 56

AMORTIZATION RATES

Description %

Concessions, licenses, trademarks and similar rights 5-30%

Other intangible assets 16-30%

120

CIR S.p.A.


Changes for the period

Closing balances

Purchases Disposals

Amortization and Original Accrued amortization Balance

cost acc.amort. write-downs cost and write-downs 31.12.2005

15 -- -- (18) 421 (365) 56

Changes for the period

Closing Balances

Purchases Disposals

Amortization and Original Accrued amortization Balance

cost acc.amort. write-downs cost and write-downs 31.12.2006

53 -- -- (28) 474 (393) 81

CIR S.p.A.

121


5.b.

TANGIBLE ASSETS

2005 Opening balances

Changes for the period

Original Accrued depreciation Balance Purchases

(in thousands of euro) cost and write-downs 01.01.2005

Land 723 -- 723 --

Buildings 4,132 (4,095) 37 9

Plant and machinery 747 (735) 12 35

Other assets 3,276 (1,947) 1,329 336

Assets in process and advance payments 13,313 -- 13,313 3,255

Total 22,191 (6,777) 15,414 3,635

2006 Opening balances

Changes for the period

Original Accrued depreciation Balance Purchases

(in thousands of euro) cost and write-downs 31.12.2005

Land 1,961 -- 1,961 --

Buildings 4,179 (4,100) 79 66

Plant and machinery 782 (743) 39 208

Other assets 3,623 (2,022) 1,601 452

Assets in process and advance payments 8,231 -- 8,231 --

Total 18,776 (6,865) 11,911 726

Tangible assets rose from € 11,911 thousand at December 31 2005 to € 4,576 thousand at

December 31 2006.

The reduction is essentially due to classification under "Real estate investments"

following completion of work on a building located in Milan

DEPRECIATION RATES

Description %

Buildings and real-estate investments 3.00%

Equipment and machinery

10.00-25.00%

Other assets:

- Electronic office equipment 20.00%

- Furniture and fittings 12.00%

- Motor vehicles 25.00%

122

CIR S.p.A.


Changes for the period

Closing balances

Reclassification Disposals

Depreciation and Original Accrued depreciation Balance

cost acc. deprec. write-downs cost and write-downs 31.12.2005

1,238 -- -- -- 1,961 -- 1,961

38 -- -- (5) 4,179 (4,100) 79

-- -- -- (8) 782 (743) 39

11 -- -- (75) 3,623 (2,022) 1,601

(8,337) -- -- -- 8,231 -- 8,231

(7,050) -- -- (88) 18,776 (6,865) 11,911

Changes for the period

Closing balances

Reclassification Disposals

Depreciation and Original Accrued depreciation Balance

cost acc. deprec. write-downs cost and write-downs 31.12.2006

-- -- -- -- 1,961 -- 1,961

-- -- -- (5) 4,245 (4,105) 140

8 (29) 29 (39) 969 (753) 216

305 (101) 101 (99) 4,279 (2,020) 2,259

(8,231) -- -- -- -- -- --

(7,918) (130) 130 (143) 11,454 (6,878) 4,576

CIR S.p.A.

123


5.c.

REAL-ESTATE INVESTMENTS

2005 Opening balances

Changes for the period

Original Accrued depreciation Balance Purchases

(in thousands of euro) cost and write-downs 01.01.2005

-- -- --

2006 Opening balances

Changes for the period

Original Accrued depreciation Balance Purchases

(in thousands of euro) cost and write-downs 31.12.2005

7.050 (106) 6.944 3.119

Real-estate investments rose from € 6,944 thousand at December 31 2005 to € 17,604 thousand

at December 31 2006. The increases during the period refer to the completion of renovation work on

a building situated in the centre of Milan, carried out during the year for € 3,119 thousand and reclassifield

from the item Assets in process and advance payments to this item for € 7,918 thousand.

The carrying value of this property is very close to market value.

124

CIR S.p.A.


Changes for the period

Closing balances

Reclassification Disposals

Depreciaton and Original Accrued depreciation Balance

cost acc. deprec. write-downs cost and write-downs 31.12.2005

7,050 -- -- (106) 7,050 (106) 6,944

Changes for the period

Closing balances

Reclassification Disposals

Depreciaton and Original Accrued depreciation Balance

cost acc. deprec. write-downs cost and write-downs 31.12.2006

7,918 -- -- (377) 18,087 (483) 17,604

CIR S.p.A.

125


5.d. EQUITY INVESTMENTS 2005

(in thousands of euro) Opening balances Changes for the year Closing balances

Write-downs/

Revaluation

01.01.2005 Reclassification Increases Decreases Val.restored 31.12.2005

no. of shares amount no. of shares amount no. of shares amount no. of shares amount amount no. of shares amount

Subsidiaries

GRUPPO EDITORIALE

L’ESPRESSO S.p.A. 218,825,235 333,862 -- -- -- -- -- -- -- 218,825,235 333,862

ENERGIA HOLDING S.p.A. 86,424,197 173,376 -- -- 1,913,612 11,482 -- -- -- 88,337,809 184,858

SOGEFI S.p.A. 65,194,962 105,193 -- -- -- -- -- -- -- 65,194,962 105,193

HOLDING SANITÀ E SERVIZI S.p.A. -- -- -- -- 1,889,382 32,790 -- -- -- 1,889,382 32,790

DRY PRODUCTS S.p.A. 55,000 -- -- -- -- -- -- -- -- 55,000 --

CIR INTERNATIONAL S.A. 25,000,000 238,686 -- -- -- -- -- -- -- 25,000,000 238,686

CIRINVEST B.V. (in liquidation)

(formerly Sasib International B.V.) 18,152 -- -- -- -- 30 -- -- (6) 18,152 24

COFIDEFIN SERVICOS LDA 93,000 180 -- -- -- -- -- -- -- 93,000 180

INTERGEFI S.r.l. 500,000 512 -- -- -- -- -- -- -- 500,000 512

CIR VENTURE S.r.l. 10,000 2 -- -- -- 4,183 -- -- (4,175) 10,000 10

SCALA CAPITAL S.p.A.

(formerly Mantegna SGR S.p.A.) -- -- -- -- 1,000,000 1,000 -- -- -- 1,000,000 1,000

JUPITER FINANCE S.p.A. -- -- -- -- 592,800 1,482 -- -- -- 592,800 1,482

Total subsidiaries 851,811 -- 50,967 -- (4,181) 898,597

Other companies

C IDC S.p.A.

(in liquidation and arrangement

before bankruptcy) 1,231,319 -- -- -- -- -- -- -- -- 1,231,319 --

EMITTENTI TITOLI S.p.A. 232,000 132 -- -- -- -- -- -- -- 232,000 132

CAAF DELL’INDUSTRIA

DELL'EMILIA CENTRALE S.p.A. 5,000 2 -- -- -- -- (5,000) (2) -- -- --

FILIPPO FOCHI S.p.A.

(in receivership) 409,520 -- -- -- -- -- -- -- -- 409,520 --

IST. EDIL. ECONOM.

POPOLARE S.r.l. 1,350 1 -- -- -- -- -- -- -- 1,350 1

Total other companies 135 -- -- (2) -- 133

TOTAL EQUITY INVESTMENTS 851,946 -- 50,967 (2) (4,181) 898,730

126

CIR S.p.A.


5.d. EQUITY INVESTMENTS 2006

(in thousands of euro) Opening balances Changes for the year Closing balances

Write-downs/

Revaluation

31.12.2005 Reclassification Increases Decreases Val.restored 31.12.2006

no. of shares amount no. of shares amount no. of shares amount no. of shares amount amount no. of shares amount

Subsidiaries

GRUPPO EDITORIALE

L’ESPRESSO S.p.A. 218.825.235 333.862 -- -- 1.950.000 7.818 -- -- -- 220.775.235 341.680

ENERGIA HOLDING S.p.A. 88.337.809 184.858 -- -- -- -- -- -- -- 88.337.809 184.858

SOGEFI S.p.A. 65.194.962 105.193 -- -- -- -- -- -- -- 65.194.962 105.193

HOLDING SANITÀ E SERVIZI S.p.A. 1.889.382 32.790 -- -- 1.765.363 38.838 -- -- -- 3.654.745 71.628

DRY PRODUCTS S.p.A. 55.000 -- -- -- -- -- -- -- -- 55.000 --

CIR INTERNATIONAL S.A. 25.000.000 238.686 -- -- -- -- -- -- -- 25.000.000 238.686

CIRINVEST B.V. (in liquidation) 18.152 24 -- -- -- -- (18.152) (5) (19) -- --

COFIDEFIN SERVICOS LDA 93.000 180 -- -- -- -- -- -- -- 93.000 180

INTERGEFI S.r.l. 500.000 512 -- -- -- -- -- -- -- 500.000 512

CIR VENTURE S.r.l. 10.000 10 -- -- -- 6 -- -- (6) 10.000 10

CIRINVEST S.p.A.

(formerly Scala Capital S.p.A.) 1.000.000 1.000 -- -- -- -- (878.250)* -- (878) 121.750 122

JUPITER FINANCE S.p.A. 592.800 1.482 -- -- -- 296 -- -- (296) 592.800 1.482

Total subsidiaries 898.597 -- 46.958 (5) (1.199) 944.351

Other companies

C IDC S.p.A.

(in liquidation and arrangement

before bankruptcy) 1.231.319 -- -- -- -- -- -- -- -- 1.231.319 --

EMITTENTI TITOLI S.p.A. 232.000 132 -- -- -- -- -- -- -- 232.000 132

FILIPPO FOCHI S.p.A.

(in receivership) 409.520 -- -- -- -- -- -- -- -- 409.520 --

IST. EDIL. ECONOM.

POPOLARE S.r.l. 1.350 1 -- -- -- -- -- -- -- 1.350 1

Total other companies 133 -- -- -- -- 133

TOTAL EQUITY INVESTMENTS 898.730 -- 46.958 (5) (1.199) 944.484

The changes during the period were mainly to do with the purchase of shares in Gruppo Editoriale L'Espresso S.p.A. following favourable conditions in the

market and to the subscription of a capital increase in HSS to finance its development, particularly for the acquisition of the company Anni Azzurri.

The decrease during the period was mainly due to the write-off of the capital of the company Scala Capital S.p.A. renamed Cirinvest S.p.A..

CIR S.p.A.

127


LIST OF INVESTMENTS IN SUBSIDIARIES AS OF DECEMBER 31 2006

(ART. 2427 no. 5, Civil Code)

(in thousands of euro) Head Share Total Result Percentage Carrying

Office Capital equity for the of value

Name year ownership

GRUPPO EDITORIALE L’ESPRESSO S.p.A. Rome 65,150 332,802 85,928 50.83 (*) 341,680

ENERGIA HOLDING S.p.A. Turin 120,351 259,519 6,362 73.40 184,858

SOGEFI S.p.A. Mantua 58,826 250,108 22,284 57.53 (**) 105,193

DRY PRODUCTS S.p.A. (***) Milan 100 1,552 1,032 55.00 --

CIR INTERNATIONAL S.A. Luxembourg 250,000 270,385 1,112 100.00 238,686

COFIDEFIN SERVICOS DE CONSULTORIA LDA Madeira 125 6,264 6,038 74.40 180

INTERGEFI S.r.l. Milan 500 790 146 100.00 512

CIR VENTURE S.r.l. Milan 10 1 (9) 100.00 10

HSS - HOLDING SANITÀ E SERVIZI S.p.A. Milan 4,286 68,532 (2,837) 85.28 71,628

JUPITER FINANCE S.p.A. Milan 600 748 (779) 98.80 1,482

CIRINVEST S.p.A. (formerly Scala Capital S.p.A.) Milan 122 (134) (1,094) 100.00 122

(*) 52.20% of voting rights

(**) 58.41% of voting rights

(***) For financial year ended March 31 2006

5.e.

MISCELLANEOUS RECEIVABLES

The balance at December 31 2006 includes security deposits with a nominal value of € 166 thousand

(€ 179 thousand at December 31 2005) and tax advances on severance and leaving indemnity

(TFR), revalued in accordance with the law, for € 23 thousand (€ 33 thousand at December 31

2005).

5.f.

DEFERRED TAXES

The breakdown of “Deferred tax assets and liabilities” by type of temporary difference is as follows:

(in thousands of euro) 31.12.2006 31.12.2005

Amount Tax Amount Tax

of temporary effect of temporary effect

differences

differences

Deferred tax assets:

Write-down of fixed assets 1,751 578 7,836 2,586

Risk provision and other 2,579 851 (2,987) (974)

Total deferred tax assets 1,429 1,612

Deferred tax liabilities:

Valuation of financial instruments (54) (19) (54) (19)

Capital gain on sale of property (3,068) (161) (6,135) (322)

Total deferred tax liabilities (180) (341)

Total net deferred taxes 1,249 1,271

During the year no deferred taxes were recognized directly to shareholders’ equity neither were

there any prior losses for which the company has not set aside deferred taxes.

128

CIR S.p.A.


6. CURRENT ASSETS

6.a.

MISCELLANEOUS RECEIVABLES

(in thousands of euro) 31.12.2006 31.12.2005

Tax receivables 18,977 39,719

Financial receivables with related parties 34,450 6,522

Other receivables with related parties 29,357 2,929

Receivables others 3,248 3,158

Total 86,032 52,328

The item “Financial receivables with related parties” can be broken down as follows:

(in thousands of euro) 31.12.2006 31.12.2005

Jupiter Finance S.p.A. 31,122 --

Intergefi S.r.l. 3,328 2,992

Dry Products S.p.A. -- 3,530

Total 34,450 6,522

The item “Other receivables with related parties” refers to receivables from companies that took

part in the tax consolidation and specifically € 23,767 from companies of the Sorgenia group and

€ 5,590 thousand from the Espresso group. The financial receivables due from the company Jupiter

Finance S.p.A. were for providing operational support in its start-up phase.

6.b.

SECURITIES

The item “Securities” includes the following categories of securities:

(in thousands of euro) 31.12.2006 31.12.2005

Italian Government securities and similar securities 21,204 37,085

Investment funds and similar funds 35,556 --

Bonds 21,079 51,627

Miscellaneous securities 124,679 89,070

Interest on securities 3,976 3,181

Total 206,494 180,963

(in thousands of euro) 31.12.2006 31.12.2005

Of which are held for trading 188,882 161,343

Of which were in application of the fair value option because

of the presence of an implied derivative 17,612 19,620

Total 206,494 180,963

The fair value measurement of the item “securities” involved making a negative adjustment to the

income statement of € 5,774 thousand of which € 3,766 thousand were from securities held for

trading.

CIR S.p.A.

129


“Miscellaneous securities” contains investments of liquidity in the short term which have a rating

of “double A” or higher.

6.c.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents declined by € 111,862 thousand from € 176,594 thousand to € 64,732

thousand. A breakdown of this change is shown in the cash flow statement.

7. SHAREHOLDERS’ EQUITY

7.a.

SHARE CAPITAL

Share capital rose from € 389,620,833.50 at December 31 2005 (779,241,667 shares each with

nominal value of € 0.50) to € 390,239,533.50 (780,479,067 shares) at December 31 2006 as a result

of the issuance of 1,237,400 shares following the exercise of stock option plans.

At December 31 2006 the Company owned 34,094,000 of its own shares (4.37% of capital) for a

total value of € 76,884 thousand compared to 27,216,642 shares owned at December 31 2005.

In application of IAS 32, since January 1 2005 treasury stock held by the Parent Company is being

deducted from shareholders’ equity.

The share capital is fully subscribed and paid up. No shares have any rights, privileges or limitations

on the distribution of dividends with the exception of the own shares held as treasury stock.

It should be noted that the Board of Directors was authorized for a period of five years starting

from April 27 2005 to increase once or more the share capital up to a maximum € 500 million

(nominal value) and by a further maximum of € 20 million (nominal value) in favour of employees

of the Company, its subsidiaries and parent companies.

130

CIR S.p.A.


7.b.

RESERVES

The breakdown of the item “Reserves” is as follows:

(in thousands of euro) Additional paid-in Legal Statutory Reserve Reserve for Own shares “First Stock Reserve for Total

capital reserve reserves for own buy-back of held as adoption of option future capital reserves

reserve shares held own shares stock IFRS” reserve increases

reserve

Balance at January 1 2005 7,699 115,969 21 25,442 97,369 (25,442) 162,210 1,915 3 385,186

Capital increases 2,273 -- -- -- -- -- -- -- -- 2,273

Buy-back of own shares -- -- -- 35,879 (35,879) (35,879) -- -- -- (35,879)

AGM resolution to buy back own shares (3,553) -- -- -- 15,412 -- -- -- -- 11,859

Notional cost of stock options credited -- -- -- -- -- -- 5,737 -- 5,737

Balance at December 31 2005 6,419 115,969 21 61,321 76,902 (61,321) 162,210 7,652 3 369,176

Capital increases 1,076 -- -- -- -- -- -- -- -- 1,076

Buy-back of own shares -- -- -- 15,563 (5,664) (15,563) -- -- -- (5,664)

Cancellation of AGM resolution of

April 27 2005 to buy back own shares 16,422 -- -- -- (71,238) -- -- -- -- (54,816)

Notional cost of stock options credited -- -- -- -- -- -- -- 2,213 -- 2,213

Balance at December 31 2006 23,917 115,969 21 76,884 -- (76,884) 162,210 9,865 3 311,985

CIR S.p.A.

131


It should be remembered that on April 27 2006 the General Ordinary Meeting of the Shareholders

voted to cancel the previous resolution of April 27 2005 to buy back own shares and to give a new

authorization for eighteen months from that date to buy back a maximum of 25,000,000 own

shares at a minimum unit price of € 0.50 and a maximum of € 4.00.

The “Stock option reserve” refers to the value of the notional cost of the stock options assigned to

employees, which were approved after November 7 2002.

7.c.

RETAINED EARNINGS (LOSSES)

The changes in Retained earnings (losses) are shown in the “Statement of Changes in Shareholders’

Equity”.

INFORMATION AS PER ART. 2427 – 7BIS – CIVIL CODE

The following chart gives a breakdown of the items of shareholders’ equity and shows how they

can be utilized:

(in thousands of euro)

Balance at Possibility of Part Summary of uses made

December 31 2006 use available in the last three periods (*)

For covering For distributing Other

losses as dividends

CAPITAL 390,239 -- -- -- -- --

Capital reserves:

Additional paid in capital reserve 23,917 ABC -- -- -- --

Legal reserve 12,678 B -- -- -- --

Capital reserve 3 A -- -- -- --

Earnings reserves:

Legal reserve 103,291 B -- -- -- --

Statutory reserve 21 ABC -- -- -- --

“First adoption of IFRS” reserve 162,210 ABC -- -- -- --

Stock option reserve 9,865 ABC -- -- --

Retained earnings 201,817 ABC -- -- 12,072 --

TOTAL 904,041 -- -- 12,072 --

Key = A: for capital increases; B: for covering losses; C: for distribution to shareholders

(*) The uses shown are those that caused the reduction in total equity

132

CIR S.p.A.


8. NON CURRENT LIABILITIES

8.a.

BONDS

At December 31 2006 the item “Bonds” totalled € 295,640 thousand, compared to € 295,483

thousand at December 31 2005 and referred to the Bond issued by the Company in December

2004 for a nominal € 300 million, with a maturity of 2024 and a fixed rate of interest of 5.75%.

Using the amortized cost method this bond was accounted for including the interest accruing for

the period and subtracting the issuance discount and expense. The effective interest rate is 5.90%.

The bonds are quoted on the Luxembourg Bourse. The fair value of the Bond was € 280,494 thousand

at December 31 2006 and € 291,668 thousand at December 31 2005.

8.b.

PERSONNEL PROVISIONS

The changes in the provision “Employee severance and leaving indemnity” (TFR) are shown below:

(in thousands of euro) 31.12.2006 31.12.2005

Starting balance 1,462 1,362

Amount accrued 240 232

Sums paid out (144) (132)

Total 1,558 1,462

9. CURRENT LIABILITIES

9.a.

FINANCIAL LIABILITIES WITH RELATED PARTIES

The balance at December 31 2006 of € 43,756 thousand (€ 42,102 at December 31 2005) refers to

a loan from CIR International S.A., including € 1,654 thousand of interest at a rate of 4% accrued

during the year.

9.b.

OTHER PAYABLES

(in thousands of euro) 31.12.2006 31.12.2005

Tax payables 30,779 13,496

Payables related parties 2,570 15,172

Trade payables suppliers 1,904 1,509

Other payables 5,456 3,532

Total 40,709 33,709

CIR S.p.A.

133


The item “Tax payables”, totalling € 30,779 thousand, includes the Inland Revenue payable of

€ 17,733 thousand resulting from the tax consolidation.

The item “Payables related parties” refers mainly to amounts payable to the companies that took

part in the tax consolidation and specifically € 70 thousand to companies of the Espresso group,

€ 1,472 thousand to companies of the Sogefi group, € 229 thousand to companies of the Sorgenia

group and € 599 to companies of the HSS group.

9.c.

PROVISIONS FOR RISKS AND LOSSES

“Provisions for risks and losses” totalled € 3,035 thousand at December 31 2006, unchanged from

the previous year.

134

CIR S.p.A.


INCOME STATEMENT

10. MISCELLANEOUS REVENUES AND INCOME

This item consists of the following:

(in thousands of euro) 2006 2005

Services to subsidiaries 5,044 4,795

Services to parent company 516 501

Income from real estate 640 38

Other income and recovery of costs 76 168

Other non-recurring revenues -- 1,648

Total 6,276 7,150

Revenues from services provided to subsidiaries are the chargeback of fees for strategic and management

support and special administrative, financial and tax assistance supplied to them. The

services provided to the parent company were mainly of an administrative and financial nature.

Income from services supplied to companies of the Group in 2006 can be broken down as follows:

(in thousands of euro) 31.12.2006 31.12.2005

COFIDE S.p.A. 516 501

Gruppo Editoriale L'Espresso S.p.A. 2,440 2,370

Sorgenia S.p.A. 700 600

Sogefi S.p.A. 1,850 1,795

Holding Sanità e Servizi S.p.A. 50 30

Jupiter Finance S.p.A. 4 --

Total 5,560 5,296

The balance of the item “Other non-recurring income” the previous year referred mainly to the reversal

of provisions set up in previous periods for disputes in progress, which were settled in

2005.

CIR S.p.A.

135


11. COSTS FOR SERVICES

This item can be broken down as follows:

(in thousands of euro) 2006 2005

Administrative, fiscal, legal and corporate governance consulting fees 3,158 3,029

Services provided by the parent company COFIDE S.p.A. 1,955 1,777

Directors’ and Statutory Auditors’ fees 1,792 1,560

Other expenses 2,814 2,509

Total 9,720 8,875

12. PERSONNEL COSTS

Personnel costs declined by € 1,476 thousand from € 10,567 thousand in 2005 to € 9,091 thousand

in 2006. This item includes the notional cost of € 2,213 thousand (€ 5,737 thousand in 2005) from

the valuation of existing stock option plans, approved after November 7 2002.

The chart below shows the changes in the number of employees in the different categories during

the year:

31.12.2005 Hires Departures 31.12.2006 Average for

the year

Executives 10 -- 1 9 9

Managers and Office Staff 18 -- -- 18 18

Total 28 -- 1 27 27

13. OTHER OPERATING COSTS

(in thousands of euro) 2006 2005

Non-deductible VAT and other taxes 823 802

Other charges and non-operating expenses 935 650

Other non-recurring charges 13 100

Total 1,771 1,552

136

CIR S.p.A.


14. FINANCIAL INCOME

This item consists of the following:

(in thousands of euro) 2006 2005

Interest income from securities 9,822 5,947

Interest income from deposits 2,021 4,502

Interest income from subsidiaries 181 446

Other interest income 704 1,319

Total 12,728 12,214

The breakdown of the interest income from subsidiaries is the following:

(in thousands of euro) 2006 2005

Dry Products S.p.A. 20 277

Intergefi S.r.l. 118 112

Jupiter Finance S.p.A. 43 --

CIR Ventures S.r.l. -- 47

Sasib Packaging North America Inc. -- 10

Total 181 446

15. FINANCIAL EXPENSES

This item consists of the following:

(in thousands of euro) 2006 2005

Interest expense on bonds 17,354 17,348

Interest expense on borrowings from subsidiaries 1,953 1,335

Other interest expense and bank charges 1,651 409

Total 20,958 19,092

The item “Interest expense on borrowings from subsidiaries” for 2006 refers for € 1,654 thousand

to interest accrued on the loan made by CIR International S.A. and for € 299 thousand to interest

due to companies of the Group who took part in the tax consolidation process (€ 70 thousand due

to the Espresso group and € 229 thousand to companies of the Sorgenia group).

CIR S.p.A.

137


16. DIVIDENDS

This item can be broken down as follows:

(in thousands of euro) 2006 2005

Dividends from related parties:

Gruppo Editoriale L’Espresso S.p.A. 31,730 28,447

Energia Holding S.p.A. 3,666 --

Sogefi S.p.A. 11,409 10,431

CIR International S.A. 10,000 --

Cofidefin Serviços de Consultoria 4,241 3,869

Total dividends from related parties 61,046 42,747

Dividends from other companies 33 44

Total dividends 61,079 42,791

17. GAINS FROM TRADING SECURITIES

These total € 1,520 thousand (€ 689 thousand in 2005) and refer for € 1,069 thousand to premium

transactions on equities and for € 451 thousand to bond trading.

18. LOSSES FROM TRADING SECURITIES

These total € 4,913 thousand (€ 283 thousand in 2005) and refer for € 326 thousand to premium

transactions on equities, for € 4,563 thousand to bond trading and for € 24 thousand to trading investment

funds and similar funds.

19. ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

This item includes the following:

(in thousands of euro) 2006 2005

Write-down of bonds (6,627) (4,955)

Write-down of investments in subsidiaries (1,199) (4,181)

(Increases to) / Withdrawals from provisions covering losses from equity investments -- 2,110

Revaluation of bonds 268 315

Revaluation of investment funds and similar funds 585 --

Total (6,973) (6,711)

138

CIR S.p.A.


20. TAX EXPENSE FROM PRIOR PERIODS

The amount of € 16,059 thousand in 2005 refers to IRPEG and ILOR tax claims for 1989 from

Sasib, a company merged by incorporation into CIR in 1998. The amount includes taxes, fines

and interest payments resulting from the unfavourable ruling (no. 312/2/04) of the Provincial Tax

Commission of Bologna relating to charges recorded in the financial statements and tax credits

relating to the purchase of dividend rights on shares carried out in past years.

A first demand for tax was received in June 2005 for an amount of € 4.8 million and was duly

paid, a second demand was notified at the beginning of 2006 for an amount of € 11.3 million. An

appeal was made against both of these demands. For the second one in particular, an application

was made for suspension of the payment.

21. INCOME TAXES

This item includes the following:

(in thousands of euro) 2006 2005

Current taxes 9,090 8,312

Deferred taxes (22) (3,006)

Total 9,068 5,306

RECONCILIATION OF THEORETICAL AND ACTUAL TAX LIABILITY

Taxable income Tax rate % Amount of tax

RESULT BEFORE TAXES 27,629 33 9,117

Effect of increases (decreases) compared to ordinary tax rate

- Dividends (58,025) 33 (19,148)

- Temporary differences deductible in subsequent years 3,051 33 1,007

- Deductible temporary differences from prior periods (3,410) 33 (1,125)

- Non-deductible costs 5,549 33 1,831

Other miscellaneous permanent differences -- 33 --

SUB-TOTAL (25,206) 33 (8,318)

Adjustments to taxable income for participation in national tax consolidation (2,340) 33 (772)

Taxable income / Income tax for the year (27,546) 33 (9,090)

Note: Because of its specific characteristics, IRAP was not considered for the purposes of this chart, which refers just to IRES

22. GUARANTEES AND COMMITMENTS

At December 31 2006 the guarantee and commitment position was as follows:

- Guarantees issued in favour of the ENI group following agreements for the supply of Norwegian

and Libyan gas as from October 2001. Commercial contracts generally contain take or

pay clauses and a price revision based on the trend of certain oil products. These clauses are

substantially in line with normal market conditions;

CIR S.p.A.

139


- A guarantee for € 613 million issued to Banks on behalf of CIR International for bond issues;

- Guarantees in favour of Inland Revenue for VAT credits totalling € 6,781 thousand;

- Government securities pledged as collateral for financial option transactions for a total of

€ 19,500 thousand.

23. RELATED PARTY TRANSACTIONS

Information regarding the impact that related party transactions have on the financial and equity

situation and on the result for the year are given in the comment on the individual items of the financial

statements.

The paragraph “Other information” in the Management Report shows the different types of related

party transactions, the amounts of which are given in the Explanatory Notes.

24. NET FINANCIAL POSITION

The net financial position can be broken down as follows:

(in thousands of euro) 31.12.2006 31.12.2005

A. Cash and banks 64,732 176,594

B. Other free cash flow -- --

C. Securities held for trading 206,494 180,963

D. Cash and cash equivalents (A) + (B) + (C) 271,226 357,557

E. Current financial receivables -- --

F. Current bank borrowings (2) --

G. Current part of non-current borrowings -- --

H. Other current borrowings (43,757) (42,102)

I. Current financial debt (F) + (G) + (H) (43,759) (42,102)

J. Net current financial position (I) + (E) + (D) 227,467 315,455

K. Non-current bank borrowings -- --

L. Bonds issued (295,640) (295,483)

M. Other non-current borrowings -- --

N. Non-current financial debt (K) + (L) + (M) (295,640) (295,483)

O. Net financial position (J) + (N) (68,173) 19,972

140

CIR S.p.A.


25. OTHER INFORMATION

EMOLUMENTS PAID TO DIRECTORS, STATUTORY AUDITORS AND GENERAL MA-

NAGERS

The chart below shows the information required by Article 78 of Consob Resolution no. 11971 of

May 14 1999 and subsequent amendments and additions.

(in thousands of euro)

Last name and first name Position held Dates position Expiry of Emoluments Non-monetary Bonuses Other Notes

held mandate for the position benefits and other fees

in the company

incentives

preparing the

Financial statements

DE BENEDETTI CARLO Chairman of the Board 1.1.06-31.12.06 Appr. Fin. St. 2007 -- 130 -- -- (1)

DE BENEDETTI RODOLFO Chief Executive Officer and

General Manager 1.1.06-31.12.06 Appr. Fin. St. 2007 720 -- -- 2.969 (2)

PIASER ALBERTO General Manager 1.1.06-31.12.06 -- -- -- -- 403 (2)

BRACCHI GIAMPIO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- --

DEBENEDETTI FRANCO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- --

FERRERO PIERLUIGI Director 1.1.06-31.12.06 Appr. Fin. St. 2007 70 -- 63 (3)

GERMANO GIOVANNI Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- 10 (3)

GIRARD FRANCO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- 13 (3)

MANCINELLI PAOLO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 33 -- -- 3 (3)

PARAVICINI CRESPI LUCA Director 1.1.06-31.12.06 Appr. Fin. St. 2007 33 -- -- 30 (3)

RECCHI CLAUDIO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 33 -- -- --

SEGRE MASSIMO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- 294 (4)

TABELLINI GUIDO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- --

ZANNI UMBERTO Director 1.1.06-31.12.06 Appr. Fin. St. 2007 20 -- -- --

MANZONETTO PIETRO

Chairman Board of Statutory

Auditors 1.1.06-31.12.06 Appr. Fin. St. 2007 50 -- -- --

NANI LUIGI Statutory Auditor 1.1.06-31.12.06 Appr. Fin. St. 2007 33 -- -- --

ZINGALES RICCARDO Statutory Auditor 1.1.06-31.12.06 Appr. Fin. St. 2007 33 -- -- 157 (5)

(1) Fees of € 520 thousand as Chairman of CIR S.p.A. and € 10 thousand as Chairman of the subsidiary Sogefi S.p.A. and € 357 thousand as Director of the subsidiary Gruppo

Editoriale L’Espresso S.p.A are paid to ROMED S.p.A..

(2) Other fees include emoluments for the position of Director in other companies of the Group and employee salary

(3) Other fees include emoluments for the position of Director in other companies of the Group

(4) Other fees refer to fees for professional services

(5) Other fees include emoluments for the position of Statutory Auditor in other companies of the Group

Stock Option Plans

As required by Consob Resolution no. 11971 of May 14 1999 and subsequent amendments and

additions, it should be stated that CIR has set up stock option plans for employees of the Group.

At December 31 2006 stock option plans issued as from the year 2000 were still valid for a total

of 30,360,600 options, as can be seen from the chart on page 78 of the Explanatory Notes to the

Consolidated Financial Statements.

With reference to the plans issued in the last three years, it should be said that:

CIR S.p.A.

141


- On March 12 2004 the Board of Directors voted to assign to executives of the Company and

its parent company options for the subscription of shares according to the terms and conditions

laid down in the Regulation of “Stock Option Plan March 12 2004”, which was approved

at the same meeting. This plan gives the beneficiaries the right to exercise an option to

subscribe a total maximum of 2,545,000 newly issued shares at a given price and within a

predefined period of time. The Regulation also requires that in order to be entitled to exercise

the option the beneficiaries must be employed by the Company or its parent company at the

moment in which the option is exercised except in cases of retirement, permanent invalidity or

death. The subscription price was fixed at € 1.60. The options can be exercised by each beneficiary

starting from September 30 2004, at three-monthly intervals until the final maturity of

September 30 2014.

- On September 6 2004 the Board of Directors voted to assign options to subscribe a further

2,595,000 newly issued shares at the unit price of € 1.56 reserved for subscription by executives

of the Company and its parent company who are beneficiaries of the “Stock Option Plan

September 6 2004”, approved at the same meeting. The Regulation of this plan stipulates

terms and conditions identical to those of the previous plan except for the date on which the

options become exercisable (February 28 2005) and the final expiration date of the same options

(February 28 2015).

- Furthermore on June 8 2004 the Board of Directors approved the award of further options for

the subscription of 4,150,000 shares at the price of € 1.60 per share reserved for the executives

of the Company and its parent company who are beneficiaries of “Stock Option Plan June 8

2004” approved during that same meeting. The Regulations of this plan stipulate that the options

can be exercised at any time from June 15 2004 to June 15 2009.

- On January 11 2005 the Board of Directors voted to award options for the purchase of

11,700,000 shares at the price of € 2.15 per share – shares which are currently in the portfolio

of CIR – to executives of the Company and its parent company, in accordance with the terms

and conditions set forth in the document “Regulation of Extraordinary Stock Option Plan

January 11 2005”. The options can be exercised at any time from April 30 2005 to April 30

2010.

- On March 11 2005 the Board of Directors voted to assign to executives of the Company and

its parent company options for the subscription of shares according to the terms and conditions

laid down in the Regulation of “Stock Option Plan March 11 2005”, which was approved

at the same time. This plan gives the beneficiaries the right to exercise options to subscribe

a total maximum of 2,670,000 newly issued shares at a given price and within a predefined

period of time. The Regulation also requires that in order to be entitled to exercise the

options the beneficiaries must be employed by the Company or its parent company at the

moment when the option is exercised except in cases of retirement, permanent invalidity or

death. The subscription price was fixed at € 2.34 per share. The options can be exercised by

each beneficiary starting from September 30 2005, at three-monthly intervals, until the final

maturity of September 30 2015. On the same date a resolution was also passed assigning

1,760,000 newly issued shares at the price of € 2.34 to employees of CIR S.p.A., of its subsidiary

CIR International and of its parent company, who are beneficiaries of “Stock Option

Plan 2005”, which was approved at the same time. The regulation of this plan gives terms,

conditions and exercise periods identical to those of “Stock Option Plan 11.03.2005”.

142

CIR S.p.A.


- On September 6 2005 the Board of Directors voted to assign options to subscribe a further

2,790,000 newly issued shares at the price of € 2.49 per share reserved for subscription by executives

of the Company and its parent company and the subsidiary Dry Products S.p.A., who

are beneficiaries of “Stock Option Plan September 6 2005”, approved during the same meeting.

The Regulation of this plan stipulates terms and conditions identical to those of the previous

plan except for the date on which the options become exercisable (February 28 2006) and

the final expiration date of the same options (February 29 2016). It should be remembered that

the Board of Directors Meetings as above approved the relative share capital increases (for a

total maximum amount of € 3,610,000.00 through the issuance of a maximum of 7,220,000

shares) on the basis of the authorization given by the Extraordinary Meetings of Shareholders

held on May 12 2000 and April 27 2005.

- On April 27 2006 the Board of Directors voted to assign to executives of the Company, of its

subsidiary Dry Products S.p.A. and of its parent company options to subscribe shares according

to the terms and conditions defined in the Regulations of “Stock option plan 2006”, which

was approved at the same time. This plan gives the beneficiaries the right to exercise options to

subscribe a total of 5,530,000 newly issued shares at a given price and within a predefined period

of time. The options will be divided into two tranches, each of 2,765,000 options. The

Regulations also require that in order to be entitled to exercise the options the beneficiaries

must be employed by the Company, its subsidiary or its parent company at the moment when

the option is exercised except in cases of retirement, permanent invalidity or death. The subscription

price was fixed at € 2.50 for the first tranche options and at € 2.47 for the second tranche

options.

The following chart gives information on the stock options assigned to the Directors and General

Managers.

CIR S.p.A.

143


STOCK OPTIONS ASSIGNED TO DIRECTORS AND GENERAL MANAGERS

Last name and first name

DE BENEDETTI RODOLFO

Position

held

C.E.O. &

G.M.

Options held at beginning

of the year

Number of

options

Average Average

strike price expiry date

(years)

Number of

options

Options assigned during

the year

Average Average

strike price expiry date

(years)

Number of

options

Options exercised during

the year

Average

strike price

Average

expiry date

(years)

Options

which expired

during year

Number of

options

Number of

options

Options held at end

of the year

Stock Option Plan 7/3/2000 1,500,000 3.70 1,500,000 3.70

Stock Option Plan 30/1/2001 1,000,000 2.62 1,000,000 2.62

Stock Option Plan 7/9/2001 2,000,000 1.28 2,000,000 1.28

Stock Option Plan 14/3/2002 340,000 1.20 340,000 1.20

Stock Option Plan 13/9/2002 460,000 1.02 460,000 1.02

Stock Option Plan 7/3/2003 652,500 0.84 (337,500) 0.84 2.523 315,000 0.84

Stock Option Plan /9/2003 787,500 1.13 787,500 1.13

Stock Option Plan 12/3/2004 1,250,000 1.60 1,250,000 1.60

Stock Option Plan 8/6/2004 3,500,000 1.60 3,500,000 1.60

Stock Option Plan 6/9/2004 1,250,000 1.56 1,250,000 1.56

Stock Option Plan 11/1/2005 10,000,000 2.15 10,000,000 2.15

Stock Option Plan 11/3/2005 1,350,000 2.34 1,350,000 2.34

Stock Option Plan 6/9/2005 1,250,000 2.49 1,250,000 2.49

Stock Option Plan 2006 1st tranche 1,250,000 2.50 1,250,000 2.50

Stock Option Plan 2006 2nd tranche 1,250,000 2.47 1,250,000 2.47

Average Average

strike price expiry date

(years)

TOTAL 25,340,000 1.99 7.13 2,500,000 2.49 10.01 (337,500) 0.84 2.523 27,502,500 2.05 6.6

PIASER ALBERTO G.M.

Stock Option Plan 14/3/2002 32,000 1.20 (24,000) 1.20 2.523 8,000 1.20

Stock Option Plan 13/9/2002 56,000 1.02 (24,000) 1.02 2.523 32,000 1.02

Stock Option Plan 7/3/2003 100,000 0.84 (30,000) 0.84 2.523 70,000 0.84

Stock Option Plan 5/9/2003 130,000 1.13 (30,000) 1.13 2.523 100,000 1.13

Stock Option Plan 12/3/2004 192,000 1.60 (36,000) 1.60 2.523 156,000 1.60

Stock Option Plan 9/2004 228,000 1.56 (36,000) 1.56 2.523 192,000 1.56

Stock Option Plan 11/3/2005 400,000 2.34 400,000 2.34

Stock Option Plan /9/2005 300,000 2.49 300,000 2.49

Stock Option Plan 2006 1st

tranche 300,000 2.50 300,000 2.50

Stock Option Plan 2006 2nd tranche 300,000 2.47 300,000 2.47

TOTAL 1,438,000 1.86 8.47 600,000 2.49 10.01 (180,000) 1.26 2.523 1,858,000 2.12 7.97

FERRERO PIERLUIGI Dir.

Stock Option Plan 7/3/2000 220,000 3.70 220,000 3.70

Stock Option Plan 30/1/2001 125,000 2.62 125,000 2.62

Stock Option Plan 7/9/2001 100,000 1.28 (100,000) 1.28 2.53 -- --

TOTAL 445,000 2.85 5.50 (100,000) 1.28 2.53 345,000 3.31 4.25

144

CIR S.p.A.


Statutory Financial Statements of directly controlled subsidiaries

as of December 31 2006

ENERGIA HOLDING S.p.A.

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

SOGEFI S.p.A.

HSS – HOLDING SANITÀ E SERVIZI S.p.A.

DRY PRODUCTS S.p.A.

CIR INTERNATIONAL S.A.

MEDINVEST Plc

COFIDEFIN SERVIÇOS DE CONSULTORIA Lda

INTERGEFI S.r.l.

CIR VENTURE S.r.l.

JUPITER FINANCE S.p.A.

CIRINVEST S.p.A. (formerly SCALA CAPITAL S.p.A.)

145


ENERGIA HOLDING S.p.A.

Headquarters: TURIN

Share capital at December 31 2006: € 120,351,238.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE -- --

B - FIXED ASSETS

I Intangible assets

Start-up and expansion costs 4,064 6,264

Concessions, licenses and traademarks 1,513 1,730

Total intangible assets 5,577 7,994

II Tangible assets -- --

III Financial assets

Investments in subsidiaries 254,582,461 252,870,557

Total financial assets 254,582,461 252,870,557

TOTAL FIXED ASSETS 254,588,038 252,878,551

C - CURRENT ASSETS

I Inventories -- --

II Accounts receivable

Parent companies due in up to one year 34,711 56,420

Advanced taxes due in up to one year -- --

Others due in up to one year 3,370 5,707

Total receivables 38,081 62,127

III Financial assets not classified as fixed assets -- --

IV Cash and cash equivalents

Bank and Post Office deposits 5,016,322 5,341,708

Total cash and cash equivalents 5,016,322 5,341,708

TOTAL CURRENT ASSETS 5,054,403 5,403,835

D - ACCRUED INCOME AND PREPAID EXPENSES -- --

TOTAL ASSETS 259,642,441 258,282,386

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

A - SHAREHOLDERS' EQUITY

I Capital 120,351,238 120,351,238

II Additional paid-in capital 131,485,190 131,485,190

III Revaluation reserves -- --

IV Legal reserve 1,084,709 813,101

V Statutory reserve -- --

VI Reserve for treasury stock held -- --

VII Other reserves 10,171 10,173

VIII Retained earnings (losses) 226,278 60,293

IX Net income (loss) for the year 6,361,741 5,432,169

TOTAL SHAREHOLDERS' EQUITY 259,519,327 258,152,164

B - PROVISIONS FOR RISKS AND LOSSES -- --

C - EMPLOYEE SEVERANCE AND LEAVING INDEMNITY FUND (TFR) -- --

D - ACCOUNTS PAYABLE

Trade payables due in up to one year 121,696 129,448

Tax payables 1,418 774

TOTAL PAYABLES 123,114 130,222

E - ACCRUED EXPENSES AND DEFERRED INCOME -- --

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 259,642,441 258,282,386

146


ENERGIA HOLDING S.p.A.

Headquarters: TURIN

Share capital at December 31 2006: € 120,351,238.00

INCOME STATEMENT

(in euro)

2006 2005

A - VALUE OF PRODUCTION

Other revenues and income -- --

TOTAL VALUE OF PRODUCTION -- --

B - COSTS OF PRODUCTION

Services 92,479 130,064

Amortization, depreciation and write-downs

Amortization of intangible assets 2,416 3,380

Miscellaneous operating costs 25,325 134,687

TOTAL COSTS OF PRODUCTION 120,220 268,131

OPERATING INCOME (LOSS) (120,220) (268,131)

C - FINANCIAL INCOME AND EXPENSES

Income from equity investments

Subsidiaries 6,339,364 5,583,427

Other financial income

Income other than the above

Other 148,992 88,126

Interest and other financial charges

Other -- 152

TOTAL FINANCIAL INCOME AND EXPENSES 6,488,356 5,671,401

D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- --

E - EXTRAORDINARY GAINS AND LOSSES

Gains 104,600 92,126

Losses -- 1,605

EXTRAORDINARY ITEMS 104,600 90,521

INCOME (LOSS) BEFORE TAXES 6,472,736 5,493,791

Income taxes for the year (110,995) (61,622)

NET INCOME (LOSS) FOR THE YEAR 6,361,741 5,432,169

147


GRUPPO EDITORIALE L’ESPRESSO S.p.A.

Headquarters: ROME

Share capital at 31.12.2006: € 65,149,551.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2006 31.12.2005

Intangible assets with an indefinite useful life 220,660,859 220,660,858

Other intangible assets 2,811,161 3,369,339

Intangible assets 223,472,020 224,030,197

Tangible assets 68,035,523 74,132,977

Equity investments 391,694,134 379,552,649

Non-current receivables 348,290 727,242

Deferred tax assets 14,733,787 16,670,202

NON-CURRENT ASSETS 698,283,754 695,113,267

Inventories 30,398,197 27,790,838

Trade receivables 119,111,943 118,860,859

of which from associated companies 102,261,915 98,782,928

Tax receivables 25,115,809 38,765,743

of which receivable from associated companies 2,437,298 6,966,619

Other receivables 11,194,173 9,893,993

Cash and cash equivalents 219,313,119 230,093,697

of which with associated companies 59,859,659 39,215,349

CURRENT ASSETS 405,133,241 425,405,130

TOTAL ASSETS 1,103,416,995 1,120,518,397

LIABILITIES AND SHAREHOLDERS' EQUITY

31.12.2006 31.12.2005

Share capital 65,149,551 65,071,648

Reserves 131,897,461 163,351,911

Retained earnings (losses) 49,826,975 26,133,512

Net income (loss) for the year 85,927,510 83,128,474

SHAREHOLDERS' EQUITY 332,801,497 337,685,545

Borrowings 338,744,633 345,249,565

Provisions for risks and losses 6,969,941 7,582,603

TFR and other personnel funds 47,576,131 45,555,983

Deferred tax liabilities 40,676,591 35,117,100

NON-CURRENT LIABILITIES 433,967,296 433,505,251

Borrowings 168,319,724 168,377,992

of which from associated companies 159,078,867 159,283,247

Provisions for risks and losses 2,847,972 2,993,100

Trade payables 115,232,168 132,589,349

of which to associated companies 23,847,651 21,612,734

Tax payables 12,128,359 6,804,244

of which to associated companies 6,188,844 591,434

Other payables 38,119,979 38,562,916

CURRENT LIABILITIES 336,648,202 349,327,601

TOTAL LIABILITIES 770,615,498 782,832,852

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,103,416,995 1,120,518,397

148


GRUPPO EDITORIALE L’ESPRESSO S.p.A.

Headquarters: ROME

Share capital at 31.12.2006: € 65,149,551.00

INCOME STATEMENT

(in euro)

2006 2005

Revenues 657,905,137 649,191,974

of which from associated companies 3,176,940 299,266,251

Change in product inventories (1,011,526) 2,042,701

Other operating income 7,222,198 22,852,133

of which from associated companies 97,926 23,494

Costs for the purchase of goods (122,957,111) (116,232,470)

of which from associated companies 472,261 343,061

Costs for services (332,542,877) (334,793,421)

of which from associated companies (97,828,025) (92,279,608)

Other operating expenses (6,242,749) (9,155,075)

of which from associated companies (4,476) (856,984)

Personnel costs (112,035,293) (111,836,004)

of which from associated companies 67,359 (70,962)

Amortization, depreciation and write-downs (13,251,245) (14,733,432)

Operating income 77,086,534 87,336,406

Net financial income (expenses) (14,958,372) (21,503,583)

of which from associated companies (2,514,835) (418,421)

Dividends 56,319,888 47,175,878

of which from associated companies 56,319,888 47,175,878

Income before taxes 118,448,050 113,008,701

Taxes (32,520,540) (29,880,227)

NET INCOME (LOSS) 85,927,510 83,128,474

Basic earnings per share 0.201 0.193

Diluted earnings per share 0.195 0.187

149


SOGEFI S.p.A.

Headquarters: MANTUA

Share capital at 31.12.2006: € 58,926,707.84

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

CURRENT ASSETS

Cash and cash equivalents 6,201,827 19,599,084

Centralized treasury accounts with subsidiaries 21,460,909 10,027,842

Securities and available-for-sale financial assets 4,442 25,344

Loans and similar financial receivables with subsidiaries 26,123,308 20,163,332

WORKING CAPITAL

Trade receivables 2,304,693 2,275,442

of which with subsidiaries 1,773,649 2,009,224

of which with the parent company 529,804 266,219

Other receivables 130,437 179,352

Tax assets 275,643 314,860

Other assets 215,594 186,758

of which with subsidiaries 139,316 113,109

TOTAL WORKING CAPITAL 2,926,367 2,956,412

TOTAL CURRENT ASSETS 56,716,853 52,772,014

NON-CURRENT ASSETS

FIXED ASSETS

Real estate investment: land 12,154,000 12,154,000

Real estate investment: other buildings 15,173,100 15,173,100

Other tangible assets 101,090 118,123

Intangible assets 47,049 40,742

TOTAL FIXED ASSETS 27,475,239 27,485,965

OTHER NON-CURRENT ASSETS

Investments in subsidiaries 256,420,932 256,996,593

Other available-for-sale financial assets 10,180 2,954

Loans and similaar financial receivables 91,759,986 91,800,000

of which with subsidiaries 91,459,301 91,800,000

of which other medium/long term assets for cash flow hedging 300,685 --

Other receivables 2,513 1,105

Advanced taxes 1,415,582 1,417,406

TOTAL OTHER NON-CURRENT ASSETS 349,609,193 350,218,058

TOTAL NON-CURRENT ASSETS 377,084,432 377,704,023

TOTAL ASSETS 433,801,285 430,476,037

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

CURRENT LIABILITIES

Current bank borrowings 7,098,833 148,844

Centralized treasury accounts with subsidiaries 58,205,452 32,792,250

Current part of long-term loans and other borrowings 2,750,444 95,847,728

TOTAL SHORT-TERM FINANCIAL LIABILITIES 68,054,729 128,788,822

Other financial liabilities for cash flow hedging -- 131,870

TOTAL BORROWINGS AND SHORT-TERM CASH-FLOW HEDGING 68,054,729 128,920,692

Trade payables and other payables 5,840,632 3,188,975

of which with subsidiaries 763,866 221,533

Taxes payable 230,443 2,556,991

Other current liabilities 435,618 376,074

TOTAL CURRENT LIABILITIES 74,561,422 135,042,732

NON-CURRENT LIABILITIES

MEDIUM-LONG TERM DEBT AND CASH FLOW HEDGING

Bank borrowings 102,634,967 43,928,994

Other medium-long term debt -- 1,824,350

TOTAL MEDIUM-LONG TERM DEBT AND CASH FLOW HEDGING 102,634,967 45,753,344

Other medium-long term financial liabilities for cash flow hedging -- 138,710

TOTAL MEDIUM-LONG TERM DEBT AND CASH FLOW HEDGING 102,634,967 45,892,054

OTHER LONG-TERM LIABILITIES

Long-term provisions 1,464,715 1,248,935

Deferred tax liabilities 5,032,080 5,056,578

TOTAL OTHER LONG-TERM LIABILITIES 6,496,795 6,305,513

TOTAL NON-CURRENT LIABILITIES 109,131,762 52,197,567

SHAREHOLDERS' EQUITY

Share capital 58,826,348 58,337,652

Reserves and retained earnings (losses) 168,997,307 105,336,180

Net income (loss) for the year 22,284,446 79,561,906

TOTAL SHAREHOLDERS' EQUITY 250,108,101 243,235,738

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 433,801,285 430,476,037

150


SOGEFI S.p.A.

Headquarters: MANTUA

Share capital at 31.12.2006: € 58,926,707.84

INCOME STATEMENT

(in euro)

2006 2005

FINANCIAL INCOME AND EXPENSES

1) Income from equity investments

- dividends and other income from subsidiaries 28,744,713 27,160,378

- dividends and other income from other companies 270 179

TOTAL 28,744,983 27,160,557

2) Other financial income

- from securities held for trading included in current assets 36,534 110,936

- income other than the above

interest income and commissions from subsidiaries 5,830,120 5,439,589

interest income and commissions from others and miscellaneous income 461,350 448,736

foreign exchange gains 503,193 529,644

TOTAL 6,831,197 6,528,905

3) Interest expense and other financial charges

- subsidiaries 1,155,049 248,173

- others 5,489,882 7,568,203

- foreign exchange losses 945,270 1,698,007

TOTAL 7,590,201 9,514,383

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

4) Revaluations -- --

5) Write-downs 1,346,557 6,976,463

TOTAL ADJUSTMENTS (1,346,557) (6,976,463)

6) OTHER OPERATING INCOME 9,974,550 10,527,793

of which from subsidiaries 9,718,535 9,848,080

OTHER OPERATING COSTS

7) Non-financial services 5,791,708 5,389,485

of which from subsidiaries 476,806 245,644

of which from parent company 1,850,000 1,795,000

8) Lease and rental 385,402 446,187

9) Personnel costs 4,277,725 4,676,375

10) Amortization, depreciation and write-downs 42,702 43,278

11) Risk provisions -- --

12) Other provisions -- --

13) Operating costs 1,142,168 1,145,514

TOTAL OTHER OPERATING COSTS 11,639,705 13,741,483

OPERATING INCOME 24,974,267 16,025,570

NON-OPERATING INCOME AND EXPENSES

14) Income -- 62,175,468

of which non-recurring -- 62,175,468

15) Expenses 3,116,430 552,210

of which non-recurring 2,171,515 --

NON-OPERATING INCOME (LOSS) (3,116,430) 61,623,258

INCOME BEFORE TAXES 21,857,837 77,648,828

16) Income taxes for the year (426,609) (1,913,078)

NET INCOME FOR THE YEAR 22,284,446 79,561,906

151


HSS - HOLDING SOCIETÀ E SERVIZI S.p.A.

Headquarters: MILAN

Share capital at 31.12.2006: € 4,285,610.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE -- --

B - FIXED ASSETS

I Intangible assets

Start-up and expansion costs -- 718

Concessions, licenses, trademarks and similar rights 317,606 61,563

Other assets 37,091 --

Total intangible assets 354,697 62,281

II Tangible assets

Land and buildings 1,524,553 1,524,553

Plant and machinery 13,339 3,326

Industrial and commercial equipment 4,196 --

Other assets 239,182 61,455

Assets in process and advance payments 7,180,053 2,141,779

Total tangible assets 8,961,323 3,731,113

III Financial assets

Investments in subsidiaries 46,753,095 13,098,779

Receivables

Subsidiaries - up to 12 months 8,729,141 1,125,240

Subsidiaries - over 12 months 26,718 26,718

Other companies - up to 12 months 310 310

Other companies - over 12 months 415,437 181,567

Total financial assets 55,924,701 14,432,614

TOTAL FIXED ASSETS 65,240,721 18,226,008

C - CURRENT ASSETS

I Inventories -- --

II Accounts receivable

Clients - up to 12 months 18,587 18,546

Subsidiaries - up to 12 months 3,529,742 1,424,381

Parent companies - up to 12 months 893,798 469,265

Tax assets 779,648 308,805

Advanced taxes -- --

Other - up to 12 months 561,815 109,400

Total receivables 5,783,590 2,330,397

III Financial assets not classified as fixed assets -- --

IV Cash and cash equivalents

Bank and Post office deposits 1,871,932 11,251,445

Cash and valuables on hand 694 778

Total cash and cash equivalents 1,872,626 11,252,223

TOTAL CURRENT ASSETS 7,656,216 13,582,620

D - ACCRUED INCOME AND PREPAID EXPENSES

Accrued income -- --

Prepaid expenses 53,562 25,920

TOTAL ACCRUED INCOME AND PREPAID EXPENSES 53,562 25,920

TOTAL ASSETS 72,950,499 31,834,548

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

A - Shareholders' equity

I Capital 4,285,610 2,427,729

II Additional paid-in capital 69,402,258 30,510,282

III Revaluation reserve -- --

IV Legal reserve -- --

V Statutory reserves -- --

VI Reserve for treasury stock held -- --

VII Other reserves 1 --

VIII Retained earnings (losses) (2,318,130) (1,492,847)

IX Net income (loss) for the year (2,837,300) (825,283)

TOTAL SHAREHOLDERS' EQUITY 68,532,439 30,619,881

B - PROVISIONS FOR RISKS AND LOSSES -- --

C - EMPLOYEE SEVERANCE AND LEAVING INDEMNITY FUND (TFR) 81,595 36,025

D - ACCOUNTS PAYABLE

Trade payables up to 12 months 2,125,058 919,336

Payables - subsidiaries up to 12 months 7,363 43,631

Taxes payable up to 12 months 82,474 68,846

Social security payables up to 12 months 94,454 62,511

Social security payables over 12 months 50,870 --

Other payables up to 12 months 1,227,692 80,130

Other payables over 12 months 662,960 --

TOTAL PAYABLES 4,250,871 1,174,454

E - ACCRUED EXPENSES AND DEFERRED INCOME

Other accrued expenses and deferred income 85,594 4,188

TOTAL ACCRUED EXPENSES AND DEFERRED INCOME 85,594 4,188

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 72,950,499 31,834,548

MEMORANDUM ACCOUNTS 31.12.2006 31.12.2005

(in euro)

Guarantees issued

Guarantees

Subsidiaries 54,207,508 9,693,728

Other 515,785 913,351

TOTAL MEMORANDUM ACCOUNTS 54,723,293 10,607,079

152


HSS - HOLDING SOCIETÀ E SERVIZI S.p.A.

Headquarters: MILAN

Share capital at 31.12.2006: € 4,285,610.00

INCOME STATEMENT

(in euro)

2006 2005

A - VALUE OF PRODUCTION

Revenues from sales and services -- --

Other revenues and income 1,443,685 279,371

TOTAL VALUE OF PRODUCTION 1,443,685 279,371

B - COSTS OF PRODUCTION

Services 2,493,526 516,032

Lease and rental 149,466 110,140

Personnel costs

Salaries and wages 1,178,789 631,931

Social contributions 366,763 202,025

Severance and leaving indemnity 71,571 40,928

Other costs -- --

Amortization, depreciation and write-downs

Amortization of intangible assets 29,679 22,261

Depreciation of tangible assets 35,282 18,126

Miscellaneous operating costs 645,123 179,153

TOTAL COSTS OF PRODUCTION 4,970,199 1,720,596

OPERATING INCOME (LOSS) (3,526,514) (1,441,225)

C - FINANCIAL INCOME AND EXPENSES

Income from equity investments

Subsidiaries 174,141 24,640

Total revenues from equity investments 174,141 24,640

Other financial income

Financial income other than the above

From other receivables 197,162 171,800

Total other financial income 197,162 171,800

Interest and other financial expenses

Other creditors (191,932) (3,499)

Foreign exchange gains and losses -- --

TOTAL FINANCIAL INCOME AND EXPENSES 179,371 192,941

D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- --

E - EXTRAORDINARY GAINS AND LOSSES

Gains -- --

Losses

Capital losses on disposals (328,600) --

TOTAL EXTRAORDINARY GAINS AND LOSSES (328,600) --

INCOME BEFORE TAXES (3,675,743) (1,248,284)

Income taxes for the year

Current taxes -- --

Deferred and advanced taxes 838,443 423,002

NET INCOME (LOSS) FOR THE YEAR (2,837,300) (825,282)

153


DRY PRODUCTS S.p.A.

Headquarters in Milan: Via Ciovassino 1

Share capital at March 31 2006: € 100,000.00

BALANCE SHEET

(in euro)

ASSETS 31.03.2006 * 31.03.2005

A) SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE -- --

B) FIXED ASSETS

I Intangible assets -- --

II Tangible assets

Other assets 1,299 1,570

Total tangible assets 1,299 1,570

III Financial assets

Investments in subsidiaries 188,000 4,843,834

Total financial assets 188,000 4,843,834

TOTAL FIXED ASSETS 189,299 4,845,404

C) CURRENT ASSETS

I Inventories -- --

II Receivables ** **

Subsidiaries -- -- -- 1,684,912

Parent companies -- 40,000 -- --

Others -- 138,089 -- 1,623,926

Total receivables -- 178,089 -- 3,308,838

III Financial assets not classified as fixed assets

Financial receivables - subsidiaries -- 519,151

Total financial assets -- 519,151

IV Cash and cash equivalents

Bank and Post Office deposits 3,198,268 349,450

Cash and valuables on hand 403 14

Total cash and cash equivalents 3,198,671 349,464

TOTAL CURRENT ASSETS 3,376,760 4,177,453

D) ACCRUED INCOME AND PREPAID EXPENSES 2,095 2,097

TOTAL ASSETS 3,568,154 9,024,954

LIABILITIES AND SHAREHOLDERS' EQUITY 31.03.2006 * 31.03.2005

A) SHAREHOLDERS' EQUITY

I Capital 100,000 100,000

II Additional paid-in capital -- --

III Revaluation reserves -- --

IV Legal reserve 50,955 37,898

V Reserve for treasury stock held -- --

VI Statutory reserves -- --

VII Other reserves -- --

VIII Retained earnings (losses) 368,957 120,867

IX Net income (loss) for the year 1,032,401 261,147

TOTAL SHAREHOLDERS' EQUITY 1,552,313 519,912

B) PROVISIONS FOR RISKS AND LOSSES

Other -- 1,488,073

TOTAL PROVISIONS FOR RISKS AND LOSSES -- 1,488,073

C) EMPLOYEE SEVERANCE AND LEAVING INDEMNITY FUND 25,284 21,499

D) ACCOUNTS PAYABLE ** **

Trade payables -- 51,202 -- 4,310

Payables - parent companies -- 1,897,427 -- 6,918,159

Tax payables -- 5,750 -- 13,124

Social security payables -- 7,340 -- 13,595

Other payables -- 28,838 -- 46,282

TOTAL PAYABLES -- 1,990,557 -- 6,995,470

E) ACCRUED EXPENSES AND DEFERRED INCOME -- --

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,568,154 9,024,954

154

* Financial year ended March 31 2006

* * of which due in over 12 months


DRY PRODUCTS S.p.A.

Headquarters in Milan: Via Ciovassino 1

Share capital at March 31 2006: € 100,000.00

INCOME STATEMENT

(in euro)

2006 * 2005

A) VALUE OF PRODUCTION

Other revenues and income 1,572,701 1,292,852

TOTAL VALUE OF PRODUCTION 1,572,701 1,292,852

B) COSTS OF PRODUCTION

Services 32,035 278,618

Lease and rental 15,776 29,122

Personnel costs:

Salaries and wages 166,641 172,715

Social contributions 54,805 53,126

Severance and leaving indemnity 9,225 9,123

Amortization, depreciation and write-downs 559 176,042

Risk provisions -- 49,000

Miscellaneous operating costs 27,813 128,783

TOTAL COSTS OF PRODUCTION 306,854 896,529

OPERATING INCOME (LOSS) 1,265,847 396,323

C) FINANCIAL INCOME AND EXPENSES

Other financial income:

Income other than the above

Interest and commissions from subsidiaries 10,464 24,430

Interest and commissions from others and miscellaneous income 3,430 1,813

Total other financial income 13,894 26,243

Interest expense and other financial charges

Parent companies 191,268 481,565

Others 269 2,262

Total interest expense and other financial sharges 191,537 483,827

Foreign exchange gains and losses 31 (4,619)

TOTAL FINANCIAL INCOME AND EXPENSES (177,612) (462,203)

D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

Revaluation:

of equity investments -- 505,928

Write-downs:

of equity investments -- 279,000

TOTAL ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- 226,928

E) EXTRAORDINARY GAINS AND LOSSES

Gains:

Capital gains on disposals -- 414,161

Losses:

Capital losses on disposals 5,834 --

Other charges 50,000 314,062

TOTAL EXTRAORDINARY GAINS AND LOSSES (55,834) 100,099

INCOME (LOSS) BEFORE TAXES 1,032,401 261,147

Income taxes for the year -- --

Net income (loss) for the year 1,032,401 261,147

* Financial year ended March 31 2006

155


CIR INTERNATIONAL S.A.

Headquarters: LUXEMBOURG

Share capital at 31.12.2006: € 250,000,000.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

Fixed assets

- tangible assets 4,536 695

- investments 94,077,977 64,542,798

94,082,513 64,543,493

Current assets

- receivables 61,518,209 57,616,985

- marketable securities 660,136,205 525,619,868

- cash at banks and in hand 76,886,207 268,922,737

798,540,621 852,159,590

Prepaid expenses and accrued income 32,266,160 28,567,847

Total assets 924,889,294 945,270,930

LIABILITIES AND SHAREHOLDERS’ EQUITY 31.12.2006 31.12.2005

Share capital 250,000,000 250,000,000

Legal reserve 3,684,059 2,127,106

Profit (Loss) brought forward 15,588,730 (3,993,385)

Profit for the year 693,651 31,139,068

Total shareholders’ equity 269,966,440 279,272,789

Provisions for risks and charges 31,865,154 38,260,549

Long term debt 585,000,000 585,000,000

CURRENT LIABILITIES

- short term debt 230,022 249,841

- other liabilities 6,863,947 6,029,509

7,093,969 6,279,350

Accrued expenses and deferred income 30,963,731 36,458,242

Totale liabilities 654,922,854 665,998,141

Total liabilities and shareholders' equity 924,889,294 945,270,930

156


CIR INTERNATIONAL S.A.

Headquarters: LUXEMBOURG

Share capital at 31.12.2006: € 250,000,000.00

INCOME STATEMENT

(in euro)

2006 2005

INCOME

Fixed asset income 20,259,080 23,542,580

Current asset income 149,916,272 124,497,147

Other income 1,925,000 18,559,232

Total income 172,100,352 166,598,959

EXPENSES

Value adjustment on

- tangible assets 1,715 874

- investments 1,263,138 246,428

- marketable securities 6,733,486 4,270,603

7,998,339 4,517,905

Interest and other financial expenses 158,098,964 126,970,938

Other expenses 5,189,398 3,833,048

Extraordinary expenses 120,000 138,000

Profit for the year 693,651 31,139,068

Total expenses 172,100,352 166,598,959

157


MEDINVEST Plc

Headquarters: DUBLIN

Share capital at 31.12.2006: $US 361,498.87

BALANCE SHEET

(in US dollars)

STATEMENT OF NET ASSETS 31.12.2006 31.12.2005

Current Assets

Investments in securities 491,065,525 428,148,446

Other debtors 656,657 43,183

Cash 174,576 6,303,074

Receivable for investments sold -- --

491,896,758 434,494,703

Liabilities - Amounts falling due within one year

Financial liabilities at fair value through profit or loss (3,834) --

Cash - overdrawn (7,578,612) --

Sundry payables and accrued expenses (4,818,901) (3,762,022)

Total liabilities (12,401,347) (3,762,022)

Net assets attributable to holders of redeemable participating shares 479,495,411 430,732,681

Participating shares in issue 361,490 361,490

Net asset value per participating share 1,326 1,192

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO

HOLDERS OF REDEEMABLE PARTICIPATING SHARES

31.12.2006 31.12.2005

Net assets attributable to holders of redeemable

participating shares at beginning of year 430,732,681 349,425,350

Share capital transaction -- 50,000,000

Increase/(decrease) in net assets attributable to holders of redeemable

preference shares from operations 48,762,730 31,307,331

Net assets attributable to holders of redeemable

participating shares at end of year 479,495,411 430,732,681

158


MEDINVEST Plc

Headquarters: DUBLIN

Share capital at 31.12.2006: $US 361,498.87

INCOME STATEMENT

(in US dollars)

2006 2005

Income

Bank interest 176,569 160,487

Other income 21,386 33,097

Net gain/(loss) on financial assets and liabilities at fair value through profit or loss 58,739,765 39,329,895

58,937,720 39,523,479

Expenses

Investment management fee (6,787,207) (5,744,667)

Administration fee (100,000) (100,000)

Performance fee (2,960,683) (2,098,852)

Custodian fee (104,902) (104,439)

Transaction fees (6,475) (10,898)

Directors' fees (18,098) (25,192)

Audit fee (46,464) (35,985)

Other expenses (52,216) (50,539)

Total operating expenses (10,076,045) (8,170,572)

Total operating profit 48,861,675 31,352,907

Finance costs - Distribution (98,945) (45,576)

Increase/(decrease) in net assets attributable to holders of redeemable

preference shares from operations 48,762,730 31,307,331

159


COFIDEFIN SERVICOS de CONSULTORIA Lda

Headquarters: MADEIRA

Share capital at 31.12.2006: € 125,000.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

Debts

Other debtors -- --

Total current assets -- --

Bank deposits and cash

Time deposits 3,396,950 3,292,531

Current accounts 57,119 14,874

Total banks deposits and cash 3,454,069 3,307,405

Accruals and deferred items

Accruals and income 3,571,112 3,117,952

Deferred costs -- 4

Total accruals and deferred items 3,571,112 3,117,956

TOTAL ASSETS 7,025,181 6,425,361

LIABILITIES AND SHAREHOLDERS’ EQUITY 31.12.2006 31.12.2005

SHAREHOLDERS’ EQUITY

Share capital 125,000 125,000

Legal reserve 25,000 25,000

Results carried forward 76,127 96,857

Results for the financial year 6,037,709 5,679,270

Total shareholders’ equity 6,263,836 5,926,127

Debts to third parties - Short-term

Debts to credit institutions -- --

Total current liabilities -- --

Accruals deferred items

Cost accruals 761,345 499,234

Total liabilities 761,345 499,234

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 7,025,181 6,425,361

160


COFIDEFIN SERVICOS de CONSULTORIA Lda

Headquarters: MADEIRA

Share capital at 31.12.2006: € 125,000.00

INCOME STATEMENT

(in euro)

2006 2005

INCOME

Services provided 7,596,422 6,593,359

Financial income 60,704 69,660

Total income 7,657,126 6,663,019

EXPENSES

Financial expenses 137,782 1,588

General and administrative expenses 1,481,634 982,161

Total expenses 1,619,416 983,749

PROFIT (LOSS) FOR THE YEAR 6,037,710 5,679,270

Total expenses 7,657,126 6,663,019

161


INTERGEFI S.r.l.

Headquarters: MILAN

Share capital at 31.12.2006: € 500,000.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE -- --

B - FIXED ASSETS

I Intangible assets -- --

II Tangible assets -- --

III Financial assets -- --

TOTAL FIXED ASSETS -- --

C - CURRENT ASSETS

I Inventories

Finished buildings 4,239,358 4,239,358

Total inventories 4,239,358 4,239,358

II Accounts receivable

Clients up to 12 months 381,490 118,732

Tax assets up to 12 months 12,739 1,847

Tax assets over 12 months 364 365

Others 463 668

Total receivables 395,056 121,612

III Financial assets not classified as fixed assets -- --

IV Cash and cash equivalents

Bank and post office deposits -- 10,777

Cash and valuables on hand 465 465

Total cash and cash equivalents 465 11,242

TOTAL CURRENT ASSETS 4,634,879 4,372,212

D - ACCRUED INCOME AND PREPAID EXPENSES

Other accrued income and prepaid expenses -- --

TOTAL ACCRUED INCOME AND PREPAID EXPENSES -- --

TOTAL ASSETS 4,634,879 4,372,212

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

A - SHAREHOLDERS' EQUITY

I Share capital 500,000 500,000

II Additional paid-in capital -- --

III Revaluation reserve -- --

IV Legal reserve 20,000 10,000

V Statutory reserves -- --

VI Reserve for treasury stock held -- --

VII Other reserves 123,732 2,158

VIII Retained earnings (losses) -- --

IX Net income (loss) for the year 146,119 131,575

TOTAL SHAREHOLDERS' EQUITY 789,851 643,733

B - PROVISIONS FOR RISKS AND LOSSES -- --

C - EMPLOYEE SEVERANCE AND LEAVING INDEMNITY FUND -- --

D - ACCOUNTS PAYABLE

Bank borrowings up to 12 months 240,491 230,709

Bank borrowings over 12 months 249,089 486,453

Other borrowings 91 91

Trade payables 13,797 11,648

Payables - parent companies 3,328,090 2,992,400

Tax payables 12,638 6,002

TOTAL PAYABLES 3,844,196 3,727,303

E - ACCRUED EXPENSES AND DEFERRED INCOME 832 1,176

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 4,634,879 4,372,212

162


INTERGEFI S.r.l.

Headquarters: MILAN

Share capital at 31.12.2006: € 500,000.00

INCOME STATEMENT

(in euro)

2005 2005

A - VALUE OF PRODUCTION

Revenues from sales and services 349,595 344,025

Other revenues and income 1,161 1,054

TOTAL VALUE OF PRODUCTION 350,756 345,079

B - COSTS OF PRODUCTION

Raw materials, secondary materials, consumables and goods -- 11

Services 23,605 244,430

Personnel costs

Salaries and wages -- --

Social contributions -- --

Severance and leaving indemnity -- --

Changes in inventories of raw materials

secondary materials, consumables and goods -- (215,014)

Miscellaneous operating costs 32,306 29,955

TOTAL COSTS OF PRODUCTION 55,911 59,382

OPERATING INCOME (LOSS) 294,845 285,697

C - FINANCIAL INCOME AND EXPENSES

Income from equity investments -- --

Other financial income

Income other than the above

Other 9,641 3,305

Total financial income 9,641 3,305

Interest and other financial charges

Parent companies 117,690 111,697

Others 28,040 33,406

Total interest and other financial charges 145,730 145,103

TOTAL FINANCIAL INCOME AND EXPENSES (136,089) (141,798)

D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- --

E - EXTRAORDINARY GAINS AND LOSSES

Gains

Miscellaneous 1 1

Losses

Miscellaneous -- --

TOTAL EXTRAORDINARY GAINS AND LOSSES 1 1

INCOME BEFORE TAXES 158,757 143,900

Income taxes for the year (12,638) (12,325)

NET INCOME(LOSS) FOR THE YEAR 146,119 131,575

163


CIR VENTURE S.r.l.

Headquarters: MILAN

Share capital at December 31 2006: € 10,000.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE -- --

B - FIXED ASSETS

I Intangible assets -- --

II Tangible assets -- --

III Financial assets -- --

TOTAL FIXED ASSETS -- --

C - CURRENT ASSETS

I Inventories -- --

II Receivables -- --

Receivables up to 12 months 3,197 23

Total receivables 3,197 23

III Financial assets not classified as fixed assets -- --

IV Cash and cash equivalents 2,886 8,801

TOTAL CURRENT ASSETS 6,083 8,824

D - ACCRUED INCOME AND PREPAID EXPENSES -- --

TOTAL ASSETS 6,083 8,824

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

A - SHAREHOLDERS' EQUITY

I Capital 10,000 10,000

II Additional paid-in capital -- --

III Revaluation reserves -- --

IV Legal reserve -- --

V Statutory reserves -- --

VI Reserve for treasury stock held -- --

VII Other reserves - Cover of losses -- 4,174,636

VIII Retained earnings (losses) -- --

IX Net income (loss) for the year (9,231) (4,180,212)

TOTAL SHAREHOLDERS' EQUITY 769 4,424

B - PROVISIONS FOR RISKS AND LOSSES -- --

C - EMPLOYEE SEVERANCE AND LEAVING INDEMNITY FUND -- --

D -

ACCOUNTS PAYABLE

Payables up to 12 months 5,314 4,400

TOTAL PAYABLES 5,314 4,400

E - ACCRUED EXPENSES AND DEFERRED INCOME -- --

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 6,083 8,824

164


CIR VENTURE S.r.l.

Headquarters: MILAN

Share capital at December 31 2006: € 10,000.00

INCOME STATEMENT

(in euro)

2006 2005

A - VALUE OF PRODUCTION -- --

B - COSTS OF PRODUCTION

Services 6,831 44,516

Miscellaneous operating costs 2,436 810

TOTAL COSTS OF PRODUCTION 9,267 45,326

OPERATING INCOME (LOSS) (9,267) (45,326)

C - FINANCIAL INCOME AND EXPENSES

Other financial income

Financial income other than the above:

from other receivables 79 87

Total other financial income 79 87

Interest and other financial charges

Other creditors (43) (47,595)

Total interest and other financial charges (43) (47,595)

TOTAL FINANCIAL INCOME AND EXPENSES 36 (47,508)

D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- --

E - EXTRAORDINARY GAINS AND LOSSES

Extraordinary gains -- --

Extraordinary losses

capital losses on the sale of equity investments -- (4,087,378)

TOTAL EXTRAORDINARY GAINS AND LOSSES -- (4,087,378)

INCOME BEFORE TAXES (9,231) (4,180,212)

Income taxes for the year -- --

NET INCOME (LOSS) FOR THE YEAR (9,231) (4,180,212)

165


JUPITER FINANCE S.p.A.

Headquarters: MILAN

Share capital at 31.12.2006: € 600,000.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

Cash and cash equivalents 40 10

Receivables 44,843,264 3,803,266

Equity investments 4,300,000 4,300,000

Tangible assets 202,481 57,096

Intangible assets 95,582 1,407

Tax assets 636,160 30,192

a) current 161,241 30,192

b) advanced 474,919 --

Other assets 4,125 2,759

TOTAL ASSETS 50,081,652 8,194,730

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

Payables 48,658,221 6,802,466

Tax liabilities 43,570 4,662

a) current 30,533 4,351

b) advanced 13,037 311

Other liabilities 620,721 169,621

Employee severance and leaving indemnity 18,389 1,886

Capital 600,000 600,000

Issuance premiums 900,000 900,000

Reserves 16,095 --

Net income (loss) for the year (775,344) (283,905)

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 50,081,652 8,194,730

166


JUPITER FINANCE S.p.A.

Headquarters: MILAN

Share capital at 31.12.2006: € 600,000.00

INCOME STATEMENT

(in euro)

2006 2005

Interest income and similar income 366,146 10,973

Interest expense and similar charges (277,620) (2,466)

INTEREST MARGIN 88,526 8,507

Commissions received 100,331 --

Commissions paid -- --

NET COMMISSIONS 100,331 --

Administrative costs: (1,504,251) (290,768)

a) personnel costs (670,503) (128,780)

b) other administrative costs (833,748) (161,988)

Net adjustments to the value of tangible assets (18,929) (1,220)

Net adjustments to the value of intangible assets (29,157) (113)

Other operating expenses (584,796) --

Other operating income 567,354 --

OPERATING INCOME (LOSS) (1,569,779) (292,101)

Gain(Loss) on sale of investments 143,385 --

INCOME (LOSS) FROM CURRENT OPERATIONS GROSS OF TAXES (1,237,537) (283,594)

Taxes for the year on income from current operations 462,193 (311)

INCOME (LOSS) FROM CURRENT OPERATIONS NET OF TAXES (775,344) (283,905)

Income (loss) from groups of assets held for sale net of taxes -- --

NET INCOME (LOSS) FOR THE YEAR (775,344) (283,905)

167


CIRINVEST S.p.A. (formerly Scala Capital S.p.A.)

Headquarters: MILAN

Share capital at December 31 2006: € 121,750.00

BALANCE SHEET

(in euro)

ASSETS 31.12.2006 31.12.2005

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE --

B - FIXED ASSETS 7,016 9,355

I INTANGIBLE ASSETS 7,016 9,355

Start-up and expansion costs 7,016 9,355

Historical cost 11,694 11,694

- Accrued amortization (4,678) (2,339)

Concessions, licenses, trademarks and similar rights -- --

Historical cost 13,800 --

- Accrued amortization (13,800) --

II TANGIBLE ASSETS -- --

III FINANCIAL ASSETS -- --

C - CURRENT ASSETS 343,515 974,622

I INVENTORIES -- --

II RECEIVABLES 12,872 27

Tax receivables over 12 months 8,605 27

Other receivables over 12 months 4,267 --

III FINANCIAL ASSETS NOT CLASSIFIED AS FIXED ASSETS -- --

IV CASH AND CASH EQUIVALENTS 330,643 974,595

D - ACCRUED INCOME AND PREPAID EXPENSES 2,045 --

TOTAL ASSETS 352,576 983,977

LIABILITIES AND SHAREHOLDERS' EQUITY 31.12.2006 31.12.2005

A - SHAREHOLDERS' EQUITY (134,053) 959,414

I Capital 121,750 1,000,000

II Additional paid-in capital -- --

III Revaluation reserves -- --

IV Legal reserve -- --

V Statutory reserves -- --

VI Reserve for treasury stock held -- --

VII Other reserves 837,664 --

VIII Retained earnings (losses) -- --

IX Net income (loss) for the year (1,093,467) (40,586)

B - PROVISIONS FOR RISKS AND LOSSES -- --

C - EMPLOYEE SEVERANCE AND LEAVING INDEMNITY FUND 4,899 --

D - ACCOUNTS PAYABLE 481,833 24,563

Trade payables up to 12 months 30,387 16,829

Taxes payable up to 12 months 61,332 --

Social security payables up to 12 months 34,013 --

Other payables up to 12 months 356,101 7,734

E - ACCRUED EXPENSES AND DEFERRED INCOME -- --

168

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 352,679 983,977


CIRINVEST S.p.A. (formerly Scala Capital S.p.A.)

Headquarters: MILAN

Share capital at December 31 2006: € 121,750.00

INCOME STATEMENT

(in euro)

30/6-31/12

2006 2005

A - VALUE OF PRODUCTION 2,189 --

Other revenues and income 2,189 --

B - COSTS OF PRODUCTION (1,097,777) (40,686)

Services (305,853) (37,456)

- consulting (106,764) (29,596)

- Directors' and Statutory Auditors' fees (162,963) (7,734)

- other (36,126) (126)

Lease and rental (27,562) --

Personnel costs: (667,392) --

a) salaries and wages (211,620) --

b) social contributions (88,850) --

c) severance and leaving indemnity (14,922) --

e) other costs (352,000) --

Amortization, depreciation and write-downs (16,947) (2,339)

a) Amortization of intangible assets (2,339) (2,339)

b) Depreciation of tangible assets (808) --

c) Other write-downs of fixed assets (13,800) --

Miscellaneous operating costs (80,023) (891)

OPERATING INCOME (LOSS) (1,095,588) (40,686)

C - FINANCIAL INCOME AND EXPENSES (665) 100

Other financial income 149 100

Interest and financial expenses (814) --

D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS -- --

E - EXTRAORDINARY GAINS AND LOSSES 2,786 --

Gains 2,786 --

INCOME (LOSS) BEFORE TAXES (1,093,467) (40,586)

Income taxes for the year -- --

NET INCOME (LOSS) FOR THE YEAR (1,093,467) (40,586)

169


LIST OF EQUITY INVESTMENTS

AS OF DECEMBER 31 2006

in accordance with Art. 38.2 of

D.L. no. 127/91

171


SUBSIDIARIES CONSOLIDATED WITH THE FULL LINE-BY-LINE METHOD

(in euro or foreign currency)

Name of Company

Registered

Offices

Share

capital

Currency

Parent

companies

% of

ownership

CIR GROUP

CIR INTERNATIONAL S.A. Luxembourg 250,000,000.00 € CIR S.p.A. 100.00

INTERGEFI S.r.l. Italy 500,000.00 € CIR S.p.A. 100.00

COFIDEFIN SERVICOS

DE CONSULTORIA Lda Portugal 125,000.00 € CIR S.p.A. 74.40

CIRINVEST S.p.A. (formerly Scala Capital S.p.A.) Italy 121,750.00 € CIR S.p.A. 100.00

JUPITER FINANCE S.p.A. Italy 600,000.00 € CIR S.p.A. 98.80

JUPITER MARKETPLACE S.p.A. Italy 5,000,000.00 € JUPITER FINANCE S.p.A. 100.00

SORGENIA GROUP

ENERGIA HOLDING S.p.A. Italy 120,351,238.00 € CIR S.p.A. 73.40

SORGENIA S.p.A. Italy 8,077,392.65 € ENERGIA HOLDING S.p.A. 79.25

ENERGIA ITALIANA S.p.A. Italy 26,050,000.00 € SORGENIA S.p.A. 62.00

ENERGIA PLASSIER S.r.l Italy 50,000.00 € SORGENIA S.p.A. 100.00

ENERGIA LUCANA S.p.A. Italy 2,500,000.00 € SORGENIA S.p.A. 80.00

TECNOPARCO VALBASENTO S.p.A. 20.00

100.00

ENERGIA PROGETTI S.r.l. Italy 500,000.00 € SORGENIA S.p.A. 80.00

ENERGIA MOLISE S.p.A. Italy 14,600,000.00 € SORGENIA S.p.A. 100.00

ENERGIA OPERATION S.p.A. Italy 100,000.00 € SORGENIA S.p.A. 100.00

ENERGIA APRILIA S.r.l. Italy 10,000.00 € SORGENIA S.p.A. 90.00

ENERGIA MINERVINO S.p.A. Italy 200,000.00 € SORGENIA S.p.A. 75.00

ENERGIA LOMBARDA S.p.A. Italy 120,000.00 € SORGENIA S.p.A. 100.00

ENERGIA MODUGNO S.p.A. Italy 1,620,000.00 € SORGENIA S.p.A. 90.00

SOLUXIA S.r.l. Italy 670,000.00 € SORGENIA S.p.A. 100.00

ANEMON S.p.A. Italy 1,343,156.00 € SORGENIA S.p.A. 100.00

ELIGENT S.r.l. Italy 136,050.00 € SORGENIA S.p.A. 70.00

ITALIA ENERGIA S.r.l. Italy 10,000.00 € SORGENIA S.p.A. 100.00

ENERGY STAR S.r.l. Italy 10,200.00 € SORGENIA S.p.A. 100.00

ESPRESSO GROUP

GRUPPO EDITORIALE L’ESPRESSO S.p.A. (*) Italy 65,149,550.70 € CIR S.p.A. 50.83

FIN.E.GI.L. EDITORIALE S.p.A. Italy 18,161,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

S.E.T.A. S.p.A. Italy 774,750.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 71.00

A. MANZONI & C. S.p.A. Italy 15,000,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

CENTRO PREPARAZIONE STAMPA –

C.P.S. S.p.A. Italy 520,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

ROTOCOLOR S.p.A. Italy 23,000,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

SOMEDIA S.p.A. Italy 500,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

ROTOSUD S.p.A. Italy 2,860,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

(*) 52.20% of voting rights

172


Name of Company

Registered

Offices

Share

capital

Currency

Parent

companies

% of

ownership

ELEMEDIA S.p.A. Italy 25,000,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

EDITORIALE FVG S.p.A. Italy 87,959,976.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 92.12

EDITORIALE LA NUOVA SARDEGNA S.p.A. Italy 775,500.00 € FIN.E.GI.L. EDITORIALE S.p.A. 100.00

E.A.G. S.p.A. Italy 815,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 100.00

EDIZIONI NUOVA EUROPA S.p.A. Italy 104,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 100.00

EDITORIALE LA CITTÀ S.p.A. Italy 774,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 100.00

S.E.L.P.I. S.p.A. Italy 3,202,300.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 70.00

FIN.E.GI.L. EDITORIALE S.p.A. 30.00

100.00

EDIGRAF S.r.l. Italy 312,000.00 € EDITORIALE FVG S.p.A. 66.67

KATAWEB NEWS S.r.l. Italy 10,330.00 € ELEMEDIA S.p.A. 100.00

KSOLUTIONS S.p.A. Italy 1,000,000.00 € ELEMEDIA S.p.A. 100.00

EDITORIALE METROPOLI S.p.A. Italy 500,000.00 € ELEMEDIA S.p.A. 100.00

RETE A S.p.A. Italy 9,198,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 100.00

ALL MUSIC S.p.A. Italy 6,500,000.00 € RETE A S.p.A. 100.00

SOGEFI GROUP

SOGEFI S.p.A. (**) Italy 58,926,707.84 € CIR S.p.A. 57.53

REJNA S.p.A. Italy 5,200,000.00 € SOGEFI S.p.A. 99.84

FILTRAUTO S.A. France 5,750,000.00 € SOGEFI S.p.A. 99.99

SOGEFI FILTRATION Ltd Britain 5,126,737 £ SOGEFI S.p.A. 100.00

SOGEFI FILTRATION B.V. Netherlands 1,125,000.00 € SOGEFI S.p.A. 100.00

SOGEFI FILTRATION A.B. Sweden 100,000 Sw.Kr. SOGEFI S.p.A. 100.00

SOGEFI FILTRATION S.A. Spain 12,953,713.60 € SOGEFI S.p.A. 86.08

FILTRAUTO S.A. 13.92

100.00

SOGEFI FILTRATION d.o.o. Slovenia 2,466,326,560 Sit. SOGEFI S.p.A. 100.00

ALLEVARD REJNA

AUTOSUSPENSIONS S.A. France 36,000,000.00 € SOGEFI S.p.A. 99.98

SOGEFI Inc. United States 1,000 $USA SOGEFI S.p.A. 100.00

SOGEFI FILTRATION S.p.A. Italy 21,951,000.00 € SOGEFI S.p.A. 100.00

FILTRAUTO GmbH (in liquidation) Germany 51,130.00 € SOGEFI FILTRATION B.V. 100.00

FILTRAUTO U.K. Ltd (in liquidation) Britain 6,810,000 £ SOGEFI FILTRATION Ltd 100.00

SOGEFI FILTRATION DO BRASIL Ltda Brazil 29,857,374 Real SOGEFI FILTRATION S.A. 99.99

SOGEFI FILTRATION ARGENTINA S.A. Argentina 10,691,607 Pesos SOGEFI FILTRATION DO BRASIL Ltda 91.90

FILTRAUTO S.A. 7.28

SOGEFI FILTRATION S.p.A. 0.81

99.99

SHANGHAI SOGEFI FILTRATION Co., Ltd China 3,600,000 $USA SOGEFI FILTRATION S.p.A. 70.00

ALLEVARD SPRINGS Co. Ltd Britain 4,000,002 £ ALLEVARD REJNA AUTOSUSPENSIONS S.A. 100.00

ALLEVARD FEDERN GmbH Germany 50,000.00 € ALLEVARD REJNA AUTOSUSPENSIONS S.A. 100.00

ALLEVARD REJNA ARGENTINA S.A. Argentina 600,000 Pesos ALLEVARD REJNA AUTOSUSPENSIONS S.A. 99.97

IBERICA DE SUSPENSIONES S.L. (ISSA) Spain 10,529,668.00 € ALLEVARD REJNA AUTOSUSPENSIONS S.A. 50.00

ALLEVARD MOLAS DO BRAZIL Ltda Brazil 37,161,683 Real ALLEVARD REJNA AUTOSUSPENSIONS S.A. 99.99

ALLEVARD SPRINGS Co. Ltd 0.01

100.00

(**) 58.41% of voting rights

173


Name of Company

Registered

Offices

Share

capital

Currency Parent

companies

% of

ownership

UNITED SPRINGS Ltd Britain 6,500,000 £ ALLEVARD REJNA AUTOSUSPENSIONS S.A. 100.00

UNITED SPRINGS B.V. Netherlands 254,979.00 € ALLEVARD REJNA AUTOSUSPENSIONS S.A. 100.00

SHANGHAI ALLEVARD SPRINGS Co. Ltd China 5,335,308.00 € ALLEVARD REJNA AUTOSUSPENSIONS S.A. 60.58

UNITED SPRINGS S.A.S. France 10,218,000.00 € ALLEVARD REJNA AUTOSUSPENSIONS S.A. 99.99

ALLEVARD SPRINGS U.S.A. Inc. United 20,055,000 $USA SOGEFI S.p.A. 31.41

States ALLEVARD REJNA AUTOSUSPENSIONS S.A. 58.12

89.53

COOPERS FILTERS Ltd Britain 3,000,000 £ SOGEFI FILTRATION Ltd 100.00

LUHN & PULVERMACHER – DITTMANN

& NEUHAUS GmbH Germany 50,000.00 € ALLEVARD FEDERN GmbH 100.00

HOLDING SANITÀ E SERVIZI GROUP

HSS – HOLDING SANITÀ E SERVIZI S.p.A. Italy 4,285,610.00 € CIR S.p.A. 85.28

VILLA MARGHERITA S.r.l. Italy 751,000.00 € HOLDING SANITÀ E SERVIZI S.p.A. 100.00

CASAVERDE S.p.A Italy 910,000.00 € HOLDING SANITÀ E SERVIZI S.p.A. 100.00

REDANCIA S.r.l. Italy 100,000.00 € HOLDING SANITÀ E SERVIZI S.p.A. 100.00

REHAB S.r.l. Italy 120,000.00 € HOLDING SANITÀ E SERVIZI S.p.A. 100.00

OSPEDALE DI SUZZARA S.p.A. Italy 1,000,000.00 € HOLDING SANITÀ E SERVIZI S.p.A. 65.00

RESIDENZE ANNI AZZURRI S.r.l. Italy 15,567,034.00 € HOLDING SANITÀ E SERVIZI S.p.A. 100.00

SODEMARE S.A. Luxembourg 671,000.00 € RESIDENZE ANNI AZZURRI S.r.l. 100.00

LA NUOVA PALMA S.r.l. Italy 10,200.00 € RESIDENZE ANNI AZZURRI S.r.l. 100.00

RESIDENZE ANNI AZZURRI MONZA S.p.A. Italy 2,064,000.00 € RESIDENZE ANNI AZZURRI S.r.l. 100.00

MEDIPASS S.p.A. Italy 700,000.00 € HOLDING SANITÀ E SERVIZI S.p.A. 100.00

MEIA S.r.l. Italy 50,000.00 € CASAVERDE S.p.A. 60.00

DRY PRODUCTS GROUP

DRY PRODUCTS S.p.A. Italy 100,000.00 € CIR S.p.A. 55.00

FOOD MACHINERY MEDIUM VOLUME S.p.A.

(in liquidation) Italy 3,000,000.00 € DRY PRODUCTS S.p.A. 100.00

CIR INTERNATIONAL GROUP

CIR VENTURES L.P. United States 20,020,000 $USA CIR INTERNATIONAL S.A. 99.00

MEDINVEST Plc Ireland 361,489.87 $USA CIR INTERNATIONAL S.A. 87.02

174


SHAREHOLDINGS IN JOINT VENTURES AND AFFILITED COMPANIES

VALUED USING THE EQUITY METHOD

(in euro or foreign currency)

Name of Company

Registered

Offices

Share

capital

Currency

Parent

companies

% of

ownership

SORGENIA GROUP

TIRRENO POWER S.p.A. Italy 91,130,000.00 € ENERGIA ITALIANA S.p.A. 50.00

ESPRESSO GROUP

LE SCIENZE S.p.A. Italy 103,400.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 50.00

SAIRE S.r.l. Italy 46,800.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 50.00

EDITORIALE CORRIERE ROMAGNA S.r.l. Italy 2,856,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 49.00

EDITORIALE LIBERTÀ S.p.A. Italy 1,000,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 35.00

ALTRIMEDIA S.p.A. Italy 517,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 35.00

SOGEFI GROUP

ALLEVARD RESSORTS COMPOSITES S.A.S. France 300,000.00 € ALLEVARD REJNA AUTOSUSPENSIONS S.A. 50.00

175


SHAREHOLDINGS IN SUBSIDIARIES AND AFFILIATED COMPANIES

VALUED USING THE COST METHOD (*)

(in euro or foreign currency)

Name of Company

Registered

Offices

Share

capital

Currency

Parent

companies

% of

ownership

CIR GROUP

CIR VENTURE S.r.l. (non- operational) Italy 10,000.00 € CIR S.p.A. 100.00

SORGENIA GROUP

TECNOPARCO VALBASENTO S.p.A. Italy 945,000.00 € SORGENIA S.p.A. 20.00

E-ENERGY S.r.l. Italy 15,000.00 € SORGENIA S.p.A. 20.00

EOLICA BISACCIA S.r.l. Italy 10,000.00 € SORGENIA S.p.A. 20.00

NOVENTI SORGENIA VENTURES LP United States 3,030,303.00 $USA SORGENIA S.p.A. 99.00

SENECA S.c.a.r.l. Italy 10,000.00 € SORGENIA S.p.A. 86.25

ESPRESSO GROUP

SANDALYAWEB S.r.l. (in liquidation) Italy 75,000.00 € EDITORIALE LA NUOVA SARDEGNA S.p.A. 51.00

ELEMEDIA S.p.A. 49.00

100.00

RADIO DEEJAY Kft (in liquidation) Hungary 50,000,000 HuF. ELEMEDIA S.p.A. 100.00

ENOTRYA S.r.l. (in liquidation) Italy 78,000.00 € ELEMEDIA S.p.A. 70.00

ZIVAGO S.p.A. (in liquidation) Italy 3,096,000.00 € ELEMEDIA S.p.A. 50.00

CELLULARMANIA.COM S.r.l.

(in liquidation) Italy 10,400.00 € ELEMEDIA S.p.A. 100.00

UHURU MULTIMEDIA S.r.l.

(non-operational) Italy 10,400.00 € KSOLUTIONS S.p.A. 100.00

BENEDETTINE S.r.l. (in liquidation) Italy 255,000.00 € FIN.E.GI.L. EDITORIALE S.p.A. 35.00

SOGEFI GROUP

MAKKAWI CARS & LORRIES Co. Sudan 900,000 Ls.Pt. REJNA S.p.A. 25.00

HOLDING SANITÀ E SERVIZI GROUP

CONSORZIO CORIMADE Italy 6,000.00 € CASAVERDE S.p.A. 50.00

CIR GROUP INTERNATIONAL

CIGA - Luxembourg S.a.r.l. Luxembourg 3,500,000.00 € CIR INTERNATIONAL S.A. 100.00

BANQUE DUMENIL LEBLE S.A.

(in liquidation) France 16,007,146.81 € CIR INTERNATIONAL S.A. 100.00

DUMENIL LEBLE (BELGIUM) S.A.

(in liquidation) Belgium 7,561,217.00 € CIR INTERNATIONAL S.A. 100.00

DUMENIL LEBLE (SUISSE) S.A. Switzerland 441,650 SFR CIR INTERNATIONAL S.A. 100.00

VELASQUEZ VIE S.A. (in liquidation) France 59,980.46 € CIR INTERNATIONAL S.A. 100.00

PHA – Participations Hotelières Astor France 12,150.00 € CIR INTERNATIONAL S.A. 99.99

CIR VENTURES MANAGEMENT CO. L.L.C. United States 7,100 $USA CIR INTERNATIONAL S.A. 20.00

(*) Holdings that are non-significant, non-operational or of recent acquisition, unless stated otherwise

176


SHAREHOLDINGS IN OTHER COMPANIES

VALUED USING THE COST METHOD (*)

(in euro or foreign currency)

Name of Company

Registered

Offices

Share

capital

Currency

Parent

companies

% of

ownership

CIR GROUP

C IDC S.p.A.

(in liquidation and settlement with creditors) Italy 4,000,000.00 € CIR S.p.A. 1.23

SORGENIA GROUP

8.2 ENERGIA S.r.l. Italy 100,000.00 € ANEMON S.p.A. 2.50

ESPRESSO GROUP

A.G.F. S.r.l. Italy 30,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 10.00

AGENZIA A.N.S.A. S. COOP. A.r.l. Italy 12,307,880.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 3.21

FIN.E.GI.L. EDITORIALE S.p.A. 3.21

EDITORIALE LA NUOVA SARDEGNA S.p.A. 3.21

EDITORIALE FVG S.p.A. 3.21

S.E.T.A. S.p.A. 2.56

E.A.G. S.p.A. 1.92

17.32

CONSULEDIT S. CONSORTILE a.r.l. Italy 20,000.00 € GRUPPO EDITORIALE L’ESPRESSO S.p.A. 6.62

FIN.E.GI.L. EDITORIALE S.p.A. 3.99

EDITORIALE LA NUOVA SARDEGNA S.p.A. 0.62

S.E.T.A. S.p.A. 0.49

EDITORIALE FVG S.p.A. 0.47

E.A.G. S.p.A. 0.39

12.58

E-INK CORPORATION United States 71,190,856 $USA GRUPPO EDITORIALE L’ESPRESSO S.p.A. 0.26

IMMOBILIARE EDITORI GIORNALI S.r.l. Italy 830,462.00 € S.E.T.A. S.p.A. 0.17

EDITORIALE LA NUOVA SARDEGNA S.p.A. 0.12

0.29

TRENTO PRESS SERVICE S.r.l. Italy 260,000.00 € S.E.T.A. S.p.A. 14.40

AGENZIA INFORMATIVA

ADRIATICA d.o.o. Slovenia 2,120,000 Sit. EDITORIALE FVG S.p.A. 19.00

CLUB D.A.B. ITALIA – CONSORZIO Italy 18,075.96 € ELEMEDIA S.p.A. 14.29

AUDIRADIO S.r.l. Italy 258,000.00 € A. MANZONI & C. S.p.A. 3.63

PRESTO TECHNOLOGIES Inc. (non- operational) United States 7,663,998.4 $USA ELEMEDIA S.p.A. 7.83

CERT – CONSORZIO EMITTENTI

RADIO TELEVISIVE Italy 178,563.57 € RETE A S.p.A. 6.67

CONSORZIO COLLE MADDALENA Italy 62,223.84 € RETE A S.p.A. 4.17

TELELIBERTÀ S.p.A. Italy 500,000.00 € FIN.E.GI.L. S.p.A. 19.00

SOGEFI GROUP

AFICO FILTERS S.A.E. Egypt 10,000,000 EGP SOGEFI FILTRATION S.p.A. 19.00

(*) Holdings lower than 20%

177


SHAREHOLDINGS IN SUBSIDIARIES AND AFFILITED COMPANIES AND IN OTHER COMPANIES

NOT INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS

(in euro or foreign currency)

Name of Company

Registered

Offices

Share

capital

Currency

Parent

companies

% of

ownership

SOGEFI GROUP

FILTRAUTO DO BRASIL Ltda Brazil 354,600 Real SOGEFI FILTRATION DO BRASIL Ltda 99.00

FILTRAUTO S.A. 1.00

100.00

INTEGRAL S.A. Argentina 2,515,600 Pesos FILTRAUTO S.A. 93.50

SOGEFI FILTRATION ARGENTINA S.A. 6.50

100.00

LES NOUVEAUX ATELIERS Belgium 2,880,000.00 € SOGEFI S.p.A. 74.90

MECANIQUES S.A. (in liquidation) REJNA S.p.A. 25.10

100.00

CIR INTERNATIONAL GROUP

C.B.D.O. - COMPAGNIE BOURGUIGNONNE

DES OENOPHILES EURL France 9,000.00 € CIGA LUXEMBOURG S.a.r.l. 100.00

SO.GE.LOC. S.a.r.l. France 7,622.45 € C.B.D.O. EURL 99.80

VICTOR HUGO CENTRE D’AFFAIRES S.a.r.l. France 7,622.45 € C.B.D.O. EURL 76.00

FINAL S.A. France 2,324,847.00 € C.B.D.O. EURL 47.73

178


Report of the Board of Statutory Auditors

179


C.I.R. S.p.A.

REPORT OF THE BOARD OF STATUTORY AUDITORS IN ACCORDANCE

WITH THE TERMS OF ARTICLE 153 D. LGS. NO. 58/1998 AND

ARTICLE 2429, PARAGRAPH 2 OF THE CIVIL CODE

(TRANSLATION FROM THE ORIGINAL ISSUED IN ITALIAN)

To the Meeting of the Shareholders of C.I.R. S.p.A.

During financial year ended December 31 2006 we performed the surveillance activities required

of us by law, according to the Principles of Conduct for Statutory Auditors recommended

by the National Councils of Business Consultants and Accountants. In the preparation

of this report we took into account both the aforesaid principles and the indications

given by Consob in its Communiqué no. 1025564 of April 6 2001.

Concerning the way in which the institutional duties included in our mandate were carried

out, we hereby attest that:

– We attended all the Shareholders’ Meetings and all the Meetings of the Board of Directors

that were held during the year under examination and obtained regularly from the

Directors, sometimes on an informal basis, timely and suitable information on the activity

that had been carried out by the Company and the Group of companies which it controls,

with particular regard to the most significant transactions from the economic, financial

and equity points of view;

– We obtained a degree of knowledge necessary to carry out the duties contained in our

mandate, verifying that the organizational structure of the Company was adequate and

that the principles of sound administration were being complied with. We did this by

means of direct investigation, gathering information from the heads of the appropriate

departments and by exchanging relevant data and information with the firm of independent

auditors;

– We monitored – both as a Board and through individual action – how well the system of

internal control and the administration and accounting systems functioned, in order to

evaluate how well they meet operational needs; we also assessed the reliability of the

accounting system to represent operational events, through direct investigation, gathering

information from the heads of the various functions and analysing the results of the

work carried out by the firm of independent auditors;

181


– We monitored the functional efficiency of the control system for the companies in

which CIR holds a stake and verified the adequacy of the instructions given to them,

even according to the terms of Article 114.2 of D.L. no. 58/98;

– We verified that the provisions of the law and of regulations were being complied with

in relation to the preparation, the organization and the layout of the Statutory Financial

Statements and the Consolidated Financial Statements and the documents accompanying

them and also in relation to the adoption by the Company of IAS/IFRS international

accounting standards;

– We checked that the Management Report for financial year 2006 conformed to current

laws and regulations and was consistent with the resolutions adopted by the Board of

Directors and also with the events represented in the Statutory Financial Statements for

the period and in the consolidated accounts. The Semi-Annual Interim Report required

no observations to be made by the Board of Statutory Auditors. The Semi-Annual and

Quarterly Interim Reports were made public as required by law and by regulations on

the subject.

In the course of our surveillance activity, carried out as above, no significant facts emerged

requiring notification to Surveillance Bodies. On the basis of what emerged from our own

direct action and from the information we collected, the choices made by the Directors appeared

to us to be in conformity with the law and with the Company Bylaws, with the principles

of sound administration and consistent and compatible with the size of the Company

and with its net worth.

* * *

The specific indications that this report must provide are listed below, in accordance with

the above-cited Consob Communiqué of April 6, 2001.

- We obtained sufficient information on the most significant transactions from the economic,

financial and equity viewpoint which were entered into by the Company and its

subsidiaries, ensuring that these transactions were in conformity with the law and with

the Company Bylaws; the Directors have given full details of these transactions in their

Management Report; we also obtained information in an informal way and we made

certain that the operations approved and/or put in place were not imprudent, rash or in

contrast with the resolutions adopted or in potential conflict of interest and that they

were based on the principles of sound company management;

182


- The regular checks and controls that we carried out on the Company did not reveal any

non-typical or unusual transactions entered into with third parties, related parties or intercompany

parties;

- Regarding routine transactions entered into with third parties, related parties and intercompany

parties, the Directors in their Management Report have given sufficient information

on the principal transactions entered into and on the relations between C.I.R.

S.p.A., the companies of the Group to which it belongs and/or any related parties, stating

that the transactions involved took place at normal market conditions and in the interests

of the Company and of the Group and we agree with this judgement; the transactions

in question were mainly intercompany loans, both as borrower and as lender,

the issue of guarantees and the provision of management services; financial details and

the economic effects of these transactions are given in the documents accompanying

the Statutory Financial Statements;

- On April 6 2007 the firm of auditors PriceWaterhouseCoopers S.p.A. issued their Audit

Reports for the Statutory Financial Statements for the year and the consolidated accounts

as of December 31 2006 which do not contain any objections or requests for information;

- We did not receive any complaints as per Article 2408 of the Civil Code or any petitions,

neither did we hear of any such complaints being made to others;

- During the year the firm of independent auditors and other companies connected with

this firm were not awarded any further contracts by CIR S.p.A. apart from the audit

mandate. Within the sphere of the Group, however, mandates were given by the

Sorgenia S.p.A. Group for a total of Euro 43,000 for due diligence activity and activity

relating to D.Lgs 231/2001, by the Holding Sanità e Servizi S.p.A. Group for Euro

314,000 and by Cir International S.A. for Euro 340,330, both for due diligence work.

These fees seem reasonable in consideration of the size and complexity of the work

carried out. Regarding subsidiaries whose shares are traded on regulated markets, for

the year under examination the firm of independent auditors and other companies associated

with this firm were awarded mandates by the subsidiary Sogefi S.p.A. (Group)

for a total of Euro 332,890, and by the subsidiary Gruppo Editoriale l’Espresso S.p.A.

for a total of 137,911, as can be seen from the information obtained from their respective

controllers;

- During the year under examination we gave no opinions;

183


- During 2006 the Board of Directors met 6 times and the Board of Statutory Auditors

was present at all of these meetings; the Board of Statutory Auditors also met 5 times,

meeting the firm of independent auditors holding the mandate twice; there were numerous

meetings of individual Auditors with members of the Company management;

- We have no particular observations to make concerning compliance with the principles

of correct administration because these appear to have been constantly observed, nor

have we any observations to make on the adequacy of the organizational structure

which we found to be appropriate for satisfying the operational needs of the Company

and the Group;

- We carried out an evaluation of the adequacy of the system of internal control, of the

administrative and accounting system and of the reliability of the latter to represent operational

events correctly; in particular we monitored the functional capacity of the

control systems of the subsidiaries and verified that the latter had received adequate instructions,

even in relation to the terms of Article 114.2 of D.L. no. 58/1998. These instructions

were deemed to be adequate for the structure and size of the Group and no

necessary corrective action was identified;

- We took due note of the work carried out by the firm of independent auditors, directed

towards ascertaining that the Company accounts were being kept correctly and that operational

events were being recorded in such a way as to enable them to be used as a

basis for the preparation of Statutory Financial Statements in accordance with the provisions

of the law; in particular we requested and were given by the independent auditors

full information concerning the work carried out regarding the preparation of the

Financial Statements in question; no significant aspects emerged from this;

- The Company has substantially adhered to the recommendations of the March 2006

edition of the Code of Conduct of the Committee for the Corporate Governance of

Listed Companies, and has illustrated its corporate governance model in the report that

will be published in accordance with the Instructions to the Rules of Borsa Italiana

S.p.A. To the extent of our responsibility we have been monitoring the way in which

the rules of corporate governance set forth in the above-mentioned Code of Conduct

were actually being implemented, ensuring among other things that the Corporate Governance

Report of CIR S.p.A. contained the results of the regular check that the Board

of Statutory Auditors has the necessary requisites of independence, which are determined

on the same basis as those for the Members of the Board of Directors;

184


- The Board of Statutory Auditors attended the meetings of the Internal Control Committee

and examined the minutes of the meetings of the Compensation Committee. Lastly,

concerning the provisions of D.L. nos. 231/2001 and 61/2002, the Company has

adopted a Code of Ethics governing conduct, and has appointed the Surveillance Body

as required by regulations on this subject; it has also adopted and implemented an “Organizational

Model” for the conduct and regulation of business.

- Our surveillance activity was carried out on a routine basis during 2006 and did not reveal

any omissions, facts that could be censured or any irregularities worthy of note.

In giving a positive overall judgement on the results of our surveillance activity, as regards

the Statutory and Consolidated Financial Statements, after having verified that all the terms

of the law governing the preparation and the format of the same had been respected, we

consider the Statutory Financial Statements for the year to be worthy of your approval, together

with the proposed allocation of the net income for the period, as formulated by the

Board of Directors in their Management Report, and in the absence of any further proposals

made by the Board of Statutory Auditors pursuant to the terms of Article 153.2 of D.L. no.

58/1998.

Milan, April 10 2007

THE BOARD OF STATUTORY AUDITORS

Prof. Pietro Manzonetto – Chairman of the Board of Statutory Auditors

Dott. Riccardo Zingales – Statutory Auditor

Dott. Luigi Nani – Statutory Auditor

185


Reports of the Independent Auditors

187


189


191

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