Annual Accounts and Report as at 30 June 2011 Draft - Mediobanca

The book value of the investment in Telco fell from €358.1m to €252.6m, reflecting the€119.6m writedown charged by the company to its accounts for the period ended 30 April 2011(drawn up in accordance with IAS) in respect of its Telecom Italia investment, the value of whichwas written down from €2.2 to €1.8 per share. This book value is not considered to be higher thanits value in use as defined in paragraph 33 of IAS 28, for the following reasons:— with a share of 22.4% in Telecom Italia, Telco is the main shareholder in the Telecom Italiagroup;— the time horizon of the investment is medium-/long-term;— the value assigned to the Telecom Italia share price is consistent with the results of applying adiscounted cash flow model based on recent strategic guidance and targets for the 2011-2013period presented by Telecom Italia management on 25 February 2011, given the resultsdelivered by the Domestic business unit for the first months of the current financial year,which reflect the deterioration in the financial market and the prospects of a weaker macroeconomicscenario;— deals have been announced in the reference sector which imply valuation multiples that aresignificantly higher than those reflected in current stock market prices.Based on stock market prices as at 30 June 2011, the value of Telco’s net equity would be nil.As for the Group’s shareholding in RCS MediaGroup, this has a book value of €191.7m, whichis not considered to be higher than its value in use based on a discounted cash flow model thattakes into account the earnings prospects of the publishing industry and the company’sreorganization process, which involves developing multi-media business, brand valorization andstructural cost cutting. The higher value compared to stock market prices at the reporting date,which reflect an implicit loss of €66.5m, is justified by the size of the Group’s holding, whichconstitutes a relative majority, and the unique nature of some of the company’s assets.106 –