Annual Report 2008 by Archivio Documenti

CIR CONSOLIDATED FINANCIAL STATEMENTS, STATUTORY FINANCIAL STATEMENTS AND ANNUAL REPORT FINANCIAL YEAR 2008

CONTENTS

ADMINISTRATIVE BODIES ................................................................................................................................ 4 LETTER TO THE SHAREHOLDERS ..................................................................................................................... 7 ANNUAL REPORT REPORT ON OPERATIONS ........................................................................................................................................11 1. 2. 3. 4. 5. 6. 7. 8. 9.

PERFORMANCE OF THE GROUP...........................................................................................................................16 PERFORMANCE OF THE PARENT COMPANY…………. ..........................................................................................20 CHART RECONCILING THE FIGURES OF THE PARENT COMPANY WITH THOSE OF THE CONSOLIDATED FINANCIAL STATEMENTS .......................................................................21 PERFORMANCE OF THE BUSINESS SECTORS………………….................................................................................23 OTHER ACTIVITIES ..............................................................................................................................................30 SIGNIFICANT EVENTS WHICH OCCURRED AFTER THE CLOSE OF THE YEAR.......................................................31 MAIN RISKS AND UNCERTAINTIES TO WHICH CIR S.p.A. AND THE GROUP ARE EXPOSED................................31 OTHER INFORMATION .........................................................................................................................................34 PROPOSED ALLOCATION OF NET INCOME FOR THE YEAR ..................................................................................39

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31 2008 1. 2. 3. 4. 5.

BALANCE SHEET .................................................................................................................................................42 INCOME STATEMENT..........................................................................................................................................43 CASH FLOW STATEMENT....................................................................................................................................44 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY.....................................................................................45 NOTES TO THE FINANCIAL STATEMENTS...........................................................................................................47

CONSOLIDATED FINANCIAL STATEMENTS OF THE DIRECT SUBSIDIARIES ........................................................... 127 DECLARATION AS PER ART. 36 AND 37 OF CONSOB REGULATION 16191 OF OCTOBER 29 2007 ...........................137 CERTIFICATION OF CONSOLIDATED FINANCIAL STATEMENTS AS PER ART. 154 BIS OF D.LGS. 58/98 ....................139

STATUTORY FINANCIAL STATEMENTS OF THE PARENT COMPANY AS OF DECEMBER 31 2008 1. 2. 3. 4. 5.

BALANCE SHEET .................................................................................................................................................142 INCOME STATEMENT..........................................................................................................................................143 CASH FLOW STATEMENT....................................................................................................................................144 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY.....................................................................................145 NOTES TO THE FINANCIAL STATEMENTS...........................................................................................................147

STATUTORY FINANCIAL STATEMENTS OF DIRECT SUBSIDIARIES....................................................................... 195 CERTIFICATION OF STATUTORY FINANCIAL STATEMENTS AS PER ART. 154 BIS OF D.LGS. 58/98..........................221

LIST OF EQUITY INVESTMENTS AT DECEMBER 31 2008.............................................................................. 223 REPORT OF THE BOARD OF STATUTORY AUDITORS ..................................................................................... 233 REPORTS OF THE INDEPENDENT AUDITORS .................................................................................................. 245

This annual financial report as of December 31 2008 has been drawn up in accordance with Art. 154 ter of D. Lgs. 58/1998 and prepared in conformity with the international accounting standards applicable as recognized by European Union Regulation (CE) no. 1606/2002 of the European Parliament and the Council, of July 19 2002, and also with the measures issued in implementation of Art. 9 of D. Lgs no. 38/2005.

COMPAGNIE INDUSTRIALI RIUNITE Limited-liability corporation - Share capital € 395,587,633.50 - Registered Office: Strada Volpiano, 53 – 10040 Leinì (Turin) - www.cirgroup.it R.E.A. n. 3933 – Turin Company Register / Fiscal 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 and General Manager

RODOLFO DE BENEDETTI (2)

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 (5) (8) UMBERTO ZANNI (5) FRANCA SEGRE

BOARD OF STATUTORY AUDITORS

Chairman

PIETRO MANZONETTO

Statutory Auditors

LUIGI NANI RICCARDO ZINGALES

Alternate Auditors

LUIGI MACCHIORLATTI VIGNAT GIANLUCA PONZELLINI MARCO REBOA

INDEPENDENT AUDITORS DELOITTE & TOUCHE S.p.A.

Notice in accordance with the recommendation of Consob contained in its CommuniquĂŠ no. DAC/RM/97001574 of February 20 1997: (1) (2) (3) (4) (5) (6) (7) (8)

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 Power to sign documents relating to ordinary administration with single signature Power to sign documents specified in mandate with joint signature Power to sign documents specified in mandate with single signature Member of the Compensation Committee Member of the Internal Control Committee Member of the Surveillance Body Lead Independent Director

CIR S.p.A. 103rd Year of Business ANNUAL GENERAL MEETING OF THE SHAREHOLDERS Turin, April 29 2009, 1st call Turin, April 30 2009, 2nd call

NOTICE OF ORDINARY AND EXTRAORDINARY ANNUAL GENERAL MEETING Shareholders are invited to attend the Ordinary and Extraordinary Sessions of the Annual General Meeting of the Shareholders of the Company to he held in the Congress Centre of the Unione Industriale di Torino in Turin - Via Fanti 17, on April 29 2009 at 10.30 a.m. at the first call and on April 30 2009 at the same time and the same 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 for the year ended December 31 2008. Report of the Board of Statutory Auditors. Resolutions pertaining to the above. 2. Decision as to the number of members of the Board of Directors and appointment thereof. 3. Proposal to revoke the resolution adopted on April 29 2008 authorizing the buy-back of the Company’s own shares and the disposal of the same and proposal for a new authorization. 4. Proposal regarding the approval of extraordinary stock option plan 2009. 5. Proposal regarding the approval of stock option plan 2009. Extraordinary Session 6. Proposal to revoke, for the part not yet used, the authorization given to the Board of Directors to increase the share capital and issue bonds, as approved by the Extraordinary Meeting of the Shareholders on April 27 2005, and to assign a new authorization as per the terms of Art. 2443 and Art. 2443-ter of the Civil Code. 7. Proposal to amend Art. 15 of the Company Bylaws on the subject of the procedures for calling a Shareholders’ Meeting.

As per the terms of Art. 147-ter of the Finance Consolidation Act (TUF) and Art. 8 of the Company Bylaws, Directors are elected on the basis of lists presented by the Shareholders which list the candidates in numerical order. The lists of candidates, endorsed by the Shareholders who are presenting them, must be filed with the Company headquarters at least fifteen days before the date fixed for the first call of the Shareholders’ Meeting. Only Shareholders who alone or together with other Shareholders represent at least 2.5% of the share capital with voting rights at the Annual General Meeting can present lists. Further procedures for the preparation and presentation of lists and for putting them to the vote are contained in Article 8 of the Company Bylaws the current text of which is available to Shareholders at the Company headquarters or can be consulted online on the internet website of the Company www.cirgroup.it. Shareholders who intend to present lists for the election of members of the Board of Directors are invited to consult the recommendations contained in Consob Communiqué DEM/9017893 of February 26 2009. Shareholders are entitled to attend the Meeting of Shareholders provided that their intermediaries have sent in the notification required by Article 23 of Consob / Bank of Italy Measure of February 22 2008 at least two working days before 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 38 of Consob / Bank of Italy Measure of February 22 2008, and should request that the notification as above be sent in within the time limit mentioned above. Shareholders may obtain a copy of the documentation regarding the items on the Agenda as from April 14 2009 from the Company offices or from Borsa Italiana S.p.A. THE BOARD OF DIRECTORS

Notice of this meeting was published in the newspaper "Il Sole-24 Ore" of March 26 2009

LETTER TO THE SHAREHOLDERS

Dear Shareholders, The year 2008 has seen contraction and structural change in the world economy, which is likely to last for some time. The tightening of credit and the resulting market turbulence, which started in 2007, worsened during 2008 causing an international financial crisis without precedent, which is having serious repercussions on the real economy and especially on levels of consumption. The crisis is a systemic one and has affected most sectors of the economy and business throughout the world, especially in the last quarter of 2008. In this difficult context, our group managed to grow revenues and earnings. This was possible thanks to the positive contribution made by the main operating companies, to capital gains on disposals made by Medinvest and to extraordinary gains from the capital increases in Sorgenia and Holding SanitĂ e Servizi (HSS), which highlight the value creation that took place in last few years in the energy and healthcare businesses. In terms of financial position, at the end of 2008 CIR had an aggregate net financial surplus of 44 million euro. Sorgenia confirmed its position as the main activity of the group in terms of revenues, generating 2.4 billion euro in 2008, up by over 30% compared to 2007. There was also growth in margins (gross operating income was approximately 190 million euro, posting an increase of 25%) and net income (67 million euro with an increase of 2%), despite the impact of the new income tax known as the Robin Hood Tax. The company consolidated its position as one of the main operators in the free energy market in Italy, getting close to its target of 500,000 clients. During the year Sorgenia continued to develop its plans for increasing thermoelectric generating capacity and strengthened its presence in renewable sources, especially photovoltaic and wind. Although the Espresso Group reported earnings of 21 million euro, in 2008 it was affected by the difficult situation in the media sector and was penalized by a negative first half and more especially by the significant contraction of advertising investments in the later part of the year, which continued in the first two months of 2009. The company reacted promptly to the first signs of market deterioration, taking decisions even in the first half of the year that would cut costs structurally by 50 million euro on a full year basis. These actions showed their first effects in 2008, net of the extraordinary charges of implementing them, but will give their main benefits in 2009 and 2010. Moreover, to counter the further deterioration of the market over the last few months, more action has been taken to reduce costs structurally, starting with a stringent program for reorganizing the logistics of the printing centres. Sogefi, in a year of global crisis for the automotive sector posted revenues of 1,018 million euro, down 5% on 2007, a gross operating margin of 105 million euro (-22%) and a net income of 29 million euro, down from 52 million in 2007. In Europe alone, which is the companyâ&#x20AC;&#x2122;s main market, new car registrations suffered the greatest fall in the last 15 years. However, in this environment Sogefi was able to counter the sharp contraction in demand by

trimming its production capacity and significantly reducing labour costs, without jeopardizing its future plans: indeed, during the year the company set up a joint-venture to build innovative and more eco-compatible products, and it entered the new and very promising Indian market. HSS continued in its trend of growth, which have in just five years of business enabled the company to become one of the main operators in private healthcare in Italy. The company generated revenues of 246 million euro (+35% from 183 million in 2007), a gross operating margin of 29 million, posting double digit growth (20 million in 2007), and further boosted its capacity in the rehabilitation sector with the purchase of Centro Cardinal Ferrari. Net income was negative by less than 2 million (compared to break-even in 2007) because of extraordinary provisions relating to past acquisitions. The objective of HSS is not just to grow its businesses, but also to become a point of reference in the sector for professionalism, quality of service and reception capacity. In the financial services sector, Jupiter has continued to manage its portfolio of nonperforming loans with a nominal value of 1.3 billion euro and has collected a total of 56 million euro of which 33 million in 2008, which was higher than expected, while as for the shareholding in Oakwood, a sizeable write-down was made to this investment and the business is being refocused almost exclusively on the Italian company that operates in the salary secured lending market. 2009 is likely to be even more complex than last year because the downturn in the world economy is now universally recognized as a structural crisis rather than a cyclical one, and it is likely to continue and almost certainly to get worse while it is not possible, at least for the moment, to estimate how long it will last or how much worse it will get. Our group, therefore, considers that strict financial discipline is absolutely essential and as part of this discipline the Board of Directors has opted not to distribute dividends for the year 2008. After finally abandoning the proposed spin-off of our media businesses, our commitment for the immediate future will be to continue to strengthen the industrial part of the CIR group, which means mainly consolidating the current businesses and focusing on the following five business sectors: energy, media, automotive components, healthcare and financial services. We will be concentrating on improving efficiency and reducing costs in the subsidiaries which operate in the sectors which have been more directly affected, and on further developing those businesses that are more able to weather the crisis and have the most potential for growth. The aim for our companies is to use this phase of discontinuity as an opportunity to further build up their position in terms of competition and market share. In 2009 our efforts will be focused mainly on the six following actions: -

Expanding the energy sector with Sorgenia engaged in the construction of new thermoelectric power generating plants and in the development of renewable sources in line with the business plan presented in July 2008;

Strengthening the action to cut the fixed costs of the Espresso Group in a structural way, re-launching the Manzoni advertising arm and integrating new technologies to a much greater extent; Developing new eco-sustainable products and reducing the fixed costs of Sogefi, which has been negatively affected by the sharp decline in the automotive market; Growing the healthcare business with investment in new residences for the elderly, rehabilitation centres and outsourced innovative technologies; Consolidating the business of acquiring non-performing loans (Jupiter Finance); Focusing Oakwoodâ&#x20AC;&#x2122;s portfolio on Ktesios, the Italian company active in the salary secured lending market.

The fundamental role of the shareholder operating in close contact with the management team of the subsidiaries and human capital as the essential factor for achieving lasting success in our businesses, the two principles underpinning our strategic decisions, will be the determining factors as we face the challenges that await us in this difficult year of 2009.

Signed by The Chairman Carlo De Benedetti

Signed by The Chief Executive Rodolfo De Benedetti

*******************

These financial statements are the last that I am signing as Chairman and Founder of the CIR Group, which has been at the centre of my commitment as an entrepreneur for more than thirty years. I would like to thank all members of staff who followed and helped me at various stages along the way and I wish my son Rodolfo and colleagues all the very best for the future and hope that they will continue to be as successful as we have been over the years.

Signed by The Chairman Carlo De Benedetti

REPORT ON OPERATIONS

Dear Shareholders,

In 2008 the CIR Group reported consolidated net income of € 95.5 million, up from € 82.6 million in 2007, with a rise of € 12.9 million (+15.6%). Consolidated revenues totalled € 4,728.7 million and were up by 12.2% from € 4,214.9 million in the previous year. The consolidated net result for the year included net non-recurring income of € 64.2 million, consisting of gains of € 117.8 million resulting from the subscription of capital increases in the company Sorgenia (a capital increase of € 200 million by Verbund) and in HSS (€ 20 million by Morgan Stanley) and expense of € 53.6 million from the write-down of the investment in the Oakwood group. The year was affected by the international financial crisis which in the second part of the year had serious repercussions on the real economy, hitting the sectors in which the Group operates with a varying degree of intensity, which was particularly strong in the automotive and media sectors which are most exposed to fluctuations in demand. During 2008 CIR pursued its industrial vocation, strengthening its presence in the sectors in which it operates and taking the necessary action to counter the economic and financial effects of the current crisis. The present configuration of the CIR Group includes five business sectors: utilities (electricity and gas), media (publishing, radio and television), automotive components (filters and suspension components), healthcare (residences for the elderly, rehabilitation and hospitals) and financial services (non-performing loans and personal loans secured on workers’ income). For a better assessment of the profitability of the Group, the performance in 2008 is presented below showing a breakdown of the economic contribution and the balance sheet figures of the operating groups and of the holding, which is an aggregate of the figures of CIR and of its financial holding subsidiaries. The contribution of the operating groups to consolidated net income, € 63.6 million down from € 119.9 million in 2007, declined mainly to the lower profitability of the Espresso and Sogefi groups, which were particularly affected by economic crisis. The contribution of the financial subsidiaries was a positive € 48.5 million (€ 20.1 million in 2007) and included the capital gains on the sale of shares of hedge funds by Medinvest, following

Report on Operations

redemptions for a total of € 120 million. In February 2009 a further € 35 million dollars were received, leaving the remaining investment in Medinvest at approximately € 130 million. This disinvestment was designed to meet the objective of rebalancing the portfolio in order to optimize the financial structure of the Group. The result in 2008 of CIR and the financial holdings, a negative € 80.8 million (€ 23.1 million in 2007), was generated mainly by net financial expense of € 30.7 million (€ 29.6 million in 2007) and net losses from trading and valuing securities of € 43.9 million (net gains of € 0.3 million in 2007), to the fair value adjustment of the part of the assets invested in bonds, which were penalized by the world financial market crisis. This valuation, which included bonds issued by banks with a high credit rating, was carried out on the basis of the fair value determined prudentially taking into account the worsening credit default risk, the lack of liquidity in the market and the fact that it was impossible to find dealing prices. The Group did not adopt the waiver provided by IAS 39 which would have given lower expense charged to the income statement of around € 28 million, had it been applied.

The result of the operating groups for the year 2008 are shown below for each of the main business sectors. In the utilities sector the Sorgenia group consolidated its position in the Italian electricity and gas market, approaching its target of 500,000 clients. The group continued to roll out its plan to increase its thermoelectric generating capacity and grew further in energy from renewable sources. In a difficult economic environment, the group reported revenues of € 2,433.7 million, posting a rise of 30.7% from € 1,861.7 million in 2007, an EBITDA of € 189.7 million (+24.7%) and a net income of € 66.7 million, up from € 65.2 million in 2007, despite the negative impact of the Robin Hood Tax and higher interest expense. In the media sector in 2008 the Espresso group was affected by the crisis in the publishing sector with a drastic fall in advertising investment in the second half of the year. This phenomenon had a significant impact on the results of the group: revenues fell by 6.6% to € 1,025.5 million and gross operating profitability declined to € 142.5 million (-36.2%.). Despite the negative environment, the Espresso group did however post a positive net result of € 20.6 million. The Sogefi group, the important producer of automotive components, confirmed its leadership in Europe in the two sectors in which it operates (filters and suspension components). In a year of global crisis in the automotive sector, the group achieved a positive net result of € 28.5 million (€ 52.2 million in 2007) with sales revenues of € 1,017.5 million (€ 1,071.8 million in 2007) and EBITDA of € 104.9 million, taking action to reorganize the business and cut costs to counter the economic crisis. In 2008 the HSS – Holding Sanità e Servizi group continued its growth trend which in just five years of business has enabled the group to become one of the main operators in private healthcare in Italy. The group reported consolidated revenues of € 246.3 million (+34.7%) and EBITDA of € 28.7 million, up from € 20.2 million in 2007 (+42.3%). The consolidated net result was a negative € 1.5 million compared to net income of € 0.3 million in 2007, due to negative adjustments of € 2 million on assets relating to acquisitions completed at the end of 2007. These provisions were considered appropriate in the light of the current economic and financial environment.

Report on Operations

In the financial services sector CIR is present with the company Jupiter Finance and the company Ktesios belonging to the Oakwood group. The company Jupiter Finance operates in the non-performing loan segment and since it started business it has acquired portfolios of loans with a gross book value of € 1.3 billion for a price of € 157 million. Receipts have actually been higher than the objectives set at the time the portfolios were acquired. CIR’s remaining investment in the Oakwood Global Finance group stood € 20 million at December 31 2008. The further write-down of the investment during the year, for € 54 million, was the result of the change in the business plan of Ktesios because of the worsening of the world economic situation. The company operates in the sector of loans to people in employment secured on one fifth of their salaries and in 2008 it made loans of approximately € 690 million.

The charts on the following pages show a breakdown by business sector of the economic results and the balance sheets of the Group, a breakdown of the contribution of the main subsidiaries and the aggregate results of the CIR holding and its financial holding company subsidiaries (CIR International, Cirfund, CIGA Luxembourg and CIR Investment Affiliates).

Report on Operations

INCOME STATEMENT BY BUSINESS SECTOR AND CONTRIBUTIONS TO THE RESULTS OF THE GROUP (in millions of euro)

2008

AGGREGATE Sorgenia Group Espresso Group Sogefi Group HSS Group Other subsidiaries

2,433.7 1,025.5 1,017.5 246.3 5.7

(2,319.8) (871.4) (890.5) (210.3) (28.8)

28.6 (12.8) (15.2) (10.3) 27.4

49.6 1.1 (0.3) ---

(35.0) (47.2) (47.1) (11.1) (0.1)

(45.9) (18.3) (16.2) (10.4) (4.4)

Dividends, gains & losses from trading & valuing securities (4) (0.2) (1.2) 0.1 0.1 --

Total operating subsidiaries

4,728.7

(4,320.8)

17.7

50.4

(140.5)

(95.2)

(1.2)

(106.7)

(68.8)

63.6

119.9

(1.2)

(3.8)

66.9

(13.4)

48.5

20.1

4,728.7

(4,322.0)

17.7

50.4

(140.5)

(99.0)

65.7

(106.7)

(82.2)

112.1

140.0

----

-(18.0) 5.8

-(20.6) 4.0

7.9

--0.1 ---

(1.1) (0.9) (30.6) (43.9) 7.9

(0.9) (0.9) (29.6) 0.3 24.6

CONSOLIDATED

Financial subsidiaries Total subsidiaries

Revenues

2007

Costs of Operating income Adjustments production & expense to the value of (1) (2) investments valued at equity

Amortization depreciation and write-downs

Net financial income & expense (3)

Income taxes

Net income Minority Shareholders

Net income of Group

(29.7) (54.5) (16.8) (5.5) (0.2)

(44.2) (9.9) (15.1) 0.3 0.1

37.1 11.3 16.4 (0.9) (0.3)

37.5 51.9 30.1 0.2 0.2

CIR & financial holding companies Revenues Operating costs Other operating income and expense Adjustments to the value of investments valued at equity Amortization, depreciation & write-downs Net financial income and expense Dividends, gains & losses from trading securities Income taxes

-(18.0) 5.8 (1.1) (0.9) (30.7) (43.9)

Total CIR & financial holding companies before non-recurring items

(18.0)

5.8

(1.1)

(0.9)

(30.7)

(43.9)

7.9

0.1

(80.8)

(23.1)

Non-recurring items

63.7

0.5

64.2

(34.3)

4,728.7

(4,340.0)

23.5

49.3

(141.4)

(129.7)

85.5

(98.8)

(81.6)

95.5

82.6

Total consolidated Group

(1) This item is the sum of the following: "change in inventories", "costs for purchase of goods, "costs for services", "personnel costs" in the consolidated income statement The item does not consider the effect of â&#x201A;Ź (16.3) million of intercompany elisions. (2) This item is the sum of the the following: "other operating income" and "other operating costs" in the consolidated income statement. The item does not consider the effect of â&#x201A;Ź 16.3 million of intercompany elisions. (3) This item is the sum of the following: "financial income" and "financial expense" in the consolidated income statement. (4) This item is the sum of the following: "dividends", "gains from trading securities", "losses from trading securities" and "adjustments to financial assets" in the consolidated income statement.

CONSOLIDATED BALANCE SHEET BY BUSINESS SECTOR

(in millions of euro)

31.12.2008 CONSOLIDATED

Fixed assets

AGGREGATE Sorgenia Group Espresso Group Sogefi Group HSS Group Other subsidiaries

1,666.8 911.7 364.3 292.5 0.5

Other net non-current assets&liabilities (2) 42.0 (174.0) (41.0) (21.6) 92.1

Total subsidiaries

3,235.8

(102.5)

(1)

Net working capital (3) 172.1 30.5 112.2 19.3 (4.9)

Net financial position

329.2

(4)

31.12.2007 Total equity Minority of which: Shareholders' equity

Shareholders' equity of the Group

889.0 489.3 178.3 140.7 35.6

438.5 226.9 85.7 50.1 14.0

450.5 262.4 92.6 90.6 21.6

301.8 290.4 179.5 69.5 15.3

(1,729.6)

1,732.9

815.2

917.7

856.5

-(1.2) --

44.2

129.9 159.6 12.3 44.2

129.9 160.8 12.3 44.2

125.4 197.7 27.9 112.4

(1,685.4)

2,078.9

814.0

1,264.9

1,319.9

(991.9) (*) (278.9) (257.2) (149.5) (52.1)

CIR & financial holdings Fixed assets Other net non-current assets & liabilities Net working capital

129.9 159.6 12.3

Net financial position Total consolidated of Group

3,365.7

57.1

341.5

(*) The financial position includes the cash and cash equivalents of Sorgenia Holding S.p.A. (1) This item is the algebraic sum of the following: "intangible assets", "tangible assets", "investment property", "investments in companies valued at equity" and "other equity investments" in the consolidated balance sheet (2) This item is the algebraic sum of the following: "other receivables", "securities" and "deferred taxes" in non-current assets and "other payables", "deferred taxes", "personnel provisions" and "provisions for risks and losses" in non-current liabilities of the consolidated balance sheet. (3) This item is the algebraic sum of the following: "inventories", "contracted work in progress", "trade receivables", "other receivables" in current assets and "trade payables", "other payables" and "provisions for risks and losses" in current liabilities in the consolidated balance sheet. It does not include â&#x201A;Ź 150 million reclassified under item (4) Net financial position, finding its natural offset in the item "bonds and notes". (4) This item is the algebraic sum of the following: "financial receivables", " securities", "available-for-sale financial assets" and "cash and cash equivalents" in current assets, "bonds and notes" and "other borrowings" in non-current liabilities and "bank overdrafts", "bonds and notes" and "other borrowings" in current liabilities of the consolidated balance sheet. It includes â&#x201A;Ź 150 million reclassified from item (3) Net working capital.

PERFORMANCE OF THE GROUP

Consolidated revenues for 2008 came in at € 4,728.7 million, up from € 4,214.9 million in 2007, with a rise of € 513.8 million (+12.2%). Consolidated revenues can be broken down by business sector as follows: (in millions of euro)

Change absolute

2008

2007

Utilities Sorgenia Group

2,433.7

51.5

1,861.7

44.2

572.0

30.7

Media Espresso Group

1,025.5

21.7

1,098.2

26.1

(72.7)

(6.6)

Automotive components Sogefi Group

1,017.5

21.5

1,071.8

25.4

(54.3)

(5.1)

246.3

5.2

182.9

4.3

63.4

34.7

5.7

0.1

0.3

5.4

Total consolidated revenues

4,728.7

100.0

4,214.9

100.0

513.8

12.2

of which: ITALY

3,786.3

80.1

3,248.9

77.1

537.4

16.5

942.4

19.9

966.0

22.9

(23.6)

(2.4)

Healthcare HSS Group Other sectors

FOREIGN COUNTRIES

The key figures of the consolidated income statement are as follows: (in millions of euro)

2008

2007

4,728.7

100.0

4,214.9

100.0

Consolidated gross operating margin (EBITDA) (1)

461.5

9.7

504.8

12.0

Consolidated operating income (EBIT)

320.1

6.7

382.7

9.1

(44.2)

(0.9)

(81.2)

(1.9)

(98.8)

(2.1)

(100.6)

(2.4)

0.1

Net income including minority interests

177.1

3.7

201.0

4.8

Net income attributable to minority interests

(81.6)

(1.7)

(118.4)

(2.8)

95.5

2.0

82.6

2.0

Revenues

Financial management result Income taxes Net income (loss) on assets held for disposal

Net income of the Group

(2)

1) This balance is the sum of the items “earnings before interest and taxes (EBIT)” and “amortization, depreciation and write-downs” in the consolidated income statement 2) This balance is the sum of the items “financial income”, “financial expense”, “dividends”, “gains from trading securities”, “ losses from trading securities” and “adjustments to the value of financial assets” in the consolidated income statement

The consolidated gross operating margin (EBITDA) was € 461.5 million (9.7% of revenues) in 2008 down from € 504.8 million in 2007 (12% of revenues), with a decline of € 43.3 million (-8.6%). This result was determined by the following factors: - The sizeable fall in the profitability of the Espresso and Sogefi groups, which was due to lower revenues and to the restructuring costs incurred. - The rise in the profitability of the Sorgenia and HSS groups.

Report on Operations

The consolidated operating margin (EBIT) for 2008 was € 320.1 million (6.7% of revenues) down from € 382.7 million (9.1% of revenues) in 2007, with a decline of € 62.6 million. The bigger decline compared to the change in EBITDA was due to higher amortization mainly in the Sorgenia group. The financial management result was a negative € 44.2 million compared to net expense of € 81.2 million in 2007. The improvement of € 37 million was the result of a change in non-recurring income of € 84.4 million due mainly to capital increases reserved for minority shareholders and to the rise of € 41 million in financial expense. The key figures of the consolidated balance sheet of the CIR Group at December 31 2008, compared with the same figures at December 31 2007, are as follows: (in millions of euro) (1) Fixed assets Other net non-current assets and liabilities Net working capital

31.12.2008

31.12.2007

3,365.7

3,035.2

57.1

106.5

341.5

233.6

Net invested capital

3,764.3

3,375.3

Net financial debt

(1,685.4)

(1,333.5)

Total shareholders’ equity

2,078.9

2,041.8

Group equity

1,264.9

1,319.9

814.0

721.9

Minority Shareholders’ equity

(1) These figures are the result of a different organization of the balance sheet items. For a definition of the same reference should be made to the notes referring to the chart “consolidated balance sheet by business sector” shown earlier .

Net invested capital stood at € 3,764.3 million at December 31 2008 compared to € 3,375.3 million at December 31 2007, with a rise of € 389.0 million, due essentially to a rise in the working capital and fixed asset investments of the Sorgenia group. The consolidated net financial position at December 31 2008 showed net debt of € 1,685.4 million (up by € 351.9 million from € 1,333.5 million at December 31 2007), caused by: - a financial surplus for CIR and its financial holding subsidiaries of € 44.2 million which compares with € 112.3 million at December 31 2007. The contraction of € 68.1 million that took place during the year was mainly due to disbursements made for investment in companies of the Group and own shares for € 65.8 million and to the negative fair value adjustment of bonds for € 43 million and of Medinvest for € 53 million, partly offset by the positive balance of € 101.3 million between dividends received and those paid out; - total net debt for the operating groups of € 1,729.6 million, up from € 1,445.8 million at December 31 2007. The rise of € 283.8 million was mainly due to the higher debt of the Sogefi group after the dividend payout and of the Sorgenia group as a result of investment made. The net financial position includes CIR’s part of the investment in Medinvest, which at December 31 2008 amounted to € 166.4 million. The accounting treatment of this investment involves recognizing changes in the fair value of the funds directly to shareholders’ equity. The fair value reserve relating to Medinvest amounted to € 36.8 million at December 31 2008 (€ 133.4 million at

Report on Operations

December 31 2007). In financial year 2008 the sale of shares in hedge funds by Medinvest led to realized gains, net of write-downs, of € 50.3 million (€ 19.6 million in 2007). In February 2009 a further € 35 million were redeemed bringing the remaining investment in Medinvest to around € 130 million. The performance of Medinvest since inception (April 1994) up to and including 2008 gave a weighted average return of the portfolio in dollar terms of 7.7%. In 2008 performance was a negative 18.3%. In January 2009 performance turned positive again with a return of 0.7%. Total shareholders’ equity stood at € 2,078.9 million at December 31 2008, up from € 2,041.8 million at December 31 2007, with a rise of € 37.1 million after the distribution of € 37.4 million in dividends by CIR and of a total of € 118.4 million by the subsidiaries to their minority shareholders. The shareholders’ equity of the Group went from € 1,319.9 million at December 31 2007 to € 1,264.9 million at December 31 2008, with a net decrease of € 55 million mainly due to the negative change in the “Fair value reserve” which had a positive balance of € 38 million at December 31 2008. Minority shareholders’ equity rose from € 721.9 million at December 31 2007 to € 814 million at December 31 2008, with a rise of € 92.1 million mainly resulting from the capital increases, net of dividends and net income for the period. The evolution of consolidated shareholders’ equity is given in the Notes to the Consolidated Financial Statements.

Report on Operations

The consolidated cash flow statement for 2008, 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, can be broken down as follows: (in millions of euro)

2008

2007

177.1

201.0

36.4

156.4

213.5

357.4

(127.0)

183.5

86.5

540.9

274.0

46.8

42.5

127.4

403.0

715.1

(526.2)

(1,005.1)

(16.8)

(73.9)

(155.8)

(93.9)

(56.1)

(25.1)

TOTAL APPLICATIONS OF FUNDS

(754.9)

(1,198.0)

FINANCIAL SURPLUS (DEFICIT)

(351.9)

(482.9)

NET FINANCIAL POSITION AT THE BEGINNING OF THE PERIOD

(1,333.5)

(850.6)

NET FINANCIAL POSITION AT THE END OF THE PERIOD

(1,685.4)

(1,333.5)

SOURCES OF FUNDS Net income for the period including minority interests Amortization, depreciation and write-downs and other non-monetary changes Self-financing Change in working capital CASH FLOW GENERATED BY CURRENT OPERATIONS Capital increases Repayment of loan by Tirreno Power TOTAL SOURCES OF FUNDS APPLICATIONS Net investment in fixed assets Buy-back of own shares Payment of dividends Other changes

The composition of the net financial position is given in the Notes to the Financial Statements. During 2008 the net debt figure rose from € 1,333.5 million to € 1,685.4 million. The cash flow generated by operations showed a significant contraction compared to the previous year due mainly to the rise in working capital of the Sorgenia group. Among the sources of funds the capital increases of Sorgenia and HSS are particularly worthy of note. Applications mainly referred to investment in fixed assets mainly in the utilities sector. The payment of dividends was larger than in the previous period because of the extraordinary dividend paid out by Sogefi in 2008.

At December 31 2008 the CIR Group had 12,969 employees, up from 12,422 at December 31 2007.

Report on Operations

PERFORMANCE OF THE PARENT COMPANY OF THE GROUP

The parent company CIR S.p.A. closed financial year 2008 with net income of € 33.3 million (down from € 79.9 million in 2007). Shareholders’ equity stood at € 974.5 million at December 31 2008 compared with € 983.8 million at December 31 2007. The key income statement figures of CIR S.p.A. for 2008, with a comparison with those of 2007, are as follows: (in millions of euro)

2008

2007

(9.1)

(10.8)

Other operating costs and amortization (2)

(38.8)

(2.8)

Financial management result

73.3

68.9

25.4

55.3

Income taxes

7.9

24.6

Net income

33.3

79.9

Net operating costs

(1) (3)

Income before taxes

(1) This item is the algebraic sum of “sundry income and expense”, “costs for services” and “personnel costs” in the income statement of the Parent Company CIR S.p.A. 2) This item is the sum of “other operating costs” and “amortization, depreciation and write-downs” in the income statement of the Parent Company CIR S.p.A. 3) This item is the algebraic sum of “financial income”, “financial expense”, “dividends”, “gains from trading securities”, “losses from trading securities” and “adjustments to the value of financial assets” in the income statement of the Parent Company CIR S.p.A.

Net operating costs for 2008, which amounted to € 9.1 million (compared to € 10.8 million in 2007), include charges resulting from the IAS/IFRS treatment of stock option and phantom stock option plans for € 0.4 million which compares with € 3.6 million in 2007. The financial management result includes the dividends of subsidiaries, which totalled € 138.7 million in 2008 compared to € 126.5 million in 2007, net financial expense of € 8.6 million (€ 8.9 million in 2007) and losses from trading and valuing securities of € 56.8 million (€ 48.7 million in 2007). Lastly 2008 benefited from a positive net tax position of € 7.9 million, down from € 24.6 million in 2007. The key balance sheet figures of CIR S.p.A. at December 31 2008, compared with the position at December 31 2007, are as follows: (in millions of euro)

31.12.2008

31.12.2007

Fixed assets

(1)

1,040.0

1,052.6

Other net non-current assets and liabilities

(2)

(1.5)

(1.8)

Net working capital

(3)

(6.9)

48.8

1,031.6

1,099.6

(57.1)

(115.8)

974.5

983.8

Net invested capital Net financial position Shareholders’ equity

(4)

1) This item is the sum of “intangible assets”, “tangible assets”, “investment property” and “equity investments” in the balance sheet of the Parent Company CIR S.p.A.. 2) This item is the algebraic sum of “sundry receivables” and “deferred taxes” in the non-current assets and “personnel provisions” in the non-current liabilities of the balance sheet of the Parent Company CIR S.p.A.. 3) This item is the algebraic sum of “sundry receivables” in current assets and “other payables” and “provisions for risks and losses” in the current liabilities of the balance sheet of the Parent Company CIR S.p.A. 4) This item is the algebraic sum of “securities”, “available for sale financial assets” and “cash and cash equivalents” in the current assets and “bonds and notes” in the non-current liabilities of the Parent Company CIR S.p.A..

Report on Operations

The net financial position at December 31 2008 was one of net debt for € 57.1 million which compares with a net debt position of € 115.8 million at December 31 2007. The improvement of € 58.7 million was due mainly to the positive balance of € 101.3 million between dividends received and those paid out and to the disbursement of approximately € 28 million made for equity investments and own shares. The reduction in shareholders’ equity from € 983.8 million at December 31 2007 to € 974.5 million at December 31 2008 was mainly caused by the result for the period offset by the distribution of dividends for € 37.4 million and the effects of the accounting treatment under IAS/IFRS of own shares. At December 31 2008 there were 42,974,000 own shares in the portfolio, equal to 5.4% of capital, for a total value of € 98.6 million, compared with 39,644,000 at December 31 2007.

CHART RECONCILING THE BALANCE SHEET FIGURES OF THE PARENT COMPANY WITH THOSE OF THE CONSOLIDATED FINANCIAL STATEMENTS

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 31.12.2008

Net result 2008

974,501

33,251

- Dividends from companies included in consolidation - Reversal of valuations and cover of losses on investments in companies included in the consolidation

(138,690)

75,980

- Net contribution of consolidated companies - Difference between carrying value of subsidiaries and portion of consolidated shareholders’ equity, net of contributions

273,377

7,093

(38,129)

- Other consolidation adjustments

117,810

1,264,849

95,444

Figures of the parent company CIR S.p.A.

Consolidated figures, the Group’s share

Report on Operations

MAIN EQUITY INVESTMENTS OF THE GROUP (*) AT DECEMBER 31 2008

53.8% (**)

SORGENIA SORGENIA

Utilities

ESPRESSO ESPRESSO

Media

SOGEFI SOGEFI

Automotive Components

HSS HSS

Healthcare

54.8% (*)

57.6% (*)

CIR CIR

65.4%

98.8%

JUPITER JUPITER Financial Services 47.5%

(*) (**)

the percentage is calculated net of own shares held as treasury stock percentage of indirect control through Sorgenia Holding

OAKWOOD OAKWOOD

4. PERFORMANCE OF THE BUSINESS SECTORS

UTILITIES SECTOR

In 2008 the Sorgenia Group reported consolidated revenues of € 2,433.7 million, which were up by 30.7% from € 1,861.7 million in 2007. Against a backdrop of falling energy demand, especially in the last part of the year, the group increased its electricity sales volumes (10.4 TWh up from 9.7 TWh in 2007) and maintained its natural gas sales to end user clients (2.1 billion cubic metres) in line with those of 2007. The rise in revenues was partly affected by the different energy scenario linked to the rise in the prices of oil products recorded in the first half of the year. In 2008 the Sorgenia group reported consolidated net income of € 66.7 million, up by 2.3% from € 65.2 million in the previous year, despite the impact of the Robin Hood Tax for € 12 million, higher amortization due mainly to the entry into the group of the French wind company Société Française d’Eoliennes (SFE) and the rise in interest expense because of the higher average level of debt during the year. The net income of the group net of the Robin Hood Tax would have been € 78.7 million, with a rise of 18%. Consolidated revenues can be broken down as follows: (in millions of euro) Electricity Natural gas Other revenues TOTAL

2008 Values 1,649.9

% 67.8

2007 Values 1,249.1

% 67.1

756.8

31.1

603.0

32.4

25.5

27.0

1.1

9.6

0.5

181.2

1,861.7 100.0

30.7

2,433.7 100.0

Change % 32.1

The consolidated gross operating margin (EBITDA) came to € 189.7 million (7.8% of sales revenues) up from € 152.1 million (8.2% of sales), posting a rise of 24.7%. This margin benefited from the excellent operating results achieved by the Termoli CCGT plant (with an annual production of over 4.4 TWh), from the expansion of the micro-business client portfolio, which has good levels of profitability, and from the billing of contractual penalties on the delivery schedule of the Modugno power plant. The margin was however affected negatively by the introduction of the new tax, known as Robin Hood Tax, which hit the net income of the affiliated company Tirreno Power, which is consolidated at equity and contributes pro-rata to the EBITDA of the Sorgenia group. Consolidated EBIT for 2008 was € 154.7 million (6.4% of sales) compared to € 126.9 million (6.8% of sales) in 2007. Consolidated net financial debt stood at € 1,013.9 million at December 31 2008, up by € 109 million from € 904.9 million at December 31 2007. The change was substantially due to disbursements made for investments of around € 260 million in new production capacity (for the thermoelectric power plants under construction at Modugno and Lodi and for photovoltaic and wind plants built and being built), to the change in working capital of approximately € 177 million linked to the growth in revenues and to the payment of dividends for approximately € 20 million. These outflows were partly offset by the subscription of a € 200 million capital increase in Sorgenia by Verbund Italia in June 2008, the repayment of loans made to Tirreno Power for

Report on Operations

€ 42.5 million, dividends received from Tirreno Power for a total of € 39 million and selffinancing for € 66 million. At December 31 2008 the group had 339 employees compared with 276 at December 31 2007. The Board of Directors of Sorgenia S.p.A., which met on February 23 2009, proposed distributing dividends for a total of € 14.4 million, up from € 11.5 million in the previous year, corresponding to a dividend of € 0.0165 per share up from € 0.014 in 2007. During 2008 the Sorgenia group continued to roll out its Business Plan. In the field of thermoelectric generating, the construction work on the combined cycle plant at Modugno (BA) has reached the final stages and the plant is scheduled to start operating by the summer of 2009. Building work has commenced on the Bertonico-Turano Lodigiano plant (LO) and the preliminary works have begun on the site of the Aprilia plant (LT). In wind generation the two wind parks of Castelnuovo di Conza (SA), with an output of 10 MW, and Minervino Murge (BA), 18 MW, were completed. Work progressed on the 39 MW plant at San Gregorio Magno (SA). The Molise Region has also authorized Sorgenia to build and run another wind farm in the local districts of San Martino In Pensilis and Ururi, for a total output of 12 MW. In France, through Société Française d’Eoliennes (SFE), the Sorgenia group has generating facilities of 100 MW in operation, over 110 MW authorized and soon to be built and a vast portfolio of projects at various stages of development. The development activities of Sorgenia Romania are continuing , the aim of which is to build, run and maintain wind parks. In the solar energy sector, in 2008 the subsidiary Sorgenia Solar activated the national grid connections of 7 new photovoltaic plants each with an output of approximately 1 MW, bringing the photovoltaic capacity installed throughout the country to 13 MW. Lastly, the Sorgenia group is continuing to develop important projects to guarantee diversification of gas sources and improve the safety of the whole national gas network. In particular, the plan for the construction of a 12 billion cubic metre regasifier at Gioia Tauro (Calabria) by LNG Med Gas Terminal, the company 69.77% controlled by Fin Gas Srl (an equal share joint venture between Sorgenia and Iride), is awaiting the Services Conference, which is the last stage of the authorization process. In 2008 the generating company Tirreno Power reported revenues of € 1,466.8 million, up by 39.5% from € 1,051.6 million in 2007, and a gross operating margin of € 323 million, which was up by 27% from € 254.4 million in 2007. These improvements were largely attributable to the contribution of the new combined cycle unit at Vado Ligure for which 2008 was the first full year in which it was up and running commercially. Net income came in at € 99.9 million and was slightly down from the figure of € 102.6 million recorded in 2007 due to the impact of the Robin Hood Tax of € 26.4 million euro as mentioned earlier. Lastly, with the completion on the repowering of the Naples plant, which is currently in the startup phase, Tirreno Power has now substantially finished repowering its power plants.

Report on Operations

MEDIA SECTOR

The Espresso group closed financial year 2008 with consolidated revenues of € 1,025.5 million compared to € 1,098.2 million in 2007, with a decline of 6.6% due to the significant contraction of advertising revenues. Consolidated net income was € 20.6 million, down from € 95.6 million in 2007. Financial year 2008 was negatively affected by extraordinary restructuring charges of approximately € 22 million and extraordinary tax provisions € 13.3 million. The previous year had benefited for € 7.8 million from the one-off positive effect of the different accounting treatment of TFR after changes in the regulations. The revenues of the group can be broken down as follows: (in millions of euro) Circulation

2008 Values 276.3

Advertising Add-ons Other revenues TOTAL

% 26.9

2007 Values 277.2

% 25.2

Change % (0.3)

608.2

59.3

657.1

59.8

(7.4)

114.9

11.2

127.9

11.7

(10.2)

26.1

2.6

36.0

3.3

(27.8)

1,025.5

100.0

1,098.2

100.0

(6.6)

The decline in advertising revenues (-7.4%) was due mainly to the decline recorded by la Repubblica and the periodicals and to the downturn in the radio and televisions sector, while advertising collected by the local papers held up well and internet advertising once again rose sharply. Circulation revenues, excluding add-ons, were in line with 2007. Circulation figures for la Repubblica and L’espresso declined significantly compared to the previous year but this was due mainly to the decision made to eliminate or reduce certain initiatives with a high advertising content which only had a marginal impact on revenues. The fall in revenues from add-on products amounted to 10.2%, which should be considered positively in view of the strong contraction in the market. The consolidated gross operating margin was € 142.5 million compared to € 223.4 million in 2007, with a fall of 36.2%. This evolution reflects the contraction in the advertising market together with the extraordinary restructuring costs of € 22.1 million as mentioned above, which were only partly offset by savings already achieved in the year thanks to the first effects of the cost cutting measures adopted. The decline affected all sectors of the business as it was due to a fall in advertising revenues which affected all the media of the group. Consolidated operating income came in at € 95.3 million down from € 180.6 million in 2007. Consolidated net financial debt at December 31 2008 totalled € 278.9 million, up from € 264.9 million at the end of 2007 due to the payout of dividends (€ 68.8 million), to net disbursements for investment activity (€ 47.2 million) and the buyback of own shares (€ 9.1 million), which absorbed more than the liquidity generated by operating activity (€ 111.4 million). Consolidated shareholders’ equity went down from € 535.4 million at December 31 2007 to € 478.4 million at December 31 2008.

Report on Operations

At December 31 2008 there were 3,344 employees on the group payrolls, down by 70 from 3,414 at December 31 2007. The Board of Directors of the parent company of Gruppo Editoriale L’Espresso, which met on February 25 2009, proposed that no dividend be distributed for the year 2008 and that the earnings for the year be retained (a dividend of € 0.17 per share was distributed in 2007). The intensification of the economic crisis and the worsening of the outlook for the year 2009 caused a drastic fall in advertising investment as from autumn 2008. Business in the first few months of 2009 confirms the negative trend of advertising investment and there is at present no sign of any recovery, which makes it very difficult to forecast how the year will evolve. The sharp fall in results and the critical outlook for the future impose new and more incisive cost cutting measures, in addition to those already made during 2008 which involve a reduction of € 50 million in costs over the three years 2008-2010 with the aim of guaranteeing continuity and the development of the media of the group, the importance of which continues to be confirmed by the key positions that they occupy in their respective markets. On this subject, management is currently engaged in implementing the cost cutting plans already in place, and in formulating new action starting with a more efficient and incisive company structure and organization with the aim of reducing the company’s break-even point from a structural point of view.

AUTOMOTIVE COMPONENTS SECTOR

In 2008 the Sogefi group reported sales revenues of € 1,017.5 million, down by 5.1% from € 1,071.8 million in the previous year (-3% with the same exchange rates). The change was mainly due to the significant slowdown of the business in the fourth quarter of the year. The markets most badly hit were Europe and the United State, while in South America there was an important rise in sales (+17.9%). The decline in revenues was mainly in the filter division (-9.3%), while the suspension components division held up substantially (-0.5%) thanks to a rise in selling prices. Consolidated net income was € 28.5 million, down by 45.4% from € 52.2 million in the previous year, particularly because of the sharp fall in new car registrations in the fourth quarter of 2008.

The breakdown of consolidated sales of the Sogefi group by business sector is as follows: (in millions of euro)

2008 Values

2007 Values

Change %

Filters

497.5

48.9

548.2

51.2

(9.3)

Suspension components and precision springs

521.9

51.3

524.6

48.9

(0.5)

(1.9)

(0.2)

(1.0)

(0.1)

1,017.5

100.0

1,071.8

100.0

(5.1)

Intercompany elimination TOTAL

The profitability of the year was negatively affected by lower sales, exchange rates and the unfavourable performance of extraordinary items compared with the previous year. Consolidated operating income did however amount to € 87.6 million (8.6% of revenues), down from € 113.6 million (10.6% of revenues) in 2007, even though there was a generalized rise in the cost of materials

Report on Operations

and energy. Steel prices rose by 25% and the higher costs were substantially transferred to selling prices with a time lag of a couple of months. EBITDA and EBIT were affected by lower operating income, higher restructuring costs (€ 11.5 million up from € 7.6 million in the previous year) and by the absence in 2008 of any positive extraordinary items, which had given a benefit of € 9 million in the previous year. Consolidated EBITDA declined to € 104.9 million (10.3% of revenues) from € 134.6 million (12.6% of revenues) The filter division reported EBITDA of € 44 million (8.9% of revenues) which compares with € 67.8 million (12.4% of revenues) in 2007, while the EBITDA of the suspension components division was € 64.5 million (12.4% of revenues) down from € 75.8 million (14.4% of revenues) in 2007. Consolidated EBIT came to € 62.4 million euro (6.1% of revenues) down from € 89.9 million in 2007 (8.4% of revenues). The filter division posted EBIT of € 26.6 million (5.3% of revenues) down from € 49.1 million (9% of revenues) while the suspension components division posted EBIT of € 40.2 million (7.7% of revenues) down from € 50.3 million (9.6% of revenues). At December 31 2008 the net financial debt of the group stood at € 257.2 million up from € 92.4 million at December 31 2007, following the payout of € 159.5 million in dividends. The group had 6,100 employees (including the 155 employees of the new Indian company) on its payrolls at December 31 2008, compared to 6,208 at December 31 2007. The Board of Directors of Sogefi, which met on February 26 2009, proposed not distributing dividends for financial year 2008 (in 2007 a total dividend of € 1.40 per share, € 0.22 as an ordinary dividend and € 1.18 as an extraordinary payout). In September 2008, the Sogefi group set up a joint-venture with the French company Sardou SA to develop, produce and market products in alternative materials to steel over the medium term, with the objective of supplying the market with components to reduce the weight of vehicles, thus making them less polluting. In November 2008 Sogefi entered the Indian filter market with an investment of € 4.7 million, acquiring 60% of two companies operating in the sectors of two, three and four wheel vehicles as well as industrial filters. With the contribution of Sogefi technology, these companies will be able to boost their competitiveness and increase their volumes of activity. The crisis in the automotive sector will continue in 2009 too and presumably could even get worse. In fact in all the mature markets there will be a considerable decline in demand and vehicle production compared to 2008 in spite of state action to support the market. In such an environment Sogefi expects revenues and profitability to be lower than those of 2008, despite the benefits resulting from a fall in the cost of materials and energy. To counter the crisis in the market, the group will put in place further more drastic measures to cut cost factors, especially overheads.

Report on Operations

HEALTHCARE SECTOR

In 2008 the HSS group continued to develop and manage the new initiatives that it has undertaken in this sector and to identify new opportunities for investment. In financial year 2008 the HSS group reported revenues of € 246.3 million, up from € 182.9 million in the previous year, posting a rise of 34.7%, thanks to growth of all areas of the business and to the acquisitions made during the year. Revenues of the group can be broken down as follows: (in millions of euro)

2008 Values 110.0

% 44.7

2007 Values 95.8

% 52.4

Change % 14.8

Rehabilitation/Psychiatric

94.3

38.3

47.6

26.0

98.1

Acute/Hi-tech

42.0

17.0

39.5

21.6

6.3

246.3

100.0

182.9

100.0

34.7

Elderly

TOTAL

Consolidated EBITDA was € 28.7 million, up by 42.3% from € 20.2 million in 2007 and consolidated EBIT was € 14.7 million, up from € 11.1 million in the previous year. The consolidated net result was a loss of € 1.5 million compared to net income of 0.3 million in the previous year. The change was due mainly to an extraordinary item involving adjustments of € 2 million to assets from acquisitions completed at the end of 2007. These provisions were considered appropriate in the light of the current economic and financial environment. At December 31 2008 the HSS group had net debt of € 149.1 million compared to € 148.6 million at December 31 2007, offsetting real estate properties with a carrying value of approximately 120 million euro. The debt figure was the result, on the one hand, of the subscription in June 2008, by CIR and the Morgan Stanley funds (already shareholders of HSS), of a capital increase for a total of € 40 million, and on the other, of acquisitions and investments made during the year. At December 31 2008 consolidated shareholders’ equity stood at € 138.5 million, up from € 102.8 million at December 31 2007. During the year HSS consolidated its position in the Italian market, especially in the social welfare sector (with the management of residences for the non self-sufficient elderly) and in the healthcare sector (with the management of hospitals and rehabilitation centres). One of the main events of the year was the acquisition of the Cardinal Ferrari Centre in Fontanellato (PR), which manages a hospital specializing in neurological rehabilitation, has 91 beds and is National Health Service accredited. It is part of the Emilia regional network for the rehabilitation of serious acquired brain injuries. The business of the HSS group is currently directed at managing the following: 1) 2)

Residences and nursing homes (RSAs), with 36 residences under management (approximately 3,690 beds operational and more than 330 under construction); Hospitals and rehabilitation centres, with 6 rehabilitation facilities (in Lombardy, Emilia Romagna, Trentino and Marche), 8 psychiatric rehabilitation communities (in Liguria, Pie-

Report on Operations

dmont and Lombardy) and 13 day hospitals, for a total of 1,107 beds in operation and 50 under construction; A hospital and hi-tech services in hospitals, with 7 diagnostic imaging departments.

Currently the HSS group manages a total of 4,917 beds plus another 380 or so that are under construction. The employees of the group totalled 3,130 at December 31 2008, up from 2,476 at December 31 2007.

FINANCIAL SERVICES SECTOR

The CIR Group operates in the financial services sector through the company Jupiter Finance and through its investment in the Oakwood group, as detailed below.

JUPITER FINANCE – This company, which operates in the sector of non-performing loans, was set up at the end of 2005 with the aim of becoming an independent industrial partner of Italian banks and businesses in the management of their non-performing loans. 2008 was a year of great disruption in the non-performing loan market: international investment banks that had dominated the scene over the last few years to all extents and purposes left the market, because of events that are well-known. By contrast, Jupiter Finance, on the strength of a conservative investment and funding policy, succeeded in concluding some important deals. The results on portfolios acquired since 2005 have as of today been in line with expectations, thanks to the ample diversification of the investments and tighter control of recovery activities by Jupiter Finance. The next few years are likely to be very discontinuous because of the expected rise in the number of non-performing bank loans and the scarcity of capital put up by professional investors. We consider that this scenario will be particularly favourable for Jupiter Finance, which since 2005 has acquired a strong track record in investment and management. For this reason the objective of the company is to increase its assets under management considerably and to this end in December 2008 the credit facility of the securitization vehicle Zeus Finance was increased from € 200 to € 300 million. Since it started business the company has acquired a total of around € 1.3 billion of GBV through the securitization vehicle Zeus Finance and also, since the end of 2008, through the vehicle Urania Finance S.A. The total purchase price of these non-performing loans was € 157 million. At the end of 2008 the activities of the company generated total receipts by the securitization vehicle Zeus Finance of € 56 million, some 25% higher than the collection objectives set out in the business plan on acquisition of the portfolios.

Report on Operations

The following chart shows the relationship between receipts and the price paid for the portfolios by year of acquisition: Year of acquisition (in millions of euro)

GBV

Price

Receipts

Receipts/Price %

2005

187%

2006

314

50%

2007

541

44%

TOTAL

868

106

48%

2008

441

11%

1,309

157

36%

GRAND TOTAL

The operating activities of Jupiter Finance can be summarized in the following four macro areas: 1) Commercial development: managing relationships with banks, finance companies and other companies owning receivables, submitting proposals for the sale of their portfolios.; 2) Valuation and acquisition of loans: application of its own method of valuating NPL portfolios and use of contract structures which suit the needs of the sellers, in line with domestic regulations and international accounting standards; 3) Recovery management: management of the recovery process of the loans in the portfolio through segmentation and routing through specialist management processes for each type of loan. Regular assignment of dossiers to the internal team of professionals who focus on high priority files and to the network of outside suppliers selected over time and constantly monitored; 4) Portfolio administration: regular statements with a breakdown by position in order to comply with statutory regulations and the reporting requirements of the banking system.

OAKWOOD - The Oakwood Global Finance group operates in the financial services sector through the companies Ktesios and Pepper. The recent worsening of the crisis in the financial markets made it necessary to review the development plans of the two companies which led to a substantial write-down (€ 54 million including minority interests) of CIR’s investment, the value of which was reduced to € 20 million at December 31 2008. Ktesios, the main investee company of Oakwood, operates in Italy in the market of loans secured on one fifth of workers’ salaries or pensions, confirming its position as one of the leaders in this segment. During 2008 the company made loans for € 690 million, up from € 600 million in 2007. Pepper has gradually abandoned the lending market, concentrating its activity on servicing loans for lending institutions, where it has reached a position of leadership in the Australian market.

OTHER ACTIVITIES

CIR VENTURES – At the end of 2008 the portfolio of CIR Ventures, the venture capital fund of the Group, contained investments in six companies of which five in the United States and one in Israel. These companies all operate in the sector of information and communications technology. The total fair value of these investments at December 31 2008 was 13.9 million dollars. The management activity of the fund is still mainly directed towards supporting the companies in the portfolio and identifying opportunities to take profit.

Report on Operations

INVESTMENT IN PRIVATE EQUITY FUNDS – Through its subsidiary CIR International the CIR group holds a diversified portfolio of funds and minority private equity holdings, the fair value of which determined on the basis of the NAV provided by the various funds at December 31 2008, or where not yet available as of the date of the most recent report, was approximately € 74 million. The fair value reserve for these investments amounted to € 6.3 million at December 31 2008. During 2008 further investments were made for approximately € 14 million and redemptions were made for € 6 million. Remaining commitments outstanding at December 31 2008 amounted to € 33 million.

SIGNIFICANT EVENTS WHICH OCCURRED AFTER THE CLOSE OF THE YEAR

It should be noted that March 10 2009 is the final maturity date of the CIR International S.A. note 5.25% 2009 for an original € 500 million and a remaining amount of € 300 million, guaranteed by CIR S.p.A.. It is however to be pointed out that on March 9 2009 the Group had already paid the necessary funds into the Agent Bank. In 2009 the results of the Group will feel the effects of the current recessionary phase, especially in the media and automotive components sectors. During the year further cost cutting measures will be implemented in all the businesses with the objective of protecting the profitability of the Group as far as possible.

MAIN RISKS AND UNCERTAINTIES TO WHICH CIR S.p.A. AND THE GROUP ARE EXPOSED

Risk connected with the general conditions of the economy The crisis in the financial markets which became evident from the middle of 2007 onwards became much worse during 2008 and particularly in the last quarter with serious repercussions on financial institutions, on the real economy and on the level of consumption. The deterioration of market conditions meant that borrowing in general was difficult, both for consumers and for businesses, and this led to a lack of liquidity which could affect the industrial development of the businesses in which the Group operates. Should this situation of weakness and uncertainty continue for a significant period of time, the business, the strategies and the prospects of the Group could be negatively affected. Risks connected with the results of the Group The CIR Group operates, among other things, in the automotive components sector, which is subject to cyclical factors, and in the media sector which is highly sensitive to the trend of the economic cycle. It is difficult to forecast how far-reaching the economic cycles will be and how long they will last. However any macro-economic event, such as a significant decline in a particular market, volatility in the financial markets, a rise in energy prices, the fluctuation of commodity prices etc could have an effect on the prospects and the activities of the Group, as well as on its economic results and its financial situation.

Report on Operations

Risks connected with borrowing requirements The CIR Group expects to be able to meet its borrowing requirements in terms of maturing loans and investment needs with its operating cash flows, available liquidity and by renewing or refinancing its loans, bonds and notes. Even in the current market context, the Group aims to maintain a sufficient capacity to generate funds from ordinary operations. The Group invests any free cashflow, sharing out its investments over a suitable number of prime counterparties, mainly banks, matching the remaining life of the investments with the maturity of obligations on the funding side. However, in light of the current financial crisis, it cannot be ruled out that there may be banking and money market situations that could prevent normal financial transactions from being carried out. Risks connected with the fluctuation of exchange rates and interest rates A significant part of the financial debt of the Group involves the payment of financial expense calculated at floating interest rates, mainly linked to Euribor rates. Any rise in interest rates could, therefore, cause a rise in funding costs or a rise in the cost of refinancing debt entered into by the companies of the Group. In order to limit the risk resulting from interest rate movements, the Group uses interest rate derivatives to keep rates within a predetermined range. Some companies of the Group, particularly the Sogefi group, do business in European countries not belonging to the euro area and in countries outside the European market and, therefore, operate in different currencies, which exposes them to foreign exchange risk against the euro. In line with its risk management policies, in order to limit this exchange rate risk the Group enters into transactions to hedge these risks. Despite the hedging carried out by the Group in the financial markets, sharp movements in exchange rates or interest rates could have a negative impact on the economic and financial results of the Group. Risks connected with relations with clients and suppliers In relations with its clients, the Group manages the risk of concentration of demand by diversifying its client portfolio in a suitable way, both geographically and in terms of distribution channels. Regarding relations with suppliers the approaches are different in the different business sectors. The Sogefi Group, for example, diversifies its sourcing significantly by using several suppliers operating in different parts of the world, which enables the group to reduce its risk of commodity price fluctuation and avoid relying too heavily on key suppliers. The utilities sector is an exception to this policy because especially in the construction of production plants the Group is exposed to risks of this kind, which it manages by requiring collateral guarantees from third parties. Risks connected with competitiveness in the sectors in which the Group operates The Group operates in markets which do objectively have barriers in place against the entry of new competitors due the existence of technological or qualitative gaps, to the need to make substantial initial investments and to the fact that it operates in sectors that are highly regulated requiring special authorizations from the competent authorities. However, particularly in relation to the automotive components sector, should the group in the future not be able to develop and offer innovative and competitive products, then its economic and financial results could be negatively impacted.

Report on Operations

Risks connected with environmental policies The Group operates in sectors that are subject to a host of rules and regulations (local, national and supranational) on the subject of the environment, and this regulatory aspect is then often revised in a more restrictive way. The evolution of these regulations and compliance with the same could lead to very high costs with a potential impact on the profitability of the Group.

************** CIR S.p.A., in its role as Parent Company of the Group, is substantially exposed to the same risks and uncertainties described above in relation to the Group.

Report on Operations

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

Investee company

Number of shares owned at end of previous year

Number of shares purchased

Number of shares sold

Number of shares owned at end of this year

Notes

DE BENEDETTI CARLO

CIR S.p.A.

359,458,621

3,570,000

363,028,621

(1)

DE BENEDETTI CARLO

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

220,776,235

(2)

DE BENEDETTI CARLO

(3)

SOGEFI S.p.A.

65,194,962

545,000

65,739,962

DE BENEDETTI RODOLFO

CIR S.p.A.

15,312,500

DEBENEDETTI FRANCO

CIR S.p.A.

375,000

FERRERO PIERLUIGI

CIR S.p.A.

300,000

FERRERO PIERLUIGI

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

20,000

FERRERO PIERLUIGI

SOGEFI S.p.A.

15,000

GERMANO GIOVANNI

CIR S.p.A.

300,000

GERMANO GIOVANNI

SOGEFI S.p.A.

2,012,000

GERMANO GIOVANNI

SOGEFI S.p.A.

1,004,312

CIR S.p.A.

128,000

GIRARD FRANCO

SOGEFI S.p.A.

10,000

GIRARD FRANCO

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

10,000

PARAVICINI CRESPI LUCA

CIR S.p.A.

333,333

PARAVICINI CRESPI LUCA

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

4,827,212

SEGRE MASSIMO

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

3,000

PIASER ALBERTO

CIR S.p.A.

462,000

236,000

698,000

GIRARD FRANCO

(4)

(5)

(1) Owned indirectly through COFIDE S.p.A. (2) At December 31 2008 the shares were held through the following subsidiaries: CIR S.p.A. 220,775,235 ROMED S.p.A. 1,000 (3) Owned indirectly through CIR S.p.A. (4) Owned indirectly through Siria S.r.l. (5) Owned indirectly through Alpa S.r.l. and Fiduciaria Biennebi S.p.A.

Own shares At December 31 2008 the Parent company owned 42,974,000 of its own shares (equal to 5.4% of its capital). The Group does not own any other of its own shares in addition to those indicated above. For further details on the subject of own shares held as treasury stock, reference should be made to the comment on shareholders’ equity in the Notes to the Financial Statements. At December 31 2008 the Group did not possess any shares of its controlling company nor did it buy or sell any shares of the latter either directly or through a fiduciary, intermediary or any third party.

Report on Operations

Transactions with companies of the Group and related parties During the year 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. The most significant financial transactions between CIR and its subsidiaries are analysed in detail in the explanatory notes to the financial statements particularly under the item Miscellaneous receivables, Other payables and Borrowings from 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 should be made to the appropriate sections of the explanatory notes to the financial statements. 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 The Income Tax Consolidation Act (TUIR) gives the possibility for companies belonging to the same group to determine a single total income figure corresponding in principle to the algebraic sum of the taxable incomes 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 tax figure for the income of the companies of the group. In 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” for the three years 2004-2006, signing a general agreement (“General Rules of the CIR Tax Consolidation”), which set out the rights and obligations of CIR and its subsidiaries, resulting from their taking part in the tax consolidation. In 2007 CIR and companies belonging to the Espresso, Sorgenia, Sogefi, HSS and Jupiter subgroups renewed their participation in the “CIR Tax Consolidation” for the three years 2007-2009. At December 31 2008 there were 32 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 2008 was approved – in its entirety – by the Board of Directors’ Meeting convened to approve the Financial Statements for the year ended December 31 2008.

Report on Operations

This annual 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 the section "Investor relations”. 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 Organizational 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 March 11 2008 and March 9 2009 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. 123 of August 3 2007, D.Lgs no. 2231 of November 21 2007 and Law no. 48 of March 18 2008 took effect. The first of these contained measures on the subject of health and safety in the workplace, the second concerned the prevention of the use of the financial system for the purposes of money laundering and the third set out sanctions for computer crime and the illegal use of data. 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 the “Security Policy Document (DPS)” D.Lgs. no. 196/03, the Code on the subject on the protection of personal information, stipulates that by March 31 of each year the organization responsible for the treatment of personal information should draw up a formal security policy document containing, among other things, appropriate information regarding the following: - the list of the types of use of personal information made by the organization; - the distribution of responsibilities and tasks relating to the use 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 organization 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 Report on Operations accompanying the Financial Statements when appropriate. 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 Standards Institute.

Report on Operations

Research and development During 2008, research and development activity at Group level was mainly focused on the automotive sector and the utilities sector. In compliance with accounting standards, research costs were recognized to the income statement when they were incurred while development costs relating to specific projects were capitalized, when their future benefits are considered reasonably certain, and are amortized for the whole period during which the expected future benefits from the project will be generated. At December 31 2008, the capitalized value of the various projects stood at € 21.2 million. For the automotive sector, research activity for fine tuning new technologies and innovation in the product range gave rise to expenses for Sogefi of € 20.5 million compared to 21.7 million in 2007, with a ratio to sales unchanged at 2%. In 2008 6 new patents were filed for the Filter Division and 1 new patent for the Suspension Division. The Sorgenia group continued in 2008 too to make investment in research mainly through the Venture Capital fund set up by Sorgenia in Silicon Valley (California) with the prime aim of identifying new industrial initiatives which develop and use innovative technologies in the field of power generation from renewable and alternative sources, protection of the environment and energy saving and an intelligent use of resources. Specifically, in 2008 the fund made two promising investments in new businesses with a high and innovative level of technology content . Lumenergi, in which the fund invested in February, is a company that is starting production of an innovative power supply device for fluorescent lighting which will give a saving on electricity used for lighting. In November the fund invested in Mariah Power, a company that produces new micro wind turbines on a vertical axis with an output of between 1 and 3 kW, aimed at small and medium businesses and the household sector. Moreover: • in the solar energy sector the Group has begun some collaboration activities with the Sardinian CRS4 research centre with the aim of researching topics connected with the use in Italy of solar concentrating technologies; • in the sphere of the power production from plant derived biomass, experiments were completed on the use of by-products of cereal cultivation in small regasification plants suitable for distributed generation. The results of these tests, together with the regulatory environment for this technology, weighed in favour of the decision to start building a first pilot plant in the local district of Castiglione d’Orcia in Tuscany. 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 Financial Report for the period January 1 – December 31 2008 was approved by the Board of Directors on March 9 2009.

Report on Operations

PROPOSED ALLOCATION OF NET INCOME FOR THE YEAR

Dear Shareholders, The Financial Statements for the year ended December 31 2008 that we are submitting to your approval closed with net income of € 33,251,266.64 which we propose be allocated entirely to the reserve “Retained earnings”.

THE BOARD OF DIRECTORS

Milan, March 9 2009

Report on Operations

CIR Group

Consolidated Financial Statements as of December 31 2008

BALANCE SHEET INCOME STATEMENT CASH FLOW STATEMENT STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY NOTES TO THE FINANCIAL STATEMENTS

Consolidated Financial Statements

CONSOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS NON-CURRENT ASSETS INTANGIBLE ASSETS TANGIBLE ASSETS INVESTMENT PROPERTY INVESTMENTS IN COMPANIES VALUED AT EQUITY OTHER EQUITY INVESTMENTS OTHER RECEIVABLES of which with related parties (*) SECURITIES DEFERRED TAXES CURRENT ASSETS INVENTORIES CONTRACTED WORK IN PROGRESS TRADE RECEIVABLES of which with related parties (*) OTHER RECEIVABLES of which with related parties (*)

Notes (7.a) (7.b) (7.c) (7.d) (7.e) (7.f) (7.f) (7.g) (7.h)

31.12.2007

3,804,558 1,264,499 1,789,985 18,687 282,824 9,682 236,147

3,476,271 1,250,196 1,473,320 19,259 280,554 11,885 251,493

20,734

(8.a) (8.b) (8.b) (8.c)

31.12.2008

111,614 84,633 118,101

96,534 93,030

3,168,534 195,311 2,915 1,233,689

2,863,062 203,967 2,564 1,070,273

24,661

3,404 363,753

151,288

206,441 --

FINANCIAL RECEIVABLES SECURITIES AVAILABLE-FOR-SALE FINANCIAL ASSETS CASH AND CASH EQUIVALENTS

(8.d) (8.e) (8.f) (8.g)

25,721 513,362 217,420 616,363

37,171 275,897 372,622 694,127

ASSETS HELD FOR DISPOSAL

(2.c)

653

6,756

6,973,745

6,346,089

31.12.2008

31.12.2007

(9.a) (9.b) (9.c)

2,078,888 395,588 (21,487) 374,101 307,856 487,448 95,444 1,264,849 814,039

2,041,793 395,466 (19,822) 375,644 412,983 448,674 82,580 1,319,881 721,912

(10.a) (10.b)

2,931,482 895,458 1,653,615 3,333

2,812,212 1,189,672 1,281,170 286

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY ISSUED CAPITAL less OWN SHARES SHARE CAPITAL RESERVES RETAINED EARNINGS (LOSSES) NET INCOME FOR THE YEAR SHAREHOLDERS' EQUITY OF THE GROUP MINORITY SHAREHOLDERS' EQUITY NON-CURRENT LIABILITIES BONDS AND NOTES OTHER BORROWINGS OTHER PAYABLES of which to related parties (*) DEFERRED TAXES PERSONNEL PROVISIONS PROVISIONS FOR RISKS AND LOSSES CURRENT LIABILITIES BANK OVERDRAFTS BONDS AND NOTES OTHER BORROWINGS of which from related parties (*) TRADE PAYABLES of which with related parties (*) OTHER PAYABLES PROVISIONS FOR RISKS AND LOSSES TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (*) As per Consob resolution no. 6064293 of July 28 2006

(7.h) (10.c) (10.d)

174,903 147,482 56,691

139,888 159,278 41,918 1,492,084 92,032

(11.a) (11.b)

1,963,375 164,801 347,445 146,987 71

(11.c) (11.c) (11.d) (11.e)

150,425 --

946,989 22,089

941,841 13,712

277,153 80,000

244,958 62,828

6,973,745

6,346,089

CONSOLIDATED INCOME STATEMENT

(in thousands of euro) 2008

Notes SALES REVENUES of which from related parties (*)

(12) (12)

2007

4,728,710 490

CHANGE IN INVENTORIES

4,214,921 1,539

953

2,119

COSTS FOR THE PURCHASE OF GOODS of which from related parties (*)

(13.a) (13.a)

(2,854,582)

COSTS FOR SERVICES of which from related parties (*)

(13.b) (13.b)

(2,094)

PERSONNEL COSTS

(13.c)

(687,664)

(617,954)

OTHER OPERATING INCOME of which from related parties (*)

(13.d) (13.d)

137,679

66,433

OTHER OPERATING EXPENSE

(13.e)

ADJUSTMENTS TO THE VALUE OF INVESTMENTS VALUED AT EQUITY

(7.d)

(782,395)

(768,252) (2,011)

548

531 (130,475)

AMORTIZATION, DEPRECIATION & WRITE-DOWNS INCOME BEFORE FINANCIAL ITEMS AND TAXES ( E B I T ) FINANCIAL INCOME of which from related parties (*)

(14.a) (14.a)

11,244

FINANCIAL EXPENSE of which with related parties (*)

(14.b) (14.b)

(10,112)

DIVIDENDS

(2,330,124) (85,284)

(105,248)

49,286

42,904

(141,373)

(122,044)

320,139

382,755

69,104

68,683 13,777

(198,829)

(157,403) --

310

748

GAINS FROM TRADING SECURITIES

(14.c)

218,589

154,202

LOSSES FROM TRADING SECURITIES

(14.d)

(21,343)

(84,372)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

(14.e)

(112,093)

(63,128)

275,877

301,485

INCOME BEFORE TAXES INCOME TAXES

(15)

RESULT BEFORE TAXES FROM OPERATING ACTIVITY INCOME/(LOSS) FROM ASSETS HELD FOR DISPOSAL NET INCOME FOR THE YEAR INCLUDING MINORITY INTERESTS - NET INCOME MINORITY SHAREHOLDERS - NET INCOME OF THE GROUP

BASIC EARNINGS PER SHARE (in euro) DILUTED EARNINGS PER SHARE (in euro)

(*) As per Consob resolution no. 6064293 of July 28 2006

(16) (16)

(98,808)

(100,626)

177,069

200,859

176

177,069

201,035

(81,625) 95,444

(118,455) 82,580

0.1275 0.1275

0.1102 0.1093

CONSOLIDATED CASH FLOW STATEMENT

(in thousands of euro)

2008

2007

177,069

201,035

141,373 (49,286)

122,044 (42,904)

OPERATING ACTIVITY NET INCOME FOR THE YEAR INCLUDING MINORITY INTERESTS ADJUSTMENTS: AMORTIZATION, DEPRECIATION AND WRITE-DOWNS SHARE OF THE RESULT OF COMPANIES VALUED AT EQUITY ACTUARIAL VALUATION OF STOCK OPTION PLANS CHANGE IN PERSONNEL PROVISIONS, PROVISIONS FOR RISKS AND LOSSES ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS CAPITAL GAIN ON THE SUBSCRIPTION OF CAPITAL INCREASES BY MINORITY SHAREHOLDERS CAPITAL GAINS ON THE SALE OF SECURITIES INCREASE (REDUCTION) IN NON-CURRENT RECEIVABLES & PAYABLES (INCREASE) REDUCTION IN NET WORKING CAPITAL OTHER CHANGES CASH FLOW FROM OPERATING ACTIVITY

8,344

6,988

20,149

13,326

112,093

63,128

(117,810) (75,803) (1,895) (275,080) 50,382

--13,566 169,927 --

(10,464)

547,110

of which: - interest income (expense) - income tax payments

(124,900) (75,761)

(78,963) (117,447)

INVESTMENT ACTIVITY (PURCHASE) SALE OF SECURITIES NET DISBURSEMENT FOR COMPANY ACQUISITIONS PURCHASE OF FIXED ASSETS

(189,782) -(471,769)

372,440 (246,109) (758,966)

CASH FLOW FROM INVESTMENT ACTIVITY

(661,551)

(632,635)

DIVIDENDS PAID OUT

274,006 (56,145) 433,688 42,499 (16,770) (155,796)

46,787 (25,129) 525,052 127,406 (73,938) (93,862)

CASH FLOW FROM FUNDING ACTIVITY

521,482

506,316

INCREASE (REDUCTION) IN NET CASH AND CASH EQUIVALENTS

(150,533)

420,791

NET CASH AND CASH EQUIVALENTS AT START OF YEAR

602,095

181,304

NET CASH AND CASH EQUIVALENTS AT END OF YEAR

451,562

602,095

FUNDING ACTIVITY INFLOWS FROM CAPITAL INCREASES OTHER CHANGES IN SHAREHOLDERS' EQUITY DRAWDOWN/(REPAYMENT) OF OTHER BORROWINGS FINANCIAL RECEIVABLES FROM JOINT VENTURES BUYBACK OF OWN SHARES

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY

Attributable to the Shareholders of the Parent Company

(in thousands of euro)

101,120

1,260,155

719,757

14,668

32,119

46,787

(37,243)

(56,619)

(93,862)

62,960

(62,960)

(917)

Share capital

Reserves

390,240

(17,047)

373,193

384,826

401,016

5,226

9,442

Dividends to Shareholders

Retained earnings

Amount at disposal of Board of Directors

Capital increases

Total

interests

less own shares

BALANCE AT DECEMBER 31 2006

Minority Total

Issued capital

Retained t income (losses) earnings (losses) for year

1,979,912

Unclaimed dividends as per Art. 23 of Bylaws

Fair value measurement of hedging instruments

372

170

542

Fair value measurement of securities

34,195

458

34,653

Securities fair value reserve recognized to income statement

(13,836)

(156)

(13,992)

Adjustment for own share transactions

(2,775)

2,701

(15,302)

(15,376)

Notional recognition of stock options

1,929

Effects of equity changes in subsidiaries

17,591

(90,964)

(73,373)

Currency translation differences

(24,292)

(1,308)

(25,600)

Net income for the year

82,580

118,455

201,035

395,466

(19,822)

375,644

412,983

448,674

82,580

1,319,881

721,912

2,041,793

122

243

365

273,641

274,006

Dividends to Shareholders

(*) (37.410)

(37,410)

(118,386)

(155,796)

Retained earnings

45,170

(45,170)

Unclaimed dividends as per Art. 23 of Bylaws

BALANCE AT DECEMBER 31 2007 Capital increases

Fair value measurement of hedging instruments

(6,169)

(5,158)

(11,327)

Fair value measurement of securities

(54,525)

(34)

(54,559)

Securities fair value reserve recognized to income statement

(53,073)

365

(52,708)

Adjustment for own share transactions

(1,665)

1,665

(6,396)

Notional recognition of stock options

905

Effects of equity changes in subsidiaries

(865)

(131,185)

(132,050)

Currency translation differences

6,679

(8,741)

(2,062)

Net income for the year

95,444

81,625

177,069

395,588

(21,487)

374,101

307,856

487,448

95,444

1,264,849

814,039

2,078,888

BALANCE AT DECEMBER 31 2008

(*)

AGM of April 29 2008: dividend â&#x201A;Ź 0.05 per share

Consolidated Financial Statements

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

STRUCTURE AND CONTENT OF THE FINANCIAL STATEMENTS

These consolidated financial statements have been prepared in accordance with IAS/IFRS international accounting standards issued by the International Accounting Standards Board (“IASB”) and ratified by the European Union, as well as with the measures issued in implementation of Art. 9 of D. Lgs. no. 38/2005, including all the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previous known as the Standing Interpretations Committee (“SIC”). The financial statements are prepared on the basis of the principle of historical cost, modified as required for the valuation of certain financial instruments, in compliance with the matching and revenue recognition principles and on the assumption that the enterprise is a going concern. In fact, in spite of the presence of a difficult economic and financial environment, the Group has evaluated that there are no significant uncertainties, as defined in paragraph 24 of IAS 1, relating to the ongoing nature of the concern. The Consolidated Financial Statements for the year ended December 31 2008, which include the Parent Company of the Group CIR S.p.A. (hereinafter “CIR”) and the companies directly or indirectly controlled by CIR, 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 the consolidated statements of the sub-groups, examined and approved by their respective boards and amended and re-stated where necessary to bring them into line with the accounting principles listed below and, where there is compatibility, with Italian regulations. The various statements adopted are as follows: - The Balance Sheet is organized in offsetting items classified as current and non-current assets and liabilities; - The Income Statement shows a breakdown according to type of expense; - The Cash Flow Statement was prepared using the indirect method; - The Statement of Changes in Shareholders’ Equity gives a breakdown of the changes which took place during the year and in the previous year. 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. Events which occurred after the balance sheet date After the close of the year there were no important events that could have affected the financial, equity and economic situation of the company in any significant way. See point 6 of the Report on Operations for a description of the significant events which occurred after the close of the year. In accordance with paragraph 17 of IAS 10, it should be noted that publication of these financial statements was authorized by the Board of Directors of the Company on March 9 2009.

Consolidated Financial Statements

CONSOLIDATATION PRINCIPLES

2.a.

Consolidation methods

All the companies in which the Group exercises control according to the terms of IAS 27, SIC 12 and IFRIC Interpretation 2 are considered as controlled companies or subsidiaries. In particular, companies and investment funds are considered as subsidiaries when the Group has the power to make decisions regarding financial and operating policy. The existence of this power is presumed to exist when the Group possesses the majority of the voting rights of a company, including potential voting rights that are exercisable without any restrictions or when it has in any case effective control over Shareholders’ Meetings despite not having a majority of the voting rights. Subsidiaries are fully consolidated as from the date on which the Group takes control and are deconsolidated 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 generally 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 investee companies 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 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; - Minority shareholders’ equity and their share of net income for the period are shown in special items of the consolidated balance sheet and income statement; - In the event of a reduction of the shareholding, not involving a loss of control, due to an increase in the capital held by minority shareholders, except for cases resulting from the subscription of stock option plans, any gains or losses from the dilution are recognized to the income statement in application of the Parent Company method. Associates 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 associated companies or associates. 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). Associates are consolidated using the equity method as from the date on which the Group acquires significant influence in the associate and they are de-consolidated from the moment when significant influence ceases to exist. The criteria adopted for applying the equity method are mainly the following: - The book value of the holding is eliminated against the appropriate portion of shareholders’ equity and any positive difference, identified at the time of the acquisition, net of any lasting loss of value resulting from an impairment test to establish its recoverable value; the corresponding share of the net income or loss for the period is recognized to the income statement. Whenever the part attributable to the Group of the losses of the associate 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 are not recognized unless the Group has any contractual obligation to do so;

Consolidated Financial Statements

- Any unrealized gains and losses generated by transactions between companies of the Group are netted out except in cases where losses represent a permanent loss of value of the assets of the associate; - The accounting principles of the associate 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. In particular it is presumed that joint control exists when the Group owns half of the voting rights of a company. International accounting standards give two methods for consolidating investments in joint ventures: . the usual method, which involves pro-rata consolidation: . the alternative method which involves consolidation using the equity method. The Group has adopted the equity method of consolidation.

2.b.

Translation of foreign companies’ financial statements into euro

The translation into euro 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 the item “Other reserves” under shareholders’ equity. The main exchange rates used are the following: 31.12.2008 US Dollar

31.12.2007

Average rate

31.12.2008

Average rate

31.12.2007

1.47076

1.3917

1.37048

1.4721

UK Sterling

0.7948

0.9525

0.6842

0.7333

Swedish Krona

9.6006

10.8696

9.2515

9.4411

Brazilian Real

2.6583

3.2436

2.6625

2.6108

Argentine Peso

4.6296

4.8045

4.2622

4.6369

Chinese Renminbi

10.1616

9.4958

10.4134

10.7527

Indian Rupee

63.7349

67.6133

2.c.

Consolidation area

The consolidated financial statements as of December 31 2008 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 associated, with the exception of any companies being wound up. Assets and liabilities scheduled for disposal are reclassified in the items of assets and liabilities that show such an eventuality.

Consolidated Financial Statements

Specifically in 2008 the assets refer to properties of the Sogefi group that are scheduled for disposal in 2009. The list of shareholdings included in the consolidation area, with an indication of the consolidation method used, and of those not included is given in the appropriate section of this booklet. At the end of 2007 the Group had acquired the company Société Française d’Eolienne (SFE). The business combination thus created was recognized in accordance with the terms of IFRS 3 and in particular the CIR Group availed itself of the right, as the same principle permits, to defer by one year the allocation of the price paid since at the end of the year in which the combination took place the initial accounting could only be determined provisionally. See note 25 of these financial statements for the definitive recognition of this business combination. It should be noted that in application of Standing Interpretations Committee 12 (SIC 12), ), the securitization company Zeus Finance S.r.l. (vehicle company) and the vehicle Urania Finance S.A. have now been consolidated.

2.d.

Changes in the consolidation area

The main changes in the consolidation area compared with the previous year concern the following: Utilities sector The following companies have joined the consolidation: - Sorgenia Romania S.r.l., set up in March 2008, is active in the construction, management, maintenance and economic exploitation of one or more wind parks in Eastern Europe; - Racoon S.r.l., which was acquired in February, and is functional to the construction of the 770 MW CCGT power plant in the local district of Bertonico-Turano Lodigiano; - Sorgenia Bioenergy S.p.A., set up in October 2008 with the aim of becoming involved, in Italy and abroad, directly or through holdings in other companies, in the production, sourcing, transformation and marketing of energy from renewable sources or similar sources such as biomass, plant fuel derivatives, biodiesel and plant oils used as fuels, as well as other related activities; - Sorgenia E&P S.p.A., set up in June, which has the aim of exploring, designing and building plants relating to hydrocarbon deposits; - Sorgenia International B.V., set up in November 2008. 100% owned by Sorgenia E&P S.p.A., this company has the aim of providing consulting services, buying and managing properties, industrial property rights and royalties, know-how, licenses and authorizations; - Sunnext S.r.l., set up on July 18 2008, with the aim of industrially producing, marketing, designing, researching, managing and maintaining photovoltaic modules using thin film technology. The companies Italia Energia Srl and Solare Sarda S.r.l. left the consolidation and were wound up last year, while the company Energia Lucana S.p.A. was put into liquidation at the end of the year. Automotive sector In 2008 the following changes took place: - In April the subsidiary Sogefi Filtration S.p.A. took full control of the subsidiary Shanghai Sogefi Auto Parts Co. Ltd by purchasing the remaining stake of 30% from the minority shareholder Zhejiang Universe Filter Co. Ltd;

Consolidated Financial Statements

- In September an equal share joint venture was set up (with the name of S. Ara Composite S.A.S.) between the subsidiary Allevard Rejna Autosuspensions S.A. and the French company Sardou S.A. to develop, produce and market suspension components in alternative materials to steel. Since the French subsidiary has the power to appoint the majority of the members of the Board of Directors of the company, it in fact exercises control over the joint-venture; - In November the subsidiary Filtrauto S.A. acquired 60% of the Indian companies M.N. Ramarao Filters Private Ltd and EMW Environmental Technologies Private Ltd with headquarters in Bangalore which operate in the Indian vehicle and industrial filter market; - In December the parent company Sogefi S.p.A. set up the French company Sogefi Purchasing S.A.S. which, during 2009, will operate as agent for the companies of the Group in managing negotiations and purchases. Healthcare sector In 2008 the following changes took place: - The acquisition of a controlling stake in the companies Colline del Po S.r.l., Tuga S.r.l. and Centro Cardinal Ferrari S.r.l. The latter was then merged by incorporation into the company Istituto di riabilitazione S. Stefano S.r.l. at December 31 2008; - The acquisition of a further stake of 42.9%, (from 50.1% to 93%) in the subsidiary Sanitech S.r.l.; - The establishment of the company Parco Immobiliare S.r.l.. It should also be noted that business arms were also acquired which refer to the management of the S. Pancrazio rehabilitation hospital at Arco (TN), to a nursing home at Scarnafigi (CN) and to a residence at Vespolate (NO). Media Sector From January 1 2008 the company Rotonord S.p.A., which is wholly controlled by the Group, entered the consolidation. Financial Services Sector As from 2008 the special purpose entity Urania S.A. entered the consolidation in application of the terms of SIC 12.

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 their cost can be measured reliably. Intangible assets with a finite useful life are valued at purchase or production cost net of amortization and impairment. Intangible assets are initially recognized at purchase or production cost. Purchase cost is represented by the fair value of the means of payment used to purchase the asset and any additional direct cost incurred for preparing the asset for use. The purchase cost is the equivalent price in cash as of the date of recognition 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.

Consolidated Financial Statements

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. However, 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 accumulated amortization and any impairment.

Goodwill In the event of the acquisition of companies, the identifiable assets, liabilities and potential liabilities acquired are recognized at their fair value on the acquisition date. The positive difference between the acquisition cost and the Group’s pro-rata share of the fair value of these assets and liabilities is classified as goodwill and is recorded in the balance sheet as an intangible asset. Any negative difference (“negative goodwill”) is however posted to the income statement at the moment of acquisition. After initial recognition, goodwill is valued at cost less any accumulated impairment. Goodwill always refers to identified income-producing assets, the ability of which to generate income and cash flows is constantly monitored for any impairment. On the first adoption of IFRS, the Group opted not to apply IFRS 3 – Business combinations retrospectively to acquisitions made prior to January 1 2004. As a result, the goodwill generated on acquisitions prior to the date of transition to IFRS was maintained at the previous value determined according to Italian Accounting Principles, subject to monitoring for any losses in value. In relation to acquisitions/sales of holdings in companies that are already controlled, including extraordinary transactions involving a change of the stake in the capital of the said subsidiaries, IFRS 3 is not applicable because it only applies to transactions involving the acquisition of control by an acquiring entity of the business activity of the enterprise acquired. Thus, acquisitions of further shares in a holding, once control has been obtained, are not specifically regulated by IAS/IFRS. In the absence of a specific Principle or Interpretation on the subject and with reference to the instructions contained in IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the Group decided to apply the accounting treatment given below, identifying two different types of transaction: - acquisitions/sales of holdings in companies already controlled: in application of the parent entity extension method which considers minority shareholders as third parties, the Group

Consolidated Financial Statements

- in the case of an acquisition pays third party shareholders an amount in cash or in new shares, thus eliminating their minority holdings and recognizing goodwill equal to the difference between the acquisition cost and the carrying value of the assets and liabilities acquired; - in the case of a sale, the difference between the price of the sale and the corresponding carrying value in the consolidated balance sheet is recognized to the income statement; - intercompany transfer of holdings in subsidiaries which cause a change in the percentage of ownership: the shares transferred remain recorded at historical cost and the whole gain or loss on the transfer is reversed out. The stakes of third party shareholders, who do not take part in the transaction directly, are adjusted to reflect the change in the percentage of their equity holding with an offsetting effect on the equity attributable to the shareholders of the Parent Company without recognizing any goodwill or causing any other effect on earnings or on total equity.

3.b.

Tangible assets (IAS 16)

Tangible assets are recognized at purchase price or at production cost net of accumulated 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 specific loans for long-term investments are capitalized until the date when the assets start operating. When 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 under construction and advance payments are not subject to depreciation. Real estate and land not used for corporate operating purposes are classified under a special item of assets and are accounted for on the basis of the terms of IAS 40 â&#x20AC;&#x153;Investment propertiesâ&#x20AC;? (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 its 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 assetâ&#x20AC;&#x2122;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.

Consolidated Financial Statements

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 public entity 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 expense, 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. 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 (IAS 40)

An investment property is a property, either land or building â&#x20AC;&#x201C; or part of a building â&#x20AC;&#x201C; or both, owned by the owner or by the lessee, through a financial leasing agreement, for the purpose of receiving lease payments or for obtaining a return 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, any replacements 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.

Consolidated Financial Statements

The Group has opted for the cost method to be applied to all investment property held. According to the cost method, measurement is made net of depreciation and 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.

3.f.

Impairment of assets (IAS 36)

At least once a year the Group verifies whether the carrying value of intangible and tangible assets (including capitalized development costs) are recoverable, in order to determine whether there is any indication that the assets may have lost value. If there is such an indication, the carrying value of the assets is written down to the relative recoverable value. An intangible asset with an indefinite useful life is subjected to an impairment test every year or more frequently any time that there is an indication that it may have undergone a loss in value. When it is not possible to estimate the recoverable value of an individual asset, the Group estimates the recoverable value of the cash generating unit to which the asset belongs. The recoverable value of an asset is the higher of fair value net of costs to sell and its value in use. To determine the value in use of an asset the Group calculates the present value of estimated future cash flows, gross of taxes, using a discount rate, before tax, which reflects the current market estimate of the time value of money and the specific risks of the business sector. An impairment loss is recognized if the recoverable value is lower than the carrying value. If at a later date the loss on an asset other than goodwill ceases to exist or is less, the carrying value of the asset or of the cash generating unit is revalued to the extent of the new estimate of its recoverable value but cannot exceed the value that would have been determined if there had not been any impairment loss. The recovery of an impairment loss is recognized to the income statement immediately.

3.g.

Other equity investments

Investments in companies where the Parent Company does not exercise a significant influence are accounted for in accordance with 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.

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 on the transaction date, are adjusted to period-end spot exchange rates and any exchange gains and losses are recognized to the income statement. 3.i.

Securities (IAS 32 and 39)

In accordance with IAS 32 and IAS 39 investments in companies other than subsidiaries and associates are classified as available-for-sale financial assets and are measured at fair value.

Consolidated Financial Statements

Gains and losses resulting from fair value adjustments are recorded in a special equity reserve. 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. Purchases and sales are recognized on the date of the trade. This category also includes financial assets bought or issued that are classified as either held for trading or at fair value through profit and loss on adoption of the fair value option. For a more complete description of the principles regarding financial assets 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 may apply and any tax credits that may be claimed. Deferred taxes are calculated on the basis of time differences, whether 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 if there is likely to be taxable income on which the deductible temporary difference can be used. 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 recorded at the lower of purchase or production cost, calculated using the weighted average cost method, and their presumed realizable value. 3.n.

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 have an insignificant risk of change in price. 3.o.

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 impairment loss is recognized.

Consolidated Financial Statements

The hedging reserve is formed when fair value changes are recognized on derivatives which, for the purposes of IAS 39, have been designated as “cash flow hedges” or as “hedges of net investments in foreign operations”. The portion of gains and losses 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 its disposal. The item “Retained earnings (losses)” includes accumulated income and losses and the transfer of balances from other equity reserves when these become free of any restrictions 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.

3.p.

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.

3.q.

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 are uncertain. They 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 disbursement required to fulfil the obligation as of the balance sheet date. The provisions recognized are re-examined at the close 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 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 adequate disclosure on such items is given.

Consolidated Financial Statements

3.r.

Revenue recognition (IAS 18)

Revenues from the sale of goods are recognized at the moment when ownership and the risks of the goods 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 balance sheet date. Income from dividends, interest and royalties is recognized as follows: - Dividends, when the right to receive payment is established (with an offset in receivables when distribution is approved); - Interest, using the effective interest rate method (IAS 39); - Royalties, on an accruals basis, in accordance with the underlying contractual agreement.

3.s.

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. Financial Law no. 296/2006 (Budget) made important changes to severance and leaving indemnity (TFR) regulations, introducing the possibility for workers to transfer their TFR maturing after January 1 2007 to selected pension schemes. Thus the TFR accruing as of December 31 2006 for employees who exercised the above option, while remaining within the sphere of defined benefit plans, was determined using actuarial methods that exclude the actuarial / financial components relating to future salary dynamics. Given that this new method of calculation reduces the volatility of actuarial gains / losses the decision was taken to abandon the corridor method and recognize all the actuarial gains and losses to the Income Statement. Accounting principle IFRS 2 â&#x20AC;&#x153;Share based paymentsâ&#x20AC;? 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 stock options were awarded before November 7 2002 and where, 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 shareholdersâ&#x20AC;&#x2122; equity. The cost of the option is determined at the award 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. Similarly the cost resulting from the award of phantom stock options is determined in relation to the fair value of the options at the award date and is recognized to the income statement under personnel costs throughout the vesting period of the benefit; the offsetting entry, unlike for stock options, is made in the liabilities (miscellaneous personnel provisions) and not in an equity reserve. Until this liability is extinguished its fair value is recalculated at each balance sheet date and on the date of actual disbursement and all the fair value changes are posted to the income statement.

Consolidated Financial Statements

3.t.

Derivative instruments (IAS 32 and 39)

Derivative 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. - 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.

3.u.

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. At the balance sheet date monetary assets and liabilities denominated in foreign currencies 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 balance sheet date; - 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. 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.v.

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 its use. For this condition to be satisfied the asset must be immediately sellable in its present condition and a sale must be considered as highly probable. Assets or groups that are classified as held for sale are valued at the lower of their carrying value and expected realization value less costs to sell.

Consolidated Financial Statements

The individual assets or those which are part of a group classified as held for sale are not amortized. These assets are shown in the financial statements on a separate line in the Income Statement giving income 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.

3.w. 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.

3.x.

Business combinations

Acquisitions of businesses are recognized using the acquisition or purchase method in compliance with the terms of IFRS 3, on the basis of which the acquisition cost is equal to the fair value on the date of exchange of the assets transferred, the liabilities incurred or assumed, plus any directly attributable acquisition costs. The assets, the potential identifiable liabilities of the acquiree which respect the conditions for recognition are accounted for at their fair value as of the acquisition date. Any positive difference between the acquisition cost and the fair value of the share of net assets acquired attributable to the Group is recognized as goodwill or, if negative, is recognized to the income statement. Initial allocation to the assets and liabilities as above, using the option given in IFRS 3, can be determined provisionally by the end of the year in which the deal is completed, and it is possible to recognize the adjustment to the values provisionally assigned in the initial accounting within twelve months of the date of acquisition of control.

3.y.

Use of estimates

The preparation of the financial statements and the explanatory notes in application of IFRS requires the use by management of estimates and assumptions which affect the values of the assets and liabilities in the balance sheet and the information regarding potential assets and liabilities as of the balance sheet date The estimates and assumptions used are based on experience and on other factors considered relevant. The actual results could therefore differ from these estimates. Estimates and assumptions are revised periodically and the effects of such revision are reflected in the income statement in the period in which the revision is made if the revision has effect only in that period, or even in subsequent periods if the revision has an effect both on the current financial year and on future years. The items of the financial statements principally affected by this use of estimates are goodwill, deferred taxes and the fair value of financial instruments, stock options and phantom stock options.

Consolidated Financial Statements

It should also be noted that the situation caused by the current economic and financial crisis made it necessary to make assumptions about future trends involving greater uncertainty, which means that it cannot be ruled out that next year results may be different from those estimated with the need for adjustments to the carrying value of items, which could even be quite substantial and which today obviously cannot be either estimated or predicted. See the specific business areas for further details.

FINANCIAL INSTRUMENTS

Financial instruments take on a particular significance in the economic and financial structure of the CIR Group and for this reason, in order to give a better and clearer understanding of the financial issues involved, 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 into four categories: a) Financial instruments that are valued at fair value with an offsetting entry in the income statement (â&#x20AC;&#x153;fair value through profit and lossâ&#x20AC;? - 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 Managementâ&#x20AC;&#x2122;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 hedging 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) The fair value option designation eliminates or significantly reduces an accounting mismatch; 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.

Consolidated Financial Statements

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 principle of measurement at 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 then be used in the following two 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 balance sheet date. 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 as available for sale 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 markets, the fair value is the bid price at the close of trading on the last day of the accounting period. When 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).

Consolidated Financial Statements

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.

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 in force, 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. Estimates and assumptions are reviewed regularly and the effects of any changes are reflected in the income statement. The treatment of accounting errors involves an indication of the nature of the error, the amount of the adjustments and corrections to be made at the beginning of the first accounting period after it was recognized.

ADOPTION OF NEW ACCOUNTING STANDARDS, INTERPRETATIONS AND AMENDMENTS

Accounting standards, Interpretations and Amendments applied in 2008 On October 13 2008 with the document “Reclassification of financial assets” the IASB made some changes to IAS 39 – Financial Instruments: Recognition and Measurement and to IFRS 7 – Financial Instruments: Disclosures in relation to the classification of financial instruments. The amendments were ratified by the European Commission on October 15 2008 with Regulation no. 1004/2008 and took effect immediately. These amendments introduced the possibility, not allowed until the amendments took effect, of reclassifying in certain circumstances certain financial assets other than derivatives from the accounting category “valued at fair value through profit and loss” to the other categories contained in IAS 39 (assets held to maturity, available-for-sale assets, loans and receivables). The amendment also allows loans and receivables to be transferred from the accounting category "available for sale" to the "held to maturity" category, if the company has the intention and the ability to keep the said instruments for a definite period in the future. The amendment is applicable as from July 1 2008 but its adoption did not have any effect on these financial statements since the Group has not made any of the permitted reclassifications.

Consolidated Financial Statements

Accounting standards, amendments and interpretations not yet applicable and not adopted early by the Group The Group did not opt for the early adoption of the following Principles, Interpretations and Amendments to principles already published, which will become obligatory in future periods:

•

IFRS 8 – Operating Segments: on November 30 2006 the IASB issued principle IFRS 8 which must be applied as from January 1 2009 in replacement of IAS 14 – Segment reporting. This new accounting principle, which has already completed the ratification process necessary for its application, requires the company to base the information given in its segment reporting on the same elements that management uses to make its operating decisions. It therefore requires operating segments to be identified on the basis of internal reports that are reviewed regularly by management for the allocation of resources to the various segments and for the purposes of analysing performance. The adoption of this principle will have no effect from the point of view of measuring the items in the balance sheet.

•

IAS 1 – Presentation of Financial Statements: on September 6 2007 the IASB issued a revised version of IAS 1 which must be applied as from January 1 2009. Specifically the new version of this principle requires that all owner-generated changes in equity be presented in a statement of changes in shareholders’ equity. All changes in equity generated with third parties, or comprehensive income, must be shown either in a single statement of comprehensive income or in two separate statements (a separate income statement and a statement of comprehensive income). In any case the non-owner generated changes cannot be shown in a statement of changes in shareholders’ equity. The adoption of this principle will not have any effect from the point of view of measuring the items in the balance sheet. The revised principle was ratified by the European Commission on December 17 2008 with (EC) Regulation 1274/2008.

•

IAS 23 – Borrowing Costs: on March 29 2007 the IASB issued a revised version of IAS 23 which must be applied as from January 1 2009. The new version of the standard removes the option of immediately recognizing as an expense any borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The standard will apply prospectively to borrowing costs relating to capitalized assets as from January 1 2009.

•

IFRS 3 – Business Combinations: on January 10 2008 the IASB issued a revised version of IFRS 3 and amended IAS 27 – Consolidated and Separate Financial Statements. The main changes made to IFRS 3 involves the elimination of the obligation to measure each individual asset and liability of the subsidiary at fair value for each subsequent acquisition, in the event of step acquisitions of controlling interests. In such cases the goodwill will be determined as the difference between the value of the interests immediately before the acquisition, the acquisition cost and the value of the net assets acquired. Moreover, in the event of the company not acquiring 100% of the interest, the minority shareholders’ equity can be valued either at fair value or using the method previously given in IFRS 3. The revised version of the standard also involves the recognition to the income statement of all costs connected with the business combination and recognition at the acquisition date of liabilities for contingent consideration where payment of consideration is subject to certain conditions occurring.

Consolidated Financial Statements

In the amendment to IAS 27, on the other hand, the IASB established that changes in shareholdings not constituting a loss of control must be treated as equity transactions and therefore there must be an offsetting entry in shareholders’ equity. It is also established that when a controlling company cedes control of an investee company yet continues to have an interest in that company, it must measure the shareholding maintained in the balance sheet at fair value and recognize any profit or loss resulting from the loss of control to the income statement. Lastly, the amendment to IAS 27 requires that any losses attributable to minority shareholders be allocated to minority shareholders’ equity, even when they exceed their percentage of capital of the investee company. The new rules must be applied prospectively as from January 1 2010. •

IFRS 2 – Vesting Conditions and Cancellations: on January 17 2008 the IASB issued an amendment of IFRS 2 on the basis of which, for the purposes of measuring share-based payments, only service conditions and performance conditions can be considered as vesting conditions of plans. The amendment also clarifies that in the event of cancellation of a plan, the same accounting treatment is applicable whether the cancellation is made by the entity or by other parties. The new rules must be applied prospectively as from January 1 2009.

•

IFRIC 12 – Service Concession Arrangements, which must be applied as from January 1 2008 and which has not yet been ratified by the European Union.

•

IFRIC 13 – Customer Loyalty Programs which must be applied as from January 1 2009.

•

IFRIC 14 on IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction applicable retrospectively as from January 1 2008.

•

IFRIC 16 – Hedges of a Net Investment in a Foreign Operation, which eliminates the possibility of applying hedge accounting for hedging exchange rate differences between the functional currency of the foreign operation and the presentation currency of the parent’s consolidated financial statements. The interpretation must be applied as from January 1 2009.

With the exception of IFRS 8 and IAS 1 as mentioned above, as of the date of these financial statements, the appropriate organs of the European Union have not yet finished the ratification process necessary for their application. The Group is currently assessing the potential effects of adopting the above principles and interpretations or amendments thereof. Moreover, on May 22 2008 the IASB issued a series of improvements to IAS/IFRS. Below is a list of those indicated by the IASB as improvements which will involve a change in the presentation, recognition and measurement of balance-sheet items, omitting those which will only involve a change in the terminology or changes in preparation with minimum effects in accounting terms or those which refer to issues which do not affect the Group. •

IFRS 5 –Non-current Assets held for Sale and Discontinued Operations : the amendment, which must be applied prospectively as from January 1 2010, states that if an entity is com-

Consolidated Financial Statements

mitted to a plan to sell involving loss of control of a subsidiary, all the assets and liabilities of the controlled entity must be reclassified as assets held for sale, even if the entity will still have a minority interest in the investee company after the sale.

•

IAS 16 – Property, Plant and Equipment: the amendment, which must be applied retrospectively as from January 1 2009, states that entities whose typical business is renting must reclassify as inventory any assets that cease to be rented and are held for sale and, consequently, the proceeds of their sale must be recognized as revenues. Sums paid to construct or acquire goods to rent out to others, as well as the proceeds from the subsequent sale of such assets, for the purposes of the cash flow statement constitute cash flows from operating activity (and not from investment activity). The adoption of this amendment will have no effect on the measurement of balance-sheet items.

•

IAS 19 – Employee benefits: the amendment, to be applied prospectively as from January 1 2009 to the changes in benefits taking place as from that date, clarifies the definition of cost/revenues in relation to past periods of service and establishes that if a plan is reduced, the amount posted to the income statement immediately must include only the reduction in the benefit for future periods, while the effect of any reductions relating to past periods of employment must be considered as a negative cost relating to past periods of service.

•

IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance: the amendment, to be applied prospectively as from January 1 2009, establishes that benefits in the form of loans from the state at interest rates below market rates must be treated as state subsidies and must thus follow the rules for recognition set out in IAS 20.

•

IAS 28 – Investments in Associates: the amendment, which must be applied (even if only prospectively) as from January 1 2009, establishes that in the case of investments valued using the equity method, any impairment should not be allocated to the individual assets (and especially to any goodwill) making up the carrying value of the investment, but to the value of the investee as a whole. Therefore, in the presence of conditions for a subsequent recovery of the original value, this recovery must be recognized in full.

•

IAS 36 – Impairment of Assets: the amendment, which must be applied as from January 1 2009, requires that additional information be given in the event of a company determining the recoverable value of cash generating units using the discounted cash flow method.

•

IAS 38 – Intangible Assets: the amendment, which must be applied retrospectively as from January 1 2009, states that promotional and advertising costs be recognized to the income statement. It also establishes that if the entity incurs costs giving future economic benefits without the recognition of intangible assets, these costs must be recognized to the income statement when the company has the right to access the asset, when there is a purchase of assets, or when the service is rendered, if it refers to a purchase of services. The standard was also amended to allow entities to adopt the unit of production method to determine the amortization of intangible assets with a finite useful life.

Consolidated Financial Statements

•

IAS 39 – Financial Instruments: Recognition and Measurement: the amendment, which must be applied retrospectively as from January 1 2009, clarifies the criteria for calculating the new effective return on a financial instrument at the end of a fair value hedging relationship. Moreover, on July 31 2008 the IASB issued a further amendment to IAS 39, which must be applied retrospectively as from January 1 2010, which clarifies the application of the standard for the definition of the underlying being hedged in particular situations.

As of the date of these financial statements, the appropriate organs of the European Union have not yet finished the ratification process necessary for their application. The Group is currently assessing the potential effects of adopting the above principles and interpretations or amendments thereof. Accounting standards, amendments and interpretations not applicable to the Group The following amendments and interpretations regulating various situations and cases have been issued but as of the date of these financial statements do not apply to situations present in the Group: • IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of Financial Statements – Financial Instruments: puttable instruments and instruments with obligations arising on liquidation. The company is asked to classify as equity instruments any puttable instruments and instruments that oblige the company to deliver to another party a pro-rata share of the net assets of the entity. This amendment must be applied prospectively as from January 1 2009. • Improvement to IAS 28 – Investments in Associates, and to IAS 31 – Interests in Joint Ventures: these amendments, which are to be applied as from January 1 2009, stipulate that additional information be given even for investments in associates and joint ventures measured at fair value in accordance with IAS 39. In line with these an amendment was also made to IFRS 7 – Financial Instruments: Enhancing Disclosures and to IAS 32 – Financial Instruments: presentation. • Improvement to IAS 29 – Financial Reporting in Hyperinflationary Economies: the previous version of this standard did not reflect the fact that some assets or liabilities could be measured in the balance sheet on the basis of the current value rather than historical cost. The change, which was made in order to introduce this possibility, must be applied prospectively as from January 1 2009. • Improvement to IAS 40 – Investment Property: the amendment, to be applied prospectively as from January 1 2009, establishes that investment property under construction should be in the scope of application of IAS 40 instead of IAS 16. • IFRIC 15 – Agreements for the Construction of Real Estate, which must be applied as from January 1 2009 and which has not yet been ratified by the European Union.

Consolidated Financial Statements

NOTES ON THE BALANCE SHEET 7.

NON-CURRENT ASSETS

7.a. INTANGIBLE ASSETS

Opening position

2007 (in thousands of euro) Start-up & expansion costs Capitalized development costs - purchased - produced internally Industrial patents & intellectual property rights Concessions, licenses, trademarks & similar r Titles and trademarks Frequencies Goodwill Assets in process and advance payments - purchased - produced internally Other Total

Historical cost

Accum. amort & write-downs

Balance 31.12.2006

Acquisitions

(27)

-44,743

-(26,932)

-17,811

-7,283

---

19,916 57,110 400,245 200,572 359,739

(18,071) (45,490) --(54,596)

1,845 11,620 400,245 200,572 305,143

1,812 3,552 -11,026 287,382

7 1,485 ----

4,872 1,702 15,129 1,104,066

--(7,941) (153,057)

4,872 1,702 7,188 951,009

5,312 1,275 1,227 318,869

82 755 -2,335

Opening position

2008 (in thousands of euro) Start-up & expansion costs Capitalized development costs - purchased - produced internally Industrial patents & intellectual property rights Concessions, licenses, trademarks & similar r Titles and trademarks Frequencies Goodwill Assets in process and advance payments - purchased - produced internally Others Total

Changes in the period Combinations sales of businesses increases decreases 6 --

---

(755) -(755)

Changes in the period

Historical cost

Accum. amort. & write-downs

Balance 31.12.2007

Acquisitions

Combinations sales of businesses increases decreases --

(69)

-53,907

-(32,672)

-21,235

-6,912

---

21,754 61,155 400,245 211,620 647,170

(19,187) (50,405) --(54,652)

2,567 10,750 400,245 211,620 592,518

1,622 5,198 -7,401 45,504

-350 ----

5,035 2,111 11,507 1,414,579

--(7,398) (164,383)

5,035 2,111 4,109 1,250,196

8,789 3,103 1,114 79,643

4,904 --5,254

-----

----

Intangible assets rose from â&#x201A;Ź 1,250,196 thousand at December 31 2007 to â&#x201A;Ź 1,264,499 thousand at December 31 2008.

Changes in the period Exchange rate differences --

Other changes

Closing position Amort. & write-downs

Historical cost

Accum. amort. & write-downs

Balance 31.12.2007

(1)

Net disposals cost --

(10)

(69)

-95

-2,700

-(123)

-(6,531)

-53,907

-(32,672)

-21,235

(8) (28) ----

988 1,088 -100 (7)

-(391) -(78) --

(2,077) (6,576) ----

21,754 61,155 400,245 211,620 647,170

(19,187) (50,405) --(54,652)

2,567 10,750 400,245 211,620 592,518

(32) (44) (23) (40)

(4,137) (1,577) 3,559 2,713

--(3,440) (4,032)

(307) -(4,402) (19,903)

5,035 2,111 11,507 1,414,579

--(7,398) (164,383)

5,035 2,111 4,109 1,250,196

Amort. & write-downs

Historical cost

Accum. amort. & write-downs

Balance 31.12.2008

(3)

(72)

Changes in the period

Closing position

Exchange rate differences --

Other changes --

Net disposals cost --

-(1,140)

-1,361

-(4)

-(6,387)

-56,044

-(34,067)

-21,977

(9) 18 ----

(1,573) 6,676 --(53,992)

-(145) -(519) --

(400) (6,835) ----

11,084 79,484 400,245 218,502 643,627

(8,877) (63,472) --(54,693)

2,207 16,012 400,245 218,502 588,934

(37) (29) (45) (1,242)

(6,125) (680) (10) (54,343)

(4) -(14) (686)

-(176) (522) (14,323)

7,658 4,336 11,755 1,432,810

-(7) (7,123) (168,311)

7,658 4,329 4,632 1,264,499

AMORTIZATION RATES Description Capitalized development costs Industrial patents and intellectual property rights Concessions, licenses, trademarks and similar rights Other intangible assets

% 20-33% 4-20% 16-30% 16-30%

GOODWILL, TRADEMARKS AND OTHER ASSETS WITH AN INDEFINITE USEFUL LIFE

A more detailed analysis of the main items making up the item intangible assets with an indefinite useful life is given in the following charts. Titles and trademarks: (in thousands of euro)

31.12.2008

31.12.2007

229,952 104,527 61,222 4,544 400,245

(in thousands of euro)

31.12.2008

31.12.2007

Radio frequencies Television frequencies Total

80,219 138,283 218,502

74,301 137,319 211,620

31.12.2008

31.12.2007

232,964 139,830 120,070 96,070 588,934

252,934 137,779 110,512 91,293 592,518

la Repubblica Il Piccolo / Messaggero Veneto Local newspapers Other titles and trademarks Total

Frequencies:

Goodwill: (in thousands of euro) Utilities sector (Sorgenia Group) Media sector (Espresso Group) Healthcare sector (HSS Group ) Automotive sector (Sogefi Group) Total

In detail, goodwill was allocated to the cash-generating units (â&#x20AC;&#x153;CGUsâ&#x20AC;?) identified according to the operating sectors of the Group. The chart above shows the allocation of goodwill by operating sector of the Group. 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 36, was made on the basis of value in use, i.e. fair value less costs to sell. Value in use was 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 leading analysts on the outlook for the respective markets and more in general on the evolution of each business sector.

Consolidated Financial Statements

To determine the value in use of a Cash Generating Unit correctly, it was necessary to valuate the amount of the cash flows expected by the unit, expectations regarding possible changes in amount and timing of these cash flows, the discount rate to use and any other risk factors affecting the specific unit. 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 at sector level and independently of the financial structure of the individual company/subgroup. The fair value less costs to sell of an asset or a group of assets (e.g. a Cash Generating Unit) is best expressed in the price “made” in a binding sale agreement between independent parties, net of any direct disposal costs. If this information was not available, the fair value net of costs to sell was determined in relation to the following trading prices, in order of importance: • the current price traded in an active market; the previous price for a similar transaction; • the estimated price based on information obtained by the company. The impairment tests carried out using the cash flow method and other methods of valuation showed that there had been no losses of value. It should also be noted that the impairment test carried out on publication titles and radio and television frequencies, considered as assets with an indefinite useful life, ascertained that there were no losses in value to be recorded in the balance sheet. For estimating the recoverable value of each asset the higher of fair value less costs to sell and value in use was used. Below is a description of the tests carried out. Media sector The impairment test carried out at the close of financial year 2008 on titles, radio and television frequencies, trademarks and goodwill, which are all considered as assets with an indefinite useful life, showed that there were no losses of value to be recorded in the financial statements. Below is the main information used to prepare the impairment test for each unit or group of cash generating units of a significant value: • for national (La Repubblica) and local newspapers the criterion of value in use was used; • for radio frequencies and the trademark Deejay both of the criteria were used; • for the frequencies and the goodwill connected with the television sector the criterion of fair value was used. For determining value in use the unlevered (or asset side) discounted cash flow model was used, with the formula which includes discounting the breakdown of expected cash flows within the time horizon of projections (2009-2013) and calculating terminal value. The first year of the projections corresponds to the latest budget prepared for 2009. The current scenario of uncertainty in the short and medium term which is affecting the media sector has induced management to reconsider the growth rates for revenues and profitability that were incorporated in the business plans prepared last year. A decline in advertising revenues was factored in which takes into account a first year of the plan with a drastic reduction in advertising revenues which already took place in the last quarter of 2008. In the following years of the plan there will be a gradual recovery which should lead to advertising revenues close to those of 2008

Consolidated Financial Statements

in 2013. It should also be noted that to determine terminal value a growth rate of zero was used prudentially. A discount rate of 7.8% was used, which is the average cost of the capital invested in the Espresso Group. For carrying out the impairment test, the fair value less costs to sell was determined following a different methodological approach for the publishing businesses, where because of a lack of an active transfer market, reference was made to direct valuation (Enterprise value, sales, Enterprise value, sales/EBITDA, Enterprise value, sales/EBIT), and for the radio-television businesses for which a price/users multiple was calculated (Enterprise value/population reachable by the signal), observing transfer prices for similar frequencies in relation to the population reachable by the signal. In order to determine the possible â&#x20AC;&#x153;priceâ&#x20AC;? of the publishing Cash Generating Unit, entity-side type multiples were used, in the trailing version (or historical/actual multiples) and in the leading version (or expected/average multiples). The estimation of fair value less cost to sell of the radio-television operating units was made starting form an observation of transfer prices of frequencies similar to those under examination as a ratio to the population potentially reachable by the signal. The use of this valuation approach enables us to estimate the fair value of radio and television frequencies by relating the price that the market is prepared to pay to buy the frequencies to the number of inhabitants reached by the signal. More specifically, for radio frequencies a price range of between 1.5 and 3 times the number of inhabitants reachable by the FM workstations of the Radio Deejay, Radio Capital and m2o CGUs was used, while for the television frequencies a price range of between 3 and 3.6 was assumed. Given the scarcity of recent deals in television frequencies in Italy, to confirm the recoverability of the values recorded in the balance sheet, the value in use of the television frequencies was also calculated, assuming that the development of digital terrestrial technology will be in line with the current national plan for switch-over from analogue to digital. Automotive sector The Group has identified four CGUs for allocation of goodwill resulting from acquisitions: -

filters car suspension components industrial vehicle suspension components precision springs.

The specific goodwill of the Filter Division amounts to approximately 77 million euro, while that of the Car Suspension Components Division is approximately 17 million euro. A check was made for any impairment to goodwill by comparing the carrying value of the individual CGUs with their respective value in use. The unlevered discounted cash flow method was used, based on projections prepared for the budgets/multiyear plans for the period 2009-2012, approved by the company management, and on a discount rate based on an average cost of capital of 7.9%. Projections were based on a budget for 2009 produced by the management of the company on the basis of the results for 2008 taking into due consideration the expected future performance of the automotive sector, mainly new car registrations, which are likely to lead to a prudential reduction in the turnover of the Sogefi Group both by geographical area and by business sector.

Consolidated Financial Statements

On the basis of budget 2009 and taking into account a reasonable growth rate for turnover volume, in line with the past growth of the Group, plans were formulated for the three years 20102012, assuming a cost structure in line with that of 2008 taking into account the restructuring and the rationalization action currently under way. The current uncertainties as to the performance of the automotive sector were taken into consideration in the preparation of the above-mentioned plans, which also took into account the strengths of the Sogefi Group which is continuing to invest in research and development, with a low concentration of risks considering its widespread geographical presence and its very broad reaching client portfolio consisting of the main car producers without any significant concentration on any one single client. In line with the trend of the automotive sector according to the forecasts of some of the most important sources in the sector, the current forecasts of future cash flows of the Sogefi Group are worse overall than the flows estimated in the past. Specifically, for budget 2009 the automotive suspensions CGU was most affected because it is concentrated in the original equipment market while for the filter CGU, which also operates in the aftermarket, a more limited reduction is expected because the latter segment is not affected by a reduction in new car registrations. Lastly, the terminal value was calculated using the “perpetual annuity” formula, assuming a growth rate of 2% and considering an operating cash flow based on the last year of the multiyear plan (2012), adjusted in order to project a stable situation “in perpetuo”, using the following main assumptions: - a balance between investments and amortization (considering a level of investment necessary to “maintain” the business); - a zero change in working capital (assuming that the improvements obtainable with the working capital reduction program in which the Sogefi Group is engaged will end in the medium term). Having already prudentially considered the uncertainties in the estimates made in the budget and in business plans, management deemed it reasonable to apply a growth rate in line with general practice, taking into account that the effect is offset by discounting the perpetual cash flow to present value. It should be noted that if a zero growth rate were used to calculate the perpetual cash flow for the 2008 impairment test, this would not involve any write-down. A test carried out of the current value of expected future cash flows justifies a much higher goodwill than that recorded in the balance sheet for the automotive sector and for this reason no write-down was made. Sensitivity analyses were then carried out for the basic assumptions and the parameters used, and in particular a one percent change in the growth rate and a two percent change in the average cost of capital were tested. On the basis of the sensitivity analyses it was felt that reasonable potential changes in the basic assumptions would not lead to a loss in value compared to the carrying values in the balance sheet. Utilities sector Goodwill allocated to the utilities sector amounting to approximately € 232.9 million, of which € 175.4 million generated by the SFE acquisition, represents the positive difference between the acquisition cost and the Group’s share pro-rata of the assets and liabilities measured at their fair value. The change recognized during the year relates in particular to the recognition of the SFE business combination only provisionally at the end of financial year 2007. For details of this see the paragraph “Acquisition of the Société Francaise d’Eolienne Group” (note 25).

Consolidated Financial Statements

Measurement for the purposes of the impairment test was based on cash flows of the SFE cash generating unit resulting from the economic projections made in Business Plan 2009-2012 approved by the Board of Directors of Sorgenia S.p.A.. These flows were discounted to present value using the weighted average cost of capital of the Sorgenia Group. The recoverable value of the cash generating unit is checked by determining its value in use. The main assumptions used to calculate value in use are the discount rate, the expected useful life of the plants, expectations regarding the return on the investments, revenues and direct costs during the period considered for the calculation. The weighted average of capital of the Sorgenia group was estimated at 6.2%, which reflects the current market evaluations of the time value of money and of the specific risk of the particular cash generating unit. As indicated, operating cash flow projections were extrapolated from Business Plan 2009-2012 and were projected over the time horizon of the remaining useful life of the wind plants (estimated at 25 years) on the basis of reasonable assumptions in line with the content of the Plan and with the energy scenario of the Sorgenia group. Investments for the construction of new plants were made as per the content of the Plan. The performance of revenues and direct costs was estimated on the basis of assumptions regarding the power producibility of existing plants and plants to be constructed as per the terms of the Plan, and also on the basis of reasonable assumptions regarding electricity selling prices in line with the terms of the Plan and with the energy scenario of the Sorgenia group. Moreover, for the part of goodwill not resulting from the acquisition of the SFE group, the measurements for the purposes of the impairment test were based on the values of Sorgenia expressed in the agreements signed during the year with its partner Verbund. A comparison of the values determined in the methods described above and the value recorded in the balance sheet at December 31 2008 did not reveal any impairment but, quite the contrary, showed significant capital gains on the investments made by the Group in the sector. Healthcare sector The HSS Group carried out a first level test which involved the calculation for each CGU of the recoverable value of its tangible and intangible assets (excluding any goodwill not directly attributable to the individual CGUs) and a second level test in which the value of the goodwill was allocated to groups of CGUs which benefit from synergies associated with the respective business combinations (in line with the terms set out in paragraph 80 of IAS 36). These CGUs were identified following the organizational structure and the business lines of the Group, as homogeneous businesses able to generate cash flow independently through the continuing use of the assets allocated to them. Value in use was measured on the basis of the net present value of the expected cash flows for each CGU and of the value expected from their disposal at the end of their useful life. The business plans used as the basis for carrying out the impairment test depend both on variables controllable by the management of the Group and on assumptions regarding the evolution of external variables not directly controllable or manageable by the Management of the Group. The main estimates in the preparation of the impairment test were to do with the general assumption that, while taking into account the current financial situation and its possible effects on the dynamics of public and healthcare spending, there will not be any significant contraction over the medium term in the segments in which the individual CGUS operate since they are essential ser-

Consolidated Financial Statements

vices and complement those offered by the National Health Service. This also in the light of demographic variables relating to the gradual aging of the population and assumptions already made for Healthcare Spending. It can therefore be reasonably assumed that there will be a rise in tariffs in the future that will be close to or in some cases slightly above the rate of inflation. In this context it was also assumed that in the medium term the payment terms for services accredited by the regions will remain substantially stable and a similar assumption was made for the fees paid by private individuals in the business sector of the Elderly. The Group has identified four operating sectors which represent the CGUs to which the goodwill is allocated: - Elderly (Lombardy, Piedmont, Liguria, Emilia, Veneto, Marche) - Technological and acute services (Technology Services) - Psychiatry (Lombardy, Piedmont, Liguria) - Rehabilitation (Lombardy, Trentino, Marche) The goodwill of the Elderly Division in particular amounts to approximately 68 million euro, while that of the Rehabilitation division is approximately 40 million euro. In developing the impairment test the HSS Group used forecasting figures based on the economic and financial evolution forecast for the period 2009-2013, assuming that events assumed actually take place and that forecast targets are met. For the terminal value calculation a growth rate of 2% was used. The average cost of the capital invested in the sector was calculated as 6.8% and reflects the current market valuations of the cost of money as well as the specific risks of the business. A comparison of the values calculated according to the methods described with the carrying values in the balance sheet at December 31 2008 did not show any impairment. Moreover, sensitivity analyses were carried out on the results of the tests, compared with the change in the basic assumptions (use of the growth rate in the calculation of terminal value and the discount rate) which affect the value in use of the cash generating units. In all of the calculations the value in use of the Group was actually higher than the carrying value allocated to the CGUs.

Consolidated Financial Statements

7.b. TANGIBLE ASSETS Opening position

2007 (in thousands of euro) Land Buildings for business use Plant and machinery Power plants Industrial & commercial equipment Other assets Assets under construction & advance paym Total

Historical cost

Accum. deprec. & write-downs

Balance 31.12.2006

Acquisitions

30,306 276,868 975,864 345,161 103,120 190,782 145,230 2,067,331

(142) (93,958) (664,664) (4,730) (82,611) (129,711) (485) (976,301)

30,164 182,910 311,200 340,431 20,509 61,071 144,745 1,091,030

2,950 8,888 23,774 20,662 3,950 18,236 274,182 352,642

Opening position

2008 (in thousands of euro) Land Buildings for business use Plant and machinery Power plants Industrial & commercial equipment Other assets Assets under construction & advance paym Total

Changes during the year

Historical cost

Accum. deprec. & write-downs

Balance 31.12.2007

Acquisitions

29,068 303,662 985,289 492,775 101,370 219,791 385,245 2,517,200

-(91,961) (692,424) (27,794) (82,426) (149,171) (104) (1,043,880)

29,068 211,701 292,865 464,981 18,944 70,620 385,141 1,473,320

11,171 11,906 47,628 -5,149 12,590 247,817 336,261

It should be noted that during this year the item "Power plants" was reclassified and included in the item "Plant and machinery".

DEPRECIATION RATES Description Buildings for business use Plant and machinery

% 3.00% 10-25%

Other assets: - Electronic office equipment - Furniture and fittings - Motor vehicles

20.00% 12.00% 25.00%

Combinations sales of businesses increases decreases 2,466 -33,187 -3,733 101,330 -667 -967 -14,033 (671) 156,383 (671)

Combinations sales of businesses increases decreases 12,222 -18,621 -1,403 ---93 -674 (1) 107 -33,120 (1)

Changes during the year Capitalized financial expense ------6,543 6,543

Exchange rate differences 27 (782) (2,498) -(237) (467) (274) (4,231)

Capitalized financial expense --16,292 (16,292) --11,922 11,922

Exchange rate differences (295) (3,454) (5,524) -(798) (235) (1,906) (12,212)

Other changes (4,750) 16,372 13,907 17,074 151 8,158 (52,990) (2,078)

Closing position Net disposals cost (1,789) (19,292) (2,579) (76) (285) (266) (427) (24,714)

Depreciation & write-downs

Historical cost

Accum. deprec. & write-downs

Balance 31.12.2007

-(9,582) (54,672) (14,440) (5,811) (17,079) -(101,584)

29,068 303,662 985,289 492,775 101,370 219,791 385,245 2,517,200

-(91,961) (692,424) (27,794) (82,426) (149,171) (104) (1,043,880)

29,068 211,701 292,865 464,981 18,944 70,620 385,141 1,473,320

Net disposals cost (330) (3) (3,382) -(128) (62) (48) (3,953)

Depreciation & write-downs

Historical cost

Accum. deprec. & write-downs

Balance 31.12.2008

-(12,400) (88,625) -(5,408) (17,910) (2,311) (126,654)

54,495 343,792 1,564,354 -106,603 231,874 618,852 2,919,970

-(109,820) (772,990) -(80,607) (164,257) (2,311) (1,129,985)

54,495 233,972 791,364 -25,996 67,617 616,541 1,789,985

Changes during the year Other changes 2,659 7,601 530,707 (448,689) 8,144 1,941 (24,181) 78,182

Closing position

7.c. INVESTMENT PROPERTY

Opening position

2007 (in thousands of euro) Properties Total

Historical cost

Accum. deprec. & write-downs

Net balance 31.12.2006

Acquisitions

18,087 18,087

(483) (483)

17,604 17,604

974 974

Opening position

2008 (in thousands of euro) Properties Total

Changes during the year Combinations sales of businesses decreases increases -----

Changes during the year

Historical cost

Accum. deprec. & write-downs

Net balance 31.12.2007

Acquisitions

20,299 20,299

(1,040) (1,040)

19,259 19,259

---

Combinations sales of businesses decreases increases -----

Investment property declined from â&#x201A;Ź 19,259 thousand at December 31 2007 to â&#x201A;Ź 18,687 thousand at December 31 2008. The value recorded in the balance sheet is substantially its market value.

DEPRECIATION RATES Description Buildings

% 3.00%

Changes during the year Capitalized financial expense ---

Exchange rate differences ---

Other changes 1,238 1,238

Closing position Net disposals cost ---

Depreciation & write-downs

Historical cost

Accum. deprec. & write-downs

Balance 31.12.2007

(557) (557)

20,299 20,299

(1,040) (1,040)

19,259 19,259

Changes during the year Capitalized financial expense ---

Exchange rate differences ---

Other changes

Closing position Net disposals cost ---

Depreciation & write-downs

Historical cost

Accum. deprec. & write-downs

Balance 31.12.2008

(572) (572)

20,299 20,299

(1,612) (1,612)

18,687 18,687

LEASING The position of assets under leasing as of December 31 2008 and of restrictions applied to tangible assets on account of guarantees and commitments is as follows: (in thousands of euro)

Gross leasing amount 2008 2,515 49,820 33,272 2,047 --

Land Buildings Plant and machinery Other assets Assets under construction and advance payments

Accrued depreciation

2007 2,513 34,715 56,792 4,208 --

2008 -5,569 18,901 1,258 --

2007 -4,593 12,792 1,227 --

Restrictions for guarantees and commitments 2008 3,139 76,598 211,649 287 322,560

2007 1,039 6,707 211,650 273 299,779

The increase in “Restrictions for guarantees and commitments” under the item “Buildings” refers to collateralized loans made to the HSS group. 7.d.

INVESTMENTS IN COMPANIES VALUED AT EQUITY

(in thousands of euro) 2007

Balance 31.12.2006

Increases

Decreases

Dividends

Pro-rata share of result Loss Income

Other changes

Balance 31.12.2007

Aire/Tirreno Power

50.00

187,055

Le Scienze S.p.A.

50.00

192

(128)

51,315

11,124

249,494

133

Saire S.r.l.

50.00

379

197

(379)

Editoriale La Libertà S.p.A.

35.00

22,740

Editoriale Corriere di Romagna S.r.l.

49.00

2,981

(700)

805

22,845

Altrimedia S.p.A.

35.00

715

3,075

(140)

174

Allevard Ressorts Composites S.A.

50.00

101

749

101

Oakwood Global Finance S.C.A.

47.52

8,593

(8,593)

Resource Energy B.V.

47.50

1,497

(907)

590

GICA S.A.

25.00

525

(31)

494

Fingas S.r.l.

50.00

2,916

(86)

2,830

Epense

25.00

179

214,163

13,710

(968)

(9,617)

52,521

10,745

280,554

Balance 31.12.2007

Increases

Decreases

Dividends

Pro-rata share of result Loss Income

Other changes

Balance 31.12.2008

Tirreno Power S.p.A.

50.00

249,494

(50,121)

49,931

(5,692)

243,612

Le Scienze S.p.A.

50.00

197

(121)

309

385

Editoriale Libertà S.p.A.

35.00

22,845

715

23,560

Editoriale Corriere di Romagna S.r.l.

49.00

3,075

(40)

3,035

Altrimedia S.p.A.

35.00

749

(140)

161

770

Allevard Ressorts Composites S.a.s.

50.00

101

346

(346)

101

Oakwood Global Finance S.C.A.

47.54

(10)

1,517

1,047

Total (in thousands of euro) 2008

Resource Energy B.V.

47.50

590

GICA S.A.

25.00

494

Fin Gas S.r.l.

50.00

2,830

Parc Éolien d’Epense S.a.s.

25.00

Voie Sacrée S.a.s.

24.86

107

Total

Consolidated Financial Statements

280,554

5,000

6,873

(1,060)

(328)

214

(46)

(6)

7,778

(50,382)

2,189

2,261

(46)

(1,830)

51,116

(3,507)

282,824

7.e.

OTHER EQUITY INVESTMENTS

(in thousands of euro) Sanatrix S.r.l. Ansa S. Coop. A.R.L. Tecnoparco Valbasento Fidia S.r.l. Emittenti Titoli S.p.A. E-Ink Corporation Others Total

31.12.2008

31.12.2007

26.40 17.32 20.00 50.00 5.44 0.05 --

5,105 2,209 516 402 132 81 1,237 9,682

5,105 2,209 516 402 132 1,481 2,040 11,885

The values recorded in the balance sheet correspond to cost, less any impairment, if applicable, and are considered to be substantially equivalent to the fair value of the same investments.

7.f.

OTHER RECEIVABLES

The item “Other receivables” at December 31 2008 had a balance of € 236,147 thousand compared to € 251,493 thousand at December 31 2007 and refers for € 20,191 thousand (€ 69,115 thousand at December 31 2007) to the subscription of Preferred Equity Certificates (PECS) by CIR International S.A. and CIR Investment Affiliate S.A. in the company Oakwood Global Finance (a jointly controlled entity). The lower balance is due to the write-down of approximately € 54 million made during the period. At December 31 2008 this item also included € 126,506 thousand (€ 85,768 thousand at December 31 2007) of receivables (unsecured and mortgage-based) of the securitization company Zeus Finance S.r.l., € 20,800 thousand (€ 16,138 thousand at December 31 2007) of tax receivables from Inland Revenue for IVA rebates applied for by the Sorgenia group and € 22,958 thousand (€ 17,347 thousand at December 31 2007) of security deposits made to suppliers of the Sorgenia group for the purchase of CIP 6 energy and for the purchase of wind turbines.

7.g.

SECURITIES

“Securities” amounted to € 84,633 thousand at December 31 2008, down from € 96,534 thousand at December 31 2007 and refer mainly to investments in private equity funds. These funds were measured at fair value recognizing to the fair value reserve an amount of € 6,351 thousand (€ 20,934 thousand at December 31 2007). During the year the part of the fair value reserve relating to these funds released to the income statement was € 1,755 thousand. At December 31 2008 the remaining commitment for investment in private equity funds stood at € 33 million.

Consolidated Financial Statements

7.h.

DEFERRED TAXES

The amounts refer to taxes resulting from deductible temporary differences and from losses carried forward, which are deemed to be recoverable. The breakdown of “Deferred tax assets and liabilities” by type of temporary difference, is as follows: (in thousands of euro)

Temporary difference liabilities from: - write-down of current assets - write-down of fixed assets

2008 Amount of temporary differences 86,713 60,913

Tax effect

2007 Amount of temporary differences

Tax effect

26,743 20,450

54,714 48,785

15,966 15,247

- revaluation of current liabilities

12,319

4,041

9,377

2,963

- revaluation of personnel provisions

33,909

10,600

39,803

12,158

- revaluation of provisions for risks and losses

66,822

19,740

55,061

15,748

- revaluation of long-term debt

205

- write-down of financial instruments

24,862

7,617

7,428

2,070

- tax losses from prior periods

99,428

28,844

103,981

28,872

Total deferred tax assets

385,171

118,101

319,171

93,030

Temporary difference assets from: - revaluation of current assets - revaluation of fixed assets

14,812 506,513

6,571 158,491

3,992 405,267

1,085 127,755

- write-down of current liabilities

5,259

2,733

6,968

2,419

- valuation of personnel provisions

19,245

5,283

21,297

5,872

- write-down of provisions for risks and losses

1,931

605

3,620

1,166

- revaluation of financial instruments

3,886

1,220

5,076

1,591

555,646

174,903

446,220

139,888

Total deferred tax liabilities Net deferred taxes

(56,802)

(46,858)

The deferred taxes credited directly to shareholders’ equity during the period amounted to € 701 thousand. Earlier losses not utilized for the calculation of deferred taxes refer to the Espresso group for € 11.1 million, the company CIR International for € 314.1 million, and the Sogefi group for € 13.6 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.

Consolidated Financial Statements

CURRENT ASSETS

8.a.

INVENTORIES

Inventories can be broken down as follows: (in thousands of euro)

31.12.2008

31.12.2007

Raw materials, secondary materials and consumables

73,668

74,866

Work in progress and semi-finished goods

15,979

14,287

105,537

114,775

127

195,311

203,967

Finished goods and merchandise Advance payments Total

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.

8.b.

TRADE RECEIVABLES

(in thousands of euro)

31.12.2008

31.12.2007

Receivables - clients

1,209,028

1,066,869

24,091

2,644

570

760

1,233,689

1,070,273

Receivables – subsidiaries and joint ventures Receivables – associated companies Total

“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 taking credit risk into account. During 2008 provisions were made for the write-down of receivables for the sum of € 34,542 thousand compared with € 15,963 thousand in 2007. “Receivables – subsidiaries and joint ventures” represent intercompany receivables not eliminated because they refer to companies not fully consolidated line by line. The balance at December 31 2008 refers mainly to receivables from Tirreno Power S.p.A..

8.c.

OTHER RECEIVABLES

(in thousands of euro) Receivables – associated companies

31.12.2008

31.12.2007

1,288

715

Tax receivables

111,875

148,123

Receivables - others

250,590

57,603

Total

363,753

206,441

Consolidated Financial Statements

The item “Receivables - others” at December 31 2008 includes the receivable of € 150 million with Verbund following the subscription of a Bond issued by Sorgenia Holding S.p.A.. The item also includes € 35,514 thousand of the receivable claimed from the EPC Contractor Alstom as penalties accruing following the delay in the construction of the Modugno power plant.

8.d.

FINANCIAL RECEIVABLES

“Financial receivables” declined from € 37,171 thousand at December 31 2007 to € 25,721 thousand at December 31 2008 and refer mainly for € 14,004 thousand to the accrued interest on the swap relating to the CIR International S.A. bond maturing in 2009 and for € 10,616 thousand to the fair value measurement of differential contracts entered into by the Sorgenia group to hedge purchases of electricity. The effects of these contracts were recorded in the income statement in the item “Other operating income” since they do not meet the conditions to be qualified as hedges.

8.e.

SECURITIES

This item consists of the following categories of securities: (in thousands of euro) Italian Government securities or equivalent securities

31.12.2008

31.12.2007

345,223

4,012

Investments funds or similar funds

38,253

16,057

Bonds and notes

36,130

42,275

Certificates of deposit and miscellaneous securities

93,756

213,553

513,362

275,897

Total

The measurement at fair value of the item “Securities” involved a negative adjustment to the income statement of € 42.6 million.

8.f.

AVAILABLE-FOR-SALE FINANCIAL ASSETS

This item consists for € 205,525 thousand of 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 gives 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 of € 45,791 thousand (€ 153,310 thousand at December 31 2007). The effects of this valuation on CIR’s shareholders’ equity for the amount pertaining to the Group came to € 36,768 thousand (€ 133,410 thousand at December 31 2007). The amount of fair value credited to the income statement after the sale of some of the funds came to € 51,318 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 en-

Consolidated Financial Statements

tered into, the effects of which are indicated under item 9.b. “Reserves” in the breakdown of the ”Translation reserve”. This item also includes € 11,895 thousand relating to investments made by the Sorgenia group in minority stakes connected with the new renewable sources business. The fair value measurement of these holdings gave a positive adjustment of € 552 thousand.

8.g.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents fell from € 694,127 thousand at December 31 2007 to € 616,363 thousand at December 31 2008. A breakdown of the change during the period is given in the cash flow statement.

SHAREHOLDERS’ EQUITY

9.a.

SHARE CAPITAL

Share capital rose from € 395,465,333.50 at December 31 2007 (comprising 790,930,667 shares each with a nominal value of € 0.50) to € 395,587,633.50 (791,175,267 shares) at December 31 2008 as a result of the issuance of 244,600 shares following the exercise of options by the beneficiaries of stock option plans. At December 31 2008 the Company was holding 42,974,000 of its own shares (5.4% of capital) for a total value of € 98,583 thousand, up from 39,644,000 shares for a value of € 92,187 thousand at December 31 2007. 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 up. 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 was 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 its subsidiaries and parent companies. Regarding stock option plans, at December 31 2008 there were 29,539,400 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 € 905 thousand at December 31 2008.

Consolidated Financial Statements

9.b.

RESERVES

The evolution and breakdown of the item “Reserves” is given below: (in thousands of euro)

Balance at December 31 2006 Capital increases Dividends unclaimed as per Art. 23 of the Bylaws Fair value measurement of hedging instruments

Share premium reserve 23,917

Legal reserve

Fair value reserve

Translation reserve

Reserve for treasury stock held

Stock option reserve

Other reserves

Total reserves

115,969

147,610

(6,450)

17,047

9,865

76,868

384,826

9,442 55

9,442

---

372

34,195

(13,836)

372

Fair value measurement of securities Securities fair value reserve recognized to income statement

34,195

(13,836)

Adjustment for own share transactions

-2,775

(74)

2,701

Recognition of notional cost of stock options

1,929

Effects of equity changes in subsidiaries

17,591

(13,481)

(10,811)

---

Currency translation differences

(24,292)

33,359

115,969

154,860

(17,261)

19,822

11,794

94,440

412,983

243

---

(6,169)

(54,525)

(53,073)

Balance at December 31 2007 Capital increases Dividends unclaimed as per Art. 23 of the Bylaws Fair value measurement of hedging instruments

(6,169)

Fair value measurement of securities Securities fair value reserve recognized to income statement

(54,525)

(53,073)

Adjustment for own share transactions

-1,665

1,665

Recognition of notional cost of stock options

905

Effects of equity changes in subsidiaries

(10,921)

10,052

(865)

7,831

(1,152)

---

Currency translation differences

6,679

33,602

115,969

38,003

(18,409)

21,487

12,699

104,505

307,856

Balance at December 312008

The “Share premium reserve” totalled € 33,602 thousand at December 31 2008, compared to € 33,359 thousand at December 31 2007. The change was due to the subscription of stock option plans for € 243 thousand. The “Fair value reserve” stood at € 38,033 thousand at December 31 2008 and referred for the positive amounts of € 6,351 thousand to the valuation of “Securities” in item 7.g. and for € 37,320 thousand to the valuation of “Available-for-sale financial assets” in item 8.f. and also to the negative change of € 5,668 thousand from the valuation of hedging instruments.

Consolidated Financial Statements

The “Translation reserve” had a negative balance of € 18,409 thousand at December 31 2008 with the following breakdown: (in thousands of euro) Sogefi Group CIR Ventures Medinvest Medinvest hedging effect Sorgenia Others Total

31.12.2007 3,214 (3,577) (31,630) 14,819 (179) 92 (17,261)

Increases -794 26,082 -125 -27,001

Decreases (12,324) --(15,825) --(28,149)

31.12.2008 (9,110) (2,783) (5,548) (1,006) (54) 92 (18,409)

The item “Other reserves” had the following breakdown at December 31 2008: (in thousands of euro) Reserve for capital increases

Extraordinary reserve

Reserve as per Art. 6 of D.Lgs no. 38 of 28/02/2005 Reserve for the difference between the carrying values of investee companies and the respective portions of consolidated shareholders’ equity Total

(74) 104,487 104,505

The changes in treasury stock during the year were as follows: (in thousands of euro) Balance at December 31 2007 Increases Balance at December 31 2008

9.c.

Number of shares

Value

39,644,000

92,187

3,330,000

6,396

42,974,000

98,583

RETAINED EARNINGS (LOSSES)

The changes in Retained earnings (losses) are shown in the “Statement of Changes in Shareholders’ Equity”.

Consolidated Financial Statements

10.

NON-CURRENT LIABILITIES

10.a. BONDS AND NOTES The detail of the item “Bonds and Notes”, net of intercompany elimination, is as follows: (in thousands of euro)

Effective rate

31.12.2008

31.12.2007

CIR S.p.A. 5.75% Note 2004/2024

5.90%

266,724

266,548

CIR International S.A. 6.375% Note 2003/2011

6.03%

170,935

198,175

CIR International S.A. 5.25% Note 1999/2009

5.41%

413,232

Gruppo Editoriale L’Espresso S.p.A. 5.125% Note 2004/2014

4.82%

307,221

307,875

6.50%

150,000 578

-3,842

895,458

1,189,672

Sorgenia Holding S.p.A. Bond Société Française d’Eoliennes (SFE) 6.5% Note 2006/2016 Total

In application of IAS 32 and 39, at January 1 2005 the original values of bond and note issues were written down to account for expenses incurred and bond issuance discounts. At December 31 2008 CIR International was holding a nominal € 30,000 thousand (unchanged from December 31 2007) of the CIR 5.75% Note issue 2004/2024. It should be noted that during the year 2008 CIR International S.A. bought back and then cancelled a nominal € 25,000 thousand of the Note maturing in 2011. The CIR International 5.25% 2009 Note has now been reclassified under current liabilities.

10.b. OTHER BORROWINGS (in thousands of euro)

31.12.2008

31.12.2007

154,194

148,874

1,344,104

1,055,474

Leasing

67,067

67,836

Other borrowings

88,250

8,986

1,653,615

1,281,170

Collateralized bank loans Other bank loans

Total

The item “Other bank loans” consists mainly of the following: - € 43,993 thousand lent to Energia Italiana by Banca Monte dei Paschi di Siena at a floating rate and maturity 2010, the interest rate being Euribor 3/6M + spread; - € 249,024 thousand lent to Sorgenia by Banca Intesa SanPaolo at a floating rate and maturity 2012, the interest rate being Euribor 3/6M + spread; - € 49,862 thousand lent to Sorgenia by Banca Intesa SanPaolo at a floating rate and maturity 2011, the interest rate being Euribor 3/6M + spread;

Consolidated Financial Statements

- € 399,258 thousand lent to Sorgenia by Banca Monte dei Paschi di Siena at a floating rate and maturity 2012, the interest rate being Euribor 3/6M + spread; - € 142,808 thousand lent to Energia Molise S.p.A. by Banca Monte dei Paschi di Siena at a floating rate and maturity 2013, the interest being Euribor 3/6M + spread; - € 155,185 thousand lent to Sorgenia Puglia S.p.A. by Banca Monte dei Paschi di Siena at a floating rate and maturity 2014, the interest rate being Euribor 3/6M + spread; - € 44,670 thousand lent to Société Française d’Eoliennes by Banco Sabadell at a floating rate and maturity 2021, the interest rate being Euribor 3/6M + spread; - € 41,563 thousand as partial drawdown of a loan agreement for € 50,000 thousand, signed by Sogefi S.p.A. with maturity 2013 and a floating rate, the rate applied being 4.3786%; - € 88,658 thousand as partial drawdown of a loan agreement for € 100,000 thousand, signed by Sogefi S.p.A. with maturity 2013 and a floating rate, the rate applied being 4.6515%. - 99,546 thousand as partial drawdown of a new syndicated loan agreement signed in June 2008 by Sogefi S.p.A. with maturity 2013, for a total of € 160,000 thousand, lead managed by ING Bank N.V. and Intesa Sanpaolo S.p.A., the interest rate applied being 5.2668%.

10.c. PERSONNEL PROVISIONS The detail of this item is the following: (in thousands of euro)

31.12.2008

31.12.2007

112,682

118,359

34,800

40,919

147,482

159,278

31.12.2008

31.12.2007

159,278

166,554

24,820

18,955

5,480

5,966

(289)

(2,975)

(20,866)

(36,721)

2,088

11,038

Other changes

(23,029)

(3,539)

Closing balance

147,482

159,278

Employee leaving indemnity (TFR) Retirement funds and similar obligations Total

(in thousands of euro) Opening balance Provisions made for work done during the period Increases for interest Actuarial income or expense Benefits paid out Increases or decreases due to changes in consolidation area

Consolidated Financial Statements

TFR and Defined Benefit Provision Annual technical discount rate

4.0% - 4.25%

Annual inflation rate

Annual rate of pay increases

2% - 3%

Annual rate of TFR increase

Annual probability of making advance payouts

Voluntary resignation rate

2% - 5% of staff

Pension funds Annual technical discount rate

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

10.d. PROVISIONS FOR RISKS AND LOSSES The breakdown and changes in the non-current part of these provisions is as follows:

Balance at December 31 2007

Provision for disputes in progress 15,949

Sums set aside during the year

4,397

4,119

18,656

27,122

(810)

(5,408)

(2,054)

(8,272)

Exchange rate differences

(1,218)

(91)

(1,309)

Other changes

(3,014)

(647)

843

(2,818)

Balance at December 31 2008

15,304

4,734

36,653

56,691

(in thousands of euro)

Withdrawals

Provision for Provision for restructuring charges miscellaneous risks 6,670 19,299

Total 41,918

The breakdown and changes in the current part of these provisions is as follows: (in thousands of euro) Balance at December 31 2007 Sums set aside during the year Withdrawals Other changes Balance at December 31 2008

Provision for disputes in progress 7,441 1,444 (3,029) 2,266 8,122

Provision for Provision for restructuring charges miscellaneous risks 3,653 51,734 16,843 17,002 (1,867) (12,926) 484 (3,045) 19,113

52,765

Total 62,828 35,289 (17,822) (295) 80,000

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 and the Espresso group. The Provision for miscellaneous risks is mainly to cover tax disputes outstanding with local tax authorities.

Consolidated Financial Statements

11.

CURRENT LIABILITIES

11.a. BONDS AND NOTES This item refers to the CIR International S.A. Note 5.25% 1999/2009. It should be noted that during the year nominal € 70,000 thousand were bought back and then cancelled. An amount of € 1.1 million was also recorded for the liabilities relating to the fixed/floating interest rate swaps entered into to hedge the note. 11.b. OTHER BORROWINGS (in thousands of euro)

31.12.2008

31.12.2007

Collateralized bank loans

24,076

23,079

Other bank loans

34,877

44,205

6,034

5,713

81,929

77,428

146,987

150,425

31.12.2008

31.12.2007

20,892

12,406

Finance leases Other borrowings Loans from subsidiaries and associates Total

11.c. TRADE PAYABLES (in thousands of euro) Payables – subsidiaries and joint ventures Payables – associated companies

1,197

1,306

Payables - suppliers

917,164

926,793

Advance payments

7,713

1,286

946,989

941,841

Payables in the form of notes Total

The item “Payables – subsidiaries and joint ventures” refers mainly to the trade payables of Sorgenia S.p.A. to Tirreno Power S.p.A..

11.d. OTHER PAYABLES (in thousands of euro) Due to employees Tax payables

31.12.2008

31.12.2007

72,571

69,332

104,258

68,833

Social security payables

47,705

44,654

Other payables

52,619

62,139

277,153

244,958

Total

The increase in the item “Tax payables” compared to last year refers to a rise in the item in the Sorgenia group for an amount of € 50,252 thousand.

Consolidated Financial Statements

NOTES ON THE INCOME STATEMENT

12.

REVENUES

BREAKDOWN BY BUSINESS SECTOR 2008

(in millions of euro) amount

amount

Change %

Utilities

2,433.7

51.5

1,861.7

44.2

30.7

Media

1,025.5

21.7

1,098.2

26.1

(6.6)

Automotive components

1,017.5

21.5

1,071.8

25.4

(5.1)

246.3

5.2

182.9

4.3

34.7

5.7

0.1

0.3

4,728.7

100.0

4,214.9

100.0

12.2

Healthcare Others Total consolidated revenues

2007

BREAKDOWN BY GEOGRAPHICAL AREA (in millions of euro) 2008 Utilities

Total revenues 2,433.7

Media Automotive components Healthcare Others

Italy

North America --

South America --

Asia

2,417.8

Rest of Europe 15.9

Other countries --

1,025.5

1,017.5

91.0

716.9

19.4

175.1

11.4

3.7

246.3

5.7

Total consolidated revenues

4,728.7

3,786.3

732.8

19.4

175.1

11.4

3.7

Percentages

100.0%

80.1%

15.5%

0.4%

3.7%

0.2%

0.1%

Italy 1,861.7

Rest of Europe --

North America --

South America --

Asia

Utilities

Total revenues 1,861.7

Other countries --

Media

1,098.2

Automotive components

1,071.8

105.8

774.0

26.5

148.5

13.1

3.9

182.9

0.3

Total consolidated revenues

4,214.9

3,248.9

774.0

26.5

148.5

13.1

3.9

Percentages

100.0%

77.1%

18.4%

0.6%

3.5%

0.3%

0.1%

(in millions of euro) 2007

Healthcare Others

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

13.

OPERATING COSTS AND REVENUES

13.a. COSTS FOR THE PURCHASE OF GOODS This item rose from € 2,330,124 thousand in 2007 to € 2,854,582 thousand in 2008. The rise was mainly attributable to the Sorgenia group.

13.b. COSTS FOR SERVICES This item rose from € 768,252 thousand in 2007 to € 782,395 thousand in 2008, as can be seen from the following breakdown: (in thousands of euro) Technical and professional consulting Distribution and transportation costs Outsourcing Other expenses Total

2008 138,586 53,387 68,635 521,787 782,395

2007 110,506 55,711 85,855 516,180 768,252

The higher costs for services were mainly the result of a rise, for the Sorgenia group, of sales and distribution costs such as the cost of advertising and direct marketing aimed at obtaining new market share and new clients.

13.c. PERSONNEL COSTS Personnel costs totalled € 687,664 thousand in 2008 (€ 617,954 thousand in 2007). The Group had an average of 12,941 employees in 2008. (in thousands of euro) Salaries and wages Social security contributions Employee leaving indemnity Retirement and similar benefits Valuation of stock option plans Other costs Total

2008 460,442 144,024 22,004 2,527 8,344 50,323 687,664

2007 431,567 133,661 3,488 12,492 6,988 29,758 617,954

2008 5,633 1,740 130,306 137,679

2007 5,934 6,131 54,368 66,433

13.d. OTHER OPERATING INCOME This item can be broken down as follows: (in thousands of euro) State grants and contributions Capital gains on disposals Non-recurring gains and other income Total

Consolidated Financial Statements

The item “Non-recurring gains and other income” includes € 35,514 of penalties for the late delivery of the Modugno power plant and € 10,616 thousand of gains on differential contracts hedging electricity purchases.

13.e. OTHER OPERATING COSTS This item can be broken down as follows: (in thousands euro) Write-downs and losses on receivables Provisions made for risks and losses Indirect taxes Taxes relating to prior periods Restructuring charges Capital losses on disposal of assets Non-recurring losses and other charges Total

14.

2008

2007

36,202 18,928 26,601 -11,474 1,108 36,162 130,475

18,324 10,119 20,864 7 7,558 900 47,476 105,248

2008

2007

19,788 14,000 22,227 968 10,763 1,358 69,104

17,309 16,768 22,223 321 6,676 5,386 68,683

FINANCIAL INCOME AND EXPENSE

14.a. FINANCIAL INCOME The item “Other income” includes the following: (in thousands of euro) Interest income on bank accounts Interest on securities Other interest income Interest rate derivatives Exchange rate gains Other financial income Total

14.b. FINANCIAL EXPENSE This item includes the following: (in thousands of euro) Interest expense on bank accounts Interest expense on bonds Other interest expense Interest rate derivatives Exchange rate losses Other financial expenses Total

Consolidated Financial Statements

2008

2007

71,877 59,610 21,415 7,340 18,507 20,080 198,829

48,459 63,443 19,635 633 10,717 14,516 157,403

The item “Interest rate derivatives” for the sum of € 7,340 thousand includes € 2,621 thousand which refers to the fair value measurement of hedging transactions. The item “Other financial expenses” includes € 10,088 thousand that refers to the write-down of the investment in Oakwood Global Finance.

14.c. GAINS FROM TRADING SECURITIES The breakdown of “Gains from trading securities” is the following: (in thousands of euro) Shares and options - subsidiaries Shares and options - other companies Other securities and other gains Total

2008

2007

117,810 7,815 92,964 218,589

36,484 15,276 102,442 154,202

The item “Shares and options - subsidiaries” refers to gains on the subscription of capital increases by Minority Shareholders in the company Sorgenia Holding (€ 114,935 thousand) and in HSS (€ 2,875 thousand).

14.d. LOSSES FROM TRADING SECURITIES The breakdown of “Losses from trading securities” is the following: (in thousands of euro) Shares and options - subsidiaries Shares and options - other companies Other securities and other losses Total

2008

2007

-8,190 13,153 21,343

436 23,682 60,254 84,372

14.e. ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS This item, amounting to € 112,093 thousand, refers essentially for € 54,063 thousand to the writedown of the investment in Oakwood Global Finance and for € 53,068 thousand to the fair value measurement of the “Securities” recorded in Current assets.

15.

INCOME TAXES

Income taxes can be broken down as follows: (in thousands of euro) Current taxes Deferred taxes Tax expense from prior periods Total

2008

2007

87,809 (2,343) 13,342 98,808

88,271 12,355 -100,626

Consolidated Financial Statements

The item “Tax expense from prior periods” refers to the extraordinary provisions for taxes set aside by the Espresso group, for the likely risk of disputes still pending on options for the use of shares. The following chart shows the reconciliation of the ordinary tax rate and the effective tax rate for financial year 2008: (in thousands of euro) Pre-tax income resulting from financial statements Theoretical income taxes Tax effect of non-deductible costs Tax effect of losses of prior periods which generate deferred tax assets in the period Tax effect of losses of prior periods which did not generate deferred tax assets

2008 275,877 75,866 930 (1,856) 293

Tax effect on interest rate differentials of foreign companies

12,265

Non-taxable grants

(1,283)

Other

(28,751)

Income taxes

57,464

Average effective tax rate

20,8

Theoretical tax rate

27,5

IRAP and other taxes

28,002

Tax charges from prior periods

13,342

Total taxes from financial statements

98,808

16.

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 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. The dilutive effect of the ordinary shares to be issued or assigned in favour of stock options plans on earnings per share is not significant. To determine the average number of options, the average fair value of the shares for the period under examination (the financial year) was used. The average fair value of CIR ordinary shares in 2008 was € 1.5684 compared to an average fair value of € 2.789 in 2007.

Consolidated Financial Statements

The following chart shows the information on the shares used to calculate the basic and diluted earnings per share.

Net income attributable to the Shareholders (in thousands of euro) Weighted average number of ordinary shares in circulation Earnings per share (euro)

Net income attributable to the Shareholders (in thousands of euro) Weighted average number of ordinary shares in circulation Weighted average number of options Fair value of weighted average number of options Adjusted weighted average number of shares circulation Diluted earnings per share (euro)

17.

2008

2007

95,444

82,580

748,707,234

749,200,834

0.1275

0.1102

2008

2007

95,444

82,580

748,707,234

749,200,834

30,624,267

35,560,667

6,618,701

748,707,234

755,819,534

0.1275

0.1093

DIVIDENDS PAID OUT

Dividends paid out during the year (relating to the distribution of net income for the year 2007, as approved by the Shareholders at the meeting held of April 29 2008) amounted to € 37,410 thousand, equal to € 0.050 per share. The company has not issued any shares other than ordinary shares and own shares are always excluded from the dividend. In the previous year the dividends paid out totalled € 37,243 thousand, equal to € 0.050 per share.

18.

FINANCIAL RISK MANAGEMENT: ADDITIONAL DISCLOSURES (IFRS 7)

The CIR Group operates in different sectors of industry and services both at national and at international level and thus its business is exposed to various kinds of financial risk, including market risk (exchange rate risk and price risk), credit risk, liquidity risk and interest rate risk. To minimize these risks the Group uses financial 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 transmitted to the subsidiaries on July 25 2003. Market risk Foreign currency risk Operating internationally and buying commodities denominated in USD the Group is subject to the risk that fluctuations in foreign exchange rates may affect the fair value of some of its assets and liabilities. Although the Group produces and sells mainly in the euro area it is subject to exchange rate risk especially in relation to the British pound, the Brazilian real, the US dollar, the Argentine peso, the Chinese renminbi and the Indian rupee. The Group uses forward contracts to reduce the risk of fluctuations in the EUR/USD exchange rate. As described in the paragraph on Price risk, in some cases it covers its purchase and sales formulae directly and the price of this cover depends on the EUR/USD exchange rate. By fixing its formulae in euro, the exchange rate is indirectly hedged too.

Consolidated Financial Statements

Regarding the exchange rate risk of translating the financial statements of foreign operations, the operating companies generally have a degree of convergence between their sourcing costs and their sales revenues and this kind of risk is also limited by the fact that the companies operate in their local currencies, are active in their own domestic markets and abroad and, in the event of need, can raise funding locally. In order to show the potential effect in the financial statements of the exposure to exchange rate risk, a sensitivity analysis was carried out, assuming shifts in the exchange rate. For the purposes of comparison, the results of the analysis at December 31 2007 are also shown. Sensitivity Analysis EUR/USD exchange rate Shift in EUR/USD exchange rate

31.12.2008

31.12.2007

-5%

+5%

-5%

+5%

Effect on income statement (EUR/thousands)

(9,322)

8,364

(4,503)

4,074

Effect on Equity (EUR/thousands)

3,765

(3,408)

386

(349)

Moreover, with reference to the net capital invested in Medinvest Plc, which is denominated in USD, a special hedging strategy is followed which aims to protect the investment from the volatility of the spot EUR/USD exchange rate when translating the capital of the subsidiary into the functional currency of the Group, i.e. the euro. Any rise or fall in the exchange rate would not have any significant effect on the equity or financial situation of the Group. Price risk Through the activity in the utilities sector of the Sorgenia group, the Group is exposed to the risk of fluctuations in energy commodity prices on the purchase of fuels for its power production plants and on its purchases and sales of gas and electricity (where contracts stipulate specific indexing to baskets of fuels). Moreover since almost all of the commodities in question are priced in US dollars, the Group is also exposed to fluctuations in the EUR/USD exchange rate. Sorgenia continually monitors this exposure by breaking its contractual formulae down into the underlying risk factors and managing the exposure using a two-stage procedure. First, taking part in the negotiation of contracts for the purchase of electricity and gas and in the definition of pricing policies enables the Group to verify rates used and thus achieve a high level of natural hedging, minimizing the impact on margins of the factors of uncertainty mentioned above not only at business line level but also at consolidated portfolio level. Secondly, monitoring net remaining exposure after the action described above. Sorgenia trades derivative instruments with prime financial institutions in order to minimize counterparty risk. The derivatives in question are traded over the counter (OTC), directly with the counterparties, and are mainly fixed to floating swaps or vice versa for commodity price hedges, and outright forwards for exchange rate hedges. Since 2008, in view of the greater liquidity in the derivatives markets, in order to reduce basis risk on the hedges as far as possible, the group has started negotiating with its financial counterparties contracts where the underlying is the whole formula for the purchase or sale of natural gas or electricity. These hedges make it possible to eliminate the change in costs and revenues due to the commodity risk factor and the exchange rate risk factor by entering into just one contract.

Consolidated Financial Statements

Although these commodity derivative contracts are entered into exclusively for hedging purposes, they are not accounted for according to the rules of hedge accounting as set out in IAS 39. Therefore the effects in terms of profit and loss of the changes in their fair value are recognized directly to the Income Statement in the item â&#x20AC;&#x153;Other operating income (losses)â&#x20AC;? as they relate to the typical operations of the Group. The fair value of derivatives contracts is calculated using market forward prices as of the balance sheet date, when the underlying commodities are traded in markets where there is a forward price structure. Otherwise the fair value is calculated using internal models based on data and information available in the market, supplied by recognized and reliable third party sources. The valuation techniques for derivatives outstanding at the end of the year were the same as those adopted last year. For commodities the maturity of the swap contracts is no longer than 12 months. At December 31 there were open positions in commodity derivatives and on price formulae maturing in 2009 for a fair value of â&#x201A;Ź 3.3 million. Since the exposure at year end to commodity price fluctuation resulting from financial instruments is not indicative of the exposure to such risk drivers during the whole year, a sensitivity analysis was prepared to see how the realized results of derivatives for the year would change in the event of shifts in commodity prices which actually took place during 2008, in order to show the potential effects on the financial statements (exclusively limited to the development of derivative contracts). The following chart shows the sensitivity analysis results for commodities: (amounts in thousands of euro) Shifts Effect on the income statement

31.12.2008 -5% (448)

31.12.2007 +5% 448

-5% (477)

+5% 477

It should be said that even though the derivatives contracts in commodities do not meet the formal requisites required by IAS 39 to be accounted for as hedges of specific commitments or future transactions, they are in fact entered into by the Group for the exclusive purpose of hedging. Therefore the changes in the results of commodity derivative positions are offset by changes in the physical underlying positions, with the impact on the Income Statements essentially reduced to the basis risk on all deals where there is a discrepancy between the underlying physical commodity and the commodities settled and traded on the regulated at OTC markets on which the derivatives are based. During 2008 the Group managed to reduce this remaining risk factor thanks to its ability to negotiate with its financial counterparties both hedges of its sales formulae and less liquid commodities with which the values of the underlying physical contracts are directly correlated. Credit risk Credit risk can be valued both in commercial terms relating to client type, the terms of the contract and the concentration of sales, and in financial terms connected with the type of counterparty dealt with in financial transactions. Within the Group there is no significant concentration of credit risk. Some time ago adequate policies were put in place to ensure that sales are made to clients with an appropriate credit history. Counterparties for derivative products and cash transactions are exclusively financial institutions with a high credit rating. The Group has policies that limit credit exposure to individual financial institutions. Credit risk is different for the various sectors of business in which it occurs. In the energy sector, for example, the assessment of exposure to credit risk is made using internal processes and with the aid of companies with expertise both in the sector of assessment and granting credit lines and

Consolidated Financial Statements

in credit recovery. The number of clients and their diversification make exposure to a concentration of credit risk irrelevant. In the “Automotive components” sector there is no excessive concentration of risk since the Original Equipment and After-market distribution channels through which it operates are car manufacturers or large purchasing groups. The “Media” sector has no areas of risk for trade receivables of a significant entity and in any case the Group adopts operating procedures that prevent the sale of products or services to clients without an adequate credit profile or a collateral guarantee. The healthcare sector does not present any concentration of credit risk because credit exposure is spread over a large number of clients and counterparties especially in the sector of residences for the elderly. The hospital sector, however, has a higher concentration of risk because the most significant counterparties are the local health authorities. Since 2006 the CIR Group has been acquiring and managing non-performing loans and has put in place procedures for evaluating and establishing the fair value of its portfolios. On one of the following pages there is a chart showing the breakdown of credit risk and the changes in the provision for the write-down of receivables. Liquidity risk Prudent management of liquidity risk implies maintaining sufficient liquidity and short term securities and ensuring an adequate supply of credit lines to ensure that sufficient financial resources can be raised. The Group meets its maturities and commitments systematically, and such conduct enables it to operate in the market with the necessary flexibility and reliability to maintain a correct balance between funding and the application of its financial resources. The companies that head the four most significant business sectors manage their liquidity risk directly and independently. Tight control is exercised over the net financial position and its evolution in the short, medium and long term. In general the CIR Group follows an extremely prudent financial policy using funding structures mainly in the medium long term. The operating Groups manage their treasury functions in a centralized manner. In the following pages there is a chart showing a breakdown of liquidity risk for the operating groups. Interest rate risk (fair value risk and cash flow risk) Interest rate risk depends on the movements in interest rates in the market which can cause changes in the fair value of the cash flows of financial assets and liabilities. Interest rate risk mainly concerns long-term bond and note borrowings which are issued at a fixed rate thus exposing the Group to the risk of fair value changes on the loans themselves as interest rates move. Following risk management policies, the Parent Company and the subsidiaries have entered into various IRS contracts over the years in order to hedge the interest rate risk on their bond and note issues and on loan agreements. Sensitivity analysis A parallel shift of one percentage point in the 3 months Euribor curve would have the following effect on the floating rate assets and liabilities of the Group: (amounts in thousands of euro) Percentage shifts Change in Income Statement Change in Shareholders’ Equity

100

Consolidated Financial Statements

31.12.2008 -1% +1% 7,752 (8,416) (2,483) 838

31.12.2007 -1% (4,876) (162)

+1% 4,167 302

The chart above does not include the potential effects of changes in interest rates on the CIR International Note swapped into a floating rate and repaid on March 10 2009. Thus this information was not deemed to be useful in view of the expiry of such a risk. Measurement of financial assets and liabilities The fair value of financial assets and liabilities is calculated as follows: â&#x20AC;˘ The fair value of financial assets with standard terms and conditions listed on an active market is measured on the basis of prices published on the active market; â&#x20AC;˘ The fair value of other financial assets and liabilities (with the exception of derivatives) is measured using commonly accepted valuation techniques and based on analytical models using discounted cash flows, which use as variables the prices observable on recent market transactions and from broker quotes for similar instruments; â&#x20AC;˘ For derivatives listed on an active market the fair value is calculated on the basis of market prices; if these prices are not published, different valuation techniques are used for the various types of instruments. In particular, for the measurement of certain investments in bond instruments where there is no regular market for them, i.e. where there is not a sufficient number of transactions on an ongoing basis with a bid-offer spread and a sufficiently limited volatility, then the fair value of these instruments is mainly calculated using quotes provided by prime international brokerage houses at the request of the Company, which are then validated through a comparison with the prices present in the market, albeit of a limited number of deals, or with those observable for other instruments with similar characteristics. In measuring investments in private equity funds, the fair value is determined on the basis of the NAV communicated by the respective fund administrators at the balance sheet date. In cases where this information is not available at the balance sheet date, the last official communication available is used, which must not however be more than three months old at the balance sheet date and should be validated with subsequent information made available to investors by the fund managers. Derivative instruments Derivative instruments are recognized at their fair value. For accounting purposes hedging transactions are classified as: - 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 changing cash flows from an existing asset and liability, or from a future transaction. - hedges of net investments in foreign operations if they are entered into to protect from the exchange rate risk in the conversion of the equity of subsidiaries denominated in a currency other than the functional currency of the Group. For derivative instruments classified as fair value hedges gains and losses resulting from both the determination of their market value and the adjustment to fair value of the element underlying the hedge are posted to the income statement.

Consolidated Financial Statements

101

For instruments classified as cash flow hedges (for example interest rate swaps) gains and losses from marking them to market are posted directly to shareholders’ equity for the part which “effectively” covers the risk they are intended to cover, while any “non-effective” part is posted to the income statement. For instruments classified as hedges of net investments in foreign operations gains and losses obtained from marking them to market are posted directly to shareholders’ equity for the part which “effectively” hedges the risk they are intended to cover, while any “non-effective” part is posted to the income statement. Derivatives used for hedging purposes, when the hedge accounting is entered, are accompanied by a hedging relationship which designates the individual instrument as entered into for the purposes of hedging and gives the parameters of effectiveness of the hedge in relation to the financial instrument being hedged. The level of effectiveness of the hedge is evaluated at regular intervals and the effective part of the relationship is posted to shareholders’ equity while any non-effective part is charged to the income statement. More specifically, the hedge is considered to be effective when the change in fair value or in the financial flows of the instrument hedged is almost entirely compensated for by the change in the fair value or the financial flows of the hedging instrument and when the results achieved are in a range of between 80% and 125%. At December 31 2008 in particular, the Group had the following derivatives contracts booked as hedges at their notional value: (a) Interest rate swaps: fixed to floating hedging interest expense on CIR International bond issue (€ 330 million) maturing in 2009; hedging Sogefi bank loans, notional value € 45 million – maturing in 2010 (€ 35 million) and in 2012 (€ 10 million); hedging Sorgenia bank loans, notional value € 108 million – maturing in 2013; (b) Foreign currency hedges: forward sales of a total of USD 310 million hedging investments in Medinvest Plc and in private equity; forward sale of USD 13.7 million against EUR maturing in 2009; forward purchase of € 5.9 million against GBP maturing in 2009; forward sale of GBP 1 million against EUR maturing in 2009; forward purchase of USD 5.3 million against Brazilian Reals maturing in 2009; Capital parameters Management regulates the use of leverage to guarantee solidity and flexibility in the asset and liability structure of CIR and its financial holding companies, measuring the ratio of funding sources to investment activity. Leverage is calculated as the ratio between net financial debt (represented by bond or notes issued net of free cash flow and investments in financial instruments considered as liquid, according to parameters agreed on with the rating agency) and the total investment assets measured at fair value (including equity investments and the remaining part of investments in financial instruments). Management’s objective is to maintain a sold and flexible financial structure in order to maintain this ratio below 30%. Today it stands at 19%.

102

Consolidated Financial Statements

CATEGORIES OF ASSETS AND LIABILITIES SHOWN IN THE BALANCE SHEET FINANCIAL YEAR 2008

(in thousands of euro) Bal. Sheet items

Value in Bal. Sheet

Assets at FV through P&L designated as such from initial recognition

Assets at FV through P&L classified as held for trading

Loans and receivables

Investments held to maturity

Available for sale assets

Liabilities at FV through P&L designated as such from initial recognition

Liabilities at FV through P&L classified as held for trading

Liabilities at amortized cost

Fair value

Effect on income statement

Effect on equity

NON-CURRENT ASSETS Other equity investments

7.e

9,682

(462)

Other receivables (*)

7.f

198,025

(36,428)

Securities

7.g

84,633

153

84,480

84,633

(547)

(15,144)

Trade receivables

8.b

1,233,689

(33,161)

Other receivables (**)

8.c

251,878

Financial receivables

8.d

25,721

14,784

10,937

25,699

(4,032)

Securities

8.e

513,362

511,436

1,909

513,362

(38,886)

CURRENT ASSETS

Available-for-sale financial assets

8.f

217,420

68,597

(106,709)

Cash and cash equivalents

8.g

616,363

19,915

NON CURRENT LIABILITIES Bonds and notes

10.a

(895,458)

(747,146)

(40,902)

Other borrowings

10.b

(1,653,615)

(1,718,651)

(55,338)

(5,563) --

CURRENT LIABILITIES Bank overdrafts

(164,801)

(11,109)

Bonds and notes

11.a

(347,445)

(345,278)

(18,799)

Other borrowings

11.b

(146,987)

(17,649)

(129,338)

(129,558)

(14,796)

(14,263)

Trade payables

11.c

(946,989)

(1,844)

(*) Not including € 38,122 thousand of tax receivables (*) Not including € 111,875 thousand of tax receivables

CATEGORIES OF ASSETS AND LIABILITIES SHOWN IN THE BALANCE SHEET FINANCIAL YEAR 2007

(in thousands of euro) Bal. Sheet items

Value in Bal. Sheet

Assets at FV through P&L designated as such from initial recognition

Assets at FV through P&L classified as held for trading

Loans and receivables

Investments held to maturity

Available for sale assets

Liabilities at FV through P&L designated as such from initial recognition

Liabilities at FV through P&L classified as held for trading

Liabilities at amortized cost

Fair value

Effect on income statement

Effect on equity

(1)

NON-CURRENT ASSETS Other equity investments

7.e

11,885

637

Other receivables (*)

7.f

232,262

(35,631)

Securities

7.g

96,534

153

96,381

96,534

16,903

798

Trade receivables

8.b

1,070,273

8,390

Other receivables (**)

8.c

58,318

Financial receivables

8.d

37,171

19,098

17,463

610

37,171

7,963

1,975

Securities

8.e

275,897

259,737

16,160

275,897

(1,859)

Available-for-sale financial assets

8.f

372,622

25,765

7,235

Cash and cash equivalents

8.g

694,127

17,334

CURRENT ASSETS

NON-CURRENT LIABILITIES Bonds and notes

10.a

(1,189,672)

(1,149,978)

(62,544)

Other borrowings

10.b

(1,281,170)

(1,502,035)

(44,699)

(92,032)

(93,032)

(92,032)

(6,624)

Other borrowings

11.b

(150,425)

(14,194)

(136,231)

(154,236)

(5,224)

Trade payables

11.c

(941,841)

341

CURRENT LIABILITIES Bank overdrafts

(*) Not including € 19,231 thousand of tax receivables (**) Not including € 148,123 thousand of tax receivables

CLASSES OF RISK - FINANCIAL YEAR 2008 (in thousands of euro) Balance Sheet items

Value in Bal. Sheet

Liquidity risk

Int. Rate risk

Exch. Rate risk

Credit risk

NON-CURRENT ASSETS Other equity investments

7.e

9,682

Other receivables

7.f

198,025

Securities

7.g

84,633

Trade receivables

8.b

1,233,689

Other receivables

8.c

251,878

Financial receivables

8.d

25,721

Securities

8.e

513,362

Available-for-sale financial assets Cash and cash equivalents

8.f 8.g

217,420 616,363

---

-616,363

---

217,420 --

Bonds and notes

10.a

(895,458)

Other borrowings

10.b

(1,653,615)

(164,801)

(347,445)

CURRENT ASSETS

NON-CURRENT LIABILITIES

CURRENT LIABILITIES Bank overdrafts Bonds and notes

11.a

Other borrowings

11.b

(146,987)

Trade payables

11.c

(946,989)

Value in Bal. Sheet

Liquidity risk

Int. Rate risk

Exch. Rate risk

Credit risk

7.e

11,885

Other receivables

7.f

232,262

Securities

7.g

96,534

8.b

1,070,273

Other receivables

8.c

58,318

Financial receivables

8.d

37,171

Securities

8.e

275,897

Available-for-sale financial assets Cash and cash equivalents

8.f 8.g

372,622 694,127

---

-694,127

---

372,622 --

CLASSES OF RISK - FINANCIAL YEAR 2007 (in thousands of euro) Balalance Sheet items NON-CURRENT ASSETS Other equity investments

CURRENT ASSETS Trade receivables

NON-CURRENT LIABILITIES Bonds and notes

10.a

(1,189,672)

Other borrowings

10.b

(1,281,170)

(92,032)

Other borrowings

11.b

(150,425)

Trade payables

11.c

(941,841)

CURRENT LIABILITIES Bank overdrafts

CREDIT RISK (in thousands of euro) Position at December 31 2008 Other receivables (non-current assets)

Balalance Sheet items

Total receivable

7.f

Not yet due

Overdue by >

0 - 30 days

30 - 60

60 - 90

over 90

Amortization due settled

Write-downs

198,025

61,403

136,622

Gross receivable

324,172

187,550

136,622

Provision for write-down

(126,147)

1,233,689

760,571

473,118

175,811

38,701

41,739

203,356

13,511

1,304,686

769,840

534,846

191,731

41,892

46,036

240,877

14,310

(70,997)

(9,269)

(61,728)

(15,920)

(3,191)

(4,297)

(37,521)

(799)

251,878

251,852

252,303

252,236

(425)

(384)

(41)

(58)

1,683,592

1,073,826

609,766

175,811

38,701

41,739

340,004

13,511

(98,751)

Balalance Sheet items

Total receivable

Not yet due

Overdue by >

0 - 30 days

30 - 60

60 - 90

over 90

Amortization due settled

Write-downs

7.f

Trade receivables

8.b

Gross receivable Provision for write-down Other receivables (current assets)

8.c

Gross receivable Provision for write-down Total

(64,151)

(34,542)

(in thousands of euro) Position at December 31 2007

232,262

146,494

85,768

Gross receivable

Other receivables (non-current assets)

294,258

208,490

85,768

Provision for write-down

(61,996)

1,070,273

821,397

248,876

96,713

43,535

22,535

80,059

6,034

1,113,449

826,764

286,685

103,254

47,260

24,645

105,492

6,034

(43,176)

(5,367)

(37,809)

(6,541)

(3,725)

(2,110)

(25,433)

58,318

58,702

Trade receivables

8.b

Gross receivable Provision for write-down Other receivables (current assets) Gross receivable Provision for write-down Total

8.c

(61,996)

(15,963)

(384)

(1)

1,360,853

1,026,209

334,644

96,713

43,535

22,535

165,827

6,034

(77,960)

PROVISION FOR WRITE-DOWN OF RECEIVABLES

(in thousands of euro) Position at December 31 2008

Starting balance

Writedowns

Withdrawals

Exch. Rate diff +/-

Business combin. +/-

Closing balance

(105,556)

(98,751)

6,940

301

(503)

(197,569)

Position at December 31 2007

Starting balance

Writedowns

Withdrawals

Exch. Rate diff. +/-

Business combin. +/-

Closing balance

Provision for write-down of receivables

(31,737)

(77,960)

6,574

(2,527)

(105,556)

Provision for write-down of receivables

(in thousands of euro)

LIQUIDITY RISK - FINANCIAL YEAR 2008 (in thousands of euro) <1 year

>1 <2 years

>2 <3 years

>3 <4 years

>4 <5 years

Total

>5 years

Non-derivative financial liabilities Bonds and notes

373,972

191,203

201,200

31,007

31,014

756,303

1,584,699

79,647 21,661 40,384

244,491 8,965 46,919

246,704 8,191 866

835,015 7,928 971

259,558 6,106 1,076

162,947 34,442 4,500

1,828,362 87,293 94,716

Bank overdrafts

165,807

Trade payables

946,900

27,033

1,502

800

1,563

252

206

31,356

3,337

1,658,741

493,080

457,761

876,484

298,006

958,398

4,742,470

Other borrowings: - Loans from banks - From leasing companies - From other lenders

Derivative financial liabilities Hedging derivatives Non-hedging derivatives TOTAL

LIQUIDITY RISK - FINANCIAL YEAR 2007 (in thousands of euro) <1 year

>1 <2 years

>2 <3 years

>3 <4 years

>4 <5 years

Total

>5 years

Non-derivative financial liabilities Bond and notes

64,337

464,337

43,309

228,299

31,506

788,955

1,620,743

Other borrowings - Loans from banks - From leasing companies - From other lenders

72,618 9,418 68,118

174,474 6,316 1,712

240,613 6,064 1,484

216,001 5,588 1,255

586,994 5,075 1,157

273,593 20,657 5,778

1,564,293 53,118 79,504

Bank overdrafts

92,032

Trade payables

941,841

3,619

446

(225)

(192)

(162)

(121)

3,365

1,252,009

647,285

291,245

450,951

624,570

1,088,862

4,354,922

Derivative financial liabilities Hedging derivatives Non-hedging derivatives TOTAL

19.

GUARANTEES AND COMMITMENTS

At December 31 2008 the position of guarantees and commitments was the following: CIR and financial holding companies In relation to the incentive plans for directors and employees, CIR, jointly with Verbund, has made the undertaking to buy back the shares of Sorgenia S.p.A. resulting from the exercise of options by employees who are beneficiaries of the stock option plans outstanding at December 31 2008. The Parent Company of the CIR Group has signed a series of shareholder agreements with the minority shareholders of HSS. Under these agreements, CIR sold a put option on part or all of the holdings of other shareholders exercisable, according to the terms of the agreement, on or before October 31 2009 or on or before February 10 2012 if the shares of HSS have not been listed on MTA by September 30 2009 or by January 31 2012 respectively. This option will be exercisable at the market price on the date of exercise. Other guarantees and commitments of CIR are as follows: - Guarantees in favour of Inland Revenue for VAT credits totalling € 6,781 thousand; - Commitments for investment in private equity funds by CIR International for € 33 million; - An annual commitment to cover just the running costs of the company Oakwood Global Finance SCA, the holding company of the Oakwood group. Sorgenia Group Within the group there are guarantees made to third parties for a total amount of € 411,917 thousand. These are mainly bonds deposited as collateral for sums to be paid. These relate to the purchase and transportation of electricity and gas and to commitments in favour of Inland Revenue for IVA for which a rebate has been applied. Also in this category are guarantees requested for the construction of wind parks and for the purchase of land where photovoltaic plants will be built and for the Modugno thermoelectric power plant. As collateral for loans obtained by the subsidiary Sorgenia Puglia S.p.A. and by the jointly controlled company Tirreno Power S.p.A., shares of the two companies (worth € 102,151 thousand for Sorgenia Puglia S.p.A. and € 123,577 thousand representing 50% of its capital for Tirreno Power S.p.A.) have been pledged. On May 19 2008 Sorgenia Puglia S.p.A. set up a first degree mortgage in favour of lending banks on its present and future real estate, appurtenances and accessions, easements as well as on new buildings, the land on which they are built and further storeys erected for a total amount € 536,000 thousand. The commitments outstanding at the reporting date of these financial statements refer mainly to guarantees in favour of lending banks following the administrative appeals under way with the Molise Regional Administrative Court (TAR) (€ 180,000 thousand). There were also commitments to make a financial contribution to the associate GICA S.A. and to the subsidiary Noventi Ventures II LP of up to a maximum of € 15,000 thousand and USD 30,000 thousand (of which USD 11,900 thousand have already been paid) respectively. There is also a commitment of € 6,080 thousand in relation to the tender published for the infrastructure works to be carried out on the industrial estate where the Bertonico-Turano Lodigiano power plant will be constructed (LO).

Consolidated Financial Statements

109

Lastly, it should be noted that just for the natural gas business, the supply contract includes a take or pay clause which makes it obligatory for the purchaser to pay for any shortfall in the amount withdrawn compared to the minimum stipulated in the contract. This clause was not applicable during the year. Espresso Group Guarantees issued totalled € 2,317 thousand and referred to guarantees made by the parent company of the Group and the subsidiaries Elemedia 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 € 5,373 thousand, referred to: - contracts for the purchase of plant and equipment (€ 2,638 thousand) mainly for Repubblica, Finegil Editoriale and Editoriale La Nuova Sardegna for the full-colour project; - a contract for the purchase of a property as the new headquarters of the Mantua operating division of Finegil Editoriale for € 2,735 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 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 3,901 thousand, of which USD 397 thousand by the end of the year. 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 2008 are as follows: (in thousands of euro)

2008

2007

Up to 1 year

4,480

3,856

11,211

10,174

Over 1 year but up to 5 Over 5 years Total

110

Consolidated Financial Statements

1,729

2,138

17,420

16,168

Commitments for investments At December 31 2008 there were commitments for investments for a total of € 1,868 thousand. Guarantees issued The detail of these guarantees is as follows: (in thousands of euro)

2008

2007

Guarantees in favour of third parties Other guarantees in favour of third parties Collateral security provided for debt shown in the balance sheet

974 9,714 1,730

2,744 9,714 5,681

Guarantees issued refer to borrowings and to guarantees given to certain clients and are recognized at the value of the commitment outstanding as of the balance sheet date. 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 2008 the Sogefi group had assets belonging to third parties on the premises of its companies for € 7,097 thousand.

20.

INFORMATION ON THE BUSINESS SECTORS

The business sectors coincide with the Groups of companies over which CIR S.p.A. has control. These are specifically: the Sorgenia group: utilities; - the Espresso group: media; - the Sogefi group: automotive components; - the HSS group: healthcare. Geographically, with the exception of the Sogefi group, the business is carried out almost exclusively in Italy. A chart showing the breakdown of income components and balance sheet information of the primary sector is shown in the Report on Operations while details regarding revenues by geographical area (secondary sector) are given in the notes to the financial statements in the section regarding revenues (note 12).

Consolidated Financial Statements

111

The breakdown by geographical area of assets, investments and amortization and write-downs as required by IAS 14 is shown in the following chart. (in thousands of euro)

Assets

Investments

Italy

8,229,633

383,990

Depreciation/ write-downs 44,003

Other European countries

2,201,993

41,326

43,331

North America

47,546

2,635

1,008

South America

84,933

7,031

4,808

Asia

17,337

3,792

402

Other countries

Consolidation adjustments

(3,607,697)

(36)

(2,179)

Total assets

6,973,745

438,738

141,373

21.

JOINTLY CONTROLLED COMPANIES

As of December 31 2008 the joint ventures were Tirreno Power and Oakwood. International accounting standards give two methods for consolidating holdings in joint ventures: . the usual method, which involves pro-rata consolidation; . the alternative method which involves use of the equity method. The Group has adopted the equity method for the sake of consistency with the way the accounts were presented previously. The chart below shows the key financial figures of the company Tirreno Power and of the Oakwood group: Tirreno Power (in millions of euro)

Financial year 2008

Financial year 2007

Change in absolute terms

Change %

Income statement Electricity sold (TWh)

14.8

12.6

2.2

16.9

1,466.8

1,051.6

415.2

39.5

323.0

253.5

69.5

22.4

99.9

102.6

(2.7)

31.12.2008

31.12.2007

1,322.8

1,445.4

(122.6)

(8.5)

Net financial debt

897.7

1,008.4

(110.7)

(11.0)

Shareholdersâ&#x20AC;&#x2122; equity

425.1

436.9

(11.8)

(2.7)

617

607

Revenues from sales and services Gross operating margin Net income

Change in absolute terms

Balance sheet Net invested capital

No. of employees

112

Consolidated Financial Statements

1.6

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 € 49.9 million in 2008, down from € 51.3 million in 2007.

Oakwood (in millions of euro)

31.12.2008

31.12.2007

Assets - Current - Non-current

131,832 482,303

167,248 1,526,053

Total assets

614,135

1,693,301

Liabilities and equity - Current - Non-current

566,791 267,667

1,717,507 116,188

Shareholders’ equity

(220,263)

(140,394)

Total liabilities and equity

614,135

1,693,301

Income statement Interest income Commission income

47,425 107,241

105,709 132,682

Total income

154,666

238,391

Interest expense

(63,542)

(105,064)

Commission expense

(58,334)

(105,319)

(100,862)

(153,884)

(5,894)

(699)

Total costs

(228,632)

(364,966)

Net result

(73,966)

(126,575)

Operating costs and other Taxes

In accordance with the terms of IAS/IFRS international accounting standards, the value of the investments in Tirreno Power and Oakwood was subjected to an impairment test at December 31 2008.

Consolidated Financial Statements

113

22.

NET FINANCIAL POSITION

The net financial position, in accordance with the terms of Consob resolution no. 6064293 of July 28 2006, can be broken down as follows: (in thousands of euro)

31.12.2008

31.12.2007

Cash and bank deposits

616,363

694,127

Other free cash flow

217,420

372,622

Securities held for trading

513,362

275,897

Cash and cash equivalents (A) + (B) + (C)

1,347,145

1,342,646

Current financial receivables

(*)

175,721

37,171

Current bank borrowings

(**)

(223,754)

(159,316)

Bonds and notes issued

(347,445)

Current part of non-current debt

(87,963)

(83,141)

Other current borrowings

(71)

Current financial debt (F) + (G) + (H) + (I)

(659,233)

(242,457)

Net current financial position (J) + (E) + (D)

863,233

1,137,360

Non-current bank borrowings

(1,498,298)

(1,204,348)

Bonds and notes issued

(895,458)

(1,189,672)

Other non-current borrowings

(155,317)

(76,822)

Non-current financial debt (L) + (M) + (N)

(2,549,073)

(2,470,842)

Net financial position (K) + (O)

(1,685,440)

(1,333,482)

(***) (***)

(*) Including € 150,000 thousand (classified in the Balance Sheet in the item “Other receivables” (**) The amount of € 58,953 thousand (€ 223,754 - € 164,801) is classified in the Balance Sheet in the item “Other borrowings”. (***) Classified under the item “Other borrowings” – Non-current liabilities

23.

DISCLOSURES REGARDING SHARE-BASED INCENTIVE PLANS

The following chart shows the incentive plans of the Parent company of the CIR Group:

114

Consolidated Financial Statements

STOCK OPTION PLANS OUTSTANDING AT DECEMBER 31 2008 The following chart shows the stock option plans of the Parent Company CIR S.p.A.. Options in circulation at start of year No. of Weighted options average strike price Stock Option Plan March 7 2000 Stock Option Plan September 13 2000 Stock Option Plan January 30 2001

Options cancelled

Options exercised during the year No. of Weighted options average strike price

Options assigned during the year No. of Weighted options average strike price

No. of options

Weighted average strike price

Options in circulation at end of year No. of Average Average options strike duration price (years)

Options exercisable at end of year Weighted No. of average options strike price

3,110,000

3.70

479,000

3.70

2,631,000

3.70

1.75

2,631,000

70,000

4.06

41,000

4.06

29,000

4.06

2.25

29,000

4.06

1,743,000

2.62

255,000

2.62

1,488,000

2.62

2.75

1,488,000

2.62

3.70

226,800

1.28

205,400

1.28

21,400

1.28

3.00

21,400

1.28

Stock Option Plan March 14 2002

58,100

1.20

58,100

1.20

3.75

1.20

Stock Option Plan September 13 2002

69,500

1.02

69,500

1.02

4.16

1.02

Stock Option Plan March 7 2003

65,200

0.84

8,000

0.84

55,000

0.84

2,200

0.84

4.75

2,200

0.84

153,300

1.13

32,000

1.13

121,300

1.13

5.16

121,300

1.13

492,300

1.60

81,300

1.60

411,000

1.60

5.75

411,000

1.60

1,664,000

1.56

123,300

1.56

1,540,700

1.56

6.16

1,540,700

1.56

Stock Option Plan September 7 2001

Stock Option Plan September 5 2003 Stock Option Plan March 12 2004 Stock Option Plan September 6 2004 Stock Option Plan March 11 2005

4,021,800

2.34

12,000

2.34

4,009,800

2.34

6.75

3,566,800

2.34

Stock Option Plan September 6 2005

2,705,000

2.49

2,705,000

2.49

7.17

2,091,200

2.49

Stock Option Plan 2006 1st Tranche

2,765,000

2.50

2,765,000

2.50

8.01

1,659,000

2.50

Stock Option Plan 2006 2nd Tranche

2,765,000

2.47

2,765,000

2.47

8.50

1,327,200

2.47

19,909,000

2.53

244,600

1.49

1,175,000

2.63

18,489,400

2.53

6.13

14,888,800

2.55

Total SHARES BEING HELD Stock Option Plan January 11 2005

11,050,000

2.15

11,050,000

2.15

1.33

11,050,000

2.15

Total

11,050,000

2.15

11,050,000

2.15

1.33

11,050,000

2.15

Grand total

30,959,000

2.39

244,600

1.49

1,175,000

2.63

29,539,400

2.39

4.34

25,938,800

2.38

Options in circulation at start of year No. of Weighted options average strike price

Options assigned during the year No. of Weighted Options average strike price

Options cancelled

Options exercised during the year No. of Weighted options average strike price

No. of options

Weighted average strike price

Options in circulation at end of year No. of Average Average options strike duration price (years)

Options exercisable at end of year Weighted No. of average options strike price

Phantom 2007 - 1st Tranche

3,052,500

3.0877

3,052,500

3.0877

8.75

1,282,050

Phantom 2007 - 2nd Tranche

3,052,500

2.7344

3,052,500

2.7344

9.25

915,750

2.7344

Phantom 2008 - 1st Tranche

3,125,000

1.6806

3,125,000

1.6806

9.75

562,500

1.6806

3,125,000

1.0718

3,125,000

1.0718

10.25

6,105,000

2.9111

6,250,000

1.3762

12,355,000

2.1346

9.51

2,760,300

2.6837

Phantom 2008 - 2nd Tranche Total

3.0877

The following charts show the incentive plans of the Sorgenia group: Stock Option Plans Stock Option Plans

Stock options assigned 16,900,000

Stock options exercised as of December 31 2007 16,848,000

Stock options exercised in 2008 --

Stock options exercised as of December 31 2008 52,000

1,300,000

September 6 2000

18,070,000

October 24 2000

2,964,000

2,756,000

208,000

November 28 2000

2,496,000

September 28 2001

2,004,000

1,714,000

290,000

December 22 1999 June 27 2000

March 11 2002

1,785,000

1,710,000

8,000

67,000

April 15 2003

9,215,000

2,154,000

4,981,000

2,080,000

February 25 2005

8,236,300

37,500

370,500

7,828,300

July 9 2005

22,120,565

200,000

9,515,300

228,000

9,287,300

2009-2012 I Tranche

21,723,005

2009-2012 II Tranche

15,122,800

131,651,970

47,085,500

5,587,500

78,978,970

October 24 2005 April 18 2006

Total

Phantom Stock Option Plans Issuer

Number of Phantom Stock Options assigned

Phantom Stock Option Plan

Phantom Stock Option assignation date

Phantom Stock Options exercised

Phantom Stock Options surrendered

Sorgenia S.p.A. Energia Molise S.p.A. Sorgenia Puglia S.p.A. Soluxia S.r.l. Energia Progetti S.r.l. Energia Molise S.p.A. Energia Molise S.p.A. Total 2007

19,616,755 150,000 300,000 930,000 422,100 315,600 264,800 21,999,255

March 5 2007 March 30 2007 March 30 2007 June 7 2007 June 7 2007 June 7 2007 June 7 2007

June 15 2007 June 15 2007 June 15 2007 June 15 2007 June 15 2007 June 15 2007 June 15 2007

5,100 ------5,100

19,291,505 150,000 300,000 930,000 380,000 315,000 264,800 21,632,005

91,000 ------9,100

Sorgenia S.p.A. Sorgenia Idro Sorgenia Puglia S.p.A. Energia Molise S.p.A. Sorgenia Solar Sorgenia Progetti S.r.l. Total 2008

13,704,800 25,000 350,000 220,000 450,000 476,000 15,225,800

February 25 2008 April 11 2008 April 11 2008 March 30 2008 April 11 2008 April 17 2008

April 30 2008 April 30 2008 April 30 2008 April 30 2008 April 30 2008 April 30 2008

--------

13,553,800 25,000 350,000 220,000 450,000 433,000 15,031,800

91,000 -----91,000

The following chart shows the Stock Option Plans of the Espresso group:

116

Phantom Stock Options not surrendered

Consolidated Financial Statements

Phantom Stock Options held by former employees 229,150 ---42,000 --271,150 60,000

43,000 103,000

STOCK OPTIONS FOR EMPLOYEES AT DECEMBER 31 2008

Options in circulation at start of year

Options assigned during the year

Options cancelled during the year

Options exercised during the year

Options expiring during the year

Options in circulation at end of year

Options exercisable at end of year

Number of options

Average strike price

Average duration (years)

Number of options

Weighted average strike price

25.60

1,285,000

25.60

1.75

1,285,000

25.60

92,500

6.25

577,500

6.25

2.75

577,500

6.25

2.51

26,000

2.51

113,200

2.51

3.25

113,200

2.51

364,925

3.30

57,800

3.30

307,125

3.30

3.75

307,125

3.30

Stock Option Plan July 24 2002

428,650

3.36

60,600

3.36

368,050

3.36

4.00

368,050

3.36

Stock Option Plan February 26 2003

482,325

2.86

46,600

2.86

435,725

2.86

4.75

435,725

2.86

Stock Option Plan July 23 2003

659,850

3.54

60,400

3.54

599,450

3.54

5.00

599,450

3.54

Stock Option Plan February 25 2004

1,258,500

4.95

40,000

4.95

1,218,500

4.95

5.75

1,218,500

4.95

Stock Option Plan July 28 2004

1,265,500

4.80

40,000

4.80

1,225,500

4.80

6.00

1,225,500

4.80

Stock Option Plan February 23 2005

1,301,750

4.75

53,850

4.75

1,247,900

4.75

6.75

1,131,150

4.75

Stock Option Plan July 27 2005

1,321,500

4.65

55,800

4.65

1,265,700

4.65

7.00

1,074,900

4.65

Stock Option Plan 2006 - I Tranche

1,326,200

4.33

55,000

4.33

1,271,200

4.33

8.00

781,200

4.33

Stock Option Plan 2006 - II Tranche

1,313,600

3.96

60,400

3.96

1,253,200

3.96

8.50

616,200

3.96

Total

11,952,000

6.93

783,950

7.94

11,168,050

6.86

5.76

9,733,500

7.24

Number of options

Weighted average strike price

Number of options

Weighted average strike price

1,420,000

25.60

135,000

Stock Option Plan April 24 2001

670,000

6.25

Stock Option Plan October 24 2001

139,200

Stock Option Plan March 6 2002

Stock Option Plan 2000

Number of options

Weighted average strike price

Number of options

Weighted Average market average strike price at date of price exercise

Number of options

Weighted average strike price

Below is information on the Phantom Stock Option Plans outstanding in the Espresso group: Phantom Stock Option Plan “2007” The Shareholders’ Meeting held on April 18 2007 approved Phantom Stock Option Plan 2007 for a maximum of 5,200,000 options, of which 1,250,000 in favour of Marco Benedetto. According to the terms of the Regulations, the plan, involving the assignation of options exercisable over several years, which give the right to potential extraordinary remuneration of a variable nature, based on the difference between the market value of the shares of the Parent Company at the moment of exercise of the option (“Normal Value”) and the market value of the same shares at the moment of assignation of the option (“Initial Value”). The above-mentioned Regulations also regulate, among the other terms and conditions, what happens to the options in the event of termination of employment for any reason. The market values used as a reference to calculate the gross remuneration due to each beneficiary consist (i) for the Initial Value, of the simple arithmetic average of the official prices on the Stock Exchange of the shares in the fifteen days preceding the assignation date of the options (May – October 2007) and (ii) for the Normal Value, of the simple arithmetic average of the official prices on the Stock Exchange of the shares between the first and the fifteenth day of the month in which each period of exercise falls (from March 16 to 31, from June 16 to 30, from September 16 to 30, from December 16 to 31 of each year). 1st Tranche 2007 On May 15 2007, at the price of euro 3.84, the first tranche of 2,517,500 options was assigned. These options will vest, thus becoming exercisable: a) on September 30 2007 for 12% of the options assigned; b) at the end of each of the fourteen quarters following September 30 2007, for a further 6% of the options assigned for each quarter; c) at the end of the fifteenth quarter following September 30 2007 for the remaining 4% of the options assigned, until the final maturity of September 30 2017. As of today no options have been exercised but, as per the regulations, 69,500 have lapsed, leaving a remaining 2,448,000. 2nd Tranche 2007 On October 15 2007, at the price of euro 3.60, the second tranche of 2,517,500 options was assigned. These options will vest, thus becoming exercisable: a) on March 31 2008 for 12% of the options assigned; b) at the end of each of the fourteen quarters following March 31 2008 for a further 6% of the options assigned for each quarter; c) at the end of the fifteenth quarter following March 31 2008 for the remaining 4% of the options assigned, until the final maturity of March 31 2018. As of today no options have been exercised but, as per the regulations, 81,800 have lapsed, leaving a remaining 2,435,700. Phantom Stock Option Plan “2008” The Shareholders’ Meeting held on April 17 2008 approved Phantom Stock Option Plan 2008 for a maximum of 6,025,000 options, of which 1,600,000 in favour of Marco Benedetto. According to the Regulations, the plan involves the assignation of options, exercisable over a number of years, which give the right to potential extraordinary remuneration of a variable nature, based on the difference between the market value of the shares of the Parent Company at the moment of exercise of the option (“Normal Value”) and the market value of the same shares at the moment of assignation of the option (“Initial Value”). The above-mentioned Regulations also regulate, among the other terms and conditions, what happens to the options in the event of termination of employment for any reason.

118

Consolidated Financial Statements

The market values used as a reference to calculate the gross remuneration due to each beneficiary consist (i) for the Initial Value, of the simple arithmetic average of the official prices on the Stock Exchange of the shares in the fifteen days preceding the assignation date of the options (May – October 2008) and (ii) for the Normal Value, of the simple arithmetic average of the official prices on the Stock Exchange of the shares between the first and the fifteenth day of the month in which each period of exercise falls (from March 16 to 31, from June 16 to 30, from September 16 to 30, from December 16 to 31 of each year). 1st Tranche 2008 On May 15 2008, at the price of euro 2.22, the first tranche of 2,987,500 options was assigned. These options will vest, thus becoming exercisable: a) on September 30 2008 for 12% of the options assigned; b) at the end of each of the fourteen quarters following September 30 2008, for a further 6% of the options assigned for each quarter; c) the remaining 4% on June 30 2012. As of today no options have been exercised but, as per the regulations, 70,000 have lapsed, leaving a remaining 2,917,500. 2nd Tranche 2008 On October 15 2008, at the price of euro 1.37, the second tranche of 2,782,500 options was assigned. These options will vest, thus becoming exercisable: a) on March 31 2009 for 12% of the options assigned; b) at the end of each of the fourteen quarters following March 31 2009 for a further 6% of the options assigned for each quarter; c) at December 31 2012 for the remaining 4% of the options assigned. As of today no options have been exercised but, as per the regulations, 22,500 have lapsed, leaving a remaining 2,760,000.

Below is information on the Phantom Stock Option Plans outstanding in the Sogefi group: The chart below shows the total number of options outstanding in relation to the plans for the period 2003-2008 and their average strike price:

Not exercised/not exercisable at the start of the year Assigned during the year Cancelled during the year Exercised during the year Not exercised/not exercisable at the end of the year Exercisable at the end of the year

Investments

2008 Average strike price

4,835,800 875,000 (376,000) (1,387,200) 3,947,600 1,953,400

4.82 2.10 4.87 3.30 4.55 4.92

The line “Not exercised/not exercisable at the end of the year” refers to the total amount of the options net of those exercised or cancelled in the year or in previous years. The line “Exercisable at the end of the year” refers to the total amount of the options vested at the end of the year and not yet subscribed.

Consolidated Financial Statements

119

The chart below shows the breakdown of the number of options exercisable at December 31 2008: Plans 2003 - 2008

Plans 2000 - 2002

Total

No. of options remaining and exercisable at December 31 2007

1,726,000

229,600

1,956,600

Options vesting in the year

2,934,600

Options exercised in the year

(1,387,200)

(229,600)

(1,616,800)

Options cancelled in the year

(1,320,000)

1,953,400

No. of options remaining and exercisable at December 31 2008

The main features of the plans are detailed below: - Phantom Stock Option Plan 2007 reserved for the Chief Executive Officer, executives and employees of the parent company, plus executives and managers of the Italian subsidiaries, for a maximum of 1,760,000 options at an initial assignation value of € 7.0854 adjusted during 2008 to € 5.9054, exercisable between September 30 2007 and September 30 2017; - Phantom Stock Option Plan 2008 reserved for the Chief Executive Officer and executives of the parent company, plus executives of the Italian subsidiaries, for a maximum of 1,700,000 options at an initial assignation value of € 2.1045 exercisable between September 30 2008 and September 30 2018. The chart below shows the breakdown of the number of phantom stock options as of December 31 2008:

Not exercised/not exercisable at the beginning of the year Granted in the year Cancelled in the year Exercised in the year Not exercised/not exercisable at the end of the year Exercisable at the end of the year

Below is information on the Phantom Stock Option Plans outstanding in the HSS group:

120

Consolidated Financial Statements

2008 1,729,200 1,700,000 (462,400) -2,966,800 949,500

STOCK OPTION PLANS AT DECEMBER 31 2008

Options in circulation at start of year Number Weighted of options average strike price

Options assigned during the year Number Weighted of options average strike price

Options exercised during the year Number Weighted of options average strike price

Options in circulation at end of year Number Average Average of options strike duration price (years)

Options exercisable at end of year Weighted Number average of options strike price

Stock Option Plan '02

2,400

4.925

2,400

4.925

4.25

2,400

4.925

Stock Option Plan '03

63,200

5.000

63,200

5.000

5.25

63,200

5.000

Stock Option Plan '05

247,772

17.000

239,732

17.000

6.75

215,232

17.000

88,406

17.000

88,406

17.000

6.75

79,565

17.000

132,020

22.000

132,020

22.000

7.75

87,900

22.000

7,884

22.000

7,884

22.000

7.75

5,203

22.000

196,700

22.000

196,700

22.000

8.25

106,680

22.000

74,000

34.000

74,000

0.000

11.76

812,382

19.651

804,342

16.549

7.627

Investment and Stock Option Plan '05 Stock Option Plan '06 Investment and Stock Option Plan '06 Stock Option Plan June '06 Stock Option Plan '07 Total

8,040

17.000

34.000 560,181

17.378

24.

LEGAL DISPUTES

It should be remembered that certain 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 and based on the degree of likelihood that significant liabilities will actually occur.

25.

ACQUISITION OF THE SOCIÉTÉ FRANCAISE D’ÉOLIENNES GROUP

In December 2007 the Group acquired the second largest French producer of wind energy. The deal was completed through the acquisition by Sorgenia SpA of a stake of 99.89% of Société Française d’Éoliennes SA by acquiring: • •

84.19% of the share capital of Société Française d’Éoliennes SA; 100% of the share capital of Compagnie Financière de Suroit SA, which holds 15.70% of Société Française d’Éolienne SA.

The company Société Française d’Éoliennes SA (SFE) operates in the production of electricity from renewable sources both directly and indirectly through its subsidiaries as indicated in the earlier paragraph on the changes in the consolidation. The combination was made according to the terms contained in IFRS 3 and in particular the CIR Group availed itself of the right, given in the above standard, to postpone the allocation of the price paid for a period of one year because by the end of the year in which the business combination took place the initial recognition could only be determined provisionally. Calculation of the cost The total cost of the business combination was € 246.7 million, inclusive of the cost of professional fees for consulting and valuations directly attributable to the completion of the combination, versus a book value of the Shareholders’ Equity of the acquired company of € 16.8 million. The difference of € 229.9 million was the positive difference recognized on the acquisition, which was allocated by identifying the fair value of the assets acquired and the liabilities assumed.

122

Consolidated Financial Statements

Allocation of the cost of the assets acquired and the liabilities assumed Accounting for this business combination meant recognizing the identifiable assets and liabilities acquired at their fair value, plus a residual goodwill of € 175.4 million, as shown in the following chart. (in thousands of euro) Intangible assets Tangible assets Financial assets (investments in companies valued at equity) Other net non-current assets Other net current assets (liabilities) Sundry provisions and other non-current liabilities Net financial debt Acquired assets and liabilities Minority shareholders’ equity

Fair value

Book value

185,657 2,386

115,071 179

16,135

10,806

868

(27,495)

(3,952)

(106,226)

71,384

16,805

71,349

16,770

Goodwill

175,374

Cost of business combination

246,723

Net acquired assets and liabilities

The allocation process involved identifying the actual and potential assets and liabilities of the company acquired separated out from the goodwill and estimating their fair value, which led to the identification of positive or negative value compared to the values recognized in the accounts of the acquired company. Regarding the assets and liabilities acquired, the following categories were identified: 1) Tangible assets a. Existing owned wind farms b. Authorizations to build wind farms 2) Financial assets: equity investments 3) Deferred tax assets and risk provisions 4) Goodwill The calculation of the fair value of the existing owned wind farms, authorized projects and equity investments was based on economic and financial forecasts for each of these categories throughout their estimated useful life. In order to determine the fair value of the above categories the present value of the cash flows was calculated, using a discount rate of 6.2%. 1) Tangible assets a. Allocation to existing owned wind farms The positive value allocated to this category was € 50.3 million. Specifically, the value allocated was assigned to each wind farm existing in a fully independent economic context consisting of the authorization to build the farm and the plant itself (all of the components each with its own useful life). The remaining useful life of these assets was estimated as 18.5 years since they started operating before the acquisition, which took place between 2006 and 2007 (the corresponding depreciation accumulated is therefore 1.5 years). The depreciation of the positive value assigned in 2008 came to € 2.7 million.

Consolidated Financial Statements

123

The non-recognition for tax purposes of the higher values assigned to the categories of assets described above meant that deferred tax liabilities had to be posted to the extent of 33.33% of the extra value, a rate that is consistent with the tax rate applied to French companies. The deferred taxes calculated amounted to € 16.6 million. b. Allocation of authorizations to build wind farms The extra value allocated to this category was € 20.3 million. Tax was calculated on this value to the extent of € 6.7 million. 2) Financial assets: allocation to equity investments The value allocated to this category was € 2.2 million. It refers to existing plant of minority holdings valued at equity. Specifically of Epense and Voie Sacrée. 3) Allocation to deferred tax assets and the risk provision The value allocated to deferred tax assets and the risk provision amounted to € 5.3 million and € 0.25 million. As mentioned earlier, the other non-current liabilities were higher as a result of the recognition for tax purposes of the higher values allocated to the categories of assets described in point 1). 4) Goodwill Goodwill is the difference between the price paid for the acquisition of a legal entity and the fair value of its net assets pro rata. In the case in hand the remaining goodwill represents SFE’s capacity to create value not specifically attributable to the categories of identifiable assets and liabilities at the moment of acquisition, as previously identified and to which the extra value arising from the acquisition was allocated. The part of the cost of the business combination not allocated to specific items of assets and liabilities amounted to € 175.4 million and to all extents constitutes the goodwill allocated to the one cash generating unit identified.

124

Consolidated Financial Statements

26.

OTHER INFORMATION

FEES FOR AUDIT AND AUDIT-RELATED SERVICES (Consob Resolution no. 11971/99)

As required by CONSOB resolution 11971/99, the following table shows the fees charged for services provided by the independent auditors, Deloitte & Touche S.p.A., and by other entities belonging to these same network: (in thousands of euro)

2008

Fees charged to the Parent Company of the Group: a) by the firm of auditors, for auditing services

114

b) by the firm of auditors: - for auditing services for the purposes of certification - for other services c) by entities belonging to the network of the firm of auditors, for providing other services

-96 --

Fees charged to the subsidiaries: a) by the firm of auditors, for auditing services b) by the firm of auditors: - for auditing services for the purposes of certification - for other services c) by entities belonging to the network of the firm of auditors, for providing other services

1,188 -145 152 --

Consolidated Financial Statements

125

27.

CHART SHOWING THE KEY FIGURES OF THE FINANCIAL STATEMENTS FOR 2007 OF THE PARENT COMPANY COFIDE S.p.A. (Art. 2497-bis paragraph 4 of the Civil Code)

BALANCE SHEET (in euro)

ASSETS

31.12.2007

NON-CURRENT ASSETS

572,714,332

CURRENT ASSETS

163,186,343

TOTAL ASSETS

735,900,675

LIABILITIES AND SHAREHOLDERS’ EQUITY

31.12.2007

SHAREHOLDERS’ EQUITY NON-CURRENT LIABILITIES CURRENT LIABILITIES

574,706,856

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

735,900,675

158,283,261 2,910,558

INCOME STATEMENT (in euro) %(**)

SUNDRY REVENUES AND INCOME of which from related parties (*)

2,011,000

98.1

COSTS FOR PURCHASE OF GOODS COSTS FOR SERVICES of which from related parties (*)

(62,130) (3,196,169) (637,200)

19.9

PERSONNEL COSTS OTHER OPERATING COSTS AMORTIZATION, DEPRECIATION AND WRITE-DOWNS

(1,881,969) (499,101) (108,149) (3,698,293)

OPERATING RESULT

FINANCIAL INCOME of which from related parties (*) FINANCIAL EXPENSE DIVIDENDS of which from related parties (*)

GAINS FROM TRADING SECURITIES LOSSES FROM TRADING SECURITIES ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS INCOME / LOSS BEFORE TAXES INCOME TAXES NET INCOME (LOSS) FOR THE YEAR

2007 2,049,225

4,328,250 1,568,583

36.2

(8,282,044) 21,008,931 19,508,931

92.9

513,522 (1,906,500) 848,953 12,812,819 75,625 12,737,194

(*) As per Consob resolution no. 6064293 of July 28 2006 (**) Percentage of the whole

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. The figures were extrapolated from the financial statements of that company for the year ended December 31 2007. For a correct and full understanding of the equity and financial situation of COFIDE S.p.A. at December 31 2007, 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 from Borsa Italiana.

126

Consolidated Financial Statements

CIR Group

Consolidated Financial Statements of directly controlled subsidiaries as of December 31 2008

SORGENIA GROUP ESPRESSO GROUP SOGEFI GROUP HSS GROUP

127

SORGENIA GROUP CONSOLIDATED BALANCE SHEET

(in euro)

ASSETS

31.12.2008

31.12.2007

NON-CURRENT ASSETS Intangible assets Tangible assets Investments in companies valued at equity Other equity investments Other non-current receivables Non-current securities Deferred tax assets

192,928,949 1,162,866,915 253,925,737 588,500 56,959,451 -37,879,976

241,761,499 879,340,229 252,997,458 549,500 76,348,154 4,075,801 17,748,746

TOTAL NON-CURRENT ASSETS

1,705,149,528

1,472,821,387

53,975,196 707,482,327 107,978,939 13,804,164 235,279,246 206,418

56,845,073 472,682,302 71,860,324 -111,912,291 70,000

TOTAL CURRENT ASSETS

1,118,726,290

713,369,990

TOTAL ASSETS

2,823,875,818

2,186,191,377

31.12.2008

31.12.2007

8,738,843 571,863,126 166,457,171 (8,596,500) 79,477,986

8,179,538 341,678,024 124,002,779 -76,854,915

817,940,626

550,715,256

746,948,416 70,992,210

487,231,266 63,393,990

NON-CURRENT LIABILITIES Non-current bonds in circulation Other non-current borrowings Other non-current liabilities Deferred taxes Personnel provisions Provisions for risks and losses Non-current bank borrowings

578,339 19,963,193 2,842,331 30,978,608 1,762,258 17,294,204 1,104,200,311

3,444,863 34,660,185 180,000 1,241,218 8,229,514 10,485,942 921,424,371

TOTAL NON-CURRENT LIABILITIES

1,177,619,244

979,666,093

CURRENT LIABILITIES Current bank borrowings Current bonds in circulation Other current borrowings Current trade payables Other current liabilities Provisions for risks and losses

101,183,836 2,872,841 36,077,618 591,182,094 87,617,965 9,381,594

46,373,169 397,352 25,980,812 533,617,110 37,504,970 11,936,615

TOTAL CURRENT LIABILITIES

828,315,948

655,810,028

2,823,875,818

2,186,191,377

CURRENT ASSETS Inventories Current trade receivables Other current receivables Cash and cash equivalents Shareholder receivables for capital to be called up

LIABILITIES AND SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY Share capital Other accumulated reserves Retained earnings (losses) of the group Dividend payments on account to Minority Shareholders Net income (losses) for the year TOTAL SHAREHOLDERS' EQUITY of which: SHAREHOLDERS' EQUITY OF THE GROUP MINORITY SHAREHOLDERS' EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

SORGENIA GROUP CONSOLIDATED INCOME STATEMENT

(in euro)

2008

2007

SALES REVENUES

2,433,678,228

1,861,692,660

Change in inventories Costs for the purchase of goods Costs for services Personnel costs Other operating income Other operating costs Adjustments to the value of investments valued at equity Amortization, depreciation and write-downs

7,745,585 (2,177,604,471) (119,493,042) (33,570,754) 74,613,113 (45,246,844) 49,556,502 (35,009,216)

16,301,742 (1,650,809,067) (76,559,411) (30,748,827) 19,563,245 (38,523,273) 51,197,616 (25,180,745)

OPERATING INCOME

154,669,101

126,933,940

Financial income Financial expense Gains from trading securities and from equity investments Dividends Adjustments to the value of financial assets INCOME (LOSS) BEFORE TAXES FROM OPERATING ACTIVITIES

9,044,578 (52,829,151) 120,770 36,000 (352,859)

13,453,623 (34,345,083) -260,800 19,674

110,688,439

106,322,954

Income taxes

(31,210,453)

(29,468,039)

INCOME (LOSS) AFTER TAXES FROM OPERATING ACTIVITIES

79,477,986

76,854,915

79,477,986

76,854,915

66,671,488 12,806,498

65,185,668 11,669,247

Net income (loss) from discontinued operations NET INCOME (LOSS) FOR THE YEAR of which: - NET INCOME/LOSS OF MINORITY SHAREHOLDERS - NET INCOME/LOSS OF THE GROUP

ESPRESSO GROUP

CONSOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS

31.12.2008

31.12.2007

Intangible assets with an indefinite useful life Other intangible assets Intangible assets Tangible assets Investments valued at equity Other equity investments Non-current receivables Deferred tax assets

656,093 4,311 660,404 220,980 27,750 2,568 1,486 47,633

649,211 3,982 653,193 220,362 26,866 4,088 1,910 45,631

NON-CURRENT ASSETS

960,821

952,050

Inventories Trade receivables Securities Tax receivables Other receivables Cash and cash equivalents

27,703 258,309 50 20,848 23,507 120,693

30,532 303,253 50 22,969 27,574 152,140

CURRENT ASSETS

451,110

536,518

1,411,931

1,488,568

31.12.2008

31.12.2007

Share capital Reserves Retained earnings (losses) Net income (loss) for the year Shareholders' equity of the Group Minority Shareholders' equity

61,385 245,853 150,583 20,624 478,445 10,813

65,167 310,447 64,153 95,598 535,365 11,103

TOTAL EQUITY

489,258

546,468

Borrowings Provisions for risks and losses TFR and other personnel provisions Deferred tax liabilities

379,768 24,123 90,946 108,032

396,511 10,846 92,639 102,895

NON-CURRENT LIABILITIES

602,869

602,891

Borrowings Provisions for risks and losses Trade payables Tax payables Other payables

19,923 34,739 147,595 19,263 98,284

20,549 15,460 187,046 24,705 91,449

CURRENT LIABILITIES

319,804

339,209

TOTAL LIABILITIES

922,673

942,100

1,411,931

1,488,568

TOTAL ASSETS

LIABILITIES AND EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

ESPRESSO GROUP

CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

2008

2007

1,025,548 (2,618) 17,689 (150,075) (388,008) (30,453) 1,145 (330,701) (47,205)

1,098,166 662 17,640 (167,287) (422,483) (20,459) 1,206 (284,039) (42,815)

Operating income Net financial income/(expense)

95,322 (19,606)

180,591 (17,576)

Income before taxes Taxes

75,716 (54,489)

163,015 (66,494)

NET INCOME

21,227

96,521

Net income Minority Shareholders Net income of the Group

(603) 20,624

(923) 95,598

0.051 0.049

0.230 0.221

Revenues Change in product inventories Other operating income Costs for purchases Costs for services Other operating expense Valuation of investments at equity Personnel costs Amortization, depreciation and write-downs

Basic earnings per share Diluted earnings per share

SOGEFI GROUP CONSOLIDATED BALANCE SHEET

(in thousands of euro)

ASSETS CURRENT ASSETS Cash and cash equivalents Other financial assets Working capital Inventories Trade receivables Other receivables Tax receivables Other assets TOTAL WORKING CAPITAL TOTAL CURRENT ASSETS NON-CURRENT ASSETS FIXED ASSETS Land Property, plant and equipment Other tangible assets of which finance leases Intangible assets TOTAL FIXED ASSETS TOTAL NON-CURRENT ASSETS Investments in associated companies Other available-for-sale financial assets Financial receivables Other receivables Deferred tax assets TOTAL OTHER NON-CURRENT ASSETS TOTAL NON-CURRENT ASSETS NON-CURRENT ASSETS HELD FOR SALE TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current bank borrowings Current part of long-term loans and other borrowings of which finance leases TOTAL SHORT-TERM BORROWINGS Other short-term liabilities - derivatives TOTAL SHORT-TERM BORROWINGS AND DERIVATIVES Trade payables and other payables Tax payables Other current liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES MEDIUM AND LONG TERM BORROWINGS AND DERIVATIVES Bank borrowings Other medium long term borrowings of which finance leases TOTAL MEDIUM LONG TERM DEBT Other medium long term liabilities - derivatives TOTAL MEDIUM LONG TERM BORROWINGS AND DERIVATIVES OTHER LONG TERM LIABILITIES Long term provisions Other payables Deferred taxes TOTAL OTHER LONG TERM LIABILITIES TOTAL NON-CURRENT LIABILITIES SHAREHOLDERS' EQUITY Share capital Reserves and retained earnings (losses) Net income (loss) for the year of the group TOTAL SHAREHOLDERS' EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT COMP Minority interests TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

31.12.2008

31.12.2007

49,456 841

63,753 956

114,492 169,973 19,019 14,934 3,801 322,219 372,516

113,168 220,097 5,982 10,730 2,551 352,528 417,237

13,929 218,069 4,583 11,779 127,255 363,836

11,354 224,284 4,406 12,653 118,674 358,718

101 442 22 8,772 26,688 36,025 399,861 653 773,030

101 497 -4,974 25,167 30,739 389,457 6,756 813,450

31.12.2008

31.12.2007

19,750 35,733 1,385 55,483 473 55,956 204,094 4,181 1,770 266,001

12,418 13,696 1,340 26,114 469 26,583 228,858 11,821 2,984 270,246

238,612 10,723 7,206 249,335 2,263 251,598

118,005 12,492 9,133 130,497 -130,497

48,883 384 27,849 77,116 328,714

58,765 -27,228 85,993 216,490

60,397 72,013 28,495 160,905 17,410 178,315 773,030

59,595 199,093 52,200 310,888 15,826 326,714 813,450

SOGEFI GROUP CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

2008

2007

1,017,458 681,673

1,071,765 699,415

335,785 107,299 42,484 35,935 62,430

372,350 115,151 44,695 38,440 60,497

OPERATING INCOME Restructuring costs Capital losses (gains) on disposals Exchange rate losses (gains) Other non-operating costs (income) - of which non-recurring

87,637 11,473 (15) 2,238 11,502 1,020

113,567 7,558 (4,622) 943 19,821 6,116

EBIT Net financial expense (income) Expense (income) from equity investments

62,439 13,988 218

89,867 9,418 (108)

INCOME BEFORE TAXES AND MINORITY INTERESTS Income taxes

48,233 16,793

80,557 25,390

NET INCOME BEFORE MINORITY INTERESTS Loss (income) attributable to minority shareholders

31,440 (2,945)

55,167 (2,967)

NET INCOME OF THE GROUP Earnings per share (Euro): Basic Diluted

28,495

52,200

0.250 0.250

0.465 0.461

Sales revenues Variable costs of goods sold CONTRIBUTION MARGIN Fixed production costs, research and development Amortization and depreciation Fixed sales and distribution costs Administrative expenses and overheads

HSS GROUP CONSOLIDATED BALANCE SHEET (in thousands of euro)

ASSETS

31.12.2008

31.12.2007

NON-CURRENT ASSETS INTANGIBLE ASSETS TANGIBLE ASSETS OTHER EQUITY INVESTMENTS TRADE RECEIVABLES OTHER RECEIVABLES SECURITIES DEFERRED TAXES

297,379 120,371 166,237 5,883 130 192 153 4,413

251,885 111,505 130,052 5,855 100 1,374 153 2,846

CURRENT ASSETS INVENTORIES TRADE RECEIVABLES OTHER RECEIVABLES FINANCIAL RECEIVABLES CASH AND CASH EQUIVALENTS

110,972 1,732 81,930 7,930 -19,380

106,705 1,543 80,961 7,140 610 16,451

408,351

358,590

31.12.2008

31.12.2007

SHAREHOLDERS' EQUITY SHARE CAPITAL RESERVES RETAINED EARNINGS (LOSSES) SHAREHOLDERS' EQUITY OF THE GROUP MINORITY SHAREHOLDERS' EQUITY

140,698 6,480 144,324 (12,286) 138,518 2,180

105,033 5,405 107,515 (10,095) 102,825 2,208

NON-CURRENT LIABILITIES OTHER BORROWINGS TRADE PAYABLES OTHER PAYABLES DEFERRED TAXES PERSONNEL PROVISIONS PROVISIONS FOR RISKS AND LOSSES

149,131 122,672 69 38 8,015 17,939 398

126,757 101,339 69 37 8,402 16,910 --

CURRENT LIABILITIES BANK OVERDRAFTS OTHER BORROWINGS TRADE PAYABLES OTHER PAYABLES PROVISIONS FOR RISKS AND LOSSES

118,522 26,332 19,473 43,455 23,037 6,225

126,800 25,189 39,170 38,519 19,023 4,899

408,351

358,590

NON-CURRENT ASSETS HELD FOR DISPOSAL TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES DIRECTLY CORRELATED WITH NON-CURRENT ASSETS HELD FOR DISPOSAL TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

HSS GROUP CONSOLIDATED INCOME STATEMENT

(in thousands of euro)

2008

2007

246,345 -(17,660) (105,083) (87,527) 4,564 (11,889)

182,942 -(13,277) (85,879) (58,144) 3,630 (9,068)

-(14,083)

-(9,080)

OPERATING INCOME (EBIT)

14,667

11,124

FINANCIAL INCOME FINANCIAL EXPENSE DIVIDENDS GAINS FROM TRADING SECURITIES LOSSES FROM TRADING SECURITIES ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

928 (11,277) -----

475 (8,335) -539 ---

INCOME/(LOSS) BEFORE TAXES

4,318

3,803

INCOME TAXES

(5,507)

(3,535)

176

(1,189)

444

292 (1,481)

97 347

SALES REVENUES CHANGE IN INVENTORIES COSTS FOR THE PURCHASE OF GOODS COSTS FOR SERVICES PERSONNEL COSTS OTHER OPERATING INCOME OTHER OPERATING COSTS ADJUSTMENTS TO THE VALUE OF INVESTMENTS VALUED AT EQUITY AMORTIZATION, DEPRECIATION AND WRITE-DOWNS

INCOME/(LOSS) FROM DISCONTINUED OPERATIONS AND ASSETS HELD FOR DISPOSAL INCOME/(LOSS) FOR THE PERIOD INCLUDING MINORITY INTERESTS - INCOME/LOSS OF MINORITY INTERESTS - INCOME/LOSS OF THE GROUP

136

Declaration as per Articles 36 and 37 of Consob Resolution 16191 of October 29 2007 In relation to the obligations set out in Art. 2.6.2, paragraph 15, of the Rules of Borsa Italiana, taking into account the instructions given in Articles 36 and 37 of Consob Resolution 16191, it is hereby declared that no conditions exist which could prevent CIR shares from being listed on the MTA market organized and managed by Borsa Italiana S.p.A., since any foreign subsidiaries not belonging to the European Union, which are of particular importance to CIR (the “Company”): publish their bylaws, the composition and powers of their administrative bodies, according to the legislation applicable to them or voluntarily, and they also provide the Company’s independent auditors with all the information necessary for them to carry out the audit of the annual and interim accounts of CIR and they have an administrative accounting system that enables them to provide Management and the auditors of the Company regularly with the income, balance sheet and financial figures needed to prepare the consolidated financial statements; in relation to the fact that it is subject to management and coordination by its parent company COFIDE - Compagnia Finanziaria De Benedetti S.p.A. – the Company has fulfilled all the disclosure obligations stipulated in Article 2497-bis of the Civil Code, it negotiates with clients and suppliers fully independently, has no centralized treasury agreement with COFIDE, on the Board of Directors of the Company, out of a total of 13 directors, 7 have the requisites for independence and are of a sufficient number to guarantee that their judgement has a significant weight when decisions are adopted by the board.

137

138

CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH ART. 154 BIS OF D. LGS 58/98

1. The undersigned Rodolfo De Benedetti, in his role as Chief Executive Officer and Alberto Piaser, as Officer responsible for the preparation of the Financial Statements of the company CIR S.p.A. hereby certify, taking into account even the terms of art. 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of February 24 1998: -

that the administrative and accounting procedures for the preparation of consolidated financial statements during the year 2008 were adequate in relation to the size and nature of the business and that they were effectively applied.

2. On this subject no aspects emerged that needed to be notified. 3. It is also certified that the Consolidated Financial Statements: − − −

Were prepared in conformity with the international accounting standards (IAS/IFRS) recognized by the European Union according to the terms of Regulation (EC) No. 1606/2002 of the European Parliament and of the Council, of July 19 2002; Correspond to the results of the books and the general ledger; Are suitable to give a true and fair representation of the equity, economic and financial position of the issuer and of all the companies included in the consolidation.

The Report on Operations includes a reliable analysis of performance and of the result of operations as well as the position of the issuer and of all the companies included in the consolidation, together with a description of the principal risks and uncertainties to which they are exposed.

Milan, April 3 2009

Signed by Rodolfo De Benedetti Chief Executive Officer

Signed by Alberto Piaser Officer Responsible

139

140

CIR S.p.A.

Statutory Financial Statements as of December 31 2008

BALANCE SHEET INCOME STATEMENT CASH FLOW STATEMENT STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY OF THE GROUP

CIR S.p.A.

141

BALANCE SHEET

(in euro)

ASSETS NON-CURRENT ASSETS INTANGIBLE ASSETS TANGIBLE ASSETS INVESTMENT PROPERTY EQUITY INVESTMENTS MISCELLANEOUS RECEIVABLES DEFERRED TAXES CURRENT ASSETS MISCELLANEOUS RECEIVABLES of which from related parties (*) SECURITIES AVAILABLE-FOR-SALE FINANCIAL ASSETS CASH AND CASH EQUIVALENTS

%(**)

Notes

(4.f)

1,054,025,294 207,122 3,381,283 19,258,243 1,029,797,850 146,590 1,234,206

(5.a)

293,334,311 54,469,830

268,682,706 74,463,317

(4.b) (4.c) (4.d) (4.e)

(5.a)

7,827,661

CURRENT LIABILITIES BANK OVERDRAFTS BORROWINGS FROM RELATED PARTIES OTHER PAYABLES of which to related parties (*) PROVISIONS FOR RISKS AND LOSSES

15,163,047

14.4

20.4

(5.b)

226,547,842

65,645,001

(5.c)

-12,316,639

50,735,295 77,839,093

1,334,486,565

1,322,708,000

(5.d)

%(**)

LIABILITIES AND SHAREHOLDERS' EQUITY

NON-CURRENT LIABILITIES BONDS AND NOTES DEFERRED TAXES PERSONNEL PROVISIONS

31.12.2007

1,041,152,254 191,477 3,176,710 18,686,421 1,017,990,864 24,200 1,082,582

(4.a)

TOTAL ASSETS

SHAREHOLDERS' EQUITY ISSUED CAPITAL less OWN SHARES SHARE CAPITAL RESERVES RETAINED EARNINGS / (LOSSES) NET INCOME FOR THE YEAR

%(**)

31.12.2008

(6.a) (6.b) (6.c)

(7.a) (4.f) (7.b)

(8.a) (8.b) (8.b) (8.c)

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

(*) As per Consob Resolution no. 6064293 of July 28 2006 (**) Percentage of the whole

5,456,508

%(**)

31.12.2008

31.12.2007

974,501,436 395,587,634 (21,487,000) 374,100,634 345,985,148 221,164,387 33,251,267

983,773,408 395,465,334 (19,822,000) 375,643,334 343,159,102 185,051,374 79,919,598

298,631,544 295,982,153 -2,649,391

299,018,240 295,806,231 -3,212,009

61,353,585 --11,306,639

39,916,352 -14,196,284 11,561,122 5,924,081

48.3

51.2

50,046,946

14,158,946

1,334,486,565

1,322,708,000

INCOME STATEMENT

(in euro) %(**)

Notes

SUNDRY REVENUES AND INCOME of which from related parties (*) COSTS FOR SERVICES of which from related parties (*) PERSONNEL COSTS OTHER OPERATING COSTS AMORTIZATION, DEPRECIATION AND WRITE-DOWNS

5,916,115

83.9

(2,280,000)

20.7

(11) (12)

OPERATING INCOME (LOSS) FINANCIAL INCOME of which from related parties (*) FINANCIAL EXPENSE of which with related parties (*)

(13)

DIVIDENDS of which from related parties (*)

(15)

GAINS FROM TRADING SECURITIES LOSSES FROM TRADING SECURITIES ADJUSTMENTS TO VALUE OF FINANCIAL ASSETS INCOME / (LOSS) BEFORE TAXES

(16)

INCOME TAXES

(19)

(*) As per Consob Resolution no. 6064293 of July 28 2006 (**) Percentage of the whole

(208,591)

1.2

(18)

(20) (20)

79.4

(2,251,000)

20.7

(10,854,272)

(5,086,680) (37,921,421) (866,662)

(8,062,217) (1,977,853) (821,939)

(47,857,530)

(13,602,222) 9,962,941 1,154,066

11.6

(995,276)

5.3

(17,871,672)

(18,835,352)

138,738,023 138,689,930

NET INCOME FOR THE YEAR

BASIC EARNINGS PER SHARE (in euro) DILUTED EARNINGS PER SHARE (in euro)

2.9

(14)

(17)

6,441,000

9,252,266 266,261

2007 8,114,059

(11,036,154)

(10) (10)

%(**)

7,053,387

(9) (9)

2008

126,523,162 126,491,619

100.0

253,220 (2,396,079) (54,721,218) 25,397,010

13,976,745 (56,137,895) (6,586,415) 55,300,964

7,854,257

24,618,634

33,251,267

79,919,598

0.0444 0.0444

0.1067 0.1057

CASH FLOW STATEMENT

(in euro)

2008

2007

OPERATING ACTIVITY NET INCOME FOR THE YEAR

33,251,267

79,919,598

866,662

821,939

ADJUSTMENTS: AMORTIZATION, DEPRECIATION AND WRITE-DOWNS LOSSES/(GAINS) ON THE SALE OF EQUITY INVESTMENTS AND CURRENT SECURITIES

2,142,858

(9,061,350)

ACTUARIAL VALUATION OF STOCK OPTION PLANS

354,229

3,610,327

PROVISION MADE TO TFR FUND

263,683

259,447

54,721,218

6,586,415

ADJUSTMENTS TO VALUE OF FINANCIAL ASSETS (RISE) REDUCTION IN NET WORKING CAPITAL of which with related parties

41,893,107 (7,328,471)

(36,654,448) 43,622,555

CASH FLOW FROM OPERATING ACTIVITY

133,493,024

45,481,928

of which: - interest income (expense) - dividends received - income tax receipts (payments) *

(15,368,371) 138,738,023 24,849,027

(8,510,508) 126,523,162 9,631,908

INVESTMENT ACTIVITY (PURCHASE)/SALE OF CURRENT SECURITIES

(126,925,421)

82,328,019

(28,373,837)

(76,462,327)

(155,299,258)

5,865,692

INFLOWS FROM CAPITAL INCREASES

365,308

14,667,635

PAYMENT OF LEAVING INDEMNITY (TFR) BUYBACK OF OWN SHARES

(274,943)

(286,480)

PURCHASE OF FIXED ASSETS CASH FLOW FROM INVESTMENT ACTIVITY FUNDING ACTIVITY

(6,396,015)

(15,376,909)

DIVIDENDS PAID OUT

(37,410,570)

(37,242,640)

CASH FLOW FROM FUNDING ACTIVITY

(43,716,220)

(38,238,394)

RISE (REDUCTION) IN NET CASH & CASH EQUIVALENTS

(65,522,454)

13,109,226

NET CASH & CASH EQUIVALENTS AT START OF YEAR

77,839,093

64,729,867

NET CASH & CASH EQUIVALENTS AT END OF YEAR

12,316,639

77,839,093

* The amounts refer to current tax credits received on participation in tax consolidation

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(in euro)

Issued Capital

less Own Shares

Share Capital

Reserves

earnings(losses)

Retained

Net income for year

Total

BALANCE AT DECEMBER 31 2006 Capital increases Dividends to Shareholders Amount available to Board of Directors Unclaimed dividends as per Bylaws Art. 23 Adjustment for own share transactions Notional recognition of stock options Net income for the year

390,239,534 5,225,800 -------

(17,047,000) ----(2,775,000) ---

373,192,534 5,225,800 ---(2,775,000) ---

329,032,099 9,441,835 --55,431 2,700,421 1,929,316 --

201,816,767 -(1,463,063) --(15,302,330) ---

36,697,002 -(35,779,577) (917,425) ---79,919,598

940,738,402 14,667,635 (37,242,640) (917,425) 55,431 (15,376,909) 1,929,316 79,919,598

BALANCE AT DECEMBER 31 2007 Capital increases Dividends to Shareholders Earnings posted to reserve Unclaimed dividends as per Bylaws Art. 23 Adjustment for own share transactions Notional recognition of stock options Net income for the year

395,465,334 122,300 -------

(19,822,000) ----(1,665,000) ---

375,643,334 122,300 ---(1,665,000) ---

343,159,102 243,008 --12,451 1,665,000 905,587 --

185,051,374 --42,509,028 -(6,396,015) ---

79,919,598 -(37,410,570) (42,509,028) ---33,251,267

983,773,408 365,308 (37,410,570) -12,451 (6,396,015) 905,587 33,251,267

BALANCE AT DECEMBER 31 2008

395,587,634

(21,487,000)

374,100,634

345,985,148

221,164,387

33,251,267

974,501,436

146

CIR S.p.A.

NOTES TO THE FINANCIAL STATEMENTS OF THE PARENT COMPANY

STRUCTURE OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINICPLES APPLIED

These financial statements have been prepared in accordance with international accounting standards (IAS/IFRS) published by the International Accounting Standards Board (“IASB”) and ratified by the European Union, together with all the measures issued in implementation of Art. 9 of D. Lgs. no. 38/2005, including all the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), previously known as the Standing Interpretations Committee (“SIC”). The balance sheet is based on the principle of historical cost, modified as required for the measurement of certain financial instruments, in compliance with the time principle and matching principles and the assumption that the business is an ongoing concern. In spite of the difficult economic and financial context, the Company has established that there are no significant uncertainties, as defined in paragraph 24 of IAS 1, regarding the fact that the business is an ongoing concern. The classification criteria adopted are as follows: - The balance sheet is organized in opposing items on the basis of current and non-current assets and liabilities; - The income statement is shown by type of expenditure; - The cash flow statement was prepared using the indirect method; - The chart showing changes in shareholders’ equity gives a breakdown of the changes that took place in the year and in the previous year. These financial statements are expressed in thousands of euro, which is the functional and presentation currency of CIR S.p.A. according to the terms of IAS 21, except where stated otherwise. Events taking place after the balance sheet date After the close of the year no important events took place which could have had a significant effect on the financial, equity and economic situation of the Company. See point 6 of the Report on Operations for a description of events which took place after the close of the year. In accordance with the terms of paragraph 17 of IAS 10, it should be noted that publication of the financial statements was authorized by the Board of Directors of the Company on March 9 2009. Below is a description of the accounting principles adopted in the preparation of these Financial Statements as of December 31 2008 in relation to the main items of the balance sheet and income statement included in the statements.

1.a.

Intangible assets (IAS 38)

Intangible assets are recognized only if they can be separately identified, if it is likely 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 accumulated amortization and impairment.

CIR S.p.A.

147

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 recognition and therefore, 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. 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.

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 each year in relation to the remaining useful life of the various assets. Real estate not held for instrumental or operating purposes (investment properties) is classified under a special item of assets and is accounted for on the basis of the terms of IAS 40 â&#x20AC;&#x153;Investment propertiesâ&#x20AC;?. 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.

148

CIR S.p.A.

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 estimate of its residual useful life and a rate that also takes into account the implicit risk of the specific business sectors in which the company operates. This valuation is carried out for each individual asset or for the smallest identifiable independent cash generating unit (CGU). Where there is a negative difference between the values stated above and the carrying value then the asset 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.

Investment property (IAS 40)

An investment property is a property, either land or building â&#x20AC;&#x201C; or part of a building â&#x20AC;&#x201C; or both, owned 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, rather than for the purpose of directly using it for the production or supply of goods or services or for the 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 or extraordinary maintenance. According to the cost method, estimation is made net of depreciation and of any accumulated impairment. At the moment of disposal or in the event of permanent non-use of the asset, all related income and expense will be charged to the income statement.

1.d.

Impairment of assets (IAS 36)

At least once a year the Company verifies the recoverability of the carrying value of intangible assets, tangible assets and investments in subsidiaries and associates in order to determine whether these assets have suffered any loss of value. If there is evidence of such a loss, the carrying value of the asset is reduced to its recoverable value. The recoverable value of an asset is the higher of fair value less costs to sell and its value in use. In detail, in valuing the presence of any losses in the value of investments in subsidiaries and associates, since these are investments for which a market value (i.e. fair value less costs to sell) is in some cases unreliable, the recoverable value was defined as its value in use, meaning the present value of estimated cash flows in relation to the expected results of investee companies and to the estimated value of a hypothetical ultimate disposal in line with the terms set out in IAS 28 (paragraph 33). When at a later date the loss of value ceases to exist or is reduced, the carrying value of the assets is revalued to the extent of the new estimate of recoverable value but cannot exceed the value which would have been determined if no impairment loss had been recognized. The recovery of an impairment loss is immediately posted to the income statement.

CIR S.p.A.

149

1.e.

Investments in subsidiaries and associates (IAS 27 and IAS 28)

Investments in subsidiaries and associates are recognized at cost adjusted for any impairment. Any positive difference, arising on acquisition, between the acquisition cost and the acquirer’s share of the shareholders’ equity of the investee company at current values is therefore included in the carrying value of the shareholding. Investments in subsidiaries and associates are subjected to an impairment test every year, or if necessary even more frequently, to check for any losses in value. Where there is evidence that the investments have lost value, the impairment loss is recognized in the income statement as a writedown. In the event of the company’s share of the losses of the investee company exceeding the carrying value of the investment, and when the company is obliged to or wishes to respond, then the value of the investment is reduced to zero and the company’s share of any further losses is recognized as a provision in the liabilities. Should the loss in value subsequently cease to exist or become reduced, the value is restored with the amount recognized to the income statement within the limit of its cost.

1.f.

Other equity investments

Investments in other companies, classified as non-current financial assets which are not intended for trading, are initially classified as available-for-sale financial assets and are recognized at fair value. Subsequently, gains and losses from changes in fair value from their market prices are posted directly to shareholders’ equity until the assets are sold or undergo an impairment loss. When the asset is sold, all of the gains and losses previously recognized to shareholders’ equity are posted to the income statement in the period. When an asset is written down, the accumulated losses are included in the Income Statement. Holdings in other minor companies, which do not have a market price, are recognized at cost which may be written down on impairment.

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.

1.h.

Securities (IAS 32 and 39)

In accordance with IAS 32 and IAS 39 investments in companies other than subsidiaries and associates 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 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. It should be noted that purchases and sales are recognized on the trading date of the transaction.

150

CIR S.p.A.

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 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 may 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 deductible 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 an irrelevant risk of change in value.

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 accumulated earnings and balances transferred from other 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.

1.n.

Borrowings (IAS 32 and 39)

Loans are initially recognized at cost, represented by their fair value net of any transaction costs incurred. Subsequently loans are measured at amortized cost calculated by applying the effective

CIR S.p.A.

151

interest rate, taking into consideration any issuance costs incurred and any premium or discount applied at the time when 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 disbursement required to fulfil the obligation as of the balance sheet date. 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 balance sheet date. Dividend and interest income are recognized as follows: - Dividends, in the year in which they are received; - Interest, using the effective interest rate method (IAS 39).

1.q.

Employee benefits (IAS 19)

152

CIR S.p.A.

Accounting standard IFRS 2 “Share-based payments” issued in February 2005 with validity as form January 1 2005 requires in its transitional instructions that application should be retrospective in all cases where stock options were assigned after November 7 2002 and for which on the date on which this condition took effect the vesting conditions of the plans had not yet matured. In accordance with this principle the CIR Group now measures and recognizes the notional cost of stock options to the income statement under personnel costs and apportions them throughout the vesting period of the benefit, with an offset in the appropriate reserve of shareholders’ equity. The cost of the option is determined at the moment when the plan is awarded using special models and multiplying by the number of options exercisable in the reporting period, which are determined using the aid of appropriate actuarial variables. Similarly, the cost of awarding phantom stock options is determined with reference to the fair value of the options at the award date and is charged to the income statement under personnel costs on the basis of the vesting period. Unlike for stock options, the offset is in liabilities (miscellaneous personnel provisions) and not in an equity reserve. Until the liability has matured, its fair value is recalculated at each balance sheet date and on the date on which disbursement is actually made, posting all fair value changes to the income statement. 1.r.

Derivative instruments (IAS 32 and 39)

Derivative 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 2008 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 balance sheet date monetary assets and liabilities denominated in foreign currencies are translated at the spot exchange rate prevailing on that date.

CIR S.p.A.

153

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 2008.

1.t.

Use of estimates

The preparation of the financial statements and the explanatory notes in application of IFRS requires management to make estimates and assumptions which affect the values of the assets and liabilities in the balance sheet and the disclosures regarding potential assets and liabilities as of the balance sheet date. The estimates and assumptions used are based on experience and on other factors considered relevant. The actual results could therefore be different from these estimates. Estimates and assumptions are revised periodically and the effects of any changes made to them are reflected in the income statement in the period in which the amendment is made if the revision affects only that period, or even in subsequent periods if the amendment affects both the current year and future periods. The items of the financial statements mainly affected by the estimation process are the valuation of subsidiaries and associates, deferred taxes and the fair value of financial instruments, stock options and phantom stock options. It should also be noted that the situation brought about by the current economic and financial crisis has made it necessary to make assumptions regarding performance in the future which is likely to be characterized by greater uncertainty. It cannot therefore be ruled out that the results of next year may be different from what has been estimated and could need adjustments to the carrying value of the various items. Obviously today it is impossible to foresee or make any estimates but the adjustments could be substantial. See the specific areas for further details.

1.u.

Earnings per share (IAS 33)

Basic earnings per share are determined by dividing the net income attributable to ordinary shareholders 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. Adoption of new Accounting Standards, Interpretations and Amendments Accounting standards, interpretations and amendments applied in 2008 On October 13 2008 with the document “Reclassification of financial assets” the IASB made some changes to IAS 39 – Financial Instruments: Recognition and Measurement and to IFRS 7 – Financial Instruments: Disclosures on the subject of the classification of financial instruments. These changes were ratified by the European Commission on October 15 2008 in Regulation no. 1004/2008 and took immediate effect. The changes involved the possibility, previously not allowed, of reclassifying in some circumstances certain financial assets other than derivatives, from the accounting category "valued at fair value through profit and loss” to the other categories stipu-

154

CIR S.p.A.

lated in IAS 39 (assets held to maturity, available-for-sale assets, loans and receivables). This amendment also makes it possible to transfer loans and receivables from the category "available for sale" to the category "held to maturity", if the company intends and is able to hold such instruments for a certain period in the future. The amendment is applicable as from July 1 2008 but did not make any difference to these financial statements because the Company did not make any reclassification envisaged under it. Accounting standards, amendments and interpretations not yet applicable and not adopted early by the Company The Group decided not to opt for the early adoption of the following Principles, Interpretations and Updates to standards already published and which will become mandatory in subsequent years: •

IFRS 8 – Operating Segments: on November 30 2006 the IASB issued IFRS 8 which must be applied as from January 1 2009 in replacement of IAS 14 – Segment reporting. The new accounting standard, which has already completed the process necessary for its application, requires companies to base the information given in the segment reporting on the elements that management uses to make its operating decisions. This means that operating sectors are identified on the same basis as internal reporting which is regularly reviewed by management for the allocation of resources to the various segments and for analysing performance. The adoption of this principle will have no effect on the measurement of the items in the balance sheet.

•

IAS 1 – Presentation of Financial Statements: on September 6 2007 the IASB issued a revised version which must be applied as from January 1 2009. The new version of this standard requires that all changes generated by transactions with shareholders be shown in a statement of changes in shareholders’ equity whereas all transactions generated with third parties (comprehensive income) must be shown in a single comprehensive income chart or in two separate charts (income statement and comprehensive income statement). In any case the changes generated by transactions with third parties cannot be recognized in the statement of changes in shareholders’ equity. The adoption of this principle will not have any effect on the measurement of the items in the balance sheet. The revised standard was ratified by the European Commission on December 17 2008 with Regulation (EC) 1274/2008.

•

IAS 23 – Financial Expense: on March 29 2007 the IASB issued a revised version of IAS 23 which must be applied as from January 1 2009. The new version of this standard removes the option whereby it was possible to recognize to the income statement immediately any financial expense incurred for assets which would normally require a certain period of time to get them ready for use or for sale. The standard will be applicable prospectively to interest expense relating to capitalized assets as from January 1 2009.

•

IFRS 3 – Business Combinations: on January 10 2008 the IASB issued an updated version of IFRS 3 and amended IAS 27 – Consolidated and Separate Financial Statements. The main changes made to IFRS 3 regard the elimination of the obligation to measure the individual assets and liabilities of the subsidiary at fair value in each subsequent acquisition in the event of a step acquisition of a controlling interest. In such cases the goodwill will be calculated as the difference between the value of the shareholding immediately prior to the acquisition, the acquisition cost and the value of the net assets and liabilities acquired. Furthermore in the event of the company not acquiring 100% of the holding, minority interests can be measured either

CIR S.p.A.

155

at fair value or using the method previously given in IFRS 3. The revised version of the standard also involves recognizing to the income statement all costs relating to the business combination and recognizing as liabilities as of the acquisition date any consideration subject to conditions. In the amendment to IAS 27, however, the IASB established that changes in shareholdings which do not involve loss of control must be treated as equity transactions with an offset in shareholders’ equity and it is also established that when a parent disposes of shares thus giving up control of an investee but keeps a holding in the company, it must re-measure the remaining holding at fair value and post any gains or losses from the loss of control to the income statement. Lastly the amendment to IAS 27 requires that all losses attributable to minority shareholders be allocated to minority shareholders’ equity, even when the losses are more than their share of the capital of the investee company. The new rules must be applied prospectively as from January 1 2010. •

IFRS 2 – Vesting conditions and cancellation: on January 17 2008 the IASB issued an amendment to IFRS 2 on the basis of which, for the purposes of measuring share-based compensation, only service conditions and performance conditions can be considered as the vesting conditions of the plans. The amendment also clarifies that, in the event of cancellation of the plan, the same accounting treatment should be applied whether the cancellation originates from the company or from the counterparty. The new rules must be applied prospectively from January 1 2009.

•

IFRIC 12 – Service concession arrangements, which must be applied as from January 1 2008 and which has not yet been ratified by the European Union.

•

IFRIC 13 – Customer loyalty programs, which must be applied as from January 1 2009.

•

IFRIC 14 on IAS 19 – The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction which is applicable retrospectively from January 1 2008.

•

IFRIC 16 – Hedges of a Net Investment in a Foreign Operation, which eliminated the possibility of applying hedge accounting to transactions hedging exchange rate differences between the functional currency of the foreign operation and the presentation currency of the consolidated financial statements. This interpretation must be applied as from January 1 2009.

As of this balance sheet date, apart from IFRS 8 and IAS 1 as mentioned above, the appropriate bodies of the European Union have not yet completed the ratification process necessary for their application. At present the Company is assessing the possible effects resulting from the adoption of the above-cited principles and interpretations or amendments to the same. Furthermore on May 22 2008 the IASB issued a series of improvements to IAS/IFRS; below are those indicated by the IASB as changes which will involve a change in the presentation, recognition and measurements of items of the balance sheet, omitting those which will only involve a change in the terminology or in the drafting with only minimal effect on the accounting or those that refer to areas not affecting the Company.

156

CIR S.p.A.

•

IFRS 5 – Non-current Assets held for Sale and Discontinued Operations: the amendment, which is applicable prospectively as from January 1 2010, establishes that if a business is engaged in a disposal program which involves the loss of control of an investee, all the assets and liabilities of the subsidiary must be reclassified as assets held for sale, even if after the sale the company will still have a minority stake in the subsidiary.

•

IAS 16 – Property, Plant and Machinery: the amendment, which is applicable retrospectively as from January 1 2009, establishes that companies in the renting business must reclassify as inventories any assets that cease to be rented out and are to be sold and, consequently, the proceeds of their sale must be recognized as revenues. Amounts paid to build or acquire assets for renting to other people as well as the proceeds from the subsequent sale of these assets constitute, for the purposes of the cash flow statement, cash flows from operating activity (and not from investment activity). The adoption of this amendment will not produce any effect on the measurements of the items in the balance sheet.

•

IAS 19 – Employee Benefits: the amendment, which is applicable prospectively from January 1 2009 to the changes in benefits taking place after that date, clarifies the definition of cost/income in relation to past service and establishes that in the event of the reduction of a plan, the effect immediately recognizable to the income statement must include only the reduction of the benefits for future periods, while the result of any reductions relating to past service must be considered as a negative cost in relation to past service.

•

IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance: the amendment, which is applicable prospectively from January 1 2009, establishes that the benefits deriving from loans from the state at below market interest rates must be treated as government grants and thus must follow the rules for recognition laid down in IAS 20.

•

IAS 28 – Investments in Associates: the amendment, which must be applied (even if only prospectively) as from January 1 2009, establishes that for investments measured using the equity method, any impairment must not be allocated to the individual assets (and particularly to any goodwill) which make up the carrying value of the investment, but rather to the value of the associate as a whole. Therefore, in the presence of conditions for a subsequent recovery of the original value, this recovery should be recognized in full.

•

IAS 36 – Impairment of Assets: the amendment, which must be applied as from January 1 2009, establishes that additional information must be given if the company determines the recoverable value of the cash generating unit using the discounted cash flow method.

•

IAS 38 – Intangible Assets: the amendment, which must be applied retrospectively as from January 1 2009, establishes that promotional and advertising costs be recognized to the income statement. It also establishes that if the business incurs expenditure giving future economic benefits without the recognition of intangible assets, this expenditure should be recognized to the income statement at the moment when the company acquires the right to access the asset, if a purchase of goods is involved, or when the service is rendered, if a purchase of services is involved. The principle has also been amended to allow businesses to adopt the unit production method to determine the amortization of intangible assets with a finite useful life.

CIR S.p.A.

157

•

IAS 39 – Financial Instruments: Recognition and Measurement: the amendment, which must be applied retrospectively as from January 1 2009, clarifies the criteria for the calculation of the new effective rate of return of a financial instrument at the end of a fair value hedging relationship. Furthermore on July 31 2008 the IASB issued a further amendment of IAS 39, which must be applied retrospectively as from January 1 2010, clarifying the application of the principle for the definition of the underlying of the hedge in particular situations.

As of the date of these financial statements, the appropriate bodies of the European Union have not yet completed the ratification process necessary for the application of the above amendments. At the date of publication of these financial statements, the Company is assessing the potential effects of the adoption of the above cited amendments. Accounting principles, amendments and interpretations which are not applicable to the Company The following amendments and interpretations have also been issued, regulating situations and cases which at the balance sheet date were not present in the Company: • IAS 32 – Financial Instruments: Presentation and IAS 1 – Presentation of the Financial Statements – Financial instruments with put options and obligations in the event of liquidation. The company is required to classify as equity any puttable financial instruments and financial instruments which impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity. (This amendment must be applied prospectively from January 1 2009. • Improvement to IAS 28 – Investments in Associates, and IAS 31 – Investments in Joint Ventures: these amendments, which must be applied as from January 1 2009, require that additional information be given even for investments in associates and joint ventures valued at fair value according to IAS 39. In line with this, IFRS 7 – Financial Instruments: additional disclosures and IAS 32 – Financial Instruments: Presentation have been amended. • Improvement to IAS 29 – Financial Reporting in Hyperinflationary Economies: the previous version of the principle did not reflect the fact that some assets or liabilities could be valued in the balance sheet on the basis of their present value rather than their historical cost. The change, introduced to take such eventualities into account, must be applied prospectively as from January 1 2009. • Improvement to IAS 40 – Investment Property: the change, which must be applied prospectively as from January 1 2009, establishes that investment property under construction should come under IAS 40 instead of IAS 16. • IFRIC 15 – Agreements for the Construction of Real Estate, which must be applied as from January 1 2009 but has not yet been ratified by the European Union.

FINANCIAL INSTRUMENTS

158

CIR S.p.A.

According to IAS 32 financial instruments are classified into 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 Managementâ&#x20AC;&#x2122;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 between its initial value and its value 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.

CIR S.p.A.

159

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 then 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 balance sheet date. 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 â&#x20AC;&#x153;residualâ&#x20AC;? 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 accumulated under shareholdersâ&#x20AC;&#x2122; equity is released to the income statement. 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.

ACCOUNTING PRINCIPLES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

160

CIR S.p.A.

In the event of a new principle/interpretation issued but not yet in force, 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 amount of the adjustments to be made at the beginning of the first accounting period after it was discovered.

CIR S.p.A.

161

BALANCE SHEET

NON-CURRENT ASSETS

4.a

INTANGIBLE ASSETS

Historical cost 474 -474

Opening position Accum. amort. & write-downs (393) -(393)

Balance 31.12.2006 81 -81

Acquisitions

Historical cost 506 128 634

Opening position Accum. amort. & write-downs (427) -(427)

Balance 31.12.2007 79 128 207

Acquisitions

2007 (in thousands of euro) Concessions, licenses, trademarks & similar ri Assets in process & advance payments Total

2008 (in thousands of euro) Concessions, licenses, trademarks & similar ri Assets in process & advance payments Total

AMORTIZATION RATES Description Concessions, licenses, trademarks & similar rights

5-30%

32 128 160

43 -43

Changes in the period Disposals acc. amort. cost ----------

Reclassifications

Changes in the period Disposals Reclassifications acc. amort. cost 80 --(80) ------

Amort. and write-downs (34) -(34)

Amort. and write-downs (59) -(59)

Historical cost 506 128 634

Closing position Accum. amort. & write-downs (427) -(427)

Balance 31.12.2007 79 128 207

Historical cost 629 48 677

Closing position Accum. amort. & write-downs (486) -(486)

Balance 31.12.2008 143 48 191

4.b.

TANGIBLE ASSETS

Opening position

2007 (in thousands of euro) Land Buildings Plant and machinery Other assets Assets under construction & advance payme Total

Historical cost 1,961 4,245 969 4,279 -11,454

Changes in the period

Accum. deprec. & write-downs -(4,105) (753) (2,020) -(6,878)

Balance 31.12.2006 1,961 140 216 2,259 -4,576

Opening position

2008 (in thousands of euro) Land Buildings Plant and machinery Other assets Assets under construction & advance payme Total

Historical cost 723 4,251 983 4,533 -10,490

Acquisitions -6 14 254 -274

Changes in the period

Accum. deprec. & write-downs -(4,111) (821) (2,177) -(7,109)

Balance 31.12.2007 723 140 162 2,356 -3,381

Acquisitions --12 30 -42

Tangible assets declined from â&#x201A;Ź 3,381 thousand at December 31 2007 to â&#x201A;Ź 3,176 thousand at December 31 2008.

DEPRECIATION RATES Description Buildings and investment property Plant and machinery

% 3.00% 10.00-25.00%

Other assets: - Electronic office equipment - Furniture and fittings - Motor vehicles

20.00% 12.00% 25.00%

Changes in the period Reclassifications (1,238) ----(1,238)

Disposals acc. dep. cost -------------

Closing position Depreciation & write-downs -(6) (68) (157) -(231)

Historical cost 723 4,251 983 4,533 -10,490

Depreciation & write-downs -(6) (71) (159) -(236)

Historical cost 723 4,251 995 4,477 -10,446

Changes in the period Reclassifications -1 ---1

Disposals cost acc. dep. ------(86) 75 --(86) 75

Accum. deprec. & write-downs -(4,111) (821) (2,177) -(7,109)

Balance 31.12.2007 723 140 162 2,356 -3,381

Closing position Accum. deprec. & write-downs -(4,116) (892) (2,261) -(7,269)

Balance 31.12.2008 723 135 103 2,216 -3,177

4.c.

INVESTMENT PROPERTY

Historical cost 18,087

Opening position Accum. deprec. & write-downs (483)

Balance 31.12.2006 17,604

Historical Cost 20,299

Opening position Accum. deprec. & write-downs (1,040)

Balance 31.12.2007 19,259

2007 (in thousands of euro)

2008 (in thousands of euro)

Changes in the period Acquisitions 974

Changes in the period Acquisitions

Investment property declined from â&#x201A;Ź 19,259 thousand at December 31 2007 to â&#x201A;Ź 18,687 thousand at December 31 2008. The value recorded in the financial statements corresponds substantially to market value.

Changes in the period Reclassifications 1,238

Disposals cost --

depr. --

Depreciation & write-downs (557)

Historical cost 20,299

Closing position Accum. dep. & write-downs (1,040)

Depreciation & write-downs (572)

Historical cost 20,299

Closing position Accum. dep. & write-downs (1,612)

Changes in the period Reclassifications --

Disposals cost --

depr. --

Balance 31.12.2007 19,259

Balance 31.12.2008 18,687

4.d.

EQUITY INVESTMENTS 2007

(in thousands of euro)

Opening position

Changes in the period

Closing position Write-downs/ Revaluations

31.12.2006

Reclassificatio

Increases

Decreases

Recoveries

31.12.2007

no. shares

amount

no. shares

amount

no. shares

amount

no. shares

amount

no. shares

amount

88,337,809

184,858

88,337,809

184,858

220,775,235

341,680

220,775,235

341,680

65,194,962

105,193

65,194,962

105,193

3,654,745

71,628

3,654,745

71,628

55,000

CIR INTERNATIONAL S.A.

25,000,000

238,686

-- (24,900,000)

(237,686)

100,000

1,000

COFIDEFIN SERVICOS LDA

93,000

180

93,000

180

500,000

512

500,000

512

CIR VENTURE S.r.l.

10,000

(9)

10,000

CIRINVEST S.p.A.

121,750

122

301

(301)

121,750

122

JUPITER FINANCE S.p.A.

592,800

1,482

5,744

(744)

592,800

6,482

CIR FUND LDA

318,000

(1)

(318,000)

CIGA LUXEMBOURG S.A.R.L.

318,200

318,000

318,200

318,000

(555,686)

(1,054)

Subsidiaries SORGENIA HOLDING S.p.A. GRUPPO EDITORIALE L’ESPRESSO S.p.A. SOGEFI S.p.A. HOLDING SANITÀ E SERVIZI S.p.A. DRY PRODUCTS S.p.A.

INTERGEFI S.r.l.

Total subsidiaries

944,351

642,054

1,029,665

Other companies C IDC S.p.A. (in liquidation & settlement with creditors)

1,231,319

EMITTENTI TITOLI S.p.A.

232,000

132

232,000

132

FILIPPO FOCHI S.p.A. (in administration)

409,520

1,350

IST. EDIL. ECONOM. POPOLARE S.r.l. Total other companies

133

TOTAL INVESTMENTS

944,484

642,054

(555,686)

(1,054)

1,029,798

Gli increase incrementi riguardano principalmente l'acquisto di azioni del Gruppo Editoriale L'Espresso in seguito aspin-off favorevoli di The fordel the periodo periods refers mainly to the acquisition and capital increase of the company CIR Fund LDAS.p.A. with subsequent into condizioni the company mercato e la sottoscrizione di un aumento diofcapitale in HSS per finanziare CIGA Luxembourg S.A.r.l. with subscription a capitalavvenuto increase for the same amount. l'attività di sviluppo, in particolare l'acquisto della società Anni Azzurri. The reduction during the period refers to the capital repayment made by CIR International S.A..

4.d.

EQUITY INVESTMENTS 2008

(in thousands of euro)

Opening position

Changes in the period

Closing position Write-downs/ Revaluations

31.12.2007

Reclassificatio

Increases

Decreases

Recoveries

31.12.2008

no. shares

amount

no. shares

amount

no. shares

amount

no. shares

amount

no. shares

amount

88,337,809

184,858

217,500

4,669

88,555,309

189,527

220,775,235

341,680

220,775,235

341,680

65,194,962

105,193

545,000

1,591

65,739,962

106,784

3,654,745

71,628

584,394

21,915

4,239,139

93,543

55,000

CIR INTERNATIONAL S.A.

100,000

1,000

(1,000)

100,000

COFIDEFIN SERVICOS LDA

93,000

180

93,000

180

500,000

512

500,000

512

CIR VENTURE S.r.l.

10,000

(13)

10,000

CIRINVEST S.p.A.

121,750

122

121,750

122

JUPITER FINANCE S.p.A.

592,800

6,482

592,800

6,482

CIGA LUXEMBOURG S.A.R.L.

318,200

318,000

(39,019)

318,200

278,981

120,000

120

(73)

120,000

(40,105)

Subsidiaries SORGENIA HOLDING S.p.A. GRUPPO EDITORIALE L’ESPRESSO S.p.A. SOGEFI S.p.A. HOLDING SANITÀ E SERVIZI S.p.A. DRY PRODUCTS S.p.A.

INTERGEFI S.r.l.

NEXENTI S.r.l. Total subsidiaries

1,029,665

28,299

1,017,859

Other companies C IDC S.p.A. (in liquidation and settlement with creditors)

1,231,319

EMITTENTI TITOLI S.p.A.

232,000

132

232,000

132

FILIPPO FOCHI S.p.A. (in administration)

409,520

1,350

IST. EDIL. ECONOM. POPOLARE S.r.l.

(1)

Total other companies

1,350

133

(1)

132

TOTAL INVESTMENTS

1,029,798

28,299

(40,106)

1,017,991

The increase in the period was mainly due to the capital increase in the company Holding Sanità e Servizi S.p.A.. IFRS7 - Additional information: it should be noted that the information required is given only for the investments in other companies.

LIST OF INVESTMENTS IN SUBSIDIARIES AS OF DECEMBER 31 2008 (ART. 2427 no. 5 Civil Code) (in thousands of euro) Name GRUPPO EDITORIALE L’ESPRESSO S.p.A. SORGENIA HOLDING S.p.A. SOGEFI S.p.A. DRY PRODUCTS S.p.A. (***) CIR INTERNATIONAL S.A. COFIDEFIN SERVICOS DE CONSULTORIA LDA INTERGEFI S.r.l. CIR VENTURE S.r.l. HSS - HOLDING SANITÀ E SERVIZI S.p.A. JUPITER FINANCE S.p.A. CIRINVEST S.p.A. CIGA LUXEMBOURG S.A.r.l. NEXENTI S.r.l. (*) (**) (***)

Head Office

Share Capital

Total Equity

Result for the year

Rome Turin Mantua Milan Luxembourg Madeira Milan Milan Milan Milan Milan Luxembourg Milan

61,385 129,886 60,397 100 1,000 125 500 10 6,480 600 122 318,200 50

347,719 467,663 130,286 1,203 (35,888) 3,993 1,502 4 140,184 6,089 120 278,981 47

49,669 9,002 29,222 (67) (101,686) 3,754 1,010 (6) (3,826) (159) (10) (39,031) (73)

Percentage owned 53.95 (*) 68.18 56.60 (**) 55.00 100.00 74.4 100.00 100.00 65.42 98.8 100.00 100.00 100.00

Carrying value 341,680 189,527 106,784 -(35,888) 180 512 1 93,543 6,482 122 278,981 47

54.84% of voting rights 57.57% of voting rights Financial Statements for year ended March 31 2008

As required by IFRS the investments were subjected to an impairment test to see whether there was objective evidence that their carrying value could not be fully recovered. For the purposes of carrying out the impairment test on the separate financial statements, the individual investments held by CIR were divided into those which have the role of a holding company for their sector, which given the nature of the sub-group are not significant individually but are part of the impairment test of CGUs carried out at consolidated level, and the other investments. Regarding the controlling investments in the holdings of the sectors, the impairment tests carried out at consolidated level did not result in the need to make any adjustments to the value of the assets. As for the other investments, the impairment tests showed that there was the need to make adjustments to certain investee companies. In particular, write-downs were made for Ciga Luxembourg (€ 39 million) and CIR International (€ 1 million plus provisions for the cover of losses for approximately € 35.9 million). Since they are financial companies, these adjustments were caused by the negative results for financial year 2008 due to the trend of the treasury instruments made by the companies. Regarding the investment in Jupiter Finance S.p.A., its book value at the end of the year was higher than its share of the equity. This was due to the start-up phase of the business as the company has not yet completed its business plan which will be implemented in the next few years. 4.e.

MISCELLANEOUS RECEIVABLES

The balance at December 31 2008 refers to security deposits with a nominal value of € 24 thousand (€ 144 thousand at December 31 2007). 4.f.

DEFERRED TAXES

The breakdown of “Deferred tax assets and liabilities” by type of temporary difference, is as follows:

170

CIR S.p.A.

(in thousands of euro)

Deferred tax assets: Risk provisions and other Total deferred tax assets

31.12.2008 Amount of temporary differences 3,937

Tax effect

31.12.2007 Amount of Tax temporary effect differences

1,082 1,082

4,488

1,234 1,234

During the year no deferred taxes were recognized directly to shareholders’ equity. There are no prior losses for which the company has not set aside deferred taxes.

5. 5.a.

CURRENT ASSETS MISCELLANEOUS RECEIVABLES

(in thousands of euro) Tax receivables

31.12.2008

31.12.2007

43,331

56,038

Financial receivables with related parties

1,221

4,570

Other receivables with related parties

6,607

10,593

Receivables with others

3,311

3,262

54,470

74,463

Total

The item “Tax receivables” declined from € 56,038 thousand at December 31 2007 to € 43,331 thousand mainly because of the reduction in the receivable with the Tax Authorities resulting from the tax consolidation which fell from € 18,894 thousand at December 31 2007 to € 6,035 thousand at December 31 2008. The item “Financial receivables with related parties” can be broken down as follows: (in thousands of euro) CIGA Luxembourg S.A.R.L.

31.12.2008

31.12.2007

1,120

1,055

Nexenti S.p.A.

101

Intergefi S.r.l.

3,515

1,221

4,570

Total

The decrease of the balance of the item “Financial receivables with related parties” refers to the repayment made in December by Intergefi S.r.l.. The item “Other receivables with related parties” refers for € 6,580 thousand to receivables with companies which took part in the tax consolidation (€ 1,626 to companies of the Sorgenia group, € 4,953 thousand to companies of the Espresso group and € 1 thousand to companies of the Jupiter group) and for € 27 thousand to the receivable with Jupiter Finance S.p.A. for services rendered during 2008. IFRS7 – Additional disclosures: it should be noted that the information required does not include the item “Tax expense”.

CIR S.p.A.

171

5.b.

SECURITIES

The item “Securities” includes the following categories of securities: (in thousands of euro) Italian Government securities or similar securities Investment funds or similar funds Bonds and notes Sundry securities Total

31.12.2008

31.12.2007

186,093 9,136 -31,319 226,548

--1,034 64,611 65,645

The category “Italian Government securities or similar securities” refers to French Government securities. The measurement at fair value of the item “securities” involved a negative adjustment to the income statement of € 14,615 thousand. The item “Sundry securities” refers to short-term investments of liquidity and the securities have a credit rating of “double A” or above. 5.c.

AVAILABLE-FOR-SALE FINANCIAL ASSETS

This item, which amounted to € 50,735 thousand at December 31 2007, referred to the subscription on December 28 2007 of “Senior” securities as part of the securitization of receivables carried out by the company Zeus Finance S.r.l.. These securities were allocated to this item as they were then sold to Mediobanca S.p.A. on March 7 2008. 5.d.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents went down by € 65,522 thousand from € 77,839 thousand to € 12,317 thousand. A breakdown of the changes is shown in the cash flow statement. 6.

SHAREHOLDERS’ EQUITY

6.a.

SHARE CAPITAL

Share capital increased from € 395,465,333.50 at December 31 2007 (comprising 790,930,667 shares each worth a nominal € 0.50) to € 395,587,633.50 (791,175,267 shares) at December 31 2008 following the issuance of 244,600 shares on the exercise of stock options. At December 31 2008 the Company owned 42,974,000 of its own shares (5.4% of capital) for a value of € 98,583 thousand, up from 39,644,000 shares at December 31 2007. 3,330,000 own shares were bought back at an average price of € 1.92 per share. 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 than once the share capital up to a maximum of € 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.

172

CIR S.p.A.

6.b.

RESERVES

The breakdown of the item â&#x20AC;&#x153;Reservesâ&#x20AC;? is as follows: (in thousands of euro)

Share premium reserve

Legal reserve

Statutory reserves

Reserve for own shares held

23,917

115,969

9,442

Adjustment for own share transactions

---

55 --

Notional cost of stock options credited

33,359 243

Balance at December 31 2006 Capital increases Unclaimed dividends as per Art. 23 of Company Bylaws

Reserve Art. 6 D.Lgs. no. 38 of 28/02/2005

First adoption of IFRS reserve

Stock option reserve

Reserve for future capital increases

Total reserves

17,047

162,210

9,865

329,032

9,442

2,701

(74) --

---

2,775 --

1,929

115,969

19,822

(74)

162,210

11,794

343,159

243

---

13 --

Adjustment for own share transactions

---

1,665

1,665 --

Notional cost of stock options credited

905

33,602

115,969

21,487

(74)

162,210

12,699

345,985

Balance at December 31 2007 Capital increases Unclaimed dividends as per Art. 23 of Company Bylaws

Balance at December 31 2008

CIR S.p.A.

173

It should be remembered that on April 29 2008 the Ordinary General Meeting of the Shareholders voted to cancel the previous resolution of April 27 2007 to buy back own shares and to give a new authorization for eighteen months from that date to buy back a maximum of 35,000,000 own shares for a nominal value of € 17,500,000, which shall not in any case exceed one tenth of the share capital of CIR and with a maximum disbursement limit of € 100,000,000. 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.

6.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) Amount at December 31 2008

CAPITAL

Possible uses

Summary of uses made in the last three periods (*) For covering For distributing losses as dividends

Other

395,588

Capital reserves: Share premium reserve

33,602

ABC

Legal reserve

12,678

Capital reserve Earnings reserves: Legal reserve

ABC

(74)

ABC

162,210

ABC

12,699

ABC

Retained earnings

221,164

ABC

(46,257)

(66,819)

TOTAL

907,918

(46,257)

(66,819)

Art. 6 D.Lgs no. 38 reserve First adoption of IFRS reserve Stock Option reserve

103,291

B A

Statutory reserve

Key = A: for capital increases; B: for covering losses; C: for distribution to shareholders (*)The uses shown are those that caused a reduction in total equity

174

Part available

CIR S.p.A.

NON-CURRENT LIABILITIES

7.a.

BONDS AND NOTES

The item “Bonds and notes” had a balance of € 295,982 thousand at December 31 2008, compared to € 295,806 thousand at December 31 2007 and referred to the bond issued by the Company in December 2004 for a nominal principal of € 300 million with maturity in 2024 at a fixed interest rate of 5.75%. Using the amortized cost method this loan was recognized including the accrued interest for the period and deducting the issuance discount and transaction costs. The effective interest rate is 5.90%. The bonds are listed on the Luxembourg Bourse. 7.b.

PERSONNEL PROVISIONS

Changes in the provision “Employee Leaving Indemnity (TFR)” are shown in the chart below: (in thousands of euro)

31.12.2008

31.12.2007

Starting balance

1,531

1,558

Amount accrued

264

259

Sums paid out

(275)

(286)

Total

1,520

1,531

The item “Personnel provisions” also includes € 1,130 thousand (€ 1,681 thousand at December 31 2007) relating to the fair value measurement, including ancillary costs stipulated in current legislation for employee income, of the Phantom Stock Option Plans awarded on May 15 2007, October 15 2007, May 16 2008 and October 16 2008.

CURRENT LIABILITIES

8.a.

BORROWINGS FROM RELATED PARTIES

The balance at December 31 2007 of € 14,196 thousand referred to a loan made by CIR International S.A., which was repaid during the year.

8.b.

OTHER PAYABLES

(in thousands of euro)

31.12.2008

31.12.2007

Tax payables

1,639

1,704

Payables related parties

5,456

5,924

Trade payables suppliers

767

573

3,445

3,360

11,307

11,561

Other payables Total

CIR S.p.A.

175

The item “Payables related parties” refers for € 5,141 thousand to payables to companies which took part in the tax consolidation (€ 4,885 thousand to companies of the Sogefi group and € 256 thousand to companies of the HSS group) and for € 315 thousand to the payable with the subsidiary Dry Products for the charge-back of costs. Additional information: it should be noted that the information required refers to the items “Payables related parties” and “Trade payables suppliers”.

8.c.

PROVISIONS FOR RISKS AND LOSSES

The breakdown of these provisions with the changes during the year are as follows: (in thousands of euro) Others Cover of losses of investee companies Total

Balance at 31.12.2007

Paid in

Withdrawn

Balance at 31.12.2008

14,159

35,888

14,159

35,888

50,047

The amount of € 35,888 thousand set aside refers to the cover of the further losses for the year of the subsidiary CIR International S.A., after having written off the carrying value of the investment.

176

CIR S.p.A.

INCOME STATEMENT

MISCELLANEOUS REVENUES AND INCOME

This item contains the following: (in thousands of euro)

2008

2007

Services to subsidiaries

5,348

5,910

548

531

1,031

1,006

106

588

7,053

8,114

Services to parent company Services to affiliated companies Income from real estate Other income and recovery of costs Other non-recurring revenues Total

Revenues from services provided to subsidiaries and affiliated companies 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 to companies of the Group in 2008 can be broken down as follows: (in thousands of euro)

31.12.2008

31.12.2007

548

531

2,475

2,510

900

810

1,850

2,500

100

Jupiter Finance S.p.A.

Euvis A.p.A.

5,916

6,441

(in thousands of euro)

2008

2007

Administrative, fiscal, legal and corporate governance consulting fees

4,227

4,121

Services provided by the parent company COFIDE S.p.A.

1,965

2,011

Directors’ and Statutory Auditors’ fees

1,833

1,799

Other expenses

3,011

2,923

11,036

10,854

COFIDE S.p.A. Gruppo Editoriale L'Espresso S.p.A. Sorgenia S.p.A. Sogefi S.p.A. Holding Sanità e Servizi S.p.A.

Total

10.

COSTS FOR SERVICES

This item can be broken down as follows:

Total

CIR S.p.A.

177

11.

PERSONNEL COSTS

Personnel costs declined from € 8,062 thousand in 2007 to € 5,087 thousand in 2008 with a decrease of € 2,975 thousand. This item includes the notional cost of € 905 thousand (€ 1,929 thousand in 2007) from the valuation of the stock options of the various plans in existence, approved after November 7 2002 and the income of € 551 thousand (€ 1,681 thousand of expense in 2007), from the valuation of the Phantom Stock Option Plans awarded on May 15 2007, October 15 2007, May 16 2008 and October 16 2008. The chart below shows the changes in the number of employees in the different categories during the year: 31.12.2007

Hires

Departures

31.12.2008

Executives

Average for the year 11

Managers and Office Staff

Total

12.

OTHER OPERATING COSTS

(in thousands of euro)

2008

2007

Non-deductible IVA and other taxes

894

870

Other charges and non-operating expense

924

1,108

35,888

215

37,921

1,978

(in thousands of euro)

2008

2007

Interest income from securities

7,141

6,576

Interest income from deposits

Sum set aside to provision for cover of losses in investee companies Other non-recurring expense Total

13.

FINANCIAL INCOME

This item consists of the following:

1,047

1,414

Interest income from subsidiaries

266

1,154

Other interest income

798

819

9,252

9,963

2008

2007

200

160

Total

The breakdown of the interest income from subsidiaries is as follows: (in thousands of euro) Intergefi S.r.l. CIGA Luxembourg S.A.R.L. Nexenti S.p.A.

Jupiter Finance S.p.A.

986

266

1,154

Total

178

CIR S.p.A.

14.

FINANCIAL EXPENSE

This item consists of the following: (in thousands of euro)

2008

2007

17,367

17,360

Interest expense on borrowings from subsidiaries

209

995

Other interest expense and bank charges

296

480

17,872

18,835

Interest expense on bonds and notes

Total

The item “Interest expense on borrowings from subsidiaries” in 2008 refers to interest accrued on the loan from CIR International S.A. which was repaid during the year.

15.

DIVIDENDS

This item consists of the following: (in thousands of euro)

2008

2007

37,532

35,324

5,123

4,417

91,273

13,039

69,248

4,762

4,464

138,690

126,492

138,738

126,523

Dividends from related parties: Gruppo Editoriale L’Espresso S.p.A. Sorgenia Holding S.p.A. Sogefi S.p.A. CIR International S.A. Cofidefin Serviços de Consultoria Total dividends from related parties Dividends from other companies Total dividends

16.

GAINS FROM TRADING SECURITIES

These amount to € 253 thousand (€ 13,977 thousand in 2007) and refer for € 84 thousand to trading bonds, and for € 169 thousand to trading investment funds and similar funds.

17.

LOSSES FROM TRADING SECURITIES

These amounted to € 2,396 thousand (€ 56,138 thousand in 2007) and refer to trading of equities and bonds.

CIR S.p.A.

179

18.

ADJUSTMENTS TO FINANCIAL ASSETS

This item consists of the following: (in thousands of euro)

2008

2007

Write-down of bonds

(15,176)

(5,563)

Write-down of investments in subsidiaries

(40,105)

(1,054)

(1)

Revaluation of bonds and notes

285

Revaluation of investment funds and similar funds

276

(54,721)

(6,587)

Write-down of investments in other companies

Total

The item â&#x20AC;&#x153;Write-down of bondsâ&#x20AC;? refers specifically to medium-long term structured bonds indexed to the yield curve from 2 to 10 years. The measurement at fair value of these bonds gave rise to a loss that should be recovered if long term interest rates rise as expected.

19.

INCOME TAXES

This item consists of the following: (in thousands of euro)

2008

2007

Current taxes

8,006

24,633

Deferred taxes

(152)

(15)

Total

7,854

24,618

RECONCILIATION OF THE THEORETICAL AND EFFECTIVE TAX LIABILITY

RESULT BEFORE TAXES

Taxable income

Tax rate %

Amount of tax

25,397

27.5

6,984

(131,801)

27.5

(36,245)

Effect of increases (decreases) compared to ordinary tax rate - Dividends - Temporary differences deductible in subsequent periods

303

27.5

- Deductible temporary differences from prior periods

(584)

27.5

(161)

86,180

27.5

23,700

27.5

(20,493)

27.5

(5,636)

(8,619)

27.5

(2,370)

(29,112)

27.5

(8,006)

- Non-deductible costs Other sundry permanent differences SUB-TOTAL Adjustments to taxable income for participation in national tax consolidation Taxable income / Income tax for the year

Note: Because of its specific characteristics, IRAP was not considered for the purposes of this chart, which refers just to IRES

180

CIR S.p.A.

20.

EARNINGS PER SHARE

The basic earnings per share is calculated by dividing the net income for the period attributable to the 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 the ordinary Shareholders by the weighted average number of ordinary shares in circulation during the period, adjusted for the dilutive effects of outstanding options. Own shares held as treasury stock are not included in the shares in circulation. The company has only one category of potential ordinary shares, those deriving from stock options awarded to employees. The dilutive effect that these ordinary shares to be issued or assigned to stock option plans will have on earnings per share is not significant. In calculating the average umber of options the average fair value of the shares for each financial year was used. In calculating the average umber of options the average fair value of the shares for each financial year was used. The average fair value of each CIR ordinary share in financial year 2008 was € 1.5684 compared with an average fair value of € 2.789 in 2007. The chart below shows the information on the shares used to calculate the basic and diluted earnings per share.

Net income attributable to the Shareholders (in thousands of euro) Weighted average number of ordinary shares in circulation Earnings per share (euro)

Net income attributable to the Shareholders (in thousands of euro) Weighted average number of ordinary shares in circulation Weighted average number of options Weighted average number of options at fair value Adjusted weighted average number of shares in circulation Diluted earnings per share (euro)

21.

2008

2007

33,251,267

79,919,598

748,707,234

749,200,834

0.0444

0.1067

2008

2007

33,251,267

79,919,598

748,707,234

749,200,834

30,624,267

35,560,667

6,618,701

748,707,234

755,819,534

0.0444

0.1057

GUARANTEES AND COMMITMENTS

At December 31 2008 the position of guarantees and commitments was the following: - guarantees for € 515.5 million issued to banks on behalf of CIR International to cover note issues; - Guarantees in favour of Inland Revenue for VAT credits totalling € 6,781 thousand.

22.

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.

CIR S.p.A.

181

The paragraph “Other information” in the Report on Operations shows the different types of related party transactions, the amounts of which are given in the explanatory notes.

23.

NET FINANCIAL POSITION

The net financial position, in accordance with the terms of Consob resolution no. 6064293 of July 28 2006, can be broken down as follows: (in thousands of euro)

31.12.2008

31.12.2007

Cash and bank deposits

12,317

77,839

B. C.

Other cash equivalents Securities held for trading

-226,548

50,735 65,645

Cash and cash equivalents (A) + (B) + (C)

238,865

194,219

Current financial receivables

F. G. H.

Current bank borrowings Current part of non-current borrowings Other current borrowings from related parties

----

--(14,196)

Current financial debt (F) + (G) + (H)

(14,196)

Net current financial position (I) + (E) + (D)

238,865

180,023

K. L. M.

Non-current bank borrowings Bonds and notes issued Other non-current borrowings

-(295,982) --

-(295,806) --

Non current financial debt (K) + (L) + (M)

(295,982)

(295,806)

Net financial position (J) + (N)

(57,117)

(115,783)

24.

OTHER INFORMATION

IFRS7 – FINANCIAL RISK MANAGEMENT: ADDITIONAL INFORMATION Regarding the risks of the business, the main financial risks identified, monitored and actively managed by the company are the following: a) b) c)

The interest rate risk from exposure to movement in interest rates; The credit risk from the possibility of a counterparty defaulting; The liquidity risk resulting from a lack of financial resources to meet short term commitments.

Interest rate risk Fluctuation in interest rates affects the market value of financial assets and the level of net financial expense. The company continuously monitors its exposure to interest rate risk and manages this risk by investing in financial instruments that are consistent with its long-term funding through the CIR bond 5.75%/2024.

182

CIR S.p.A.

Credit risk Credit risk means the exposure of the company to potential losses resulting from the failure of a counterparty to meet its obligations. In relation in particular to the financial counterparty risk resulting from the investment of liquidity and from derivatives positions, counterparties are selected according to guidelines which set out the characteristics of the counterparties suitable for financial transactions. The list of possible counterparties includes both national and international companies with a high credit rating. The company has not had any cases of default of its counterparties. At December 31 2008 there were no significant concentrations of credit risk. Valuation of financial assets and liabilities The fair value of financial assets and liabilities is determined as follows: • The fair value of financial assets and liabilities with standard terms and conditions listed on an active market is measured based on prices quoted in the active market; • The fair value of other financial assets and liabilities (excluding derivative instruments) is measured using generally accepted valuation techniques based on discounted cash flows and using variables such as prices seen in recent market transactions and broker quotes for similar instruments. More specifically, for valuing certain investments in bond instruments in the absence of a regularly functioning market, i.e. a sufficient ongoing number of deals, a bid-offer spread and a reduced level of volatility, the determination of the fair value of these instruments is mainly based on quotations supplied by prime international brokers at the request of the Company, which are validated by comparing them with prices in the market, albeit for a modest number of deals, or prices observable for instruments with similar characteristics. Liquidity risk Liquidity risk is the risk that financial resources may not be available or may be available only at a monetary cost. The company’s long-term debt, which refers to the note issued in December 2004 for a nominal 300 million with maturity in 2024, was given a rating of BBB- by Standard & Poor’s. As things stand today the company believes that it will be able to fulfil its expected financial needs on the basis of its free cash flow and expected future cash inflows. The objective of liquidity risk management is not only that of guaranteeing sufficient available financial resources to cover short term commitments, but also to ensure where necessary a sufficient level of operating flexibility for the development programs within the Group. In compliance with the requirements of accounting principle IFRS 7, the following charts give information regarding the various categories of financial assets and liabilities and the classes of risk of financial instruments.

CIR S.p.A.

183

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES SHOWN IN THE BALANCE SHEET FINANCIAL YEAR 2008 (in thousands of euro) Bal. Sheet items

NON-CURRENT ASSETS Other equity investments Other receivables CURRENT ASSETS Miscellaneous receivables Securities Available-for-sale financial assets Cash and cash equivalents NON-CURRENT LIABILITIES Bonds and notes CURRENT LIABILITIES Bank overdrafts Other borrowings Trade payables

Value in Bal. Sheet

Assets at FV through P&L designated as such from initial recognition

Assets at FV through P&L classified as held for trading

Loans and receivables

Investments held to maturity

Available for sale assets

Liabilities at FV through P&L designated as such from initial recognition

Liabilities at FV through P&L classified as held for trading

Liabilities at amortized cost

Fair value

Effect on income statement

Effect on equity

4.d 4.e

133 24

---

-24

---

133 --

---

133 24

34 --

---

5.a 5.b 5.c 5.d

11,139 226,548 -12,317

-226,548 ---

-----

11,139 --12,317

-----

11,139 226,548 -12,317

337 (9,515) -955

-----

7.a

(295,982)

(203,209)

(17,458)

8.a 8.b

--(6,223)

----

--(6,223)

-(209) --

----

CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES SHOWN IN THE BALANCE SHEET FINANCIAL YEAR 2007 (in thousands of euro) Bal. Sheet items

Value in Bal. Sheet

Assets at FV through P&L designated as such from initial recognition

Assets at FV through P&L classified as held for trading

Loans and receivables

Investments held to maturity

Available for sale assets

Liabilities at FV through P&L designated as such from initial recognition

Liabilities at FV through P&L classified as held for trading

Liabilities at amortized cost

Fair value

Effect on income statement

Effect on equity

4.d 4.e

133 146

---

-146

---

133 --

---

133 146

31 --

---

5.a 5.b 5.c 5.d

18,425 65,645 50,735 77,839

-49,485 ---

-16,160 ---

18,425 --77,839

-----

--50,735 --

-----

18,425 65,645 50,735 77,839

1,225 (787) 35 1,409

-----

7.a

(295,806)

(272,547)

(17,420)

8.a 8.b

-(14,196) (6,497)

----

-(14,196) (6,497)

-(755) --

----

CLASSES OF RISK - FINANCIAL YEAR 2008 (in thousands of euro) Bal. Sheet items

Value in Bal. Sheet

Liquidity risk

Int. Rate risk

Exch. Rate risk

Credit risk

NON-CURRENT ASSETS Other equity investments

4.d

133

Other receivables

4.e

Miscellaneous receivables

5.a

11,139

Securities

5.b

226,548

Available-for-sale financial assets

5.c

Cash & cash equivalents

5.d

12,317

7.a

(295,982)

CURRENT ASSETS

NON-CURRENT LIABILITIES Bonds and notes CURRENT LIABILITIES Bank overdrafts Other borrowings

8.a

Trade payables

8.b

(6,223)

Liquidity risk

Int. Rate risk

Exch. Rate risk

Credit risk

RISK CATEGORIES - FINANCIAL YEAR 2007 (in thousands of euro) Bal. Sheet items

Value in Bal. Sheet

NON-CURRENT ASSETS Other equity investments

4.d

133

Other receivables

4.e

146

CURRENT ASSETS Miscellaneous receivables

5.a

18,425

4,570

13,855

Securities

5.b

65,645

Available-for-sale financial assets

5.c

50,735

Cash & cash equivalents

5.d

77,839

7.a

(295,806)

Other borrowings

8.a

(14,196)

Trade payables

8.b

(6,497)

NON-CURRENT LIABILITIES Bonds and notes CURRENT LIABILITIES Bank overdrafts

CREDIT RISK

(in thousands of euro) Position at December 31 2008

Bal. Sheet items

Other receivables Gross receivable Provision for write-down

4.c

Miscellaneous receivables Gross receivable Provision for write-down Total

5.a

(in thousands of euro) Position at December 31 2007

Bal. Sheet items

Other receivables Gross receivable Provision for write-down

4.c

Miscellaneous receivables Gross receivable Provision for write-down Total

5.a

Total receivable

Not yet due

Overdue by >

0 - 30 days

30 - 60

60 - 90

over 90

Amt. due settled

Writedowns

24 24 --

----

11,139 11,139 -11,163

11,056 11,056 -11,080

83 83 -83

-----

---

Total receivable

Not yet due

Overdue by >

0 - 30 days

30 - 60

60 - 90

over 90

Amt. due settled

Writedowns

146 146 --

----

13,855 13,855 -14,001

13,843 13,843 -13,989

12 12 -12

-----

---

LIQUIDITY RISK - FINANCIAL YEAR 2008

(in thousands of euro) <1 year

>1 <2 years

>2 <3 years

>3 <4 years

>4 <5 years

Total

>5 years

Non-derivative financial liabilities Bonds and notes

17,250

489,750

576,000

Other borrowings: - Borrowings from subsidiaries (*)

Bank overdrafts

Trade payables

6,223

23,473

17,250

489,750

582,223

TOTAL

LIQUIDITY RISK - FINANCIAL YEAR 2007

(in thousands of euro) <1 year

>1 <2 years

>2 <3 years

>3 <4 years

>4 <5 years

Total

>5 years

Non-derivative financial liabilities Bonds and notes

17,250

507,000

593,250

Other borrowings: - Borrowings from subsidiaries (*)

14,196

Bank overdrafts

Trade payables

6,497

37,943

17,250

507,000

613,943

TOTAL

(*) It should be noted that the loans in this item are renewable every year

EMOLUMENTS PAID TO DIRECTORS, STATUTORY AUDITORS AND GENERAL MANAGERS

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

DE BENEDETTI CARLO

Position

Dates position held

Expiry of mandate

Emoluments for the position in the company preparing Financial Statements

Nonbenefits

Bonuses and other incentives

101

monetary

Other Notes fees

Chairman of the Board Chief Executive and General Manager

1.1.08-31.12.08

Appr.Fin.Stat.2010

DE BENEDETTI RODOLFO

(1)

1.1.08-31.12.08

Appr.Fin.Stat.2010

720

PIASER ALBERTO

General Manager

1.1.08-31.12.08

769

(2)

382

BRACCHI GIAMPIO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

(2)

DEBENEDETTI FRANCO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

FERRERO PIERLUIGI

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

GERMANO GIOVANNI

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

GIRARD FRANCO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

MANCINELLI PAOLO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

PARAVICINI CRESPI LUCA

Director

1.1.08-31.12.08

RECCHI CLAUDIO

Director

1.1.08-31.12.08

SEGRE MASSIMO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

TABELLINI GUIDO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

ZANNI UMBERTO

Director

1.1.08-31.12.08

Appr.Fin.Stat.2010

MANZONETTO PIETRO

Chairman of Board of Statutory Auditors

1.1.08-31.12.08

Appr.Fin.Stat.2010

NANI LUIGI

Statutory Auditor

1.1.08-31.12.08

ZINGALES RICCARDO

Statutory Auditor

1.1.08-31.12.08

-80

(3)

Appr.Fin.Stat.2010

(3)

Appr.Fin.Stat.2010

287

Appr.Fin.Stat.2010

215

(1) Fees of € 520 thousand as Chairman of CIR S.p.A., € 30 thousand as Chairman of the subsidiary Sogefi S.p.A. and € 530 thousand as Chairman 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 explanatory notes 23 of the Consolidated Financial Statements. With reference to the plans issued in the last three years, it should be said that: - 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 Regulations of “Stock Option Plan March 12 2004”, which was approved at

188

CIR S.p.A.

(4)

(5)

that same meeting. This plan gives the beneficiaries the right to exercise options to subscribe a total maximum of 2,545,000 newly issued shares at a given price and within a predefined period of time. The Regulations also require that in order to be entitled to exercise the option the beneficiaries must be employed by the Company or its parent company when the option is exercised except in cases of retirement, permanent invalidity or death. The subscription price was fixed at € 1.60 per share. 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 “Stock Option Plan September 6 2004”, approved at that same meeting. The Regulations of this plan stipulate 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 “Regulations 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 Regulations 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 Regulations also require that in order to be entitled to exercise the options the beneficiaries must be employed by the Company or its parent company 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 regulations of this plan give terms, conditions and exercise periods identical to those of “Stock Option Plan 11.03.2005”. - 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 Regulations of this plan specify terms and conditions identical to those of the previous

CIR S.p.A.

189

plan except for the date on which the options become exercisable (February 28 2006) and their final expiration date (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 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. - On April 27 2007 the Shareholders’ Meeting voted to assign to the Chief Executive Officer and executives of the Company options, each of which will give the right to receive a gross sum equal to the difference between the market value of the share in the vesting period and the market value of the share at time the option was assigned, according to terms and conditions set out in the Regulations of “Incentive Plan (phantom stock options) 2007”, which was approved at the same time. These options were assigned in 2 equal tranches for a total of 6,105,000 options. The Regulations also stipulate that the essential condition for exercise of the options is that the assignee must be permanently employed by the Company as of the date of exercise of the options, except in cases of retirement, permanent invalidity or death. The subscription price was set at € 3.0877 per share for the first tranche options and at € 2.7344 per share for the second tranche options. The first tranche options can be exercised by each beneficiary as from September 30 2007, every three months, up to the final maturity of September 30 2017, while the second tranche options can be exercised by each beneficiary from March 31 2008, every three months, until the final maturity of March 31 2018. - On April 29 2008 the Shareholders’ Meeting voted to assign to the Chief Executive Officer and executives of the Company options, each of which will give the right to receive a gross sum equal to the difference between the market value of the share in the vesting period and the market value of the share at time the option was assigned, according to terms and conditions set out in the Regulations of “Incentive Plan (phantom stock options) 2008”, which was approved at the same time. These options were assigned in 2 equal tranches for a total of 6,250,000 options. The Regulations also stipulate that the essential condition for exercise of the options is that the assignee must be permanently employed by the Company as of the date of exercise of the options, except in cases of retirement, permanent invalidity or death.

190

CIR S.p.A.

The subscription price was set at â&#x201A;Ź 1.6806 per share for the first tranche options and at â&#x201A;Ź 1.0718 per share for the second tranche options. The first tranche options can be exercised by each beneficiary as from September 30 2008, every three months, up to the final maturity of September 30 2018, while the second tranche options can be exercised by each beneficiary from March 31 2009, every three months, up to the final maturity of March 31 2019. The following chart shows information regarding stock options assigned to Directors and General Managers.

CIR S.p.A.

191

STOCK OPTIONS AWARDED TO DIRECTORS AND GENERAL MANAGERS Options held at the start of the year Last name and first name

DE BENEDETTI RODOLFO

Position held

Number of options

Average strike price

1,500,000 1,000,000 112,500 275,000 1,250,000 10,000,000 1,350,000 1,250,000 1,250,000 1,250,000

3.70 2.62 1.13 1.60 1.56 2.15 2.34 2.49 2.50 2.47

TOTAL

19,237,500

2.32

Number of options

Average strike price

Average expiry (years)

Number of options

Average Average market strike price price

Options Options expired in year cancelled in year Number of options

Number of options

Options held at the close of the year Number of options

Average strike price

Average expiry (years)

30,000 66,000 400,000 300,000 300,000 300,000

1.60 1.56 2.34 2.49 2.50 2.47

1,396,000

2.38

Stock Option Plan 7/3/2000 Stock Option Plan 30/1/2001

220,000 125,000

3.70 2.62

TOTAL

345,000

3.31

6.33

1,500,000 1,000,000 112,500 275,000 1,250,000 10,000,000 1,350,000 1,250,000 1,250,000 1,250,000

3.70 2.62 1.13 1.60 1.56 2.15 2.34 2.49 2.50 2.47

19,237,500

2.32

5.33

Stock Option Plan 12/3/2004 Stock Option Plan 6/9/2004 Stock Option Plan 11/3/2005 Stock Option Plan 6/9/2005 Stock Option Plan 2006 2nd tranche Stock Option Plan 2006 2nd tranche TOTAL FERRERO PIERLUIGI

Average expiry (years)

Options exercised during the year

CEO & GM

Stock Option Plan 7/3/2000 Stock Option Plan 30/1/2001 Stock option Plan 5/9/2003 Stock Option Plan 12/3/2004 Stock Option Plan 6/9/2004 Stock Option Plan 11/1/2005 Stock Option Plan 11/3/2005 Stock Option Plan 6/9/2005 Stock Option Plan 2006 1st tranche Stock Option Plan 2006 2nd tranche

PIASER ALBERTO

Options awarded during the year

7.73

18,000 18,000

1.60 1.56

12,000 48,000 400,000 300,000 300,000 300,000

1.60 1.56 2.34 2.49 2.50 2.47

36,000

1.58

1,360,000

2.40

Dir. 220,000 125,000 3.25

345,000

7.05

PHANTOM STOCK OPTIONS ASSIGNED TO DIRECTORS AND GENERAL MANAGERS Options held at beginning of year Last name and first name

DE BENEDETTI RODOLFO

Position Number of held options

Average strike place

Options assigned during the year Average expiry (years)

Number of options

Average strike place

Options exercised during the year

Average expiry (years)

Number of options

Average strike place

Average market price at exercise date

Options expiring during year Number of options

Options held at end of year Number of options

Average strike place

CEO & G.M.

Phantom stock option plan 2007 - 1st tranche

1,750,000

3.0877

1,750,000

3.0877

Phantom stock option plan 2007 – 2nd tranche

1,750,000

2.7344

1,750,000

2.7344

1,750,000

1.6806

Phantom stock option plan 2008 - 1st tranche

1,750,000

Phantom stock option plan 2008 – 2nd tranche TOTAL

1.6806

1,750,000

1.0718

7,000,000

2.1436

3.0877

420,000

3.0877

2.7344

420,000

2.7344

3,500,000

2.9111

Phantom stock option plan 2007 - 1st tranche

420,000

Phantom stock option plan 2007 - 2nd tranche

420,000

PIASER ALBERTO

1,750,000

1.0718

3,500,000

1.3762

9.5

G.M.

Phantom stock option plan 2008 - 1st tranche

420,000

1.6806

420,000

1.6806

Phantom stock option plan 2008 - 2nd tranche

420,000

1.0718

420,000

1.0718

840,000

1.3762

1,680,000

2.1436

TOTAL

Average expiry (years)

840,000

2.9111

CIR S.p.A.

9.5

193

194

CIR S.p.A.

Financial Statements of Directly Controlled Subsidiaries as of December 31 2008

SORGENIA 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. COFIDEFIN SERVIÇOS DE CONSULTORIA Lda INTERGEFI S.r.l. JUPITER FINANCE S.p.A. CIRINVEST S.p.A. CIGA LUXEMBOURG S.A. NEXENTI S.r.l.

195

SORGENIA HOLDING S.p.A.

Registered Office: TURIN Share Capital at 31.12.2008: â&#x201A;Ź 129,886,232.00

BALANCE SHEET

(in euro)

ASSETS A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE B - FIXED ASSETS I Intangible assets Start-up and expansion costs Concessions, licenses and trademarks Total intangible assets II

Tangible assets

III Financial assets Investments in subsidiaries Total financial assets TOTAL FIXED ASSETS C - CURRENT ASSETS I Inventories II Receivables Subsidiaries - due in up to 12 months Shareholders - due in up to 12 months Others- due in up to 12 months Total receivables III Financial assets not classified as fixed assets IV Cash and cash equivalents Bank and Post Office deposits Total cash and cash equivalents TOTAL CURRENT ASSETS D - ACCRUED INCOME AND PREPAID EXPENSES

31.12.2008

31.12.2007

659 1,081 1,740

1,879 1,297 3,176

454,746,518 454,746,518

254,907,476 254,907,476

454,748,258

254,910,652

112,752 150,000,000 -150,112,752 --

72,290 -89 72,379 --

13,085,869 13,085,869

6,081,136 6,081,136

163,198,621

6,153,515

617,946,879

261,064,167

31.12.2008

31.12.2007

A - SHAREHOLDERS' EQUITY I Capital II Share premium reserve III Revaluation reserves IV Legal reserve V Statutory reserves VI Reserve for treasury stock held VII Other reserves VIII Retained earnings (losses) IX Net income (loss) for the year

129,886,232 326,618,842 -1,776,380 --10,173 370,056 9,001,530

120,351,238 131,485,190 -1,402,797 --10,173 252,369 7,471,642

TOTAL SHAREHOLDERS' EQUITY

467,663,213

260,973,409

B - PROVISIONS FOR RISKS AND LOSSES

C - EMPLOYEE LEAVING INDEMNITY D - PAYABLES Convertible bonds Suppliers - due in up to 12 months Parent companies - due in up to 12 months Tax payables

150,000,000 100,477 182,304 885

-70,586 12,959 7,213

TOTAL PAYABLES

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

150,283,666

90,758

ACCRUED EXPENSE AND DEFERRED INCOME

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

617,946,879

261,064,167

E-

SORGENIA HOLDING S.p.A.

Registered Office: TURIN Share Capital at 31.12.2008: € 129,886,232.00

INCOME STATEMENT

(in euro)

2008

2007

135 135

42,916 42,916

125,183 --

83,717 49

1,437 41,196 167,816 (167,681)

2,400 19,998 106,164 (63,248)

8,966,075

7,361,247

369,715

72,290

42,037

165,837

1,124 9,376,703 --

183 7,599,191 --

---

121,968 -121,968

INCOME BEFORE TAXES

9,209,022

7,657,911

Income taxes for the year NET INCOME (LOSS) FOR THE YEAR

(207,492) 9,001,530

(186,269) 7,471,642

A - VALUE OF PRODUCTION Other revenues and income TOTAL VALUE OF PRODUCTION B - COSTS OF PRODUCTION Services Lease and rental Amortization, depreciation and write-downs Amortization of intangible assets Miscellaneous operating costs TOTAL COSTS OF PRODUCTION OPERATING INCOME (LOSS) C - FINANCIAL INCOME AND EXPENSE Income from equity investments Subsidiaries Other financial income Receivables included in fixed assets Subsidiaries Income other than the above Other Interest and other financial expense Others TOTAL FINANCIAL INCOME AND EXPENSE D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS E - EXTRAORDINARY GAINS AND LOSSES Gains Losses EXTRAORDINARY ITEMS

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

Registered Office: ROME Share Capital at 31.12.2008: € 61,384,768.20

BALANCE SHEET

(in thousands of euro)

ASSETS

31.12.2008

31.12.2007

Intangible assets with an indefinite useful life Other intangible assets Intangible assets Tangible assets Equity investments Non-current receivables Deferred tax assets

220,661 2,526 223,187 60,104 400,453 373 14,886

220,661 2,187 222,848 60,932 391,853 356 10,881

NON-CURRENT ASSETS

699,003

686,870

Inventories Trade receivables Tax receivables Other receivables Cash and cash equivalents

22,635 101,403 14,848 10,898 196,168

25,387 125,486 18,357 11,357 224,813

CURRENT ASSETS

345,952

405,400

1,044,955

1,092,270

31.12.2008

31.12.2007

Share capital Reserves Retained earnings (losses) Net income (loss) for the year

61,385 86,082 150,583 49,669

65,167 80,112 64,153 166,162

SHAREHOLDERS' EQUITY

347,719

375,594

Borrowings Provisions for risks and losses TFR and other personnel provisions Deferred tax liabilities

327,311 18,532 40,185 43,045

332,985 5,473 41,026 39,667

NON-CURRENT LIABILITIES

429,073

419,151

Borrowings Provisions for risks and losses Trade payables Tax payables Other payables

107,475 11,637 90,176 11,822 47,053

125,891 4,019 115,641 10,389 41,585

CURRENT LIABILITIES

268,163

297,525

TOTAL LIABILITIES

697,236

716,676

1,044,955

1,092,270

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

Registered Office: ROME Share Capital at 31.12.2008: € € 61,384,768.20

INCOME STATEMENT

(in euro)

2008

2007

573,735 (1,743) 8,655 (100,451) (288,589) (12,038) (129,050) (13,973)

618,807 396 8,031 (113,491) (311,843) (8,880) (109,061) (13,974)

Operating income

36,546

69,985

Net financial income/(expense)

(13,978)

(15,288)

Dividends

55,279

135,500

Result before taxes Taxes

77,847 (28,178)

190,197 (24,035)

NET INCOME (LOSS)

49,669

166,162

Revenues Change in product inventories Other operating income Costs for purchases Costs for services Other operating income Personnel costs Amortization, depreciation and write-downs

SOGEFI S.p.A.

Registered Office: MANTUA Share Capital at 31.12.2008: â&#x201A;Ź 60,397,475.84

BALANCE SHEET

(in euro)

ASSETS CURRENT ASSETS Cash and cash equivalents Centralized treasury accounts with subsidiaries Other financial assets Loans to subsidiaries and similar financial receivables WORKING CAPITAL Trade receivables of which from subsidiaries of which from parent company Other subsidiaries Tax receivables Other assets of which with subsidiaries TOTAL WORKING CAPITAL TOTAL CURRENT ASSETS NON-CURRENT ASSETS FIXED ASSETS Real estate investments: land Real estate investments: other properties Other tangible assets Intangible assets TOTAL FIXED ASSETS OTHER NON-CURRENT ASSETS Investments in subsidiaries Other available-for-sale financial assets Loans and other similar financial receivables of which to subsidiaries of which other medium-long term derivative assets Other receivables Deferred tax assets TOTAL OTHER NON-CURRENT ASSETS TOTAL NON-CURRENT ASSETS TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current bank borrowings Centralized treasury accounts with subsidiaries Current part of long-term loans and other loans of which from subsidiaries TOTAL SHORT-TERM BORROWINGS Other financial derivative liabilities TOTAL SHORT-TERM BORROWINGS AND DERIVATIVES Trade payables and other payables of which to subsidiaries Tax payables Other current liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES MEDIUM-LONG TERM BORROWINGS AND DERIVATIVES Bank borrowings TOTAL MEDIUM-LONG TERM BORROWINGS Other medium-long term derivative liabilities TOTAL MEDIUM-LONG TERM BORROWINGS AND DERIVATIVES OTHER LONG-TERM LIABILITIES Long-term provisions Deferred tax liabilities TOTAL OTHER LONG-TERM LIABILITIES TOTAL NON-CURRENT LIABILITIES SHAREHOLDERS' EQUITY Share capital Reserves and retained earnings (losses) Net income (loss) for the year TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

31.12.2008

31.12.2007

6,871,537 24,287,987 2,374 --

3,851,805 8,444,930 476,926 12,856,819

4,917,838 2,986,590 1,931,248 227,506 383,516 791,697 109,076 6,320,557 37,482,455

4,821,063 1,724,878 3,088,273 80,236 255,380 182,358 117,021 5,339,037 30,969,517

12,154,000 14,765,000 65,409 66,198 27,050,607

12,154,000 14,525,000 81,490 228,495 26,988,985

264,296,016 3,166 101,203,167 101,203,167 -21,684 1,145,516 366,669,549 393,720,156 431,202,611

260,552,372 7,642 100,182,773 100,182,773 -2,513 536,474 361,281,774 388,270,759 419,240,276

31.12.2008

31.12.2007

10,223,628 29,290,435 22,815,903 24,222 62,329,966 -62,329,966 3,878,319 518,480 154,996 60,991 66,424,272

3,559,209 48,789,311 1,276,174 313,611 53,624,694 -53,624,694 3,568,791 900,992 255,159 534,240 57,982,884

230,716,872 230,716,872 2,262,669 232,979,541

101,685,332 101,685,332 -101,685,332

1,053,432 458,934 1,512,366 234,491,907

988,637 380,938 1,369,575 103,054,907

60,397,476 40,666,495 29,222,461 130,286,432 431,202,611

59,594,596 172,573,698 26,034,191 258,202,485 419,240,276

SOGEFI S.p.A.

Registered Office: MANTUA Share Capital at 31.12.2008: â&#x201A;Ź 60,397,475.84

INCOME STATEMENT

(in euro)

FINANCIAL INCOME AND EXPENSE 1) Income from equity investments - dividends and other income from subsidiaries - dividends and other income from other companies TOTAL 2) Other financial income - from securities recorded in current assets as held for trading - income other than the above interest amd commission income from subsidiaries interest and commission income from others and miscellaneous income foreign exchange gains TOTAL 3) Interest expense and other financial expense - with subsidiaries - with others - foreign exchange losses TOTAL ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 4) Revaluations 5) Write-downs TOTAL ADJUSTMENTS 6) OTHER OPERATING INCOME of which from subsidiaries OTHER OPERATING COSTS 7) Non-financial services of which with subsidiaries of which with parent company 8) Lease and rental 9) Personnel 10) Amortization, depreciation and write-downs 11) Set aside to risk provisions 12) Other provisions 13) Miscellaneous operating costs TOTAL OTHER OPERATING COSTS INCOME FROM OPERATING ACTIVITY NON-OPERATING INCOME AND EXPENSE 14) Income 15) Expense of which non-recurring expense with third parties of which non-recurring expense with parent company NON-OPERATING INCOME (LOSS) RESULT BEFORE TAXES 16) Income taxes for the year NET INCOME FOR THE YEAR

2008

2007

40,824,227 1,266 40,825,493

34,504,944 353 34,505,297

7,270,894 684,099 3,520,976 11,475,969

7,035,939 764,395 1,678,049 9,478,383

1,752,809 11,849,640 3,188,793 16,791,242

1,983,075 6,071,791 1,793,481 9,848,347

-4,593,713 (4,593,713) 10,385,944 10,276,653

-5,196,839 (5,196,839) 8,226,441 8,178,177

5,183,703 508,187 1,850,000 1,929,610 4,998,933 40,266 --1,293,392 13,445,904 27,856,547

4,952,856 672,539 1,850,000 436,397 4,390,399 41,376 --1,128,794 10,949,822 26,215,113

240,000 597,556 408,802 -(357,556) 27,498,991 (1,723,470) 29,222,461

-6,787,067 4,623,336 650,000 (6,787,067) 19,428,046 (6,606,145) 26,034,191

HSS - HOLDING SOCIETÀ E SERVIZI S.p.A.

Registered Office: MILAN Share Capital at 31.12.2008: € 6,479,972.00

BALANCE SHEET

(in euro)

ASSETS

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE B - FIXED ASSETS I Intangible assets Concessions, licenses, trademarks and similar rights Assets in process and advance payments Other Total intangible assets II Tangible assets Land and buildings Plant and machinery Industrial and commercial equipment Other assets Assets under construction and advance payments Total tangible assets III Financial assets Investments in subsidiaries Receivables Subsidiaries - up to 12 months Other companies - up to 12 months Other companies - over 12 months Total financial assets TOTAL FIXED ASSETS C - CURRENT ASSETS I Inventories II Accounts receivable Clients - up to 12 months Subsidiaries - up to 12 months Parent companies - up to 12 months Tax receivables - up to 12 months Tax receivables - over 12 months From others - up to 12 months From others - over 12 months Total receivables III Financial assets not classified as fixed assets IV Cash and cash equivalents Bank and Post Office deposits Cash and valuables on hand Total cash and cash equivalents TOTAL CURRENT ASSETS D - ACCRUED INCOME AND PREPAID EXPENSE Accrued income Prepaid expense TOTAL ACCRUED INCOME AND PREPAID EXPENSE TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY A - SHAREHOLDERS' EQUITY I Capital II Share premium reserve III Revaluation reserves IV Legal reserve V Statutory reserves VI Reserve for treasury stock held VII Other reserves VIII Retained earnings (losses) IX Net income (loss) for the year TOTAL SHAREHOLDERS' EQUITY B - PROVISIONS FOR RISKS AND LOSSES C - EMPLOYEE LEAVING INDEMNITY (TFR) D - ACCOUNTS PAYABLE Bank borrowings - up to 12 months Bank borowings - over 12 months Borrowings from other lenders Due to suppliers - up to 12 months Due to subsidiaries - up to 12 months Due to parent companies - up to 12 months Tax payables - up to 12 months Social security payables - up to 12 months Other payables - up to 12 months TOTAL PAYABLES E - ACCRUED EXPENSE AND DEFERRED INCOME Other accrued expense and deferred income TOTAL ACCRUED EXPENSE AND DEFERRED INCOME TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

MEMORANDUM ACCOUNTS

(in euro) Guarantees issued Guarantees Subsidiaries Others Collateral security Pledged on behalf of subsidiaries TOTAL MEMORANDUM ACCOUNTS

31.12.2008 --

31.12.2007 --

276,455 13,200 139,978 429,633

145,235 30,240 71,425 246,900

12,675,355 1,261,438 3,588 315,501 592,488 14,848,370

13,652,591 13,514 4,415 283,732 500,000 14,454,252

101,860,041

75,673,095

18,745,631 412,943 2,651 121,021,266 136,299,269

49,741,809 413,096 2,651 125,830,651 140,531,803

6,182 2,952,656 1,220,125 921,772 12,284 2,707,522 -7,820,541 --

18,545 3,611,776 1,435,638 1,376,922 12,284 844,570 162,500 7,462,235 --

8,839,883 1,289 8,841,172 16,661,713

2,197,084 1,948 2,199,032 9,661,267

50,677 179,812 230,489 153,191,471

39,552 245,022 284,574 150,477,644

31.12.2008

31.12.2007

6,479,972 145,412,857 ----1 (7,882,710) (3,826,427) 140,183,693 -144,213

5,405,266 106,350,908 ----1 (5,155,430) (2,727,280) 103,873,465 18,633 119,009

416,531 7,996,066 2,527,973 885,988 122,126 283 73,109 232,098 580,818 12,834,992

27,076,667 17,523,333 -1,027,203 -84,000 109,490 186,142 412,328 46,419,163

28,573 28,573 153,191,471

47,374 47,374 150,477,644

31.12.2008

31.12.2007

80,918,060 345,967

42,685,527 532,034

11,300,000 92,564,027

-43,217,561

HSS - HOLDING SOCIETÀ E SERVIZI S.p.A.

Registered Office: MILAN Share Capital at 31.12.2008: € 6,479,972.00

INCOME STATEMENT

(in euro)

A - VALUE OF PRODUCTION Revenues from sales and services Other revenues and income TOTAL VALUE OF PRODUCTION B - COSTS OF PRODUCTION Raw materials, secondary materials, consumables and goods Services Lease and rental Personnel Salaries and wages Social contributions Leaving indemnity paid out Other costs Amortization, depreciation and write-downs Amortization of intangible assets Depreciation of tangible assets Miscellaneous operating costs TOTAL COSTS OF PRODUCTION OPERATING INCOME (LOSS) C - FINANCIAL INCOME AND EXPENSE Income from equity investments Subsidiaries Total income from equity investments Other financial income Financial income other than the above From subsidiaries From other receivables Total other financial income Interest and other financial expense With subsidiaries With other creditors Total interest and other financial expense Foreign exchange gains and losses TOTAL FINANCIAL INCOME AND EXPENSE D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS Revaluations Write-downs of equity investments

2008

2007

-2,227,813 2,227,813

32 1,763,978 1,764,010

36,923 2,073,650 313,555

38,075 2,289,107 243,439

1,797,076 570,715 105,462 59,998

1,614,705 504,105 107,589 56,851

119,070 728,604 421,688 6,226,741 (3,998,928)

86,423 230,682 449,714 5,620,690 (3,856,680)

---

984 984

1,465,908 3,117,646 4,583,554

490,706 197,763 688,469

(122,126) (4,253,980) (4,376,106) -207,448 ---

-(995,691) (995,691) -(306,238) ---

(1,000,000)

TOTAL ADJUSTMENTS E - EXTRAORDINARY INCOME AND EXPENSE Income Expense Taxes from prior periods

(1,000,000)

(201,082)

TOTAL EXTRAORDINARY INCOME AND EXPENSE RESULT BEFORE TAXES

(201,082) (4,992,562)

-(4,162,918)

Income taxes for the period Current taxes Deferred taxes NET INCOME (LOSS) FOR THE PERIOD

1,166,135 -(3,826,427)

1,435,638 -(2,727,280)

DRY PRODUCTS S.p.A.

Registered Office in Milan: Via Ciovassino 1 Share Capital at March 31 2008: â&#x201A;Ź 100,000.00

BALANCE SHEET (in euro)

ASSETS A) B)

SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE FIXED ASSETS I Intangible assets II Tangible assets Other assets Total tangible assets III Financial assets Investments in subsidiaries Total financial assets TOTAL FIXED ASSETS C) CURRENT ASSETS I Inventories II Accounts receivable Subsidiaries Parent companies Others Total receivables III Financial assets not classified as fixed assets Financial receivables with subsidiaries Total financial assets IV Cash and cash equivalents Bank and Post Office deposits Cash and valuables on hand Total cash and cash equivalents TOTAL CURRENT ASSETS D) ACCRUED INCOME AND PREPAID EXPENSE TOTAL ASSETS

31.03.2007

108 108

703 703

4,032 4,032 4,140

4,032 4,032 4,735

-** -----

LIABILITIES AND SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY I Capital II Share premium reserve III Revaluation reserves IV Legal reserve V Reserve for treasury stock held VI Statutory reserves VII Other reserves VIII Retained earnings (losses) IX Net income (loss) for the year TOTAL SHAREHOLDERS' EQUITY B) PROVISIONS FOR RISKS AND LOSSES Others TOTAL PROVISIONS FOR RISKS AND LOSSES C) EMPLOYEE LEAVING INDEMNITY (TFR) D) ACCOUNTS PAYABLE Due to suppliers Due to parent companies Tax payables Social security payables Other payables TOTAL PAYABLES E) ACCRUED EXPENSE AND DEFERRED INCOME TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

31.03.2008 *

-60,000 33,627 93,627

-** -----

-50,000 34,608 84,608

---

1,214,085 354 1,214,439 1,308,066 2,020 1,314,226

1,297,287 410 1,297,697 1,382,305 2,803 1,389,843

31.03.2008 *

31.03.2007

100,000 --102,576 ---1,067,438 (66,962) 1,203,052

100,000 --102,576 ---1,349,737 (282,299) 1,270,014

--13,171

--30,673

* Financial year ended March 31 2008 * * of which due in over 12 months

** -------

2,437 -54,851 8,769 31,946 98,003 -1,314,226

** -------

2,006 -52,862 9,183 23,811 87,862 1,294 1,389,843

DRY PRODUCTS S.p.A.

Registered Office in Milan: Via Ciovassino 1 Share Capital at March 31 2008: â&#x201A;Ź 100,000.00

INCOME STATEMENT (in euro)

VALUE OF PRODUCTION Other revenues and income TOTAL VALUE OF PRODUCTION B) COSTS OF PRODUCTION Services Lease and rental Personnel costs: Salaries and wages Social contributions Leaving indemnity paid out Amortization, depreciation and write-downs Set aside to risk provisions Miscellaneous operating costs TOTAL COSTS OF PRODUCTION OPERATING INCOME (LOSS) C) FINANCIAL INCOME AND EXPENSE Other financial income: Income other than the above Interest and commissions from subsidiaries Interest and commissions from others and sundry income Total other financial income Interest income and other financial income: Parent companies

2008 *

2007

252,039 252,039

222,383 222,383

28,957 13,885

50,217 13,852

181,527 58,141 12,503 595 -27,598 323,206 (71,167)

157,926 51,146 11,224 596 -34,003 318,964 (96,581)

-11,605 11,605

-11,622 11,622

Others Total interest and other financial expense Foreign exchange gains and losses TOTAL FINANCIAL INCOME AND EXPENSE D)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS Revaluations: of equity investments Write-downs: of equity investments

TOTAL ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS E)

2,027 526 2,553 (29)

10,780

9,040

183,968

(183,968)

1,685

---

-3,000

EXTRAORDINARY INCOME AND EXPENSE Income: Other income Expense: Capital losses on disposals Other charges

TOTAL EXTRAORDINARY INCOME AND EXPENSE RESULT BEFORE TAXES Income taxes for the year Net income (loss) for the year

-769 769 (56)

Financial year ended March 31 2008

1,685

(3,000)

(58,702)

(274,509)

(8,260)

(7,790)

(66,962)

(282,299)

CIR INTERNATIONAL S.A.

Registered Office: LUXEMBOURG Share Capital at 31.12.2008: € 1,000,000.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

31.12.2007

6,329 165,093,725

21,466 193,619,801

165,100,054

193,641,267

Prepaid expenses and accrued income

5,344,526 283,134,055 31,215,628 319,694,209 20,288,473

18,398,491 226,279,390 243,824,833 488,502,714 24,065,259

Total assets

505,082,736

706,209,240

31.12.2008

31.12.2007

1,000,000 3,718,741 61,078,951 -(101,685,598)

1,000,000 3,718,741 -(53,000,000) 114,078,951

(35,887,906)

65,797,692

20,640,814

21,077,969

160,000,000

585,000,000

330,000,000 5,332,804 335,332,804

-3,660,687 3,660,687

24,997,024

30,672,892

Total liabilities

540,970,642

640,411,548

Total liabilities and shareholders' equity

505,082,736

706,209,240

Fixed assets - tangible assets - investments Current assets - receivables - marketable securities - cash at banks and in hand

LIABILITIES AND SHAREHOLDERS’ EQUITY Share capital Legal reserve Profit (Loss) brought forward Distribution of interim dividend Profit for the year Total shareholders’ equity Provisions for risks and charges Long term debt CURRENT LIABILITIES - short term debt - other liabilities Accrued expenses and deferred income

CIR INTERNATIONAL S.A.

Registered Office: LUXEMBOURG Share Capital at 31.12.2008: â&#x201A;Ź 1,000,000.00

INCOME STATEMENT

(in euro)

2008

2007

Fixed assets income

14,188,079

21,705,479

Current assets income

57,119,993

335,312,611

Other income

1,270,155

1,772,964

Total income

72,578,227

358,791,054

5,124 72,330,816 20,926,184

3,155 68,675,339 3,436,164

93,262,124

72,114,658

3,092,716

78,962,754

164,676,685

1,887,447

4,694,044

151,500

134,000

Profit for the year

(101,685,598)

114,078,951

Total expenses

72,578,227

358,791,054

INCOME

EXPENSES Value adjustment on - tangible assets - investments - marketable securities

Loss from sale of fixed assets Interest and other financial expenses Other expenses Extraordinary expenses

COFIDEFIN SERVICOS de CONSULTORIA Lda

Registered Office: MADEIRA Share Capital at 31.12.2008: € 125,000.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

31.12.2007

Other debtors

Total current assets

-3,269,020 3,269,020

-3,681,005 3,681,005

829,265 402 829,667

3,754,900 -3,754,900

4,098,687

7,435,905

31.12.2008

31.12.2007

Share capital Legal reserve Results carried forward Result for the financial year

125,000 25,000 89,181 3,754,295

125,000 25,000 113,837 6,375,344

Total shareholders’ equity

3,993,476

6,639,181

105,212

796,724

105,212 4,098,688

796,724 7,435,905

Debts

Bank deposits and cash Time deposits Current accounts Total bank deposits and cash Accruals and deferrals Accruals and income Deferred costs Total accruals and deferrals TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS’ EQUITY SHAREHOLDERS’ EQUITY

Accruals and deferrals Cost accruals Total liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

COFIDEFIN SERVICOS de CONSULTORIA Lda

Registered Office: MADEIRA Share Capital at 31.12.2008: â&#x201A;Ź 125,000.00

INCOME STATEMENT

(in euro)

2008

2007

Services provided Financial income

4,259,920 78,587

7,939,078 72,037

Total income

4,338,507

8,011,115

EXPENSES Financial expenses General and administrative expenses

(160,079) 744,292

84,676 1,551,095

Total expenses

584,213

1,635,771

PROFIT (LOSS) FOR THE YEAR

3,754,294

6,375,344

Total expenses

4,338,507

8,011,115

INCOME

INTERGEFI S.r.l.

Registered Office: MILAN Share Capital at 31.12.2008: â&#x201A;Ź 500,000.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

31.12.2007

----

4,239,358 6,090 4,245,448

3,291 115,953 364 125

29,542 13,859 364 463

119,733 --

44,228 --

1,563,675 383

3,001 455

Total cash and cash equivalents TOTAL CURRENT ASSETS D - ACCRUED INCOME AND PREPAID EXPENSE Other accrued income and prepaid expense TOTAL ACCRUED INCOME AND PREPAID EXPENSE

1,564,058 1,683,791

3,456 4,293,132

---

TOTAL ASSETS

1,683,791

4,293,132

31.12.2008

31.12.2007

500,000 --27,306 ---

-(1) (35,212) 1,009,610

262,545 1 -(297,756)

1,501,703 ---

492,096 ---

--9,011 -9,723 163,354

249,541 91 21,032 3,515,409 14,436 --

TOTAL PAYABLES E - ACCRUED EXPENSE AND DEFERRED INCOME

182,088 --

3,800,509 527

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

1,683,791

4,293,132

AB-

SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE FIXED ASSETS I Intangible assets II Tangible assets III Financial assets

TOTAL FIXED ASSETS C - CURRENT ASSETS I Inventories Finished properties Advance payments Total inventories II Accounts receivable Clients up to 12 months Tax receivables up to 12 months Tax receivables over 12 months Others Total receivables III Financial assets not classified as fixed assets IV Cash and cash equivalents Bank and Post Office deposits Cash and valuables on hand

LIABILITIES AND SHAREHOLDERS' EQUITY A-

SHAREHOLDERS' EQUITY I Capital II Share premium reserve III Revaluation reserves IV Legal reserve V Statutory reserves VI Reserve for treasury stock held VII Other reserves Extraordinary reserve Reserve for conversion/rounding up (down) into euro VIII Retained earnings (losses) IX Net income (loss) for the year

TOTAL SHAREHOLDERS' EQUITY B - PROVISIONS FOR RISKS AND LOSSES C - EMPLOYEE LEAVING INDEMNITY D - ACCOUNTS PAYABLE Bank loans up to 12 months Loans from other lenders up to 12 months Due to suppliers up to 12 months Due to parent companies up to 12 months Tax payables up to 12 months Other payables up to 12 months

INTERGEFI S.r.l.

Registered Office: MILAN Share Capital at 31.12.2008: â&#x201A;Ź 500,000.00

INCOME STATEMENT

(in euro)

VALUE OF PRODUCTION Revenues from sales and services Other revenues and income TOTAL VALUE OF PRODUCTION B - COSTS OF PRODUCTION Raw materials, secondary materials, consumables & goods Services Personnel costs Salaries and wages Social contributions Leaving indemnity Change in inventories of raw materials, secondary materials, consumables and goods Miscellaneous operating costs TOTAL COSTS OF PRODUCTION OPERATING INCOME (LOSS) C - FINANCIAL INCOME AND EXPENSE Income from equity investments

2008

2007

5,681,226 50,700 5,731,926

354,534 41,119 395,653

171 232,823

-27,503

----

4,239,358 30,505 4,502,857 1,229,069

-474,485 501,988 (106,335)

14 14

4,051 4,051

200,559 9,725 210,284 (210,270) --

159,848 21,188 181,036 (176,985) --

A-

Other financial income Income other than the above Others Total other financial income Interest and other financial expense Parent companies Others Total interest and other financial expense TOTAL FINANCIAL INCOME AND EXPENSE D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS E - EXTRAORDINARY INCOME AND EXPENSE Income Miscellaneous Expense Miscellaneous TOTAL EXTRAORDINARY INCOME AND EXPENSE RESULT BEFORE TAXES

-2 1,018,801

--(283,320)

Income taxes for the year NET INCOME (LOSS) FOR THE YEAR

(9,191) 1,009,610

(14,436) (297,756)

JUPITER FINANCE S.p.A.

Registered Office: MILAN Share Capital at 31.12.2008: â&#x201A;Ź 600,000.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

Cash and cash equivalents

31.12.2007

1,494

307

9,014,537

8,861,169

Equity investments

915,243

4,300,000

Tangible assets

155,357

142,600

Intangible assets

310,024

164,370

Tax assets a) current b) deferred

814,092

541,102

Accounts receivable

409,328 404,764

Other assets

137,745 403,357 60,599

42,878

TOTAL ASSETS

11,271,346

14,052,426

LIABILITIES AND SHAREHOLDERS' EQUITY

31.12.2008

31.12.2007

2,690,019

5,343,640

Accounts payable Tax liabilities a) current b) deferred Other liabilities

233,373 205,030 28,343

187,657 154,321 33,336

2,139,339

2,224,657

Employee leaving indemnity

119,462

48,324

Capital

600,000

Share premium reserve Reserves Net income (loss) for the year TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

900,000

4,748,149

5,017,630

(158,996)

(269,482)

11,271,346

14,052,426

JUPITER FINANCE S.p.A.

Registered Office: MILAN Share Capital at 31.12.2008: â&#x201A;Ź 600,000.00

INCOME STATEMENT

(in euro)

2008 Interest income and similar income

2007

62,805

2,879,709

Interest expense and similar expense

(263,390)

(2,141,306)

INTEREST MARGIN

(200,585)

738,403

Commissions income

3,974,777

1,816,730

Commissions expense

NET COMMISSIONS

3,974,777

1,816,730

BROKERAGE MARGIN

3,774,192

2,555,133

Adjustments to net value due to impairment of: a) receivables Administrative expenses: a) personnel expenses b) other administrative expenses

(40,454) (40,454)

---

(3,653,250) (1,967,214) (1,686,036)

(2,669,083) (1,234,667) (1,434,416)

Net adjustments to value of tangible assets

(34,207)

(32,738)

Net adjustments to value of intangible assets

(94,096)

(77,069)

Other operating costs

(5,400,758)

(3,451,345)

Other operating income

5,402,221

3,439,121

(46,352)

(235,981)

106,200

(46,352)

(129,781)

Income taxes on income for the year from current activity

(112,644)

(139,701)

NET INCOME (LOSS) ON CURRENT ACTIVITY NET OF TAXES

(158,996)

(269,482)

NET INCOME (LOSS) FOR THE YEAR

(158,996)

(269,482)

OPERATING INCOME (LOSS) Gain (Loss) on disposal of investments NET INCOME (LOSS) ON CURRENT ACTIVITY GROSS OF TAX

CIRINVEST S.p.A.

Registered Office: MILAN Share Capital at 31.12.2008: € 121,750.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

31.12.2007

2,339

4,678

2,339 2,339 11,694 (9,355) ----

4,678 4,678 11,694 (7,016) -13,800 (13,800)

A - SHAREHOLDER RECEIVABLES FOR PAYMENTS STILL DUE B - FIXED ASSETS I

INTANGIBLE ASSETS Start-up and expansion costs Historical cost - Accumulated amortization Concessions, licenses, trademarks and similar rights Historical cost - Accumulated amortization

TANGIBLE ASSETS

III FINANCIAL ASSETS

126,284

138,413

4,215 4,215 --

3,602 3,602 --

122,069

134,811

128,623

143,091

31.12.2008

31.12.2007

119,764

130,260

121,750 -----8,510 -(10,496)

121,750 -----45,201 -(36,691)

B - PROVISIONS FOR RISKS AND LOSSES

C - EMPLOYEE LEAVING INDEMNITY

8,859 3,139 --5,720

12,831 4,615 -4,716 3,500

128,623

143,091

Receivables from others C - CURRENT ASSETS I

INVENTORIES

ACCOUNTS RECEIVABLE Tax credits claimable in over 12 months Other receivables in over 12 months

III FINANCIAL ASSETS NOT CLASSIFIED AS FIXED ASSETS IV CASH AND CASH EQUIVALENTS D - ACCRUALS AND DEFERRALS TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY A - SHAREHOLDERS' EQUITY I II III IV V VI VII VIII IX

Capital Share premium reserve Revaluation reserves Legal reserve Statutory reserves Reserve for treasury stock held Other reserves Retained earnings (losses) Net income (loss) for the year

D - ACCOUNTS PAYABLE Due to suppliers - up to 12 months Tax payables - up to 12 months Social security payables - up to 12 months Aother payables - up to 12 months E-

ACCRUALS AND DEFERRALS

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

CIRINVEST S.p.A.

Registered Office: MILAN Share capital at 31.12.2008: â&#x201A;Ź 121,750.00

INCOME STATEMENT

(in euro)

2008

2007

---

8,806 8,806

(10,480)

(45,106)

(6,852) (2,184) (3,640) (1,028) -----(2,339) (2,339) --(1,289)

(21,036) (15,253) (3,500) (2,283) (17,204) -----(2,339) (2,339) --(4,527)

(10,480)

(36,300)

(16) 332 (348)

(391) 31 (422)

D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

E-

---

(10,496)

(36,691)

(10,496)

(36,691)

A - VALUE OF PRODUCTION Other revenues and income B - COSTS OF PRODUCTION For services - Consulting - Directors' and Statutory Auditors' fees - other Lease and rental costs Personnel costs a) Salaries and wages b) Social contributions c) Leaving indemnity e) Other costs Amortization, depreciation and write-downs a) Amortization of intangible assets b) Depreciation of tangible assets c) Other write-downs of fixed assets Miscellaneous operating costs OPERATING INCOME (LOSS) C - FINANCIAL INCOME AND EXPENSE Other financial income Interest and financial expense

EXTRAORDINARY GAINS AND LOSSES Gains

INCOME (LOSS) BEFORE TAXES Income taxes for the year NET INCOME (LOSS) FOR THE YEAR

CIGA LUXEMBOURG S.A.r.l.

Registered Office: LUXEMBOURG Share Capital at 31.12.2008: â&#x201A;Ź 318,200,000.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

31.12.2007

Intangible assets Tangible assets Financial assets Total I

3,445 -279,755,744 279,759,189

3,778 -318,655,480 318,659,258

13,828 307,416 72,933 394,177

28,622 300,700 134,179 463,501

GRAND TOTAL

280,153,366

319,122,759

LIABILITIES AND EQUITY

31.12.2008

31.12.2007

Capital Retained earnings (losses) Result for the year Total I

318,200,000 (188,302) (39,030,746) 278,980,952

318,200,000 (45,552) (142,750) 318,011,698

1,119,648 30,882 19,287 2,597 1,172,414

1,055,121 28,560 24,646 2,734 1,111,061

280,153,366

319,122,759

Receivables Marketable securities Cash and cash equivalents Total II

Borrowings and sundry financial debt Trade payables and other payables Tax and social security payables Other payables Total III GRAND TOTAL

CIGA LUXEMBOURG S.A.r.l.

Registered Office: LUXEMBOURG Share Capital at 31.12.2008: â&#x201A;Ź 318,200,000.00

INCOME STATEMENT

(in euro)

Operating costs Consumption of materials /lease and rental Taxes, duties and similar payments Amortization of assets & provisions Total I Financial expense Extraordinary expense Credit balance GRAND TOTAL (EXPENSES) Value of production Other operating income Total Financial income

2008

2007

280,956 (3,727) 2,969 280,198

243,034 12,205 -255,239

39,275,250

28,667

2,399

1,789

39,557,847

285,695

31,652 31,652

40,969 40,969

495,449

101,976

Debit balance

39,030,746

142,750

GRAND TOTAL (REVENUES)

39,557,847

285,695

NEXENTI S.r.l.

Registered Office: MILAN Share Capital at 31.12.2008: € 50,000.00

BALANCE SHEET

(in euro)

ASSETS

31.12.2008

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 Tax credits claimable in over 12 months Total receivables III Financial assets not classified as fixed assets IV Cash and cash equivalents

--96 96 -172,150

TOTAL CURRENT ASSETS

172,246

D - ACCRUALS AND DEFERRALS TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

-172,246

31.12.2008

A - SHAREHOLDERS' EQUITY I II III IV V VI VII VIII IX

Capital Share premium reserve Revaluation reserves Legal reserve Statutory reserves Reserve for treasury stock held Other reserves - Cover of losses Retained earnings (losses) Net income (loss) for the year

TOTAL SHAREHOLDERS' EQUITY

50,000 -----70,000 -(73,260) 46,740

B - PROVISIONS FOR RISKS AND LOSSES

C - EMPLOYEE LEAVING INDEMNITY

D - ACCOUNTS PAYABLE Due to suppliers - over 12 months Due to parent companies - over 12 months Other payables - over 12 months TOTAL PAYABLES E-

ACCRUALS AND DEFERRALS

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

20,000 101,175 4,331 125,506 -172,246

NEXENTI S.r.l.

Registered Office: MILAN Share Capital at 31.12.2008: € 50,000.00

INCOME STATEMENT

(in euro)

2008 A - VALUE OF PRODUCTION

B - COSTS OF PRODUCTION Services Consulting Other Miscellaneous operating costs TOTAL COSTS OF PRODUCTION

(19,163) (43,135) (10,100) (72,398)

OPERATING INCOME (LOSS)

(72,398)

C - FINANCIAL INCOME AND EXPENSE Other financial income Interest and other financial expense towards parent companies TOTAL FINANCIAL INCOME AND EXPENSE D - ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS EXTRAORDINARY INCOME AND EXPENSE Extraordinary income Extraordinary expense TOTAL EXTRAORDINARY INCOME AND EXPENSE

355 (41) (1,176) (862) --

E-

----

RESULT BEFORE TAXES

(73,260)

Income taxes for the year NET INCOME (LOSS) FOR THE YEAR

-(73,260)

220

CERTIFICATION OF THE STATUTORY FINANCIAL STATEMENTS IN ACCORDANCE WITH ART. 154 BIS OF D. LGS 58/98

1. The undersigned Rodolfo De Benedetti, as Chief Executive Officer, and Alberto Piaser, as Officer responsible for the preparation of the Financial Statements of CIR S.p.A., hereby certify, taking into account even the terms of Art. 154-bis, paragraphs 3 and 4, of Legislative Decree no. 58 of February 24 1998: -

That the administrative and accounting procedures for the preparation of statutory financial statements during 2008 were adequate in relation to the characteristics of the business and They were effectively applied.

2. On this subject no aspects emerged that needed to be notified. 3. It is also certified that the Statutory Financial Statements: -

were prepared in accordance with the applicable international accounting standards recognized by the European Union as per EC Regulation no. 1606/2002 of the European Parliament and of the Council, of July 19 2002; correspond to the results of the books and the general ledger; are appropriate to give a true and fair representation of the equity, economic and financial position of the issuer.

The Report on Operations includes a reliable analysis of performance and of the result for the year as well as showing the position of the issuer with a description of the main risks and uncertainties to which it is exposed.

Milan, April 3 2009

Signed by Rodolfo De Benedetti Chief Executive Officer

Signed by Alberto Piaser Officer Responsible

221

222

LIST OF EQUITY INVESTMENTS AT DECEMBER 31 2008 in accordance with Art. 38.2 of D.Lgs. no. 127/91

223

SUBSIDIARIES CONSOLIDATED USING THE FULL INTEGRATION METHOD (in euro or foreign currency)

Name of company

Registered office

Share capital

Luxembourg

1,000,000.00

Currency Parent companies

% of ownership

CIR GROUP CIR INTERNATIONAL S.A.

€ 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.

Italy

121,750.00

€ CIR S.p.A.

100.00

JUPITER FINANCE S.p.A.

Italy

600,000.00

€ CIR S.p.A.

JUPITER MARKETPLACE S.p.A.

Italy

1,000,000.00

€ JUPITER FINANCE S.p.A.

100.00

JUPITER ASSET MANAGEMENT S.r.l.

Italy

10,000.00

€ JUPITER FINANCE S.p.A.

100.00

98.80

CIGA LUXEMBOURG S.A.r.l.

Luxembourg

318,200,000.00

€ CIR S.p.A.

100.00

NEXENTI S.r.l.

Italy

50,000.00

€ CIR S.p.A.

100.00

SORGENIA HOLDING S.p.A.

Italy

129,886,232.00

€ CIR S.p.A.

68.18

SORGENIA S.p.A.

Italy

8,738,843.13

€ SORGENIA HOLDING S.p.A.

78.95

ENERGIA ITALIANA S.p.A.

Italy

26,050,000.00

€ SORGENIA S.p.A.

78.00

SORGENIA IDRO S.r.l.

Italy

50,000.00

€ SORGENIA S.p.A.

100.00

ENERGIA LUCANA S.p.A. (in liquidation)

Italy

750,000.00

€ SORGENIA S.p.A. TECNOPARCO VALBASENTO S.p.A.

80.00 20.00 100.00

SORGENIA PROGETTI S.r.l.

Italy

500,000.00

€ SORGENIA S.p.A.

100.00

ENERGIA MOLISE S.p.A.

Italy

14,600,000.00

€ SORGENIA S.p.A.

100.00

ENERGIA APRILIA S.r.l.

Italy

10,000,00

€ SORGENIA S.p.A.

100.00

SORGENIA MINERVINO S.p.A.

Italy

1,700,000.00

€ SORGENIA S.p.A.

75.00

ENERGIA LOMBARDA S.p.A.

Italy

120.000.00

€ SORGENIA S.p.A.

100.00

SORGENIA PUGLIA S.p.A.

Italy

8,191,420.00

€ SORGENIA S.p.A.

90.67

SORGENIA BIOENERGY

Italy

500,000.00

€ SORGENIA S.p.A.

100.00

SORGENIA GROUP

224

SORGENIA ROMANIA S.r.l.

Romania

3,565,800.00

Ron SORGENIA S.p.A.

100.00

SORGENIA VENTO S.p.A.

Italy

1,343,156.00

€ SORGENIA S.p.A.

100.00

SORGENIA MENOWATT S.r.l.

Italy

NOVENTI VENTURES II LP

United States

136,050.00

€ SORGENIA S.p.A.

70.00

17,143,181.00

$USA SORGENIA S.p.A.

69.47

RACOON S.r.l. SORGENIA SOLAR S.r.l.

Italy

20,000.00

€ SORGENIA S.p.A.

100.00

Italy

670,000.00

€ SORGENIA S.p.A.

100.00

SOLUXIA SARDA S.r.l.

Italy

85,200.00

SORGENIA E&P S.p.A.

Italy

2,500,000.00

€ SORGENIA SOLAR S.p.A.

SORGENIA INTERNATIONAL BV S.p.A.

Netherlands

100,000.00

COMPAGNIE FINANCIERE DE SUROIT S.A.

France

310,700.00

SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

France

9,808,287.00

SOCIÉTÉ FRANÇAISE DES ALIZÉS SARL

France

580,125.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE SAINT CRÉPIN S.a.s.

France

1,657,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE L’ARGONNE S.a.s.

France

2,179,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE CÔTE DE CHAMPAGNE SUD S.a.s.

France

802,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

€ SORGENIA S.p.A. SORGENIA E&P S.p.A. € SORGENIA S.p.A. € SORGENIA S.p.A. COMPAGNIE FINANCIERE DE SUROIT S.A.

90.00 100.00 100.00 100.00 84.19 15.70 99.89

Name of company

Registere d office

Share capital

Currency Parent companies

% of ownership

PARC ÉOLIEN DE CÔTE DE CHAMPAGNE S.a.s.

France

2,179,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LA VALLÉE DE L'AUTHIE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE BERNAY ST MARTIN S.a.s.

France

987,400.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LA VALLE DE L’EPTE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

HOLDING DES PARCS ÉOLIENS DE LA VOIE SACRÉE S.a.s. France

9,757,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LONGEVILLE SUR MER S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE MAURECHAMPS S.a.s.

France

1,117,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE L’ORME CHAMPAGNE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIENS DU NORD PAS-DE-CALAIS S.a.s.

France

400,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE RAIVAL S.a.s.

France

1,117,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LA VALETTE S.a.s.

France

1,117,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE VILLER S.a.s.

France

577,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE BOUILLANCOURT EN SÉRY S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE SAINT GERMAIN MARENCENNES S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LA CÔTE DE LA SAUSETTE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE MACHAULT S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE SEMIDE CONTREUVE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LEFFINCOURT S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE LA RENARDIÈRE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE PLAINCHAMP S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

SOCIÉTÉ FRANÇAISE DE PHOTOVOLTAIQUE

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

100.00

PARC ÉOLIEN DE HERBISSONNE S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

50.00

53.95

ESPRESSO GROUP GRUPPO EDITORIALE L’ESPRESSO S.p.A. (*)

Italy

61,384,768.20

€ CIR S.p.A.

FIN.E.GI.L. EDITORIALE S.p.A.

Italy

18,161,000.00

€ GRUPPO EDITORIALE L’ESPRESSO S.p.A.

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

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

332,000.00

€ FIN.E.GI.L. EDITORIALE S.p.A.

100.00

S.E.L.P.I. S.p.A.

Italy

1,000,000.00

€ GRUPPO EDITORIALE L’ESPRESSO S.p.A. FIN.E.GI.L. EDITORIALE S.p.A.

70.00 30.00 100.00

(*) 54.84% of voting rights 225

Name of company

Registered office Italy Italy Italy Italy Italy Italy Italy Italy

Share capital 312,000.00 10,330.00 1,000,000.00 500,000.00 13,198,000.00 6,500,000.00 46,800.00 120,000.00

SOGEFI GROUP SOGEFI S.p.A. (**)

Italy

60,397,475.84

REJNA S.p.A. FILTRAUTO S.A. SOGEFI FILTRATION Ltd SOGEFI FILTRATION B.V. SOGEFI FILTRATION A.B. SOGEFI FILTRATION S.A.

Italy France Britain Netherlands Sweden Spain

5,200,000.00 5,750,000.00 5,126,737 1,125,000.00 100,000 12,953,713.60

SOGEFI FILTRATION d.o.o. ALLEVARD REJNA AUTOSUSPENSIONS S.A.

Slovenia

10,291,798.00

€ SOGEFI S.p.A.

100.00

France

36,000,000.00

€ SOGEFI S.p.A.

99.98

SOGEFI FILTRATION S.p.A.

Italy

21,951,000.00

€ SOGEFI S.p.A.

100.00

SOGEFI PURCHASING S.a.s. ALLEVARD SOGEFI U.S.A. Inc.

France United States

100,000.00 20,055,000

€ SOGEFI S.p.A. $USA SOGEFI S.p.A.

100.00 100.00

EDIGRAF S.r.l. KATAWEB NEWS S.r.l. KSOLUTIONS S.p.A. EDITORIALE METROPOLI S.p.A. RETE A S.p.A. ALL MUSIC S.p.A. SAIRE S.r.l. ROTONORD S.p.A.

FILTRAUTO GmbH (in liquidation)

Germany

51,130.00

SOGEFI FILTRATION DO BRASIL Ltda SOGEFI FILTRATION ARGENTINA S.A.

Brazil Argentina

29,857,374 10,691,607

SHANGHAI SOGEFI AUTO PARTS Co., Ltd (formerly Shanghai Sogefi Filtration Co., Ltd)

China

5,480,000

ALLEVARD SPRINGS Co. Ltd

Britain

4,000,002

ALLEVARD FEDERN GmbH

Germany

ALLEVARD REJNA ARGENTINA S.A.

Argentina

IBERICA DE SUSPENSIONES S.L. (ISSA) ALLEVARD MOLAS DO BRAZIL Ltda

Spain Brazil

Currency Parent companies € € € € € € € €

EDITORIALE FVG S.p.A. ELEMEDIA S.p.A. ELEMEDIA S.p.A. ELEMEDIA S.p.A. GRUPPO EDITORIALE L’ESPRESSO S.p.A. RETE A S.p.A. GRUPPO EDITORIALE L’ESPRESSO S.p.A. ROTOCOLOR S.p.A.

€ CIR S.p.A. € € GBP € SEK €

SOGEFI S.p.A. SOGEFI S.p.A. SOGEFI S.p.A. SOGEFI S.p.A. SOGEFI S.p.A. SOGEFI S.p.A. FILTRAUTO S.A.

€ SOGEFI FILTRATION B.V. Real SOGEFI FILTRATION S.A. Pesos SOGEFI FILTRATION DO BRASIL Ltda FILTRAUTO S.A. SOGEFI FILTRATION S.p.A.

$USA SOGEFI FILTRATION S.p.A.

Britain Netherlands China France Germany Brazil

226

100.00 99.99 91.90 7.28 0.81 99.99 100.00 99.99

50,000.00

€ ALLEVARD REJNA AUTOSUSPENSIONS S.A.

100.00

600,000

Pesos ALLEVARD REJNA AUTOSUSPENSIONS S.A.

99.97

10,529,668.00 37,161,683

€ ALLEVARD REJNA AUTOSUSPENSIONS S.A. Real ALLEVARD REJNA AUTOSUSPENSIONS S.A.

50.00 99.99 0.01 100.00 100.00 100.00 60.58 99.99

6,500,000 254,979.00 5,335,308.00 10,218,000.00 50,000.00 354,600

GBP € € €

ALLEVARD REJNA AUTOSUSPENSIONS S.A. ALLEVARD REJNA AUTOSUSPENSIONS S.A. ALLEVARD REJNA AUTOSUSPENSIONS S.A. ALLEVARD REJNA AUTOSUSPENSIONS S.A.

€ ALLEVARD FEDERN GmbH Real SOGEFI FILTRATION DO BRASIL Ltda FILTRAUTO S.A.

(**) 57.57% of voting rights

56.60 99.84 99.99 100.00 100.00 100.00 86.08 13.92 100.00

GBP ALLEVARD REJNA AUTOSUSPENSIONS S.A.

ALLEVARD SPRINGS Co. Ltd

UNITED SPRINGS Ltd UNITED SPRINGS B.V. SHANGHAI ALLEVARD SPRINGS Co. Ltd UNITED SPRINGS S.A.S. LUHN & PULVERMACHER – DITTMANN & NEUHAUS GmbH FILTRAUTO DO BRASIL Ltda

% of ownership 66.67 100.00 100.00 100.00 100.00 100.00 100.00 100.00

100.00 99.00 1.00 100.00

Name of company

Registered office

Share capital

S.ARA COMPOSITE S.a.S.

France

MNR RAMARAO FILTERS Pvt Ltd

India

15,893,480

INR FILTRAUTO S.A.

60.00

EMW ENVIRONMENTAL TECHNOLOGIES Pvt Ltd

India

475,000

INR FILTRAUTO S.A.

60.00

HSS – HOLDING SANITÀ E SERVIZI S.p.A.

Italy

6,479,972.00

REDANCIA S.r.l.

Italy

100,000.00

€ 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

MEDIPASS S.p.A.

Italy

700,000.00

€ HOLDING SANITÀ E SERVIZI S.p.A.

100.00

RESIDENZA ANNI AZZURRI S.r.l.

Italy

27,079,034.00

€ HOLDING SANITÀ E SERVIZI S.p.A.

100.00

HSS REAL ESTATE S.p.A. PARCO IMMOBILIARE S.r.l.

Italy

2,064,000.00

€ HOLDING SANITÀ E SERVIZI S.p.A

100.00

Italy

100,000.00

€ HOLDING SANITÀ E SERVIZI S.p.A.

100.00

ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l.

Italy

2,500,000.00

€ HOLDING SANITÀ E SERVIZI S.p.A.

100.00

2,000,000.00

Currency Parent companies € ALLEVARD REJNA AUTOSUSPENSIONS S.A.

% of ownership 50.00

HOLDING SANITÀ E SERVIZI GROUP € CIR S.p.A.

65.42

TUGA S.r.l.

Italy

50,000.00

€ REDANCIA S.r.l.

90.00

ABITARE IL TEMPO S.r.l.

Italy

99,000.00

€ ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l.

55.00

LE COLLINE DEL PO S.r.l.

Italy

50,000.00

€ RESIDENZA ANNI AZZURRI S.r.l.

100.00

MEIA S.r.l.

Italy

50,000.00

€ RESIDENZA ANNI AZZURRI S.r.l.

100.00

CASA ARGENTO S.r.l.

Italy

1,096,500.00

ARIEL TECHNOMEDICAL S.r.l.

Italy

SANITECH S.r.l.

Italy

€ ABITARE IL TEMPO S.r.l.

51.00

10,000.00

€ ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l.

51.00

100,000.00

€ ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l. ABITARE IL TEMPO S.r.l.

93.00 7.00 100.00

HEALTH EQUITY S.r.l.

Italy

100,000.00

€ ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l.

60,00

CYBER THERAPHY S.r.l.

Italy

100,000.00

€ ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l. HEALTH EQUITY S.r.l.

20.00 60.00 80.00

Italy

100,000.00

€ CIR S.p.A.

55.00

Italy

3,000,000.00

€ DRY PRODUCTS S.p.A.

22,242,424.00

$USA CIR INTERNATIONAL S.A.

99.00

278,588.00

€ CIR INTERNATIONAL S.A.

96.00

DRY PRODUCTS GROUP DRY PRODUCTS S.p.A. FOOD MACHINERY MEDIUM VOLUME S.p.A. (in liquidation) CIR INTERNATIONAL GROUP CIR VENTURES L.P.

United States

CIR INVESTMENT AFFILIATE S.A.

Luxembourg

CIGA LUXEMBOURG GROUP CIRFUND – CONSULTADORIA ECONOMICA E PARTECIPAÇOES, SOCIEDADE UNIPESSOAL LDA MEDINVEST Plc

Portugal Ireland

318,000,000.00 191,184.85

€ CIGA LUXEMBOURG S.A.r.l. $USA CIRFUND – CONSULTADORIA ECONOMICA E PARTECIPAÇOES, SOCIEDADE UNIPESSOAL LDA

100.00

100.00 80.29

227

INVESTMENTS IN JOINT VENTURES AND ASSOCIATES CONSOLIDATED USING THE EQUITY METHOD (in euro or foreign currency)

Name of company

Registered office

Share capital

Currency Parent companies

% of ownership

SORGENIA GROUP TIRRENO POWER S.p.A.

Italy

GICA S.A.

Switzerland

91,130,000.00

€ ENERGIA ITALIANA S.p.A.

50.00

3,500,000.00

CHF SORGENIA S.p.A.

25.00

18,440,655.10

€ FIN GAS S.r.l

69.77

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES S.A.

24.86

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES

25.00

LNG MED GAS TERMINAL S.r.l.

Italy

VOIE SACRÉE S.a.s.

France

2,197,000.00

PARC ÉOLIEN D’EPENSE S.a.s.

France

802,000.00

FIN GAS S.r.l.

Italy

10,000.00

€ SORGENIA S.p.A.

50.00

OTA S.a.s.

France

37,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES

50.00

ESPRESSO GROUP LE SCIENZE S.p.A.

Italy

103,400.00

€ GRUPPO EDITORIALE L’ESPRESSO S.p.A.

50.00

EDITORIALE CORRIERE ROMAGNA S.r.l. EDITORIALE LIBERTÀ S.p.A. ALTRIMEDIA S.p.A.

Italy Italy Italy

2,856,000.00 1,000,000.00 517,000.00

€ FIN.E.GI.L. EDITORIALE S.p.A. € FIN.E.GI.L. EDITORIALE S.p.A. € FIN.E.GI.L. EDITORIALE S.p.A.

49.00 35.00 35.00

SOGEFI GROUP ALLEVARD RESSORTS COMPOSITES S.A.S.

France

300,000.00

€ ALLEVARD REJNA AUTOSUSPENSIONS S.A.

50.00

OAKWOOD GLOBAL FINANCE S.C.A.

Luxembourg

566,573.75

€ CIR INTERNATIONAL S.A. CIR INVESTMENT AFFILIATE S.A.

35.86 11.59 47.45

RESOURCE ENERGY B.V.

Netherlands

100,000

€ CIR INTERNATIONAL S.A.

47.50

CIR INTERNATIONAL GROUP

228

INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES CONSOLIDATED USING THE COST METHOD (*) (in euro or foreign currency)

Name of company

Registered office

Share capital

Currency Parent companies

% of ownership

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

SUNNEXT

Italy

10,000.00

€ SORGENIA S.p.A.

100.00

TORRE MAGGIORE WIND POWER S.r.l.

Italy

10,000.00

€ SORGENIA S.p.A.

75.00

ENOTRYA S.r.l. (in liquidation) CELLULARMANIA.COM S.r.l. (in liquidation) UHURU MULTIMEDIA S.r.l. (non-operational)

Italy

78,000.00

€ ELEMEDIA S.p.A.

70.00

Italy

10,400.00

€ ELEMEDIA S.p.A.

100.00

Italy

10,400.00

€ KSOLUTIONS S.p.A.

100.00

BENEDETTINE S.r.l. (in liquidation)

Italy

255,000.00

ESPRESSO GROUP

€ 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 OSIMO SALUTE S.p.A.

Italy

750,000.00

€ ABITARE IL TEMPO S.r.l.

25.50

CONSORZIO OSPEDALE DI OSIMO

Italy

20,000.00

€ ABITARE IL TEMPO S.r.l.

24.70

FIDIA S.r.l.

Italy

10,200.00

€ HEALTH EQUITY S.r.l.

50.00

JESILAB S.r.l.

Italy

80,000.00

€ HEALTH EQUITY S.r.l. ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l.

SANATRIX S.r.l.

Italy

10,200.00

€ ISTITUTO DI RIABILITAZIONE S. STEFANO S.r.l.

13.75 41.25 55.00 26.40

CIR INTERNATIONAL GROUP BANQUE DUMENIL LEBLE S.A. (in liquidation)

France

DUMENIL LEBLE (SUISSE) S.A.

Switzerland

PHA – Participations Hotelieres Astor

France

CIR VENTURES MANAGEMENT CO. L.L.C. United States OAKWOOD GLOBAL FINANCE MANAGEMENT S.A.

Luxembourg

16,007,146.81

€ CIR INTERNATIONAL S.A.

100.00

102,850

CHF CIR INTERNATIONAL S.A.

100.00

12,150.00

€ CIR INTERNATIONAL S.A.

99.99

7,100

$USA CIR INTERNATIONAL S.A.

20.00

31,000.00

€ CIR INTERNATIONAL S.A. CIR INVESTMENT AFFLILIATE S.A.

34.69 11.31 46.00

(*) Investments which are non-significant, non-operational or that have been recently acquired, unless stated otherwise

229

INVESTMENTS IN OTHER COMPANIES CONSOLIDATED USING THE COST METHOD (*) (in euro or foreign currency)

Name of company

Registered office

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

A.G.F. S.r.l.

Italy

30,000.00

AGENZIA A.N.S.A. S. COOP. A.r.l.

Italy

CONSULEDIT S. CONSORTILE a.r.l.

Italy

E-INK CORPORATION

United States

IMMOBILIARE EDITORI GIORNALI S.r.l.

Italy

830,462.00

€ S.E.T.A. S.p.A. EDITORIALE LA NUOVA SARDEGNA S.p.A.

TRENTO PRESS SERVICE S.r.l.

Italy

260,000.00

€ S.E.T.A. S.p.A.

AGENZIA INFORMATIVA ADRIATICA d.o.o.

Slovenia

12,767.75

CLUB D.A.B. ITALIA – CONSORZIO

Italy

18,075.96

AUDIRADIO S.r.l.

Italy

258,000.00

PRESTO TECHNOLOGIES Inc. (non-operational)

United States

7,663,998.4

$USA ELEMEDIA S.p.A.

7.83

CERT – CONSORZIO EMITTENTI RADIO TELEVISIVE

Italy

177,531.00

€ RETE A S.p.A.

6.67

CONSORZIO COLLE MADDALENA

Italy

62,224.08

€ RETE A S.p.A.

4.17

TELELIBERTÀ S.p.A.

Italy

500,000.00

AFICO FILTERS S.A.E.

Egypt

10,000,000

BRE-MA S.r.l. (in liquidation)

Italy

30,000.00

ESPRESSO GROUP € GRUPPO EDITORIALE L’ESPRESSO S.p.A.

10.00

11,921,162.64

€ GRUPPO EDITORIALE L’ESPRESSO S.p.A. FIN.E.GI.L. EDITORIALE S.p.A. EDITORIALE LA NUOVA SARDEGNA S.p.A. EDITORIALE FVG S.p.A. S.E.T.A. S.p.A. E.A.G. S.p.A.

3.81 3.81 3.17 3.28 2.53 1.88 18.48

20,000.00

€ GRUPPO EDITORIALE L’ESPRESSO S.p.A. FIN.E.GI.L. EDITORIALE S.p.A. EDITORIALE LA NUOVA SARDEGNA S.p.A. S.E.T.A. S.p.A. EDITORIALE FVG S.p.A. E.A.G. S.p.A.

6.62 3.99 0.62 0.49 0.47 0.39 12.58

165,456,000

$USA GRUPPO EDITORIALE L’ESPRESSO S.p.A.

Sit. EDITORIALE FVG S.p.A. € ELEMEDIA S.p.A. € A. MANZONI & C. S.p.A.

€ FIN.E.GI.L. EDITORIALE S.p.A.

0.05 0.17 0.12 0.29 14.40 19.00 14.29 3.63

19.00

SOGEFI GROUP

(*) Holdings of less than 20%

230

EGP SOGEFI FILTRATION S.p.A. € SOGEFI S.p.A.

19.00 15.00

INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES AND IN OTHER COMPANIES NOT INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS (in euro or foreign currency)

Name of company

Registered office

Share capital

Currency Parent companies

% of ownership

CIR GROUP C.B.D.O. - COMPAGNIE BOURGUIGNONNE DES OENOPHILES SARL

France

9,000.00

€ CIGA LUXEMBOURG S.A.r.l.

SO.GE.LOC. S.a.r.l. (in liquidation) VICTOR HUGO CENTRE D’AFFAIRES S.A.r.l. (in liquidation)

France

7,622.45

€ C.B.D.O. EURL

100.00 99.80

France

7,622.45

€ C.B.D.O. EURL

76.00

FINAL S.A. (in liquidation)

France

2,324,847.00

€ C.B.D.O. EURL

47.73

OWP Parc Eolienne du Banc des Olives SARL

France

10,000.00

€ SOCIÉTÉ FRANÇAISE D’EOLIENNES

20.00

SOGEFI GROUP INTEGRAL S.A.

Argentina

2,515,600

SORGENIA GROUP

LES NOUVEAUX ATELIERS MECANIQUES S.A. (in liquidation)

Belgium

AUTORUBBER S.r.l. (in liquidation)

Italy

Pesos FILTRAUTO S.A. SOGEFI FILTRATION ARGENTINA S.A.

93.50 6.50 100.00

2,880,000.00

€ SOGEFI S.p.A. REJNA S.p.A.

74.90 25.10 100.00

50,000.00

€ REJNA S.p.A.

100.00

231

232

Report of the Board of Statutory Auditors

233

234

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 (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 2008 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 and subsequent updates. In relation to the way in which the duties contained in our mandate were carried out, we hereby attest that: –

We attended all the Shareholders’ Meetings, all the Meetings of the Board of Directors and the Internal Control Committee that were held during the year under examination and read the minutes of the meetings of the Compensation Committee and obtained from the Directors timely and suitable information on the activity 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 entered into by the Company and by the Group of companies that the latter controls in accordance with the Law and the Bylaws;

–

We obtained a degree of knowledge necessary to carry out the duties contained in our mandate regarding compliance with the law and with the Bylaws, with the principles of sound administration and on the degree of adequacy of the organizational structure of the Company through direct investigation, collecting data and information from the heads of the departments involved and from an exchange of data and significant information with the firm of auditors;

–

checked the adequacy of the internal control system and the administrative

accounting

system,

representation

in particular operating

events,

see

how reliable

through

direct

the latter

was

investigation,

its

obtaining

235

information from the heads of the respective departments and analysing the results of the work carried out by the firm of auditors; –

We monitored the functionality of the system of control for investee companies and the adequacy of the instructions given to them, even according to the terms of Article 114.2 of D.Lgs. 58/98;

–

We checked that the rules of corporate governance as set out in the Code of Conduct for Listed Companies promoted by Borsa Italiana S.p.A. had been adopted by the Company and were being put into practice ;

–

We checked that there were no significant aspects that the control functions of the companies controlled by CIRS.p.A. needed to notify;

–

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,

which

contain among other things the information as per

Document no. 2 of February 6 2009 issued jointly by Bank of Italy, Consob and Isvap; –

We checked that the Report on Operations for financial year 2008 conformed to current laws and regulations and was consistent with the resolutions adopted by the Board of Directors.

In the course of our surveillance activity, carried out as above, no significant facts emerged requiring notification to Surveillance Bodies nor do we have any proposals to make regarding the financial statements, the approval thereof or any other matter relating to our mandate. * * * The specific indications that this report must provide are listed below, in accordance with the above-cited Consob Communiqué of April 6 2001 and subsequent updates. -

We obtained sufficient information on the most significant transactions from the economic, financial and equity viewpoint which were entered into by CIR S.p.A. and its subsidiaries, checking that they were in accordance with the law and the company transactions

Bylaws;

the

Directors

have given

adequate information

these

in the Report on Operations; we also obtained and ensured that the

transactions approved and/or put in place were not imprudent, rash, in contrast with

236

resolutions adopted or in potential conflict of interest or in any way such as to compromise the integrity of the Companyâ&#x20AC;&#x2122;s capital and assets. -

Adequate information was given to us regarding intercompany and related-party transactions.

Based

the

information

gathered, we

ascertained

that these

transactions complied with the law and with the Company Bylaws, were in the interests of the Company and did not give rise to any doubts as to the correctness and completeness of the information given in the financial statements, the existence of situations of conflict of interest, the protection of the company capital and assets and safeguarding minority shareholders; the periodic checks and controls carried out in the Company offices did not reveal that any atypical and/or unusual transactions had been carried out; -

In the Report on Operations and the Explanatory Notes to the financial statements the Directors have indicated and described

the main

transactions

with

third parties,

intercompany and related parties, stating that these transactions took pace at normal market conditions for the quality and type of services provided; the transactions in question were mainly loans, guarantees and administrative and financial services; details of the impact of these transactions was given in the balance sheet and income statement and in the other documents which accompany the financial statements; -

The firm Deloitte & Touche S.p.A. issued the audit reports for the Statutory Financial Statements and the Consolidated Financial Statements for the year ended December 31 2008 without any objections or requests for further 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;

illustrated

the Directors in the documents accompanying the Financial

Statements, during the year CIR S.p.A. gave further mandates to the firm of auditors, in addition to the obligatory audit mandate, for other services for euro 96,000 while the subsidiaries gave mandates for the issue of certification for an amount of euro 145,000 and mandates for other services for euro 152,000; these fees seem appropriate in view of the size and the complexity of the work carried out; there was no evidence of mandates awarded to entities linked to the audit firm in any ongoing relationship;

237

During the year under examination we did not issue any opinions as per the terms of the law; the Board of Statutory Auditors did however put forward the proposal for the appointment of the firm of auditors with reasons for their choice as per the terms of Art. 159 of D.Lgs. 58/98;

During 2008 the Board of Directors met 9 times and the Board of Statutory Auditors was present

at all of these meetings; the Board of Statutory Auditors also held 8

meetings, meeting 4 times with the appointed firm of auditors; there were also numerous individual meetings between the statutory auditors and the management of the Company and the Board of Statutory Auditors was present at 2 meetings of the Internal Control Committee; -

We have no particular observations to make either concerning compliance with the principles of correct administration, because these appear to have been constantly observed, or concerning the adequacy of the organizational structure, which we found to be suitable to meet the operating and managerial needs of the Company;

The system of internal control appeared to be adequate for the size and type of operations of the Company as we also ascertained at the meetings of the Internal Control Committee which, on the basis of the rules of governance adopted, are attended by the Chairman of the Board of Statutory Auditors (or another Statutory Auditor designed by the latter). Moreover, in accordance with the Code of Conduct for Listed Companies, the Internal Audit Manager of the Group and the Officers responsible for Internal Control made sure that there was the necessary functional and information link regarding the way in which their institutional control duties were carried out and the outcome of the checks carried out, even by attending the meetings of the Board of Statutory Auditors.

We have no observations to make regarding the adequacy of the administrative and accounting system or its reliability to represent operating events correctly. Regarding the accounting details contained in the statutory and consolidated financial statements as of December 31 2008, these were certified by the Chief Executive Officer and by the Executive responsible for the preparation of the companyâ&#x20AC;&#x2122;s financial statements in accordance with Art. 81-ter of Consob Regulation no. 11971 of May 14 1999 and subsequent amendments and additions.

238

We have no observations to make regarding the adequacy of information flows from the subsidiaries to the Parent Company to ensure the timely fulfilment of communication obligations required by law.

During the regular exchanges of information and data between the Board of Statutory

Auditors

and

the

external auditors, in accordance also with Art. 150,

paragraph 3, of D.Lgs. 58/1998, no aspects emerged that needed to be highlighted in this report. -

The Company has substantially adhered to the recommendations contained in the Code of Conduct prepared by the Committee for the Corporate Governance of Listed Companies, and has illustrated its corporate governance model in the Report on this subject, prepared also in accordance with Art. 124 bis of D.Lgs. no. 58/1998, with Art. 89 bis of Consobâ&#x20AC;&#x2122;s Rules for Issuers and also with Section IA.2.6. of the Instructions to the Rules for the Markets Organized and Managed by Borsa Italiana S.p.A.; to the extent of our responsibility we have monitored the way in which the rules of corporate governance required by the above-mentioned Code of Conduct, as adopted by the Company, are 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;

The Company has also adopted a Code of Ethics for conduct as per the terms of D.Lgs. 231/2001 and D.Lgs. 61/2002 and appointed a Surveillance Body as required by regulations; it has also adopted and implements an â&#x20AC;&#x153;Organizational Modelâ&#x20AC;? for conducting and regulating the business;

Our surveillance activity was carried out on a routine basis during 2008 and did not reveal any omissions, facts that could be censured or any irregularities worthy of note.

In short, after the surveillance activity we carried out during the year we have no proposals to make as per art. 153, paragraph 2. of D.Lgs. 58/98 regarding the separate financial statements of CIR SpA as of December 31 2008, on the approval thereof or on any other matter within our jurisdiction, just as we have no observations to make on the proposed allocation of the net income for the year contained in them.

239

Milan, April 6 2009

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

240

In accordance with the terms of Art. 144 quinquiesdecies of Consob’s Rules for Issuers, below is the list of positions held by the members of the Board of Statutory Auditors of C.I.R. S.p.A. at the date on which the this Report was presented to the Meeting of the Shareholders in accordance with the terms of Art. 153 of D.Lgs. no. 58 of February 24 1998 of companies as per Book V, Chapter V, Paragraphs V, VI and VII of the Civil Code. In brackets is the date of the close of the financial year, the approval of the financial statements of which marks the end of each period of office. •

Pietro Manzonetto: Member of the Supervisory Board of Banco Popolare Soc. Coop. (31.12.2009); Chairman of the Board of Statutory Auditors of RCS MediaGroup SpA (31.12.2008), CIR – Compagnie Industriali Riunite SpA (31.12.2010); Gruppo Banca Leonardo SpA (31.12.2008), Allianz SpA (31.12.2010), Allianz Bank Financial Advisors SpA (31.12.2009), Humanitas Mirasole SpA (31.12.2010), Otis SpA (30.11.2008), Otis Srl (30.11.2009). Number of positions held in issuing companies: 3 (Banco Popolare Soc. Coop., RCS MediaGroup SpA and CIR SpA). Total number of positions held: 9.

241

C.I.R. S.p.A. Disclosure to the public as per Art. 144-quinquiesdecies of the Rules for Issuers regarding Statutory Auditor in office Riccardo Zingales List of positions held as of the date of presentation of the Report as per Art. 153 of the TUF Prepared in accordance with the terms of Art. 5-bis of the Rules for Issuers ____________________________

Name of company Banca Albertini Syz & C. Spa Beta Mobiliare Srl in liq. CIR SpA Cirinvest SpA Cofide SpA Dry Products SpA Sorgenia Menowatt Srl Energia Italiana SpA Energia Lombarda SpA Energia Molise SpA F Srl Faremuro Srl G Srl Immobiliare Bonaparte Ventidue Srl Immobiliare Palman Srl Jupiter Marketplace SpA Lng Med Gas Terminal Srl Loft Colonna Srl Loft Tartaglia Srl Manzonimmobiliare Srl P Srl Quintiliana Srl Rejna Srl Sabiana SpA Sogefi SpA Sorgenia Bioenergy SpA Sorgenia Holding SpA Sorgenia Minervino SpA Sorgenia Puglia SpA Sorgenia SpA Sorgenia Trading SpA Sterngen SpA Tirreno Power SpA Valora SpA Veolia Servizi Ambientali SpA Verbena Srl in Liq. Voluta Srl Wellboat Real Estate Italy Srl

Position Director Liquidator Statutory Auditor Chairman of Board of Statutory Auditors Statutory Auditor Statutory Auditor Statutory Auditor Statutory Auditor Chairman of Board of Statutory Auditors Chairman of Board of Statutory Auditors Sole Director Sole Director Sole Director Sole Director Statutory Auditor Chairman of Board of Statutory Auditors Statutory Auditor Sole Director Sole Director Sole Director Sole Director Sole Director Chairman of Board of Statutory Auditors Statutory Auditor Statutory Auditor Chairman of Board of Statutory Auditors Statutory Auditor Statutory Auditor Chairman of Board of Statutory Auditors Statutory Auditor Chairman of Board of Statutory Auditors Statutory Auditor Statutory Auditor Director Chairman of Board of Statutory Auditors Liquidator Sole Director Sole Director

Number of positions in issuing companies : 3 Total number of positions held : 38

242

End of mandate Approval Fin. Stat. 31/12/2009 Indefinite Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2008 Indefinite Indefinite Indefinite Indefinite Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2008 Approval Fin. Stat. 31/12/2009 Indefinite Indefinite Indefinite Indefinite Indefinite Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2008 Approval Fin. Stat. 31/12/2008 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2011 Approval Fin. Stat. 31/12/2008 Approval Fin. Stat. 31/12/2010 Approval Fin. Stat. 31/12/2009 Approval Fin. Stat. 31/12/2009 Indefinite Indefinite Indefinite

C.I.R. S.p.A. Disclosure to the public as per Art. 144-quinquiesdecies of the Rules for Issuers regarding Statutory Auditor in office Luigi Nani List of positions held as of the date of presentation of the Report as per Art. 153 of the TUF Prepared in accordance with the terms of Art. 5-bis of the Rules for Issuers ____________________________

Name of company

Position

End of mandate

BIM Fiduciaria SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2008

BIM Vita SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2009

Caâ&#x20AC;&#x2122; Immobiliare SpA

Chairman of the Board of Statutory Auditors

Approval Fin. Stat. 31/12/2010

Carlo De Benedetti & Figli SapA

Statutory Auditor

Approval Fin. Stat. 31/12/2010

Directa SIMpA

Statutory Auditor

Approval Fin. Stat. 31/12/2008

CIR SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2010

CO.FI.TO SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2010

Farfalletta SpA

Chairman of the Board of Statutory Auditors

Approval Fin. Stat. 31/12/2010

Finagro SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2008

Invind SpA

Chairman of the Board of Statutory Auditors

Approval Fin. Stat. 31/12/2010

Mimose SpA

Director

Approval Fin. Stat. 31/12/2010

Pincar SpA

Statutory Auditor

Extraord. Shareholdersâ&#x20AC;&#x2122; Meeting 06/04/2009

Romed SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2009

Romed International SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2009

Savio SpA

Statutory Auditor

Approval Fin. Stat. 31/12/2009

Studio Segre Srl

Director

Approval Fin. Stat. 31/12/2011

Number of positions in issuing companies : 1 Total number of positions held : 16

243

244

Reports of the Independent Auditors

245

246