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CIR ANNUAL REPORT CONSOLIDATED AND STATUTORY FINANCIAL STATEMENTS

FINANCIAL YEAR 2009


CONTENTS

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

PERFORMANCE OF THE GROUP...........................................................................................................................14 PERFORMANCE OF THE PARENT COMPANY…………. ..........................................................................................18 CHART RECONCILING THE FIGURES OF THE PARENT COMPANY WITH THOSE OF THE CONSOLIDATED FINANCIAL STATEMENTS .........................................................................................................19 PERFORMANCE OF THE BUSINESS SECTORS………………….................................................................................21 OTHER ACTIVITIES ..............................................................................................................................................28 SIGNIFICANT EVENTS WHICH OCCURRED AFTER THE CLOSE OF THE YEAR.......................................................29 MAIN RISKS AND UNCERTAINTIES TO WHICH CIR S.p.A. AND ITS GROUP ARE EXPOSED.................................29 OTHER INFORMATION .........................................................................................................................................31 PROPOSED ALLOCATION OF NET INCOME FOR THE YEAR ..................................................................................37

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31 2009 1. 2. 3. 4. 5. 6.

STATEMENT OF FINANCIAL POSITION ................................................................................................................40 INCOME STATEMENT..........................................................................................................................................41 STATEMENT OF COMPREHENSIVE INCOME……………………….. ...........................................................................42 STATEMENT OF CASH FLOW...............................................................................................................................43 STATEMENT OF CHANGES IN EQUITY.................................................................................................................44 EXPLANATORY NOTES ........................................................................................................................................45

CONSOLIDATED FINANCIAL STATEMENTS OF DIRECTLY CONTROLLED SUBSIDIARIES .............................................131 CERTIFICATION OF THE CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH ART. 154 BIS OF D.LGS. 58/98 ..........................................................................................................................141

STATUTORY FINANCIAL STATEMENTS OF THE PARENT COMPANY AS OF DECEMBER 31 2009 1. 2. 3. 4. 5. 6.

STATEMENT OF FINANCIAL POSITION ................................................................................................................144 INCOME STATEMENT..........................................................................................................................................145 STATEMENT OF COMPREHENSIVE INCOME ........................................................................................................146 STATEMENT OF CASH FLOW...............................................................................................................................147 STATEMENT OF CHANGES IN EQUITY.................................................................................................................148 EXPLANATORY NOTES ........................................................................................................................................149

STATUTORY FINANCIAL STATEMENTS OF DIRECTLY CONTROLLED SUBSIDIARIES...................................................195 CERTICATION OF THE STATUTORY FINANCIAL STATEMENTS IN ACCORDANCE WITH ART. 154 BIS OF D.LGS 58/98 ...........................................................................................................................221

LIST OF EQUITY INVESTMENTS AT DECEMBER 31 2009.............................................................................. 223 REPORT OF THE BOARD OF STATUTORY AUDITORS . ................................................................................... 233 REPORT OF THE INDEPENDENT AUDITORS..................................................................................................... 245 This Annual Report and Financial Statements as of December 31 2009 were prepared as per the terms of Art. 154 ter of D.Lgs. 58/98 and were drawn up in accordance with international accounting standards applicable as recognized by the European Union in Regulation (EC) no. 1606/2002 of the European Parliament and the Council, of July 19 2002, as well as with the measures issued in implementation of Art. 9 of D. Lgs. No 38/2005.


COMPAGNIE INDUSTRIALI RIUNITE Limited-liability corporation - Share capital € 396,058,633.50 - Registered Office: Via Valeggio, 41 – 10129 Turin - www.cirgroup.it R.E.A. n. 3933 – Turin Company Register / Fiscal Code / VAT no. 00519120018 Company subject to management and coordination by 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

Honorary Chairman and Director Chairman Chief Executive Officer and General Manager Directors

Secretary to the Board

CARLO DE BENEDETTI (3) STEFANO MICOSSI (1) RODOLFO DE BENEDETTI (2)

GIAMPIO BRACCHI (4) FRANCO DEBENEDETTI PIERLUIGI FERRERO GIOVANNI GERMANO (3) (4) FRANCO GIRARD (5) PAOLO MANCINELLI (5) LUCA PARAVICINI CRESPI (4) CLAUDIO RECCHI MASSIMO SEGRE GUIDO TABELLINI (3) (5) (6) UMBERTO ZANNI (3) FRANCA SEGRE

BOARD OF STATUTORY AUDITORS

Chairman

PIETRO MANZONETTO

Statutory Auditors

LUIGI NANI RICCARDO ZINGALES

Alternate Auditors

MARCO REBOA GIANLUCA PONZELLINI LUIGI MACCHIORLATTI VIGNAT

INDEPENDENT AUDITORS DELOITTE & TOUCHE S.p.A.

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

Legal representative 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 Member of the Compensation Committee Member of the Internal Control Committee Member of the Appointments Committee Lead Independent Director


CIR S.p.A. 104th Year of Business ANNUAL GENERAL MEETING OF THE SHAREHOLDERS Turin, April 29 2010, 1st call Turin, April 30 2010, 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 2010 at 10.30 a.m. at the first call and on April 30 2010 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 part 1. Annual Report and Financial Statements for the year ended December 31 2009. Report of the Board of Statutory Auditors. Resolutions pertaining to the above. 2. Proposal to revoke the resolution adopted on April 30 2009 authorizing the buy-back of the Company’s own shares and the disposal of the same and proposal for a new authorization. 3. Proposal regarding the approval of stock option plan 2010.

Extraordinary part 4. Proposal to supplement the power to issue convertible bonds or bonds with warrants attached assigned to the Board of Directors by the Extraordinary Meeting of the Shareholders held on April 30 2009 as per Art. 2420-ter of the Civil Code. Consequent amendment of Art. 4 of the Company Bylaws.

The share capital consists of 792,117,267 ordinary shares with a nominal value of € 0.5 each with voting rights of which 43,074,000 own shares without voting rights. 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. To facilitate the checking process, shareholders are requested to show their copy of the notification made to the Company which the intermediary, in accordance with current regulations, is required to make available to them. This same copy of the notification should be used for delegating a proxy to represent them by signing the proxy form at the bottom of the document in question. Shareholders may obtain a copy of the documentation regarding the items on the Agenda, as per the provisions of the law, from the Company offices or from Borsa Italiana S.p.A.

THE BOARD OF DIRECTORS

Notice of this meeting was published in the newspaper “la Repubblica” on March 26 2010


LETTER TO THE SHAREHOLDERS

Dear Shareholders, In 2009 the international financial crisis that had originated in 2007 spread to the real economy, causing a deep global recession. In Europe and in Italy, in particular, the Gross Domestic Product shrank to an extent without precedent in the last ten years. The sharp reduction in production and trade flows put stability at risk and in some cases jeopardized the survival of many businesses throughout the world. This economic scenario had a negative impact on almost all business sectors, including the ones in which our group operates, with the exception of healthcare. The energy sector recorded the first drop in world energy consumption since World War 2. In Italy, the decline on 2008 was almost 7% for electricity and over 8% for gas. Publishing felt the effect of the sharp contraction in advertising, which in our country suffered a double-digit decline (approximately -13% the overall reduction, -22% approximately for the print media), and also of a structural factor that has been affecting the sector for some time, the development of new technology platforms in the market. Last but not least, the automotive component business was hit significantly by the sharp decline in the production of new vehicles in Europe (-18% for cars, -60% for industrial vehicles). By contrast, the healthcare sector was in no way affected by the downturn, thanks to its historically non-cyclical demand, which is influenced by social and health factors such as the gradual aging of the popuation and the rise in the number of elderly people who are not self-sufficient. One of the few positive factors of the year was the return to normality of the international financial markets, especially in the second half of the year. Today many people expect 2010 to be a year of economic recovery, although there is still plenty of uncertainty, especially in Europe. In such a complex environment the CIR Group closed 2009 with a significant increase in its consolidated net income compared to last year. This was due mainly to the improvement in the result of our financial activities, linked to the recovery of the markets. In terms of revenue and margins, however, despite the higher results obtained by the healthcare business, the group was negatively affected by the effects of the recession on its other main business sectors. In 2009 we focused on the current portfolio of the group, which consists of the energy sector (Sorgenia), media (Espresso Group), automotive components (Sogefi), healthcare (KOS, the new name for the former Holding Sanità e Servizi) and financial services (Jupiter Finance and other minor businesses). To counter the severe economic recession, we supported the management of all the operating companies in designing and implementing plans able to adjust costs to the changed levels of activity, without sacrificing business development initiatives. The measures put in place as from the second half of 2008 which continued throughout last year enabled us to obtain some important results during the year, especially in the media and automotive components sectors, which were the hardest hit by the crisis. At the holding level, CIR further strengthened its financial structure, ending the year with an aggregate net financial surplus which was almost treble that at the end of 2008. Our commitment to keeping a sound financial structure will continue in 2010 too. For this reason, and also because of the absence of earnings at parent company level, the Board of Directors will put forward the proposal to the Shareholders’ Meeting that no dividend be distributed for the year 2009. This is a difficult choice to make but in such a long phase of uncertainty as the present one we feel that a solid capital structure for the group must be the top priority. Our share price performed strongly in 2009 , after a somewhat lacklustre 2008 for the whole market. During the year our company entered the FTSE/MIB index of the Milan Exchange, which includes stocks with the highest capitalization. The significant increase in the value of our stock does give us satisfaction, but our time horizon remains as always the medium-long term.


In summing up the year that recently ended, we should also mention the first degree civil verdict of the Milan Court which ruled that CIR should receive compensation from Fininvest for the “Lodo Mondadori� case, which took place at the beginning of the 1990s. The basis for this compensation was an episode of corruption that took place at that time, which the judges of the Criminal Court have established definitively to have been the case. The civil proceedings are continuing in the Court of Appeal. CIR is awaiting the coming stages of the judicial process convinced that its good reasons will prevail and is strongly determined to uphold these reasons in the interest of the company and of all its shareholders. The results obtained by our group in the difficult year 2009, not only in economic and financial terms but also in relation to the measures put in place to counter the crisis, are in our view confirmation of the quality of the management team of the operating companies and of the validity of the strategy of focusing on a balanced portfolio of business activities, which we have been following in recent years. 2010 is proving to be another challenging year. Despite signs of stabilization and forecasts of a tentative economic recovery in Europe, the economic environment still has numerous factors of uncertainty and risk. Furthermore, in several of the sectors in which we operate the difficulties of the recession are accompanied by structural factors such as excess supply in some segments of the energy market, the development of new technologies in publishing and excess production capacity in Europe in the automotive industry. The actions that we have taken in the last 18 months have made our group more efficient and competitive in all its sectors of activity. In this way the difficult environment has been an opportunity. The macroeconomic scenario is now posing new challenges. We will continue to work, with commitment and responsibility, to foster the sustainable development of the CIR group in the long term.

Signed by The Chief Executive Officer Rodolfo De Benedetti


REPORT ON OPERATIONS

Dear Shareholders,

In 2009 the CIR Group reported consolidated net income of € 143.4 million, up from € 95.5 million in 2008, posting a rise of € 47.9 million (+ 50.2%). Consolidated revenues totalled € 4,266.8 million compared to € 4,727 million in the previous year (-9.7%). The rise in net income was due above all to the significant improvement in the result of financial activities, which came to a positive € 47.3 million (compared to a negative figure of € 32.3 million in 2008), and to the realization of net non-recurring gains of € 63.4 million (€ 64.2 million in 2008). The contribution of the financial companies benefited both from the recovery of the financial markets, which determined a rise in the value of securities in the portfolio for approximately € 42 million, and from the further disinvestment from Medinvest which led to the realization of capital gains of approximately € 44 million. The non-recurring gains came for approximately € 77 million from the subscription by Verbund of the capital increase of € 150 million in Sorgenia, which was made on the basis of a valuation of the company of € 3.9 billion. The net result of the Group benefited from the positive contribution of the operating companies of € 32.7 million, down from € 63.6 million in 2008, due to the decline in profitability resulting from lower revenues and to the restructuring costs incurred. This result reflects the repercussions of the negative economic environment on the main operating subsidiaries, with the exception of healthcare. The CIR Group includes five business sectors: utilities (electricity and gas), media (publishing, radio and television), automotive components (filters and suspension components), healthcare (nursing homes, rehabilitation and hospitals) and financial services (non-performing loans and loans secured on one fifth of workers’ salaries). In 2009 the Group continued and strengthened the management action taken in the last few months of 2008 to counter the impact of the global crisis. Specifically, in the media and automotive components sectors, the hardest hit by the current recession, important measures were taken to increase efficiency and cut costs which during the year led to a gradual, albeit partial, recovery

Report on Operations

9


of profitability. The aim of this strategy, which involves maintaining investments in new initiatives, is to enable all the companies of the Group to counter the coming economic cycles with a more solid, efficient and competitive structure. In the utilities sector in an extremely difficult market environment characterized by a sharp fall both in demand for energy and in prices in the sector, the Sorgenia group reported revenues of € 2,325.8 million, down by 4.4% from € 2,432 million in 2008, an EBITDA of € 117.8 million (-37.8% compared to € 189.6 million in 2008) and net income of € 66.9 million, in line with the previous year, partly thanks to tax benefits on important investments in greater production capacity. During the year the group continued to roll out its business plan, with investments in new production capacity from both conventional and renewable sources. In the media sector in 2009 the Espresso group suffered the effects of the crisis which affected publishing with a significant contraction in advertising investment. This trend had a significant impact on the results of the group: revenues fell by 13.5% to € 886.6 million and the gross operating margin went down to € 106.7 million (-25.2%). Despite the general scenario, however, the Espresso group recorded a positive result of € 5.8 million, after having posted extraordinary provisions of a fiscal nature of € 11.4 million and having incurred restructuring costs of approximately € 31 million. In 2009 the Sogefi group, suffering the effects of the sharp contraction in vehicle production worldwide, reported a net loss of € 7.6 million (net income of € 28.5 million in 2008) with revenues of € 781 million (-23.2% from € 1,017.5 million in 2008) and an EBITDA of € 47.2 million, down from € 104.9 million in 2008, after restructuring costs of € 17.2 million. The action taken rapidly and effectively to counter the crisis in the sector enabled the group to recoup profitability and return to profit as from the third quarter of 2009. The KOS group (formerly HSS – Holding Sanità e Servizi) continued in 2009 to follow its growth trend which has enabled it in just a few years of business to become one of the main operators in private healthcare in Italy. The group reported consolidated revenues of € 273.4 million (+11%) and an EBITDA of € 33 million which was up by 14.9% on the figure of € 28.7 million in 2008. The consolidated net result was a loss of € 0.4 million compared to a net loss of € 1.5 million in 2008, affected by non-recurring costs of € 3.3 million, partly due to a corporate reorganization that will in future make it possible to further improve the efficiency of the company. In the financial services sector Jupiter Finance operates in the non-performing loan segment. At December 31 2009 the portfolio of loans under management amounted to approximately € 2.2 billion of nominal value, of which approximately 60% acquired through securitization vehicles and the remaining 40% managed on behalf of other investors. During 2009 CIR simplifed its international activities at the holding level, concentrating the assets held by Cirfund (through a merger by incorporation) and by Medinvest (through a redemption in kind) in the Luxembourg company CIR International. In November, therefore, CIR International took on the assets of Medinvest, which consisted mainly of shares in various hedge funds, for a total value of US$ 117 million (€ 79.8 million).

10

Report on Operations


On October 3 2009 the first degree ruling of the Court of Milan upheld the right of CIR to compensation from Fininvest, for patrimonial damages caused by so-called “Lodo Mondadori” case, for the sum of approximately € 750 million. Following this ruling, Fininvest delivered to CIR a guarantee at the first request for an amount of € 806 million issued by a prime bank to cover this amount should the sentence be confirmed in the Court of Appeal. The charts on the following pages show a breakdown by business sector of the economic and financial results 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, CIGA Luxembourg , CIR Investment Affiliate and Dry Products).

Report on Operations

11


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

2009 CONSOLIDATED

Revenues

Costs of production

Other operating income/costs

Adjustments to value of investments valued at equity

Amortization depreciation & writedowns

(26.5) (3.2) (23.9) (12.7) 34.2

39.5 1.0 ----

(46.9) (42.7) (43.0) (13.0) (0.1)

Income taxes

Net income minority Shareholders

Net result of the Group

Net result of the Group

(3) (37.6) (21.3) (11.6) (8.3) (5.0)

Dividends, gains & losses from trading & valuing securities (4) -1.7 0.1 ---

46.9 (38.8) (0.7) (8.2) (0.2)

(45.5) (2.3) 1.9 (0.2) --

34.5 3.2 (4.4) (0.2) (0.4)

37.1 11.3 16.4 (0.9) (0.3)

Net financial income & expense

AGGREGATE Sorgenia Group Espresso Group Sogefi Group Kos Group (formerly HSS) Other subsidiaries

2,325.8 886.6 781.0 273.4 --

(1) (2,221.2) (777.8) (708.2) (231.2) (29.3)

Total operating subsidiaries

4,266.8

(3,967.7)

(32.1)

40.5

(145.7)

(83.8)

1.8

(1.0)

(46.1)

32.7

63.6

--

(0.9)

(0.1)

--

--

(0.2)

44.7

--

(0.2)

43.3

48.5

4,266.8

(3,968.6)

(32.2)

40.5

(145.7)

(84.0)

46.5

(1.0)

(46.3)

76.0

112.1

----

-(18.7) 4.9

-(18.0) 5.8

5.3

--0.1 ---

(0.8) (0.9) (20.0) 34.2 5.3

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

Financial subsidiaries Total subsidiaries

(2)

2008

CIR & financial holdings Revenues Operating costs Other operating income & costs

-(18.7) 4.9

Adjustments to the value of investments valued at equity Amortization, depreciation & writedowns Net financial income & expense Dividends, gains & losses from trading securities Income taxes

(0.8) (0.9) (20.1) 34.2

Totale CIR & financial holdings before non-recurring items

--

(18.7)

4.9

(0.8)

(0.9)

(20.1)

34.2

5.3

0.1

4.0

(80.8)

Non-recurring items

--

(7.4)

10.1

--

--

--

60.5

--

0.2

63.4

64.2

4,266.8

(3,994.7)

(17.2)

39.7

(146.6)

(104.1)

141.2

4.3

(46.0)

143.4

95.5

Total consolidated of Group

(1) This items is the sum of "change in inventories", "costs for purchase of goods, "costs for services", "personnel costs" of the consolidated income statement. The item does not consider the effect of â‚Ź (17.6) million of intercompany elimination. (2) This item is the sum of "other operating income" and "other operating costs" in the consolidated income statement. The item does not consider the effect of â‚Ź 17.6 million of intercompany elisions. (3) This item is the sum of "financial income" and "financial expense" in the consolidated income statement. (4) This item is the sum of "dividends", "gains from trading securities", "losses from trading securities" and "adjustments to the value of financial assets" in the consolidated income statement.


CONSOLIDATED BALANCE SHEET BY BUSINESS SECTOR

(in millions of euro)

31.12.2009 CONSOLIDATED

2,117.6

Other net non-current assets&liabilities (2) 108.8

Espresso Group

894.0

(185.5)

(4.9)

Sogefi Group

363.4

(37.5)

26.5

Kos Group (formerly HSS)

303.8

(21.5)

20.9

0.5

81.7

(6.4)

3,679.3

(54.0)

261.1

AGGREGATE Sorgenia Group

Other subsidiaries Total subsidiaries

Fixed assets (1)

Net working capital (3) 225.0

Net financial position (4) (1,321.1) (*)

31.12.2008 Total equity Minority of which: Shareholders' equity

Equity of the Group

Equity of the Group

1,130.3

572.5

557.8

450.5

(208.2)

495.4

228.5

266.9

262.4

(170.2)

182.2

86.2

96.0

92.6

(163.5)

139.7

49.7

90.0

90.6

(59.7)

16.1

0.1

16.0

21.6

(1,922.7)

1,963.7

937.0

1,026.7

917.7

128.6

--

128.6

129.9

137.7

(1.4)

139.1

160.8

(19.3)

--

CIR & financial holdings Fixed assets

128.6

Other net non-current assets & liabilities

137.7

Net working capital

(19.3)

Net financial position Total consolidated of Group

3,807.9

83.7

241.8

121.6

121.6

(1,801.1)

2,332.3

935.6

(19.3)

12.3

121.6

44.2

1,396.7

1,264.9

(*) The financial position includes the free cash flow of Sorgenia Holding S.p.A. (1) This item is the algebraic sum of "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 "other receivables", "securities" and "deferred taxes" in non-current assets and of "other payables", "deferred taxes", "personnel provisions" and "provisions for risks and losses of non-current liabilities of the consolidated balance sheet. (3) This item is the algebraic sum of "inventories", "contracted work in progress", "trade receivables" and "other receivables" in current assets and of "trade payables", "other payables" and "provisions for risks and losses" in current liabilities of the consolidated balance sheet (4) This item is the algebraic sum of "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 of "bank overdrafts", "bonds and notes" and "other borrowings" in current liabilities of the consolidated balance sheet.


1.

PERFORMANCE OF THE GROUP

Consolidated revenues for 2009 came in at € 4,266.8 million, down from € 4,727 million in 2008, with a decline of € 460.2 million (-9.7%). Consolidated revenues can be broken down by business sector as follows: (in millions of euro)

Change absolute

2009

%

2008

%

Utilities Sorgenia Group

2,325.8

54.5

2,432.0

51.5

(106.2)

(4.4)

Media Espresso Group

886.6

20.8

1,025.5

21.7

(138.9)

(13.5)

Automotive components Sogefi Group

781.0

18.3

1,017.5

21.5

(236.5)

(23.2)

Healthcare KOS Group (formerly HSS)

273.4

6.4

246.3

5.2

27.1

11.0

5.7

0.1

(5.7)

Other sectors

%

Total consolidated revenues

4,266.8

100.0

4,727.0

100.0

(460.2)

of which: ITALY

3,525.6

82.6

3,784.6

80.1

(259.0)

(6.8)

741.2

17.4

942.4

19.9

(201.2)

(21.3)

FOREIGN COUNTRIES

(9.7)

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

2009

%

2008

%

4,266.8

100.0

4,727.0

100.0

Consolidated gross operating margin (EBITDA) (1)

294.6

6.9

461.5

9.8

Consolidated operating income (EBIT)

148.0

3.5

320.1

6.8

37.1

0.9

(44.2)

(0.9)

4.3

0.1

(98.8)

(2.1)

Net income including minority interests

189.4

4.5

177.1

3.7

Net income attributable to minority interests

(46.0)

(1.1)

(81.6)

(1.7)

Net income of the Group

143.4

3.4

95.5

2.0

Revenues

Financial management result Income taxes

(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 € 294.6 million in 2009 (6.9% of revenues) and was down from € 461.5 million in 2008 (9.8% of revenues) with a decline of € 166.9 million (-36.2%), mainly due to lower revenues and to the restructuring costs incurred by the Espresso and Sogefi groups and to the lower profitability of the Sorgenia group.

14

Report on Operations


The consolidated operating margin (EBIT) for 2009 was € 148.0 million (3.5% of revenues), down from € 320.1 million (6.8% of revenues) in 2008, with a decline of € 172.1 million. The financial management result was a positive € 37.1 million compared to net expense of € 44.2 million in 2008 and was determined by the following: – Net financial expense of € 104.1 million (€ 129.7 million in 2008) – Net gains from trading securities of € 68.5 million (net gains of € 79.8 million in 2008) – Adjustments to the value of financial assets, a positive € 12.2 million (negative for € 58 million in 2008) – Net non-recurring gains of € 60.5 million (€ 63.7 million in 2008). The key figures of the consolidated balance sheet of the CIR Group at December 31 2009, compared with the same figures at December 31 2008, are as follows: (in millions of euro) (1)

31.12.2009

31.12.2008

3,807.9

3,365.7

83.7

57.1

241.8

341.5

Net invested capital

4,133.4

3,764.3

Net financial debt

(1,801.1)

(1,685.4)

Total shareholders’ equity

2,332.3

2,078.9

Group equity

1,396.7

1,264.9

935.6

814.0

Fixed assets Other net non-current assets and liabilities Net working capital

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 € 4,133.4 million at December 31 2009 compared to € 3,764.3 million at December 31 2008, with an increase of € 369.1 million, due essentially to the fixed asset investments of the Sorgenia group. The consolidated net financial position at December 31 2009 showed net debt of € 1,801.1 million (up by 115.7 million from € 1,685.4 million at December 31 2008) caused by: - a financial surplus for CIR and its financial holding subsidiaries of € 121.6 million which compares with € 44.2 million at December 31 2008. The rise was due mainly for € 29.9 million to tax credits for previous periods paid by the Inland Revenue, to the receipt of dividends for € 9.3 million and to the positive fair value adjustment of securities in the portfolio for € 44 million; - total net debt for the operating groups of € 1,922.7 million, up from € 1,729.6 million at December 31 2008. The rise of € 193.1 million was determined essentially by the investments in new production capacity made by the Sorgenia group partly offset by the reduction in the debt of the Sogefi group (€ 87 million) and of the Espresso group (€ 70.7 million).

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15


The net financial position includes the shares of hedge funds previously held by Medinvest, amounting at December 31 2009 to € 79.8 million. The accounting treatment of these investments involves recognizing changes in the fair value of the funds directly to shareholders’ equity. The fair value reserve relating to these investments amounted € 13.2 million at December 31 2009 (€ 36.8 million at December 31 2008). In financial year 2009 the sale of shares in hedge funds led to the realization of gains, net of writedowns, of € 44.5 million (€ 50.3 million in 2008). The performance of these investments since inception (April 1994) up to and including 2009 gave a weighted average return of the portfolio in dollar terms of 7.8%. In 2009 performance was a positive 9.8%. In the first two months of 2010 it was a negative 0.4%. Total shareholders’ equity stood at € 2,332.3 million at December 31 2009, up from € 2,078.9 million at December 31 2008, with a rise of € 253.4 million. The shareholders’ equity of the Group went up from € 1,264.9 million at December 31 2008 to € 1,396.7 million at December 31 2009, with a net rise of € 131.8 million. Minority shareholders’ equity rose from € 814 million at December 31 2008 to € 935.6 million at December 31 2009, with a rise of € 121.6 million mainly due to the capital increases, net of dividends and the earnings for the year. The evolution of consolidated shareholders’ equity is given in the Explanatory Notes.

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The consolidated cash flow statement for 2009, 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)

2009

2008

189.4

177.1

76.1

36.4

265.5

213.5

45.8

(127.0)

CASH FLOW GENERATED BY CURRENT OPERATIONS

311.3

86.5

Capital increases

187.9

274.0

--

42.5

499.2

403.0

(625.0)

(526.2)

(1.2)

(16.8)

(21.4)

(155.8)

32.7

(56.1)

TOTAL APPLICATIONS OF FUNDS

(614.9)

(754.9)

FINANCIAL SURPLUS (DEFICIT)

(115.7)

(351.9)

NET FINANCIAL POSITION AT THE BEGINNING OF THE PERIOD

(1,685.4)

(1,333.5)

NET FINANCIAL POSITION AT THE END OF THE PERIOD

(1,801.1)

(1,685.4)

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

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 Explanatory Notes. During 2009 the net debt figure rose from € 1,685.4 million to € 1,801.1 million. The cash flow generated by operations, a positive € 311.3 million, showed an improvement on the previous year because of the higher level of self-financing and lower absorption of working capital, especially in the Sorgenia group. Applications refer mainly to net investment made in the utilities sector by the Sorgenia group.

At December 31 2009 the CIR Group had 12,746 employees, down from 12,969 at December 31 2008.

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2.

PERFORMANCE OF THE PARENT COMPANY

The parent company CIR S.p.A. closed financial year 2009 with a net loss of € 2.0 million compared to net income of € 33.3 million in 2008. Shareholders’ equity stood at € 978.9 million at December 31 2009, up from € 974.5 million at December 31 2008. The key income statement figures of CIR S.p.A. for 2009, with a comparison with those of 2008, are as follows: (in millions of euro) Net operating costs (1) Other operating costs and amortization (2) Financial management result (3) Income before taxes Income taxes Net result

2009 (16.9) (3.0) 12.6 (7.3) 5.3 (2.0)

2008 (9.1) (38.8) 73.3 25.4 7.9 33.3

(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 2009 of € 16.9 million (compared to € 9.1 million in 2008) include provisions for € 7 million and net expense resulting from the IAS/IFRS treatment of stock option plans for € 4.3 million, which compares with € 0.4 million in 2008. The higher charge for the stock option plans was due to the substantial rise in the value of CIR stock during 2009. The financial management result includes the dividends of subsidiaries, which totalled € 11.4 million in 2009 compared to € 138.7 million in 2008, net financial expense of € 7.3 million (€ 8.6 million in 2008) and gains from trading and valuing securities of € 8.5 million (net losses of € 56.8 million in 2008). Lastly 2009 benefited from a positive net tax position of € 5.3 million, versus € 7.9 million in 2008. The key balance sheet figures of CIR S.p.A. at December 31 2009, compared with the position at December 31 2008, are as follows: (in millions of euro) Fixed assets (1) Other net non-current assets and liabilities (2) Net working capital (3) Net invested capital Net financial position (4) Shareholders’ equity

31.12.2009 878.0 132.2 (10.7) 999.5 (20.6) 978.9

31.12.2008 1,040.0 (1.5) (6.9) 1,031.6 (57.1) 974.5

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..

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The net financial position at December 31 2009 was one of net debt for € 20.6 million which compares with € 57.1 million at December 31 2008. The improvement of € 36.5 million was mainly due to the receipt of tax rebates of € 29.9 million relating to previous periods. The rise in shareholders’ equity which went up from € 974.5 million at December 31 2008 to € 978.9 million at December 31 2009 was mainly due to the effects of the IAS/IFRS treatment of the stock options. At December 31 2009 there were 43,074,000 own shares held as treasury stock, equal to 5.44% of capital, for a total value of € 98.6 million, compared to 42,974,000 shares at December 31 2008.

3.

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 31.12.2009

Net result 2009

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

978,905

(1,990)

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

(11,362)

(11,362)

(2,750)

(2,750)

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

411,276

82,799

(56,049)

--

76,735

76,735

1,396,755

143,432

- Other consolidation adjustments Consolidated figures, the Group’s share

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MAIN EQUITY INVESTMENTS OF THE GROUP (*) AT DECEMBER 31 2009

51.9% (**)

SORGENIA SORGENIA

Utilities

ESPRESSO ESPRESSO

Media

SOGEFI SOGEFI

Automotive Components

KOS KOS

Healthcare

55% (*)

57.6% (*)

CIR CIR

65.4%

(formerly (formerlyHSS) HSS)

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

KTP KTP


4. PERFORMANCE OF THE BUSINESS SECTORS

UTILITIES SECTOR

In 2009, in an extremely difficult market environment due to the economic recession and the resulting sharp fall both in demand for energy and in prices in the sector, the Sorgenia group reported consolidated revenues of € 2,325.8 million, down by 4.4% from € 2,432 million in 2008. Sales volumes of electricity rose by 2.6% compared to the previous year. There was, however, a decline, albeit less than the market, in the volumes of natural gas sold (-6.6% versus 2008). In 2009 the Sorgenia group reported consolidated net income of € 66.9 million, which was up slightly (+0.3%) on the previous year (€ 66.7 million), partly thanks to a tax credit linked to investment in new production capacity. Consolidated revenues can be broken down as follows: (in millions of euro) Electricity Natural gas Other revenues TOTAL

2009 Values % 1,656.3 71.2 573.7 24.7 95.8 4.1 2,325.8 100.0

2008 Values % 1,615.1 66.4 756.7 31.1 60.2 2.5 2,432.0 100.0

Change % 2.6 (24.2) 59.1 (4.4)

The consolidated gross operating margin was € 117.8 million, substantially unchanged on the previous year net of non-recurring items. The decline from € 189.6 million in 2008 was in fact mainly due to the following extraordinary items present in the previous year: the receipt of penalty payments for the late delivery of the Modugno power plant (€ 27 million) and contingent gains from prior periods (€ 15 million).  Compared to the previous year, 2009 was also impacted by a negative differential of approximately € 21 million from the fair value adjustment of “differential contracts” with the Sole Purchaser (Acquirente Unico). In 2009 EBITDA was affected by the following factors: – The contraction of sales margins on natural gas caused by the lower volumes sold and lower unit margins, in relation to existing contracts which are being renegotiated as per the terms of the contracts; – Higher provisions set aside on sums receivable from clients, due to the worsening of the economic situation, which became evident during the year; – The unscheduled shutdown of the Termoli power plant for extraordinary maintenance as from November 2009 and the high charges due to congestion on the National Electricity Grid.   These factors were partially offset by higher production by plants using renewable sources and by the positive fair value adjustment of commodity hedging transactions. Consolidated EBIT was € 70.9 milioni in 2009 (3% of revenues), down from € 154.7 million (6.4% of revenues) in 2008. Consolidated net debt stood at € 1,341 million at December 31 2009, up by € 327.1 million from € 1,013.9 million at December 31 2008. The change during the year was due to the substantial investment made in new production capacity, especially in the field of thermoelectric generation.

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Some of the investments made by Sorgenia in the last two years, the Modugno (BA) and Bertonico-Turano Lodigiano (LO) power plants in particular, will start contributing to the company’s income in 2010. In July 2009 Sorgenia signed a € 600 million ten-year loan agreement with a pool of prime banks to finance the investment in the construction of the Bertonico-Turano Lodigiano and Aprilia CCGT power plants. The group had 380 employees on the payroll at December 31 2009, up from 339 at December 31 2008. The Board of Directors of Sorgenia S.p.A., which met on March 2 2010, proposed distributing dividends for a total of € 10.2 million, compared to € 14.4 million for the previous year, corresponding to a dividend of € 0.0112 per share, compared to € 0.0165 in 2008. In 2009 the rollout of the Sorgenia group’s business plan continued. In thermoelectric generation, the new 800 MW Combined Cycle Gas Turbine (CCGT) power plant at Modugno (BA) started operating. Construction work is continuing on the BertonicoTurano Lodigiano CCGT plant (LO), which is scheduled to start operating in the second half of this year. Moreover, in July 2009 notice to proceed was given to the contractor Ansaldo Energia for construction of the Aprilia plant (LT). As far as the development of wind generation is concerned, in 2009 the 39 MW wind park at San Gregorio Magno (SA) started operating while construction work continued on the 12 MW park at San Martino in Pensilis (CB), which is scheduled to start operating by the end of the first half of 2010. In France, the subsidiary Société Française d’Eoliennes started operating the 12 MW wind park at Plainchamp (Meuse). The development activities of Sorgenia Romania are proceeding according to plan with the aim of building, managing and maintaining wind parks.  In the field of renewable energy from biomass, the company Sorgenia Bioenergy finished construction work in 2009 on a biomass plant of approximately 1 MW in the local district of Gallina (SI) which is expected to start operating by the end of the first half of this year. In February 2010 the Sorgenia group signed a loan agreement for € 70 million with prime banks which will enable its subsidiary Sorgenia Solar to develop new plants in the photovoltaic sector in Italy for over 15 MW. MEDIA SECTOR

The Espresso group closed 2009 with consolidated revenues of € 886.6 million, down by 13.5% from € 1,025.5 million in 2008. Consolidated net income came in at € 5.8 million compared to € 20.6 million in 2008, due to the effect of extraordinary tax-related provisions of € 11.4 million.

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The revenues of the group can be broken down as follows: (in millions of euro) Circulation Advertising Add-ons Other revenues TOTAL

2009 Values 274.2 496.9 100.6 14.9 886.6

% 30.9 56.1 11.3 1.7 100.0

2008 Values 276.3 608.2 114.9 26.1 1,025.5

Change % (0.8) (18.3) (12.4) (42.9) (13.5)

% 26.9 59.3 11.2 2.6 100.0

The results reported by the group in 2009 should be seen in the context of the severe crisis that has affected the economy and the market in which the group operates. The economic recession caused a significant contraction in advertising collected: according to Nielsen Media Research figures, advertising investment declined by 13.4% and the decline affected practically all media, albeit to varying degrees. The press fell by an overall 21.6% and was one of the hardest hit sectors: paid-for newspapers fell slightly less (-16%), while the sharpest decline was that of periodicals (-28.7%) and free newspapers (-26.6%). Radio, with a decline of -7.7%, of the traditional media was the one that held up best while the internet maintained a positive trend (+5.1%), although the rise was lower than in previous years. At the same time, in a scenario of declining consumption, even the circulation of daily and periodical titles posted negative growth, with a decline of 6.2% for the daily newspapers, 6.8% for weeklies and 8.5% for monthlies (source ADS October 2009). Circulation revenues, excluding add-ons, came in at € 274.2 million, holding up well (-0.8% compared to 2008), in a declining market. Advertising revenues, totalling € 496.9 million, posted a decline of 18.3% compared to the previous year, basically reflecting the general trend of the markets in which the group operates. Lastly, revenues from add-on products fell by 12.4% to € 100.6 million, which can be considered positive because it was achieved in a market environment which continues to record a significantly negative trend. The consolidated gross operating margin was € 106.7 million, down from € 142.5 million in 2008, with a decline of 25.2%. The impact of the drastic reduction in advertising collected was offset to a significant degree by the reduction in costs. Operating costs were cut by 11.9% compared to 2008, savings of € 97.6 million having already been made in 2009 thanks to the company reorganization plan which when fully implemented should give a reduction of € 140 milion. Extraordinary expense connected with implementing the plan were totally expensed in the year, for an amount of € 31.7 million. Consolidated operating income was € 63.9 million, down from € 95.3 million in 2008. Consolidated net financial debt stood at € 208.2 million at December 31 2009, down by € 70.7 million from € 278.9 million at the end of 2008, thanks to the liquidity of € 98.1 million generated by current operations only partly offset by investments of € 25.6 million. Consolidated shareholders’ equity rose from € 478.4 million at December 31 2008 to € 485.6 million at December 31 2009.

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The group had 3,116 employees on its books at December 31 2009, with 228 less than at December 31 2008, when the figure stood at 3,344. This reflects, as yet only partially however, the effects of the reorganization plans put in place. The Board of Directors of the parent company Gruppo Editoriale L’Espresso, which met on February 24 2010, proposed that no dividend be distributed for financial year 2009 and that the net income for the year be allocated to the retained earnings reserve (as was the case last year). The evolution of the macroeconomic scenario in 2010 is still unclear. In any case expectations of weak growth for the Italian economy, and therefore of domestic consumption, make it impossible to forecast a sharp recovery in advertising investments. Therefore, despite the positive trend in advertising recorded by the group in the first few months of 2010, the prospects for the year remain uncertain. In this environment, however, the group will reap further significant benefits from its cost-cutting plan and from the new impetus given to the business of the advertising concessionaire, which is making it possible to recover competitiveness in the advertising market. Lastly, the group is engaged in the rollout of an intense publishing development plan for the new media, which will lead to an ever greater distribution of its content over all the new platforms.

AUTOMOTIVE COMPONENTS SECTOR

In 2009 the Sogefi group reported revenues of € 781 million, which were down by 23.2% from € 1,017.5 million in the previous year. Revenues were affected by the unprecedented contraction in the production levels of the car industry in mature markets, especially in Europe. The crisis in the financial markets and the resulting slowdown of the world economy particularly dampened demand for new vehicles. In the car sector, although the decline in demand was limited by the incentive plans put in place by the various countries, production levels declined significantly because manufacturers needed to reduce their stocks of unsold vehicles. In Europe the decline in production was 18% for cars and over 60% for industrial vehicles, which did not benefit from incentives. North America reported the lowest production levels for the last 50 years (-30% on 2008) with important manufacturers in crisis. As far as emerging markets are concerned, Brazil substantially confirmed its 2008 production volumes thanks to a cut in taxes. In China new car sales rose by over 40%, partly as a result of its public support plan. Lastly, India confirmed its growth trend of the last few years. The difficulties of the market had a negative impact on the results of the Sogefi group, which in 2009 reported a net loss of € 7.6 million which compares with net income of € 28.5 million in 2008. Without the restructuring costs incurred in 2009, the company would have closed the most difficult year in its history with a profit.  

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

2009 Values

%

2008 Values

%

Change %

Filters

414.8

53.1

497.5

48.9

(16.6)

Suspension components and precision springs

368.0

47.1

521.9

51.3

(29.5)

(1.8)

(0.2)

(1.9)

(0.2)

n.a.

781.0

100.0

1,017.5

100.0

(23.1)

Intercompany elimination TOTAL

Since the beginning of the crisis in the sector, Sogefi has acted rapidly and effectively to limit its impact, starting during the year a series of actions which enabled the company to recover profitability and post a positive net income figure already in the third quarter. The actions undertaken were a structural reduction of cost factors, (structure costs went down by € 30.7 million and total labour costs by € 37.4 million compared to 2008), the reorganization of production facilities, the enhancement of centres of competence and service (research and development and purchasing), product and process innovation and the generation of cash flow by managing working capital and focusing investments.

EBITDA and EBIT were also impacted by restructuring costs of € 17.2 million (€ 11.5 million in 2008). In 2009 consolidated EBITDA was € 47.2 million (6% of revenues), down by 55% from € 104.9 million (10.3% of revenues) in 2008. Consolidated EBIT came in at € 5.1 million euro (0.6% of revenues) down from € 62.4 million (6.1% of revenues) in 2008. At December 31 2009 the net financial debt of the group stood at € 170.2 million and was down by € 87 million from € 257.2 million at December 31 2008. The group had 5,770 employees at December 31 2009, down from 6,100 at December 31 2008. The Board of Directors of Sogefi, which met on February 23 2010, proposed not distributing dividends for financial year 2009, as in the previous year. The filter division limited its decline in revenues to 16.6% (€ 414.8 million compared to € 497.5 million in 2008), with a larger downturn in Europe (-20.8%) compared to South America (-8.7%) and mainly in the origianal equipment market. The group’s presence in the industrial vehicle sector and the absence of any significant activity in the after market caused a decline in the consolidated revenues of the suspension components division of 29.5% (€ 368 million versus € 521.9 million in 2008). The highest decline was in Europe (-23.1%), in industrial vehicles (-51.6%) and in precision springs (-37.3%). The evolution of demand for vehicles in 2010 will depend on whether government incentives are renewed for 2010 in the various markets and if they are renewed how long they are renewed for and the amounts involved. Production levels should benefit from the end of destocking by manufacturers and the distribution network. The drastic reduction in the structure costs of the group in 2009 and the forecast growth of business in emerging markets should in any case improve profitability and enable the group to return to profit.

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25


HEALTHCARE SECTOR

At the end of 2009 the company HSS changed its name to KOS. In 2009 the KOS group continued in its strategy of strengthening its operating subsidiaries and seeking new development opportunities to consolidate the presence of the group in the private healthcare sector in Italy. In financial year 2009 the KOS group reported revenues of € 273.4 million, up from € 246.3 million in the previous year, posting a rise of 11%, thanks to the development 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) Elderly

2009 Values 117.7

% 43.0

2008 Values 110.0

% 44.7

Change % 7.0

Rehabilitation

111.5

40.8

94.3

38.3

18.2

Acute/Hi-tech

44.2

16.2

42.0

17.0

0.5

273.4

100.0

246.3

100.0

11.0

TOTAL

Consolidated EBITDA was € 33 million, up by 14.9% from € 28.7 million in 2008 and consolidated EBIT was € 16.5 million, up from € 14.7 million in the previous year. The consolidated net result was a loss of € 0.4 million compared to a net loss of € 1.5 million in the previous year, resulting from non-recurring costs of € 3.3 million due, apart from risk provisions and write-downs, to a corporate reorganization that in the future will make it possible to further improve the efficiency of the company.   At December 31 2009 the KOS group had net debt of € 163.5 million offsetting real estate properties with a carrying value of approximately € 120 million. The increase from € 149.1 million at December 31 2008 was due mainly to the acquisitions made. At December 31 2009 consolidated shareholders’ equity stood at € 139.7 million compared to € 138.5 million at December 31 2008. The employees of the group totalled 3,421 at December 31 2009, up from 3,130 at December 31 2008. During 2009 management was acquired of two nursing homes for the elderly in Ancona and in the province of Cuneo. In January 2010, the KOS group finalized, through its subsidiary Istituto di Riabilitazione S.Stefano, the acquisition of control of the Marche group Sanatrix, which owns a nursing home with 205 beds at Civitanova Marche (Macerata). The deal involved a disbursement of approximately € 18 million. KOS, which was already a minority shareholder of Sanatrix, now holds a 76.9% interest in the company.

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The healthcare and care-home business acquired consists of 90 beds devoted to hospital care, 50 to long-term care and rehabilitation and 65 to residential care for the non self-sufficient elderly (RSA). The revenues reported by the Sanatrix group in 2009 were over 23 million euro. The activities carried out by Sanatrix have a high potential for integration with the rehabilitation services offered by Istituto di Riabilitazione S.Stefano, the subsidiary of KOS which is based in nearby Porto Potenza Picena (Ancona). At the beginning of March 2010 the KOS group, through its subsidiary Residenze Anni Azzurri, finalized the acquisition of two care homes for the non self-sufficient elderly (RSAs) in the province of Milan, with a total of 297 beds. The deal took place on the basis of enterprise value of approximately € 23 million, inclusive of € 12 million relating to the purchae of the property which houses one of the two homes. After these latest acquisitions, KOS is now managing a total of 5,555 beds plus another 388 under construction. The KOS group is active in three sectors: 1) Nursing homes (RSAs for the non self-sufficient elderly), with 40 care homes under management (4,133 beds operational and 336 under construction); 2) Rehabilitation (management of hospitals and rehabilitation centres), with 10 rehabilitation facilities (in Lombardy, Emilia Romagna, Trentino and Marche), 9 psychiatric rehabilitation communities (in Liguria, Piedmont and Lombardy) and 13 day hospitals, for a total of 1,287 beds in operation and 52 beds under construction; 3) Hospital management (management of a hospital and of hi-tech services in hospitals), with 7 diagnostic imaging units.

FINANCIAL SERVICES SECTOR

The CIR Group operates in the financial services sector through the company Jupiter Finance and through its investment in the KTP group, as described 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. As is known, 2009 was a particularly difficult year for credit quality: the non-performing loans of the Italian banking system grew by approximately 43%, from € 41 billion at the end of 2008 to € 59 billion at the end of 2009. This fact enlarged the market in which Jupiter Finance operates considerably, enabling the company to extend its services from the pure purchase of nonperforming loans on a non-recourse basis to taking over third party portfolios and structuring refinancing deals. During the year, in fact, the company signed a mandate with a prime international investor to manage a portfolio of non-performing loans with a value of approximately € 1 billion. At December 31 2009 the non-performing loans managed by Jupiter Finance amounted to € 2,218 million (nominal value), subdivided into captive loans (i.e. acquired through the securitization vehicles Zeus Finance and Urania Finance), totalling € 1,299 million, and non-captive loans the (i.e. managed on behalf of other investors) for € 919 million.

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27


The following charg shows the breakdown of the portfolio under management at the end of 2009 by type of loan. Amount (€/million)

%

Corporate loans

1,611

73%

Mortgage loans

294

13%

Consumer credit

209

9%

Types of loan

Finance leases Total

104

5%

2,218

100%

The portfolio under management by the company has a high degree of diversification, from several viewpoints: - Approximately 10,000 loans are corporate and mortgage loans with an average credit exposure of approximately € 200,000; - The portfolio consists of 100 deals with 75 different vendors (banks, financial companies, leasing companies); - Mixed geographical distribution: no region in Italy accounts for more than 10% of the total portfolio. KTP - The KTP Global Finance group operates in the financial services sector through the companies Ktesios and Pepper. There has been continuing volatility in the financial markets with a generalized contraction in consumer credit availability and the introduction of regulatory restrictions in the sector of loans secured on one fifth of salaries or pensions which could have a negative impact on loan volumes and on margins. In view of these factors the development plans of the two companies were revised and CIR’s investment was written down (by a total of € 16 million inclusive of minority interests) at December 31 2009. Ktesios, the main investee of KTP, 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. In 2009 the company made loans for approximately € 600 million, down from € 660 million in 2008. Pepper has gradually reduced its lending volumes, consolidating its business in servicing portfolios of specialty mortgages originated by other lenders, in which it has reached a position of leadership in the Australian market.

5.

OTHER ACTIVITIES

CIR VENTURES – At the end of 2009 the portfolio fo 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 2009 was € 14.5 million dollars (€ 10.0 million). INVESTMENTS IN “PRIVATE EQUITY FUNDS” – The CIR Group, through its subsidiary CIR International, manages 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 2009 was approximately € 62.1 million. Remaining commitments outstanding at December 31 2009 amounted to € 25.3 million.

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6.

SIGNIFICANT EVENTS WHICH OCCURRED AFTER THE CLOSE OF THE YEAR

Information has already been given of the main events which occurred after December 31 2009 in the part of the Report dealing with the performance of the business sectors. The performance of operations of the CIR group in 2010 will be affected by the evolution of the economic scenario during the year. Despite expectations of a weak recovery in Europe, the macroeconomic scenario is still somewhat uncertain. The automotive components sector and healthcare should see an improvement on 2009 whereas the performance of the energy and media sectors will depend on variables that cannot easily be forecast yet such as energy consumption and the advertising market. Moreover, for 2010 at present no non-recurring income like that of the previous two years can be predicted.

7.

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

Risks connected with the general conditions of the economy During 2008 the world economy entered a period of recession which had a strong impact on the first half of 2009, becoming less accentuated in the second half of the year partly as a result of the significant measures put in place by the main governments and monetary authorities to support the economy. In this scenario of general weakness of the economy, in the first half of 2009 demand in the sectors and markets in which the Group operates, with the exception of healthcare, showed a contraction compared to the levels of the previous year. The decline in volumes was less marked in the second half of the year when there was an inversion in the trend especially in the automotive components sector. Should the situation of global economic weakness continue in the future, the evolution of demand will be affected and the business, strategies and prospects of the Group could suffer the consequences with a negative impact on the income, equity and financial situation of the Group. 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 position. 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 and/or 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

Report on Operations

29


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 in 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 to 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. 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.

30

Report on Operations


8.

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.

363,028,621

--

--

363,028,621

(1)

DE BENEDETTI CARLO

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

220,776,235

--

--

220,776,235

(2)

DE BENEDETTI CARLO

(3)

SOGEFI S.p.A.

65,739,962

--

--

65,739,962

DE BENEDETTI RODOLFO

CIR S.p.A.

15,312,500

--

2,250,000

13,062,500

DEBENEDETTI FRANCO

CIR S.p.A.

375,000

--

--

375,000

FERRERO PIERLUIGI

CIR S.p.A.

300,000

--

--

300,000

FERRERO PIERLUIGI

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

20,000

--

--

20,000

FERRERO PIERLUIGI

SOGEFI S.p.A.

15,000

--

--

15,000

GERMANO GIOVANNI

CIR S.p.A.

300,000

--

--

300,000

GERMANO GIOVANNI

SOGEFI S.p.A.

2,012,000

--

--

2,012,000

GERMANO GIOVANNI

SOGEFI S.p.A.

1,004,312

--

--

1,004,312

GIRARD FRANCO

CIR S.p.A.

128,000

--

--

128,000

GIRARD FRANCO

SOGEFI S.p.A.

10,000

--

--

10,000

GIRARD FRANCO

(4)

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

10,000

--

--

10,000

PARAVICINI CRESPI LUCA

CIR S.p.A.

333,333

--

--

333,333

(5)

PARAVICINI CRESPI LUCA

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

4,827,212

--

--

4,827,212

(5)

SEGRE MASSIMO

GRUPPO EDITORIALE L’ESPRESSO S.p.A.

3,000

--

--

3,000

PIASER ALBERTO

CIR S.p.A.

698,000

201,600

355,000

544,600

(1) Owned indirectly through COFIDE S.p.A. (2) At December 31 2009 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.

Incentive plans based on financial instruments The CIR Group has put in place various share-based incentive plans for the management teams of the companies of the Group. Reference should be made to the Explanatory Notes for further information on these plans.

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31


Own shares At December 31 2009 the Parent Company owned 43,074,000 of its own shares (equal to 5.44% 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 Explanatory Notes. At December 31 2009 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 or intermediary. 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 separate financial statements, particularly under the item Miscellaneous receivables, Other payables and Borrowings from subsidiaries in the Statement of Financial Position and under the items Miscellaneous revenues and income, Financial expense and Dividends in the Income Statement. Regarding the main equity transactions reference should be made to the appropriate sections of the Explanatory Notes. It should be pointed out that the CIR Group did not enter into any transactions with related parties, according to Consob’s definition, or with entities other than related parties 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 by more than 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 KOS (formerly HSS) subgroups voted to take part in the “CIR Tax Consolidation” for the three years 2004-2006, signing a general

32

Report on Operations


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, KOS (formerly HSS) and Jupiter sub-groups renewed their participation in the “CIR Tax Consolidation” for the three years 2007-2009. At December 31 2009 there were 27 companies taking part in the CIR Tax Consolidation. It should be noted that the Group intends to renew its participation in the “CIR tax consolidation” for the next three years. Annual Report on Corporate Governance The CIR Group‘s model of corporate governance is based on the guidelines contained in the Code of Conduct prepared by the Corporate Governance Committee of the Italian Stock Exchange (Borsa Italiana) and published in March 2006 with the additions and adjustments made necessary by the nature of the Group. In compliance with regulatory requirements, every year an “Annual Report on Corporate Governance” is prepared, which contains a general description of the system of corporate governance adopted by the Group and gives information on the ownership structure and on compliance with the Code of Conduct, including the main governance practices applied and the characteristics of the system of risk management and internal control in relation to the financial disclosure process. It should be noted that the full text of the “Annual Report on Corporate Governance” for the year 2009 was approved – in its entirety – by the Board of Directors’ Meeting convened to approve the Financial Statements for the year ended December 31 2009. The Annual Report on Corporate Governance 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 (www.cirgroup.it) in the section "Governance”. 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 – 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. The Organizational and Management Model as per dlgs 231/01 is continually updated by the Board of Directors to take into account the broadening of the scope of the rules on the subject. With particular reference to the introduction of Articles 24 ter, 25 bis 1 and 25 novies, studies and assessments are currently in progress for the preparation of special protocols on the subject. In relation to the obligations set out in Art. 2.6.2, paragraph 15 of the Rules of Borsa Italiana, taking into account the provisions of Articles 36 and 37 of Consob Resolution 16191, it is hereby confirmed that there are no conditions that could prevent the listing of CIR shares on the MTA market organized and managed by Borsa Italiana S.p.A. since the foreign subsidiaries not belonging to the European Union, which have particular significance for CIR, publish their own com-

Report on Operations

33


pany bylaws and the composition and powers of their administrative bodies according to the legislation applicable to them or voluntarily, they provide the Company’s auditors with the information necessary to carry out the audit activity on the annual and interim accounts of CIR, and they have a suitable administrative and accounting system to provide the Company’s Management and its auditors with the economic, patrimonial and financial figures necessary for the preparation of the consolidated financial statements. Furthermore, in relation to the fact that the company is subject to management and coordination by its controlling company COFIDE - Compagnia Finanziaria De Benedetti S.p.A., the Company has fulfillled all the disclosure obligations required by Article 2497-bis of the Civil Code, it has the power to negotiate relationships with clients and suppliers independently, it has no centralized treasury function in common with COFIDE and the Board of Directors of the Company, out of a total of 14 members, has 7 who possess the requisites of independence and are thus sufficient to guarantee that their judgment has a significant weight in the the decision-making process of the Board. 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 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 in conjunction with specialist consultants in this field who have been certified as BS7799 lead auditors by the British Standards Institute. Research and development During 2009, research and development activity at Group level was mainly focused on the utilities sector. In compliance with accounting standards, research costs are recognized to the income statement when they are incurred while development costs relating to specific projects are 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. The activities of Noventi Ventures II LP, the venture capital fund set up by Sorgenia in Silicon Valley (California), continued with the primary objective of identifying and investing in new industrial initiatives that develop and use innovative technologies in the fields of electricity generation from renewable and alternative sources, safeguarding the environment, and saving resources and using them intelligently. During 2009 the fund made further investments in the companies already present in its portfolio to support their development. In particular the fund took part in a

34

Report on Operations


bridging loan to HelioVolt (producer of thin-film photovoltaic panels using CIGS technology); Lumenergi (supplier of an energy efficiency technology in the field of lighting for commercial buildings) and Mariah Power (producer of vertical axis micro wind turbines for commercial and residential use). In the solar energy sector the Sorgenia Group has pursued certain research projects in conjunction with the Sardinian CRS4 research centre to study topics relating to the use of concentrated solar power technologies in Italy. As far as energy efficiency is concerned, this activity is being developed by the special Division set up in 2005 with the aim of building products and services able to give Sorgenia clients concrete energy savings. At present the activity is concentrated on the subject of Energy Monitoring Systems for domestic use because it is felt that the possibility of first sensitizing customers to the problem and then enabling them to do something about it is a strong point in Sorgenia’s favour and will attract the attention of its customers. In practice, the Division is developing a device for saving energy in the household, which customers can use to monitor household consumption, set equipment to switch on and off (appliances, lamps, etc.), both on the spot and remotely, using smart phones for example. In relation to the total investments of € 18.5 million made in 2009 in the automotive components sector, research and development of new products and processes were focused on the strategic issue of innovative materials to offer clients solutions for building vehicles that are ever lighter and more ecological. Other The company CIR S.p.A. – Compagnie Industriali Riunite has its registered office in Via Valeggio 41, Turin, Italy and its operating headquarters in Via Ciovassino 1, Milan, Italy. CIR shares, which have been quoted on the Italian Stock Exchange since 1973, since 2004 have been traded on the Blue-chip segment (Reuter code: CIRX.MI, Bloomberg code CIR IM). Since March 2009 the CIR stock has been part of the FTSE MIB index. This Financial Report for the period January 1 – December 31 2009 was approved by the Board of Directors on March 11 2010. CIR S.p.A. is subject to management and coordination by Cofide S.p.A..

Report on Operations

35


36

Report on Operations


PROPOSED ALLOCATION OF THE RESULT FOR THE YEAR

Dear Shareholders, The Financial Statements for the year ended December 31 2009 that we are submitting to your approval closed with a net loss of € 1,989,780.44 which we propose be covered entirely by drawing on the credit balance existing under the item “Retained earnings”.

THE BOARD OF DIRECTORS

Milan, March 11 2010

Report on Operations

37


38

Report on Operations


CIR Group

Consolidated Financial Statements as of December 31 2009

STATEMENT OF FINANCIAL POSITION INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CASH FLOW STATEMENT OF CHANGES IN EQUITY EXPLANATORY NOTES

Consolidated Financial Statements

39


1.

STATEMENT OF FINANCIAL POSITION

(in thousands of euro)

ASSETS

Note

NON-CURRENT ASSETS INTANGIBLE ASSETS TANGIBLE ASSETS INVESTMENT PROPERTY INVESTMENTS IN COMPANIES CONSOLIDATED AT EQUITY OTHER EQUITY INVESTMENTS OTHER RECEIVABLES of which with related parties (*) SECURITIES DEFERRED TAXES

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

CURRENT ASSETS INVENTORIES CONTRACTED WORK IN PROGRESS TRADE RECEIVABLES of which with related parties (*) OTHER RECEIVABLES of which with related parties (*) FINANCIAL RECEIVABLES SECURITIES AVAILABLE-FOR-SALE FINANCIAL ASSETS CASH AND CASH EQUIVALENTS ASSETS HELD FOR DISPOSAL

CURRENT LIABILITIES BANK OVERDRAFTS BONDS AND NOTES OTHER BORROWINGS of which from related parties (*) TRADE PAYABLES of which to related parties (*) OTHER PAYABLES PROVISIONS FOR RISKS AND LOSSES TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (*) As per Consob resolution no. 6064293 of July 28 2006

40

3,804,558 1,264,499 1,789,985 18,687 282,824 9,682 236,147 20,734

83,051 188,949

84,633 118,101

2,362,336 156,150 3,464 1,042,030

3,168,534 195,311 2,915 1,233,689 24,661

200,627 1,727

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

363,753 151,288

27,229 278,548 104,967 549,321

(8.h)

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

700

653

6,650,850

6,973,745

31.12.2009

31.12.2008

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

2,332,335 396,059 (21,537) 374,522 295,983 582,818 143,432 1,396,755 935,580

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

(10.a) (10.b)

2,958,552 718,262 1,843,359 1,177

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

LIABILITIES AND SHAREHOLDERS' EQUITY

NON-CURRENT LIABILITIES BONDS AND NOTES OTHER BORROWINGS OTHER PAYABLES of which with related parties (*) DEFERRED TAXES PERSONNEL PROVISIONS PROVISIONS FOR RISKS AND LOSSES

4,287,814 1,316,903 2,187,369 18,115 275,899 9,629 207,899

18,032

TOTAL ASSETS

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

31.12.2008

4,480

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

31.12.2009

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

(11.a) (11.b) (11.b) (11.c) (11.c) (11.d) (11.e)

69 181,489 137,346 76,919

174,903 147,482 56,691

1,359,963 66,290 731 132,499

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

2

71 836,587

28,649

946,989 22,089

228,178 95,678

277,153 80,000

6,650,850

6,973,745


2.

INCOME STATEMENT

(in thousands of euro)

SALES REVENUES of which from related parties (*)

Note

2009

(12)

4,266,865

(12)

2008 4,726,999 490

CHANGE IN INVENTORIES

(14,150)

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

(13.a)

COSTS FOR SERVICES of which from related parties (*)

(13.b)

(2,554,020)

(13.a) (13.b)

953 (2,852,871) --

(744,104) (1,531)

(782,395) (2,094)

PERSONNEL COSTS

(13.c)

(664,835)

OTHER OPERATING INCOME of which from related parties (*)

(13.d)

104,317

OTHER OPERATING COSTS

(13.e)

(139,110)

(130,475)

(7.d)

39,679

49,286

AMORTIZATION, DEPRECIATION AND WRITEDOWNS

(146,651)

(141,373)

INCOME BEFORE FINANCIAL ITEMS AND TAXES ( E B I T )

147,991

320,139

53,823

69,104

(13.d)

1,295

(687,664) 137,679 548

ADJUSTMENTS TO THE VALUE OF INVESTMENTS VALUED AT EQUITY

FINANCIAL INCOME of which from related parties (*)

(14.a)

FINANCIAL EXPENSE of which with related parties (*)

(14.b)

(14.a) (14.b)

DIVIDENDS

10,426

11,244 (157,896)

(10,201)

(198,829) (10,112)

587

310

151,518

218,589

GAINS FROM TRADING SECURITIES

(14.c)

LOSSES FROM TRADING SECURITIES

(14.d)

(6,936)

(21,343)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

(14.e)

(4,008)

(112,093)

INCOME BEFORE TAXES INCOME TAXES

185,079 (15)

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

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

(16) (16)

4,334

275,877 (98,808)

189,413

177,069

--

--

189,413

177,069

(45,981) 143,432

(81,625) 95,444

0.1917 0.1917

0.1275 0.1275

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

41


3.

STATEMENT OF COMPREHENSIVE INCOME

(in thousands of euro)

Net income for the period

2009

2008

189,413

177,069

Other items of comprehensive income statement

Currency translation differences from foreign operations

17,571

(875)

Net fair value change in available-for-sale financial assets

(32,017)

(130,198)

85

(15,518)

Other items of comprehensive income statement

4,593

(7,274)

Taxes on other items of comprehensive income statement

(1,167)

4,177

Other items of comprehensive income statement for the period, net of tax

(10,935)

(149,688)

TOTAL COMPREHENSIVE INCOME STATEMENT FOR THE PERIOD

178,478

27,381

Total comprehensive income statement attributable to: Shareholders of the controlling company Minority shareholders

126,407 52,071

(4,195) 31,576

Net change in cash flow hedge reserve

42


4.

STATEMENT OF CASH FLOW

(in thousands of euro)

2009

2008

189,413

177,069

AMORTIZATION, DEPRECIATION & WRITEDOWNS

146,651

141,373

SHARE OF THE RESULT OF COMPANIES CONSOLIDATED AT EQUITY

(39,679)

(49,286)

ACTUARIAL VALUATION OF STOCK OPTION PLANS

10,598

8,344

CHANGE IN PERSONNEL PROVISIONS & PROVISIONS FOR RISKS & LOSSES

25,770

20,149

OPERATING ACTIVITY NET INCOME FOR THE YEAR INCLUDING MINORITY INTERESTS ADJUSTMENTS:

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS

4,008

112,093

CAPITAL GAIN ON SUBSCRIPTION OF CAPITAL INCREASES BY MINORITY SHAREHOLDERS

(76,735)

(117,810)

CAPITAL GAINS ON SALE OF SECURITIES

(67,847)

(75,803)

INCREASE (REDUCTION) IN NON-CURRENT RECEIVABLES AND PAYABLES

(37,226)

(1,895)

(INCREASE) REDUCTION IN NET WORKING CAPITAL

83,029

(275,080)

OTHER CHANGES

51,601

50,382

CASH FLOW FROM OPERATING ACTIVITY

289,583

(10,464)

of which: - interest received (paid out) - income tax payments

(62,518) (70,756)

(124,900) (75,761)

(PURCHASE) SALE OF SECURITIES

369,039

(189,782)

PURCHASE OF FIXED ASSETS

(625,009)

(471,769)

CASH FLOW FROM INVESTMENT ACTIVITY

(255,970)

(661,551)

187,851

274,006

32,713

(56,145)

(200,162)

433,688

INVESTMENT ACTIVITY

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

--

42,499

(1,160)

(16,770)

(21,386)

(155,796)

CASH FLOW FROM FUNDING ACTIVITY

(2,144)

521,482

INCREASE (REDUCTION) IN NET CASH AND CASH EQUIVALENTS

31,469

(150,533)

NET CASH AND CASH EQUIVALENTS AT START OF PERIOD

451,562

602,095

NET CASH AND CASH EQUIVALENTS AT END OF PERIOD

483,031

451,562

DIVIDENDS PAID OUT

43


5.

STATEMENT OF CHANGES IN CONSOLIDATED EQUITY

Attributable to Shareholders of the parent company

(in thousands of euro)

Minority

Total

Issued capital

less own shares

Share capital

Reserves

Retained earnings(losses)

Net income (losses) for year

Total

interests

395,466

(19,822)

375,644

412,983

448,674

82,580

1,319,881

721,912

122

--

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

--

--

--

13

--

--

13

--

13

Adjustment for own share transactions

--

(1,665)

(1,665)

1,665

(6,396)

--

(6,396)

--

(6,396)

Notional recognition of stock options

--

--

--

905

--

--

905

--

905

Effects of equity changes in subsidiaries

--

--

--

(8,314)

--

--

(8,314)

(94,704)

(103,018)

BALANCE AT DECEMBER 31 2007 Capital increases

2,041,793

Net comprehensive income for the year Fair value measurement of hedging instruments

--

--

--

(6,169)

--

--

(6,169)

(5,172)

(11,341)

Fair value measurement of securities

--

--

--

(54,525)

--

--

(54,525)

(10,371)

(64,896)

Securities fair value reserve recognized to income statement

--

--

--

(53,073)

--

--

(53,073)

(12,229)

(65,302)

Effects of equity changes in subsidiaries

--

--

--

7,449

--

--

7,449

(14,723)

(7,274)

Currency translation differences

--

--

--

6,679

--

--

6,679

(7,554)

(875)

Net income for the year

--

--

--

--

--

95,444

95,444

81,625

177,069

Total net comprehensive income for the year

--

--

--

(99,639)

--

95,444

(4,195)

31,576

27,381

BALANCE AT DECEMBER 31 2008

395,588

(21,487)

374,101

307,856

487,448

95,444

1,264,849

814,039

2,078,888

471

--

471

528

--

--

999

186,852

187,851

Dividends to Shareholders

--

--

--

--

--

--

--

(21,386)

(21,386)

Retained earnings

--

--

--

--

95,444

(95,444)

--

--

--

Unclaimed dividends as per Art. 23 of Bylaws

--

--

--

14

--

--

14

--

14

Adjustment for own share transactions

--

(50)

(50)

50

(74)

--

(74)

--

(74)

Notional recognition of stock options

--

--

--

5,455

--

--

5,455

--

5,455

Effects of equity changes in subsidiaries

--

--

--

(895)

--

--

(895)

(95,996)

(96,891) (1,085)

Capital increases

Net comprehensive income for the year Fair value measurement of hedging instruments

--

--

--

(285)

--

--

(285)

(800)

Fair value measurement of securities

--

--

--

7,668

--

--

7,668

(764)

6,904

Securities fair value reserve recognized to income statement

--

--

--

(38,918)

--

--

(38,918)

--

(38,918)

Effects of equity changes in subsidiaries

--

--

--

2,257

--

--

2,257

2,336

4,593

Currency translation differences

--

--

--

12,253

--

--

12,253

5,318

17,571

Net income for the year

--

--

--

--

--

143,432

143,432

45,981

189,413

Total net comprehensive income for the year

--

--

--

(17,025)

--

143,432

126,407

52,071

178,478

374,522

295,983

582,818

143,432

1,396,755

935,580

2,332,335

BALANCE AT DECEMBER 31 2009

44

396,059

(21,537)


EXPLANATORY NOTES

1.

STRUCTURE AND CONTENT OF THE FINANCIAL STATEMENTS

These consolidated financial statements have been prepared in accordance with international accounting standards (IAS/IFRS) 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 2009, 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 Statement of Financial Position 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 Statement of Comprehensive Income shows items of income suspended in shareholders’ equity. - The Statement of Cash Flow was prepared using the indirect method; - The Statement of Changes in 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 11 2010.

Consolidated Financial Statements

45


2.

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 income statement 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 statement of financial position 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 (impairment test); 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; - 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;

46

Consolidated Financial Statements


- 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 proportional 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 statement of financial position 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: 31.12.2009

31.12.2008

Average rate

31.12.2009

Average rate

31.12.2008

1.39478

1.4406

1.47076

1.3917

0.8906

0.8881

0.7948

0.9525

Swedish Krona

10.6112

10.2522

9.6006

10.8696

Brazilian Real

2.7598

2.5113

2.6583

3.2436

Argentine Peso

5.1677

5.4618

4.6296

4.8045

9.4931

9.8348

10.1616

9.4958

67.2495

67.0241

63.7349

67.6133

US Dollar UK Sterling

Chinese Renminbi Indian Rupee

2.c.

Consolidation area

The consolidated financial statements as of December 31 2009 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. Specifically in 2009 the assets refer to properties of the Sogefi group that are scheduled for disposal in 2010. The list of equity investments 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.

Consolidated Financial Statements

47


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 Since last year the following companies have now joined the consolidation: - Azzurro LNG S.p.A. - MPX Energy Ltd. - MPX (Oil & Gas) Limited - MPX Resources Limited - MPX North Sea Limited - Hannu North Sea Limited - Hannu Exploration Limited - Saponis Investments Sp ZOO - Soluxia Sarda II S.r.l. - Sorgenia Solar Power S.r.l. - Sorgenia E&P Bulgaria EOOD - Sorgenia E&P Colombia BV - Sorgenia E&P UK Ltd. - Sorgenia Trading S.p.A. - Sorgenia USA LLC - Sunnext S.r.l. The recognition of the MPX group, of which control was acquired during the year, was effected using the purchase method, in compliance with the terms of IFRS3, opting for provisional allocation of the price paid to the assets and liabilities acquired at the date on which the deal was finalized.

Automotive sector In 2009 the following changes took place: - In September the subsidiary Allevard Rejna Autosuspensions S.A. increased its stake in the subsidiary S. ARA Composite S.a.s. from 50% to 64.29%, through a capital increase of â‚Ź 800 thousand. It should also be noted that the consolidated income statement at December 31 2009 includs for the first time the figures of the Indian subsidiaries Sogefi M.N.R. Filtration India Pvt Ltd and EMW Environmental Technologies Pvt Ltd, while their asset and liability items were already included in the consolidation at December 31 2008.

Healthcare sector In 2009 the following changes took place: - The acquisition of an interest in the company Iniziative Territoriali Integrate S.r.l.;

48

Consolidated Financial Statements


- The controlling stake in Ospedale di Suzzara S.p.A. was increased from 65% to 99.9%; - The establishment of the company Consorzio (HSS Servizi Società Consortile a r.l.) 99.6% owned by the Kos group. The business arm “Residenza Dorica” was also acquired.

Media sector There were some changes in the consolidation area compared to 2008 following the incorporation of some companies of the group that previously were fully consolidated. These were as follows: • On July 21 2009 EAG S.p.A., Edizioni Nuova Europa S.p.A., Editoriale la Città di Salerno S.p.A. were merged by incorporation into Finegil Editoriale S.p.A. and the companies Rotonord S.p.A. and Saire S.r.l. were merged by incorporation into Rotocolor S.p.A.; • On September 21 2009 the company CPS S.p.A. was merged by incorporation into Gruppo Editoriale L’Espresso S.p.A.; • On December 1 2009 Kataweb News was merged by incorporation into Elemedia S.p.A.. It should also be noted that as from December 31 2009 the company Edigraf S.r.l. left the consolidation because it was sold to third parties in October 2009, while the subsidiary Ksolutions S.p.A., currently being wound up and not longer operational, was consolidated at cost instead of being fully consolidated as was the case at December 31 2008. Lastly, regarding other companies consolidated at cost, it should be noted that the investment in E-Ink Corporation has been sold and Uhuru Multimedia S.r.l. has been wound up, having already been non-operational at December 31 2008.

Other companies As from financial year 2009 the company Food Concepts Holding S.A. and the company Food Concepts Germany GmbH have joined the consolidation.

3.

ACCOUNTING PRINCIPLES APPLIED

3.a.

Intangible assets (IAS 38)

Intangible assets are recognized only if they can be separately identified, if it is probable that they will generate future economic benefits and if their cost can be measured reliably. Intangible assets with a finite useful life are valued at purchase or production cost net of amortization and accumulated 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. 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

Consolidated Financial Statements

49


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:

50

Consolidated Financial Statements


- 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 - in the event 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 event of a sale, the difference between the price of the sale and the corresponding carrying value in the consolidated statement of financial position 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 “Investment properties� (see paragraph 3.e. below). Should there be any events which one can assume will cause a lasting reduction in the value of an asset, its carrying value is checked against its recoverable value, which is the higher of 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).

Consolidated Financial Statements

51


Where there is a negative difference between the values stated above and the carrying value, the asset’s carrying value is written down, while as soon as the reasons for such loss in value cease to exist the asset then undergoes an upward revaluation. Write-downs and revaluations are posted to the income statement. 3.c.

Public entity grants

Any grants from a public entity are recognized when there is a reasonable degree of certainty that the receiving company will comply with all the conditions stipulated for such a grant, independently of whether or not there is a formal resolution awarding the said grant, and the certainty that the grant will actually be received. Capital contributions are recognized in the balance sheet either as deferred income, which is posted to the income statement on the basis of the useful life of the asset for which it has been granted so that the depreciation can be reduced, or else they are deducted directly from the asset to which they refer. Any 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 – or part of a building – 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.

52

Consolidated Financial Statements


In the event of an asset held through a finance lease contract, the initial cost is determined according to IAS 17 from the lower of the fair value of the property and the present value of the minimum lease payments due. The Group has opted for the cost method to be applied to all investment property held. According to the cost method, 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 intangible and tangible 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.

Consolidated Financial Statements

53


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. 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 (“financial instruments”). 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.

54

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.

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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 “Share based payments� issued in February 2005 but applicable as from January 1 2005 stated in its transition instructions that application would be retrospective for all transactions where 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 shareholders’ 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.

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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 likely. 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.

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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 Statement of Financial Position. 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.

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Consolidated Financial Statements


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. 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.

4.

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 (“fair value through profit and loss� - FVTPL) in application of the fair value option, which are held for trading purposes; b) Investments held to maturity (HTM); c) Loans and receivables (L&R); d) Available-for-sale financial assets (AFS). Classification depends on Financial Management’s intended use of the financial instrument in the business context and each involves a different measurement for accounting purposes. Financial transactions are recognized on the basis of their value date. Financial instruments at fair value through profit and loss Instruments are classified as such if they satisfy one of the following conditions: - they are held for trading purposes; - they are a financial asset designated on adoption of the fair value option, the fair value of which can be reliably determined. Trading generally means frequent buying and selling with the aim of generating profit on price movements in the short term. Derivatives are included in this category unless they are designated as 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.

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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.

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Consolidated Financial Statements


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). Investments in financial assets can be eliminated from the statement of financial position, or derecognized, only when the contractual rights to receive their respective financial cash flows have expired or when the financial asset is transferred to third parties together with all its associated risks and rewards.

5.

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.

6.

ADOPTION OF AMENDMENTS

NEW

ACCOUNTING

STANDARDS,

INTERPRETATIONS

AND

Accounting standards, Interpretations and Amendments applied in 2009 The following accounting standards, amendments and interpretations, revised as part of the Annual Improvement for 2008 carried out by the IASB, were applied for the first time by the Group as from January 1 2009. •

IAS 1 Revised – Presentation of Financial Statements: the revised version of IAS 1 no longer allows the presentation of income items such as income and expense (defined as “changes generated by non-shareholder transactions) in the Statement of Changes in Equity, requiring a separate indication from the changes generated by transactions with shareholders. According to the revised version of IAS 1, in fact, all changes generated by transactions with nonshareholders must be shown in a single separate statement showing the performance for the

Consolidated Financial Statements

61


period (statement of comprehensive income) or in two separate statements (an income statement and a statement of comprehensive income). These changes must be shown separately even in the Statement of Changes in Equity. The Group applied the revised version of this standard retrospectively as from January 1 2009, opting to show all changes generated by transactions with non-shareholders in two statements showing performance for the period, entitled “Income Statement” and “Statement of Comprehensive Income” respectively. Thus the Group has changed the presentation of its Statement of Changes in Equity. Moreover, as part of the Annual Improvement process for 2008 conducted by the IASB, an amendment was published to IAS 1 Revised stipulating that assets and liabilities resulting from derivatives financial instruments designated as hedges must be classified, in the Statement of Financial Position, with a distinction between current and non-current assets and liabilities. On this subject it should be noted that the adoption of this amendment made no difference to the presentation of the asset and liability items from derivative instruments because of the mixed form of presentation of the distinction between current and non-current items adopted by the Group as allowed by IAS 1.

62

IFRS 8 – Operating segments: this standard requires disclosure to be given on the operating sectors of the Group and replaces the need to determine the primary reporting segment (business) and the secondary reporting segment (geographical) of the Group. It specifically requires that information given in the segment disclosures be based on the figures that management uses to make its operating decisions, ensuring that the operating segments are identified on the basis of internal reporting regularly revised by management for the allocation of resources to the various segments and for analysing performance. The adoption of this amendment did not affect the financial position or the performance of the Group. The Group established that the operating sectors were the same as those established previously in accordance with IAS 14 Segment reporting. The information on this subject is given in Note 20.

IAS 23 Revised – Borrowing costs: the revised version of this standard no longer has the option allowing borrowing costs to be recognized immediately to the income statement when incurred for an investment in assets which normally require a certain period of time to be prepared for use or for sale (qualifying assets). Moreover this version of the standard was amended as part of the Improvement 2008 process conducted by the IASB, with the aim of revising the definition of borrowing costs to be considered for capitalization. In accordance with what was set out in the transition rules under this standard, the Group applied the new accounting standard from January 1 2009 prospectively, capitalizing borrowing costs directly attributable to the acquisition, construction or production of the qualifying assets for which the Group started the investment, incurred the borrowing costs or for which the action needed to prepare the asset for its specific use or for sale starting from January 1 2009. No significant accounting effects were picked up in 2009 as a result of the adoption of this principle.

Amendment to IFRS 2 – Vesting conditions and cancellation: the amendment to IFRS 2 – Vesting conditions and cancellation establishes that for the purposes of measuring share-based payments, only the servicing and performance conditions can be considered as vesting conditions of the plans. Any other clauses must be considered as non-vesting conditions and incorporated into the fair value calculation at the award date of the plan. 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.

Consolidated Financial Statements


This principle was applied retrospectively by the Group from January 1 2009. However from its application no accounting effects have emerged for the Group. •

Improvement to IAS 19 – Employee benefits: the improvement clarifies the defintion of cost/income in relation to past period of 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 period of service must be considered as a negative cost in relation to past service. This amendment is applicable prospectively to changes in plans that take place as from January 1 2009. The improvement also changed the definition of the yield on an asset servicing the plan, establishing that this item must be shown net of any administration charges that are not already included in the value of the bond, and it also clarified that the definition of short-term benefits and long-term benefits. It should also be noted that no significant accounting effects were noted at December 31 2009 following the adoption of this amendment.

Improvement to IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance: the improvement establishes that the benefits deriving from public entity loans at below-market interest rates must be treated as government grants and the rules for recognition set out in IAS 20 must be followed. The previous version of IAS 20 established that in the event of loans at below-market interest rates received as public entity assistance, the company did not have to recognize any benefit and so the Group recognized the loan at the value of the inflow received and the lower interest expense resulting from the same was posted directly to the income statement in the item Financial income (expense). In accordance with the provisions of the transition rules of the amendment , the Group applied the new accounting standard from January 1 2009 to loans received at a below-market interest rates as from that date. At December 31 2009 there were no significant accounting effects resulting from the application of this improvement.

Improvement to IAS 28 – Investments in associates: the improvement to IAS 28 establishes that for investments consolidated using the equity method any impairment is not allocated to the individual asset (and in particular to goodwill) constituting the carrying value of the investment, but to the value of the investment as a whole. Thus if the conditions exist for a subsequent recovery of value, this must be recognized in full. In accordance with the transition rules that apply, the Group opted to apply this amendment prospectively to revaluations made from January 1 2009 but there were no accounting effects resulting from the adoption of this new principle because during 2009 the Group did not mark up the value of any goodwill included in the carrying value of its investments. It should also be noted that the improvement also changed some of the information required for investments in associates and joint-ventures measured at fair value in accordance with IAS 39, making changes at the same time to IAS 31 – Interests in joint ventures and amending IFRS 7 – Financial instruments: Disclosures and to IAS 32 – Financial instruments: presentation. These changes, however, referred to situations not present in the Group as of the date of these Financial Statements.

Consolidated Financial Statements

63


Improvement to IAS 38 – Intangible assets: the improvement 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. This amendment was applied by the Group retrospectively as from January 1 2009 but its adoption did not have any effect on the accounts.

Amendment to IFRS 7 – Financial instruments: Additional disclosures: the improvement, applicable as from January 1 2009, was issued with a view to increasing the level of disclosure when measuring instruments at fair value and to boosting the effect of the existing principles on the subject of disclosures regarding the liquidity risk of financial instruments. In particular, the amendment requires disclosure to be given of the way the fair value measurement of financial instruments is carried out on the basis of a ranking. The adoption of this standard did not have any effect on the measurement and recognition of items in the accounts, but only the type of information given in the Notes.

Amendments and interpretations applied as from January 1 2009 but not relevant for the Group The following amendments and interpretations, applicable as from January 1 2009, regulate situations not present at this balance sheet date: • • • • • • • • •

Improvement to IAS 16 – Property, Plant and Equipment Improvement to IAS 29 – Financial Reporting in Hyperinflationary Economies. Amendment to IAS 32 – Financial Instruments: Presentation and to IAS 1 – Presentation of Financial Statements – Financial Instruments. Improvement to IAS 36 – Impairment of assets. Improvement to IAS 39 – Financial Instruments: Recognition and Measurement. Improvement to IAS 40 – Investment Property. IFRIC 13 – Customer Loyalty Programs. IFRIC 15 – Agreements for the Construction of Real Estate. IFRIC 16 – Hedges of a Net Investment in a Foreign Operation.

It should also be noted that on March 12 2009 the IASB issued an amendment to IFRIC 9 – Reassessment of Embedded Derivatives and to IAS 39 – Financial Instruments: Recognition and Measurement which allows entities to reclassify particular financial instruments out of the 'fair value through profit or loss' category in specific circumstances. These amendments clarify that on reclassification of a financial asset out of the 'fair value through profit or loss' category, all embedded derivatives have to be assessed and, if necessary, separately accounted for in the financial statements. The amendments apply retrospectively and must be applied as from December 31 2009 but their adoption had no accounting effect on the financial statements of the Group.

Accounting standards, amendments and interpretations not yet applicable and not adopted early by the Group Below are the main amendments and changes to accounting standards which are not yet applicable and which have not been adopted early by the Group. The Group is currently examining the

64

Consolidated Financial Statements


standards and interpretations indicated and assessing whether their adoption will have a significant impact on the financial statements. On January 10 2008 the IASB issued an updated version of IFRS 3 – Business Combinations, and amended IAS 27 – Consolidated and Separate Financial Statements. The main changes made to IFRS 3 concern the elimination of the obligation to value the individual assets and liabilities of the subsidiary at fair value in each subsequent acquisition, in the event of step acquisitions of subsidiaries. The goodwill will be determined only at the acquisition stage and will be equal to the difference between the value of the investments immediately before the acquisition, the transaction consideration and the value of the net assets acquired. Moreover in cases where the company does not acquire a stake of 100%, minority interests can be measured either at fair value or using the method previously given in IFRS 3. The revised version of this standard also states that all costs relating to the business combination must be charged to the income statement and that liabilities for contingent consideration should be recognized on the acquisition date. In the amendment to IAS 27 the IASB established that any changes to the percentage of the stake non constituting loss of control must be treated as equity transactions and thus have an offset in shareholders’ equity. It was also established that when a parent company cedes control of one of its investees but still continues to hold an investment in the company, it must measure the investment kept on its books 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 all losses attributable to minority shareholders be allocated to minority interests even when these losses are greater than portion of the capital of the investee. These new rules must be applied prospectively as from January 1 2010. As part of the Improvement 2008 process conducted by the IASB, the amendment made to IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations establishes that if a business is engaged in a plan of disposal involving the loss of control of a subsidiary, all the assets and liabilities of the subsidiary must be reclassified under assets held for sale, even if the business will still hold a minority shareholding in that subsidiary after the sale. This amendment must be applied prospectively as from January 1 2010. On July 31 2008 the IASB issued an amendment to IAS 39 – Financial Instruments: Recognition and Measurement, which must be applied retrospectively as from January 1 2010. The amendment 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 competent authorities of the European Union have not yet completed the ratification process necessary for it to be applied. On November 27 2008 the IFRIC issued Interpretation IFRIC 17 – Distributions of Non-cash Assets to Owners in order to harmonize the accounting treatment of distributions of non-cash assets to shareholders. The interpretation specifically clarifies that a dividend payable must be recognized when the dividends have been authorized appropriately and that the payable must be measured at the fair value of the equity that will be used for the dividend payout. Lastly, the company must recognize to the income statement the difference between the dividend paid out and the net book value of the assets used for the payment.

Consolidated Financial Statements

65


The interpretation is applicable prospectively from January 1 2010. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for it to be applied. On January 29 2009 the IFRIC issued Interpretation IFRIC 18 – Transfers of Assets from Customers which specifies the accounting treatment to be adopted if a company signs an agreement with a customer to receive from the customer a tangible asset to be used to connect the customer up to a network or provide him with goods and services (e.g. the supply of electricity, gas, water). In some cases the company actually receives cash from the client in order to build or acquire the tangible asset that will be used to fulfil the terms of the contract. This interpretation is applicable prospectively from January 1 2010. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for it to be applied. On April 16 2009 the IASB issued a set of improvements to IFRS. Below are those indicated by the IASB as changes which involve a change in presentation, recognition and measurement of the items in the financial statements, omitting those which will only involve a change in terminology or styling with minimum effects from the accounting viewpoint, or those which affect standards or interpretations not applicable to the Group. • IFRS 2 – Share-based payments: the amendment, which must be applied as from January 1 2010 (earlier application is permitted) clarified that since IFRS 3 has amended the definition of a business combination, the spin-off of a business arm for the formation of a joint venture or a combination of businesses or business arms into jointly controlled entities is no longer subject to the terms of IFRS 2. • IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations: the amendment, applicable prospectively as from January 1 2010, clarified that IFRS 5 and other IFRS that refer specifically to non-current assets (or groups of assets) classified as available for sale or as discontinued operations contain all the information needed for this kind of asset or operation. • IFRS 8 – Operating Segments: this amendment, which must be applied as from January 1 2010, requires that businesses give the total value of their assets for each reportable segment, if this value is provided periodically at top management level. This information was previously required even in the absence of this condition. • IAS 1 – Presentation of Financial Statements: this amendment, which must be applied as from January 1 2010 changes the definition of current liabilities contained in IAS 1. The previous definition required all convertible liabilities that could be cancelled at any moment by the issue of equity instruments to be classified as current liabilities. This meant that liabilities relating to bonds convertible at any time by the issuer into equity had to be recorded as current liabilities. Following this amendment, for current/non-current classification it is now irrelevant whether a liability has a currently exercisable option for conversion into equity instruments. • IAS 7 – Cash Flow Statement: The amendment, which must be applied as from January 1 2010, requires that only cash flows from expenditure that leads to the recognition of an asset in the Balance Sheet can be classified in the Cash Flow Statement as from investment activity, while cash flows from expenditure which does not give rise to the recognition of a tangible asset (as may be the case for promotional and advertising expense or personnel training costs) must be classified as resulting from operating activity.

66

Consolidated Financial Statements


IAS 17 – Leasing: following changes made, the general conditions of IAS 17 for the classification of a contract as a finance lease or an operating lease will now apply to leased land independently of whether title of ownership is obtained on expiry of the contract. Before the changes, the accounting standard stated that when ownership title of the land being leased was not transferred on expiry of the lease agreement, then the same was classified as an operating lease as it had an indefinite useful life. This amendment applies as from January 1 2010. As of the adoption date all land with a lease contract already in place which has not yet expired will have to be valued separately, with retrospective recognition of a new leasing agreement accounted for as if the contract was a finance lease. IAS 36 – Impairment of assets: this amendment, which will apply prospectively from January 1 2010, requires that each operating unit or group of operating units to which goodwill is allocated for the purposes of the impairment test should not be larger than an operating segment as defined in paragraph 5 of IFRS 8, before the combination permitted by paragraph 12 of the same IFRS on the basis of similar economic characteristics or other elements of similarity. IAS 38 – Intangible assets: the revision of IFRS 3 carried out in 2008 established that there is sufficient information to measure the fair value of an intangible asset acquired during a business combination if the asset is separable or if it derives from contractual or legal rights. IAS 38 was therefore amended to reflect this change to IFRS 3. The amendment also clarified the measurement techniques to be commonly used to measure the fair value of intangible assets for which there is no active market. Specifically these techniques include either an estimate of net cash flows generated by the asset discounted to present value, or an estimate of the costs that the company has avoided by owning the asset and not having to use it under lease from a third party, or an estimate of the costs necessary to recreate or replace it (as in the so-called cost method). This amendment should be applied prospectively from January 1 2010. IAS 39 – Financial Instruments: Recognition and Measurement: this amendment limits the scope of exemption contained in paragraph 2g of IAS 39 to forward contracts between a purchaser and a shareholder seller for the purposes of the sale of a business into a business combination at a future acquisition date, when the completion of the business combination does not depend on further shares of one or the other of the parties, but only on the passing of an appropriate period of time. The amendment clarifies on the other hand that IAS 39 is applicable to option contracts (whether or not they are currently exercisable) that give one of the two parties control over whether or not future events take place and exercise of which would lead to control of a business. The amendment also clarifies that the implied penalties for the prepayment of loans, the price of which compensates the lender for the loss of any further interest, must be considered as strictly correlated with the loan agreement of which they are a provision, and thus shall not be accounted for separately. Lastly, the amendment clarifies that gains and losses on a hedged financial instrument must be reclassified from shareholders’ equity to the income statement in the period in which the expected cash flow affects the income statement. This amendment applies prospectively from January 1 2010.

Consolidated Financial Statements

67


IFRIC 9 – Reassessment of Embedded Derivatives: the amendment, which applies prospectively as from January 1 2010, excludes from the scope of application of IFRIC 9 any derivatives embedded in contracts acquired during business combinations at the moment that jointly controlled companies or joint ventures are formed. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for the above improvements to be applied. In June 2009, the IASB issued an amendment to IFRS 2 – Share-based Payments. The amendment clarifies the scope of application of IFRS 2 and the relationships existing between this and other accounting standards. In particular it clarifies that a company receiving goods or services under share-based payment plans must account for these goods or services independently of which company of the group actually settles the transaction, and independently of whether settlement takes place in cash or in shares. It also establishes that the term “group” should have the same meaning that it has in IAS 27 – Consolidated and Separate Financial Statements, i.e. it should include the parent company of the group and its subsidiaries. The amendment also specifies that a company must measure the goods or services received within the scope of a transaction settled in cash or in shares from its own viewpoint, which might not coincide with that of the group or with the amount recognized in the consolidated financial statements. The amendment incorporates the guidelines previously included in IFRIC 8 – Scope of IFRS 2 and in IFRIC 11 – IFRS 2 – Group and Treasury Share Transactions. As a result of this, the IASB has withdrawn IFRIC 8 and IFRIC 11. This amendment applies from January 1 2010. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application. On October 8 2009, the IASB issued an amendment to IAS 32 – Financial Instruments: Presentation: Classification of Rights Issues in order to regulate accounting for rights issues (rights, options or warrants) denominated in a different currency from the functional currency of the issuer. Previously these rights were accounted for as liabilities from derivative financial instruments. The amendment requires that, under certain conditions, these rights be classified in shareholders’ equity, whatever currency the strike price is denominated in. This amendment is applicable retrospectively as from January 1 2011. As of the date of these Financial Statements the Group does not consider it likely to have any effect. On November 4 2009 the IASB issued a revised version of IAS 24 – Disclosure of Related Party Transactions which simplifies the type of disclosures required in the event of transaction with related parties controlled by the State and clarifies the definition of related parties. This standard is applicable as from January 1 2011. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application. On November 12 2009 the IASB published IFRS 9 – Financial Instruments covering the classification and measurement of financial assets and applicable as from January 1 2013. This publication is the first step of a process that will entirely replace IAS 39. The new standard uses a single approach based on ways of managing financial instruments and on the characteristics of the cash flows involved in financial asset contracts to determine the measurement criterion, replacing the different rules set out in IAS 39. Furthermore, the new standard will involve a single method for calculating impairment of financial assets. As of the date of these Financial Statements the com-

68

Consolidated Financial Statements


petent authorities of the European Union have not yet completed the ratification process necessary for its application. On November 26 2009 the IASB published a minor amendment to IFRIC 14 – Prepayments of a Minimum Funding Requirement which allows companies prepaying a minimum funding requirement to recognize it as an asset. The amendment is applicable as from January 1 2011. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application. On November 26 2009 the IFRIC published IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments, which provides guidelines for recognizing the extinguishment of a financial liability through the issue of equity instruments. The interpretation establishes that if a company renegotiates the conditions for extinguishing a financial liability and its creditor accepts extinguishment through the issue of shares in the company, then the shares issued in that company become part of the price paid to extinguish the financial liability and must be measured at fair value. The difference between the carrying value of the finanical liability extinguished and the initial value of the shares issued must be recognized to the income statement in the period. The amendment is applicable as from January 1 2011. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application.

Consolidated Financial Statements

69


NOTES ON THE BALANCE SHEET

7.

NON-CURRENT ASSETS

7.a. INTANGIBLE ASSETS

Starting position

2008

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

Accum. amort. & writedowns

Balance 31.12.2007

Acquisitions

75

(69)

6

--

-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

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

Combinations sales of businesses increases decreases

Closing position

Exchange rate differences --

Other changes

Amort. & writedowns

Historical cost

Accum. amort. & writedowns

Balance 31.12.2008

--

Net disposals cost --

(3)

75

(72)

3

---

-(1,140)

-1,361

-(4)

-(6,387)

-56,044

-(34,067)

-21,977

-350 ----

-----

(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

4,904 --5,254

-----

(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

Exchange rate differences --

Other changes

Amort. & writedowns

Historical cost

Accum. amort. & writedowns

Balance 31.12.2009

(2)

Net disposals cost --

(3)

72

(72)

--

Starting position

2009

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

Changes in the period

Historical cost

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

Closing position

Historical cost

Accum. amort. & writedowns

Balance 31.12.2008

Acquisitions

75

(72)

3

2

-56,044

-(34,067)

-21,977

-6,576

---

---

-1,150

-2,787

-(11)

-(7,280)

-67,667

-(42,468)

-25,199

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

27 12,131 -399 29,307

-52 --1,537

(2) (47) ----

(3) (18) ----

192 7,972 --7

(10) (7) -(73)

(443) (9,188) ----

11,608 86,761 400,245 218,901 674,405

(9,640) (59,854) --(54,693)

1,968 26,907 400,245 218,901 619,712

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

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

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

7,270 2,403 1,011 59,126

13,477 -562 15,628

--(11) (60)

13 (31) 81 1,192

(7,497) (3,387) (117) (45)

(323) --(424)

(5,312) -(787) (23,013)

20,598 3,321 13,820 1,497,398

(5,312) (7) (8,449) (180,495)

15,286 3,314 5,371 1,316,903

Intangible assets rose from â‚Ź 1,264,499 thousand at December 31 2008 to â‚Ź 1,316,903 thousand at December 31 2009.


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)

31.12.2009

31.12.2008

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

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

(in thousands of euro)

31.12.2009

31.12.2008

Radio frequencies Television frequencies Total

80,618 138,283 218,901

80,219 138,283 218,502

31.12.2009

31.12.2008

261,990 140,038 121,607 96,077 619,712

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

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 (KOS group formerly HSS) Automotive sector (Sogefi Group) Total

In detail, goodwill was allocated to the cash-generating units (“CGUs�) 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 testing for impairment goodwill and other intangible assets with an indefinite useful life, the estimated recoverable value of each cash generating unit, defined in accordance with the terms of IAS 36, was based on value in use, i.e. fair value less costs to sell. Value in use was calculated by discounting to present value future cash flows generated by the unit in the production phase and at the time of its decommissioning at an appropriate discount rate (discounted cash flow method). More specifically, in accordance with what is required by international accounting standards, for checking the value cash flows were considered without taking into account the inflows and outflows generated by financial management or any cash flows

Consolidated Financial Statements

71


relating to tax management. The cash flows to be discounted are, therefore, operating cash flows, which are unlevered and differential (because they refer to the individual units). 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. To give a correct estimate of the value in use of a Cash Generating Unit, it was necessary to value the amount of expected future cash flows of the unit, expectations of any changes in the amount and timing of the flows, the discount rate to be used 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. For estimating the recoverable value of each asset the higher of fair value less costs to sell and value in use was used. The impairment tests carried out on goodwill and other tangible assets with an indefinite useful life using the cash flow method and other valuation methods ascertained that there were no losses in value. However considering that recoverable value is determined on the basis of estimates, the Group cannot guarantee that goodwill will not be impaired in future periods. Given the current context of market crisis, the various factors used to make the estimates could be revised if conditions prove not to be in line with those on which the forecasts were based. Below is a description of the tests carried out. Media sector The impairment test on the media sector, which coincides with the Espresso Group consolidation area, was applied to intangible assets with an indefinite useful life, i.e. the titles and trademarks, the balance sheet value of which is approximately € 400.2 million, the radio and television frequencies, recognized in the balance sheet at approximately € 218.9 million, and the goodwill allocated to the sector for a total of approximately € 140.0 million. This goodwill represents the higher value of the acquisition cost compared to the Group’s share of its assets and liabilities, measured at fair value. Below are the main criteria used to prepare the impairment test for each cash generating unit or group of such units which have a significant value: • For the national (La Repubblica) and local newspapers (Il Piccolo/Messagero Veneto and the other local dailies) both the criterion of fair value and that of value in use were used; • For radio frequencies and the Deejay brand both fair value and value in use were used;

72

Consolidated Financial Statements


•

For frequencies and goodwill relating to the television sector both fair value and value in use were used.

More specifically, to determine the value in use of the CGUs, the procedure involved application of: - The Discounted Cash Flow model, discounting the breakdown of the expected cash flows over the time frame of the business plans (2010-2014) and determining terminal value. The discount rate used was the average cost of invested capital (WACC pre-tax) of the Espresso Group which was 9.1%. -

Fair value less costs to sell determined using a different methodological approach for the various publishing businesses, for which, because there is no active trading market, reference was made to direct multipliers for estimating value (Enterprise value/Sales, Enterprise value/EBITD A, Enterprise value/EBIT), and for the radio-television businesses for which a price/users multiple (Enterprise value/population reachable by the signal), observing the prices used in the transfer of similar frequencies in terms of the population potentially reachable by the signal. In order to determine the possible “price� of the publishing Cash Generating Unit, entity side multipliers were used, either in the trailing version (historical/precise multipliers) or in the leading version (expected/average multipliers). The estimate of fair value less costs to sell of the radio and television operating units was made starting from an observation of the prices for the transfer of frequencies similar to those being tested in relation to the population potentially reachable by the signal. The use of this valuation approach makes it possible to estimate the fair value of radio and television frequencies, correlating the price that the market is prepared to pay for the acquisition of the frequency with the number of inhabitants reachable by the signal.

To determine economic results and operating cash flows of the individual CGUs of the Group, reference was made to the business plans for the period 2010-2014 prepared by management on the basis of reasonable hypotheses in line with past evidence. These plans represent the best estimate of the economic conditions likely to exist in the period under consideration. The first year of the plans corresponds to the latest budget prepared for 2010, approved by the Board of Directors on January 10 2010. Moreover, the current situation of uncertainty in the short and medium term scenario led management to reconsider carefully the expected growth rate of revenues and margins. Regarding advertising revenues in particular, overall stability was assumed for 2010 in the amount of advertising in a market for which the main operators in the sector are still forecasting a slight decline. This is because of the improvement of commercial efficiency. As from the second year of the plan (2011), a gradual recovery in advertising is being assumed which should lead to advertising revenues in 2014 on a par with those of the year 2008. As for circulation revenues, the business plan 2010-2014 assumes a trend for sales of the various titles in line with the trend seen over the last two years, bearing in mind the specific market conditions in which each newspaper operates, especially at local level. It should also be noted that to determine terminal value a growth rate of zero was used prudentially. For those cash generating units which show a value of the titles and/or frequencies and/or goodwill that is significant for the purposes of the consolidated financial statements of the Group and for which the results of the impairment test indicate a positive difference between fair value less

Consolidated Financial Statements

73


costs to sell and/or value in use compared to carrying value that is below 50%, a sensitivity analysis was also carried out on the results with changes in the basic assumptions, showing which combination of variables would make the recoverable value of the CGUs equal to their carrying amount. In particular, for the publishing CGUs this analysis for the “Messaggero Veneto” and “Il Piccolo” CGUs gave the following results: • For the “Messaggero Veneto” CGU, value in use would be equal to the carrying amount assuming a decline in advertising of 6% as from 2011 and a decline of 4.5% in the number of copies sold. Alternatively, assuming that the projected circulation and advertising revenues contained in the plan 2010-2014 are correct, value in use would be equal to the carrying amount if the discount rate (WACC pre-tax) were 13.8% instead of the 9.1% currently used; • For the “Il Piccolo” CGU, value in use would be equal to the carrying amount assuming a growth rate for advertising of 2% starting from 2011 and a decline of 2% in the number of copies sold. Alternatively, assuming that the assumptions about the trend of circulation and advertising revenues contained in the plan for 2010-2014 are valid, value in use would be equal to the carrying amount if we assume a discount rate for the expected cash flows (WACC pre-tax) of 10.8% instead of the 9.1% currently used. Furthermore, for the radio and television cash generating units it should be noted that in the determination of fair value less costs to sell for the radio frequencies the price range used was between 1.5 and 3 times the number of inhabitants reachable by the FM signals of the Radio Deejay, Radio Capital and m2o CGUs, while for the television frequencies a price range of between 3.4 and 3.8 times was used. In the latter case, the fair value of the “Rete A-All Music” CGU would be equal to its carrying amount with an average price multiplier 2.3 times the number of inhabitants reachable by the signal. Given the scarcity of recent transactions in Italy involving television frequencies, the value in use of the television frequencies was also calculated and this confirmed the recoverability of the values recognized in the balance sheet. To do this a rise in revenues was assumed from the rent of bandwidth relating to the changeover from analogue to digital terrestrial technology in line with the national switch-over plan. The impairment test carried out at the close of 2009 on the titles, radio and television frequencies, trademarks and goodwill, which are all considered as assets with an indefinite useful life, showed that there were no impairment losses needing recognition in the financial statements. A comparison between the values determined from the procedures described and the carrying value in the accounts at December 31 2009 showed that there had been no loss in value. To complete the tests described above, which confirmed that there were no impairment losses at December 31 2009 needing recognition in the accounts, the fair value – expressed in the stock prices of Gruppo Editoriale L’Espresso at December 31 2009 – was compared with the carrying value of the assets held by the Group in the media sector. This comparison further validated the carrying value in the accounts of such assets. Automotive sector Goodwill allocated to the automotive sector, which coincides with the consolidation of the Sogefi Group, is equal to approximately € 96.1 million. For the purposes of the impairment test the group identified four CGUs to which the goodwill from acquisitions was allocated: - filters - car suspension components

74

Consolidated Financial Statements


- industrial vehicle suspension components - precision springs. In particular, the goodwill of the Filter Division totals approximately 77 million euro, while that of the Car Suspension Components Division is approximately 17 million euro. A test was carried out to check for any impairment of 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 made in the budgets/multiyear business plans for the period 2010-2013, approved by management and on a discount rate of 8% based on the weighted average cost of capital. Lastly, terminal value was calculated using the perpetuity formula, assuming a growth rate of 2% and an operating cash flow based on the last year of the multiyear business plan (2013), adjusted to project a stable situation into perpetuity, using the following main assumptions: - an overall balance between investments and amortization (with a view to considering a level of investment necessary to “maintain” the business); - a zero change in working capital (assuming the improvements obtainable from the program of reducing working capital in which the group is engaged as substantially finished in the medium term). The average cost of capital is the result of the weighted cost of debt (calculated as the benchmark rate plus a spread) and of the cost of the company’s own capital, calculated on the basis of parameters for a group of companies operating in the European automotive components sector considered to be the peers of Sogefi by the main financial analysts who follow this business sector. The values used in the calculation of the average cost of capital (extrapolated from the main sources of funding) are the following: - Financial structure of the sector: 38.8% - Unlevered beta of the sector: 0.79 - Risk free interest rate: 4.41% - Risk premium: 5% - Spread: 1% Sensitivity analyses were then carried out on two of the above variables assuming a zero growth rate and rise of two percentage points in the calculation of the average cost of capital. In none of the projected scenarios did the need for any writedown emerge. The test carried out on the present value of projected cash flows would justify a higher level of goodwill than that recorded in this balance sheet and therefore no writedown was contemplated. The results obtained from the analyses carried out through the determination of value in use were amply confirmed by the fair value – expressed in Sogefi’s stock prices at December 31 2009 – of the assets held by the Group in the automotive sector. These values are in fact much higher than the carrying amounts in the financial statements. Utilities sector The goodwill allocated to the utilities sector, amounting to approximately € 261.9 million, of which € 178.4 million generated by the acquisitions made by the Sorgenia Group (€175.4 million refers to Société Française d’Eolienne-SFE, acquired in December 2007 and the remaining part refers to acquisitions made in 2009). This goodwill represents the higher value of the acquisition cost compared to the Group’s share of the assets and liabilities acquired, measured at fair value. The change recorded in the year was mainly related to the effects of share capital increases subscribed during the period.

Consolidated Financial Statements

75


The measurement of the goodwill allocated on the acquisitions made by the Sorgenia Group, for the purposes of the impairment test, is based on the cash flows of the cash generating units. In detail, the recoverable value of the cash generating unit was verified by determining the value in use meaning the current value of cash flows expected by the CGU representing the SFE Group, resulting from the economic projections included in the Business Plan approved by the Board of Directors of Société Française d’Eoliennes. These flows were discounted to present value at the current weighted average cost of SFE’s capital. SFE’s business plan was drawn up based on a detailed analysis of the existing plants and forecasing a time frame for the construction of new plants based on the state of advancement of projects currently under construction and, more in general, on the time needed to complete the authorization processes, considering the scenario estimated for an installed capacity of approximately 650 MW. The main assumptions used to calculate value in use are the discount rate, the expected useful life of the plants, expectations regarding the performance of investments, revenues and operating costs during the period taken for the calculation and the terminal value of the plants after their initial useful life. The weighted average cost of capital, gross of taxes, was estimated at 6.2% (6.2% in 2008), which reflects current valuations of the cost of money in the market and the specific risk of the particular cash generating unit. Projected operating cash flows were taken from the Business Plan of SFE, considering the time horizon of the remaining useful life of the wind parks (estimated at 25 years). Investments for the construction of new wind parks were in line with those of the Business Plan. The trend of revenues and direct costs was based on specific assumptions regarding the amount of electricity produceable by existing plants and plants to be built as per the same Plan and were based on reasonable assumptions about electricity prices in line with the French regulatory environment and the energy scenario of the Sorgenia Group. The comparison between value in use calculated as described above and the carrying amount in the balance sheet at December 31 2009 did not reveal any loss of value. The part of goodwill not resulting from acquisitions made by Sorgenia but rather from the consolidation of the sub-group into CIR, was allocated to the Italian businesses of the Sorgenia Group. In this case the valuations for the impairment test were not based on estimated cash flows from the various inititatives of the Group but rather were based on the values of Sorgenia expressed in relation to agreements signed during the year with its partner Verbund regarding minority interests. The comparison between the values calculated as described above and the carrying amount in the balance sheet at December 31 2009 did not reveal any loss of value but rather showed significant capital gains on the investments made by the group in the sector. Healthcare sector The goodwill allocated to the healthcare sector, which corresponds to the consolidation area of the KOS Group, amounts to approximately € 121.6 million. In order to check for any impairment of the value of goodwill and other fixed assets recorded in the balance sheet, the value in use was calculated of the cash generating units to which the goodwill was allocated. In particular, the impairment model of the KOS Group is based on the following levels: • First level: individual nursing homes for which the values of the tangible and intangible assets proved to be recoverable (which includes the goodwill directly allocable but excludes that which is not directly allocable to the individual CGUs), taking into account values given by real estate valuations.

76

Consolidated Financial Statements


Second level: regions representing combinations of nursing homes for checking recoverability of the values allocated at the first level, and also of the regional goodwill and the pro-rata portion of unallocated goodwill. This goodwill was attributed to each group of CGUs that benefit from synergies linked to their respective business combination (in line with the provisions of paragraph 80 of IAS 36). Third level: operating sector to verify the recoverability of the values tested as above considering also the cash flows generated by the central holding company.

To sum up, the group has identified four operating sectors which group together the CGUs and to which the goodwill is allocated: - Elderly (Lombardy, Piedmont, Liguria, Emilia, Veneto, Marche); this sector includes a total of 33 CGUs/care homes (first level); - Hi-tech Services (Medipass); - Acute (Suzzara Hospital); - Rehabilitation (Lombardy, Piedmont, Liguria, Trentino, Emilia, Marche); this sector includes a total of 13 CGUs/rehab centres (first level). In more detail, the goodwill values allocated specifically to the Elderly Division amounts to approximately € 68 million, while that allocated to the Rehabilitation Division amounts to approximately € 48 million. These CGUs/groups of CGUs were identified, following the organizational and business structure of the Group, as homogeneous combinations able to generate cash flows independently through the continuing use of the assets assigned to them. Then for the second level test the structures were organized into groups at regional level to identify the benefits deriving from synergies. The development of the impairment test used the latest budget forecasts relating to the economic and financial trend forecast for the period 2010-2014. To calculate terminal value a growth rate (g rate) of 1% was used (2% in 2008) which is close to the inflation rate even though there are some estimates of a growth rate for the sector that are above inflation. The discount rate used (WACC) reflects the current market valuations of the cost of money and takes into account the specific risks of the business. This rate, net of taxes, was 6.8% (in line with the rate used for the same purpose in 2008). The Business Plan for 2010-2014 approved by the Board of Directors of KOS S.p.A. – on which the impairment test was based – is based both on variables controllable by management of the Group and on assumptions about the evolution of exogenous variables that are not directly controllable or manageable by the Management of the Group. This Plan was built starting from Budget 2010, and was developed on the basis of precise estimates made for the individual facilities of the group and for the remaining period using specific key value drivers. The main estimates adopted in the preparation of the Business Plan for 2010-2014 in general involved the hypothesis that, while taking into consideration the current financial crisis and the possible effect that it may have on public and healthcare spending dynamics, there is not likely to be any significant contraction in this spending in the medium term in the segments in which the individual Operating Sectors operate, since these are essential services and complement those offered by the National Health Service. In particular, even considering demographic variables due to the gradual aging of the population, the previous dynamics of healthcare spending and plans for the development of the business involving specific geographical areas, the bed occupation rate per specific initiative is expected to reach saturation point and/or to remain in line with the results

Consolidated Financial Statements

77


of previous years. Moreover, the growth rate in charges deemed reasonable for projection purposes was considered both as in line with inflation and in some cases higher than inflation to take into account any discontinuity and/or specific assumptions-changes to the plan, for example due to a change in the mix of services offered by the various facilities – even perhaps to improve the overall profitability profile and that of the individual facilities which, either because of the type of charge reimbursement given by the Regions in which they operate, or because of their high operating costs, are not very profitable or need to be streamlined in terms of saturation and profit margins. In this context it was also assumed that in the medium term the payment terms for the services accredited by the Regions remain substantially unchanged. Similar assumptions were made for the part of the fees that are paid by the individual concerned in the Elderly business sector. Regarding the Suzzara Hospital (Acute sector), which made losses in this and past years and which had net fixed assets at December 31 2009 of ₏ 8,323 thousand, but for which no goodwill had been recognized, the Kos Group has started and will continue for the duration of the Plan to take a series of actions to reorganize and rationalize the business, making a clean break with the past. This action will involve hiring a new management team and aims to increase volumes in the in-patient sector and in diagnostic and out-patient services, and to increase revenues by reducing the length of hospital stays. A series of actions have also been envisaged to improve operating efficiency. Lastly, it has also been decided that there will be a gradual normalization in relations regarding the charge-backs for staff seconded to the Carlo Poma Hospital and that the rules governing experimentation be made much clearer and the conditions more economical. In spite of having considered the uncertainties of this situation and identified the risks inherent in pursuing the objectives of the plan, it was nonetheless considered that the plan is realizable and that there should not be any impairment of the assets recorded as of the balance sheet date. From the test carried out no siutations emerged, at the first level tested, involving significant losses of value while at the second level, for which goodwill has been allocated, a comparison between value in use determined according to the procedures described and the carrying amount in the balance sheet at December 31 2009 did not show any impairment. Moreover, the Group also set up sensitivity analyses considering changes in the basic assumptions of the impairment test and particularly in the variables which have most impact on recoverable value (discount rate, growth rate, terminal value). This analysis, conducted on the test levels shown above (regions and operating sectors) did not reveal any problematic situations or instances where the carrying value was higher than the recoverable value.

78

Consolidated Financial Statements


7.b. TANGIBLE ASSETS Starting position

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

Accum. deprec. & writedowns

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

Buildings used for business Plant and machinery

Accum. deprec. & writedowns

Balance 31.12.2008

Acquisitions

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

1,618 6,714 43,735 2,568 10,232 446,439 511,306

% 3.00% 10.00-25.00%

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

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

Combinations sales of businesses increases decreases -(16) 8,213 (347) 286 (351) 48 (3) 167 (249) 168 (2) 8,882 (968)

Capitalized financial expense -560 26,133 --(12,344) 14,349

20.00% 12.00% 25.00%

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

Closing position Other changes 2,659 7,601 530,707 (448,689) 8,144 1,941 (24,181) 78,182

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

Depreciation & writedowns

Historical cost

Accum. deprec. & writedowns

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

Net disposals cost (2,690) (923) (3,391) (193) (299) (1,205) (8,701)

Depreciation & writedowns

Historical cost

Accum. deprec. & writedowns

Balance 31.12.2009

-(11,403) (86,137) (6,106) (16,719) (2,701) (123,066)

56,898 384,242 2,071,740 110,861 237,444 516,985 3,378,170

-(122,202) (805,147) (86,228) (172,212) (5,012) (1,190,801)

56,898 262,040 1,266,593 24,633 65,232 511,973 2,187,369

Closing position

Changes in the period

Historical cost

DEPRECIATION RATES Description

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

Starting position

2009 (in thousands of euro) Land Buildings used for business Plant and machinery Industrial & commercial equipment Other assets Assets under construction & advance payments Total

Changes in the period

Historical cost

Exchange rate differences 246 2,035 4,567 246 32 1,019 8,145

Other changes 3,245 23,219 490,387 2,077 4,451 (535,942) (12,563)


7.c. INVESTMENT PROPERTY

Starting position

2008 (in thousands of euro) Properties Total

Accum. deprec. & writedowns

Net balance 31.12.2007

Acquisitions

20,299 20,299

(1,040) (1,040)

19,259 19,259

---

Combinations sales of businesses increases decreases -----

Capitalized financial expense ---

Combinations sales of businesses increases decreases -----

Capitalized financial expense ---

Starting position

2009 (in thousands of euro) Properties Total

Changes in the period

Historical cost

Exchange rate differences ---

Closing position Other changes

--

Net disposals cost ---

Depreciation & writedowns

Historical cost

Accum. deprec. & writedowns

Balance 31.12.2008

(572) (572)

20,299 20,299

(1,612) (1,612)

18,687 18,687

Net disposals cost ---

Depreciation & writedowns

Historical cost

Accum. deprec. & writedowns

Balance 31.12.2009

(572) (572)

20,299 20,299

(2,184) (2,184)

18,115 18,115

Changes in the period

Historical cost

Accum. deprec. & writedowns

Net balance 31.12.2008

Acquisitions

20,299 20,299

(1,612) (1,612)

18,687 18,687

---

Exchange rate differences ---

Closing position Other changes ---

Investment property declined from â‚Ź 18,687 thousand at December 31 2008 to â‚Ź 18,115 thousand at December 31 2009. The value in the balance sheet corresponds substantially to market value.

DEPRECIATION RATES Description Buildings

% 3.00%


LEASING The position of assets under leasing as of December 31 2009 and of restrictions applied to tangible assets on account of guarantees and commitments is as follows: (in thousands of euro)

Gross leasing amount

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

7.d.

2009 2,515 58,901 34,992 2,521 --

Accrued depreciation

2008 2,515 49,820 33,272 2,047 --

2009 -7,475 21,234 1,652 --

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

Restrictions for guarantees and commitments 2009 2008 3,139 3,139 68,471 76,598 584,601 211,649 1,132 287 10,851 322,560

INVESTMENTS IN COMPANIES VALUED AT EQUITY

(in thousands of euro) 2008

%

Balance 31.12.2007

Increases

Decreases

Dividends

Tirreno Power S.p.A.

50.00

249,494

--

--

(50,121)

--

Le Scienze S.p.A.

50.00

197

--

--

(121)

--

Editoriale Libertà S.p.A.

35.00

22,845

--

--

--

--

Editoriale Corriere di Romagna S.r.l.

49.00

3,075

--

--

--

(40)

Altrimedia S.p.A.

35.00

749

--

--

(140)

--

Allevard Ressorts Composites S.a.s.

50.00

101

346

--

--

(346)

KTP Global Finance S.C.A.

47.54

--

10

--

--

Resource Energy B.V.

47.50

590

1,517

--

GICA S.A.

25.00

494

Fin Gas S.r.l.

50.00

2,830

Parc Éolien d’Epense S.a.s.

25.00

72

Voie Sacrée S.a.s.

24.86

107

Total

5,000

Pro-rata share of result Loss Income

Other changes

Balance 31.12.2008

49,931

(5,692)

243,612

309

--

385

715

--

23,560

--

--

3,035

161

--

770

--

--

101

(10)

--

--

--

--

(1,060)

--

--

1,047

--

--

(328)

--

48

214

--

--

(46)

--

(6)

7,778

--

--

--

--

2,189

2,261

--

--

(46)

61

(1,830)

51,116

(3,507)

282,824

Pro-rata share of result Loss Income

Other changes

Balance 31.12.2009 235,844

280,554

6,873

--

(50,382)

%

Balance 31.12.2008

Increases

Decreases

Dividends

50.00

243,612

3,482

--

(51,152)

--

39,902

--

(in thousands of euro) 2009 Tirreno Power S.p.A. Le Scienze S.p.A.

50.00

385

--

--

(309)

--

282

--

358

Editoriale Libertà S.p.A.

35.00

23,560

--

--

--

--

647

--

24,207

Editoriale Corriere di Romagna S.r.l.

49.00

3,035

--

--

--

(43)

--

--

2,992

Altrimedia S.p.A.

35.00

770

--

--

(140)

--

127

--

757

Premium Publisher Network Consorzio

29.63

--

20

--

--

--

--

--

20

Allevard Ressorts Composites S.a.s.

50.00

101

--

--

--

--

--

--

101

KTP Global Finance S.C.A.

47.54

--

--

--

--

--

--

--

--

Resource Energy B.V.

47.50

1,047

--

(95)

--

(796)

--

--

156

GICA S.A.

25.00

214

578

--

--

(315)

--

7

484

Fin Gas S.r.l.

50.00

7,778

--

--

(132)

--

(2)

7,644

Parc Éolien d’Epense S.a.s.

25.00

2,261

--

--

--

23

(5)

2,279

Parc Éolien de la Voie Sacrée S.a.s.

24.86

61

(5)

--

(13)

43

Saponis Investments SP Zoo

26.76

--

1,025

--

--

(11)

--

--

1,014

282,824

5,105

(95)

(51,601)

(1,302)

40,981

(13)

275,899

Total

Consolidated Financial Statements

81


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

%

31.12.2009

31.12.2008

26.0 18.0 20.0 30.0 5.44 ---

5,105 2,209 516 104 132 -1,563 9,629

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

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. With reference to the company Sanatrix S.r.l the carrying value of this investment was estimated with the aid of expert valuations of its real estate assets as well as of the value attributable to the company Sanatrix Gestioni S.p.A, which manages an important nursing home. This value was determined on the basis of expected cash flows. The uncertainty of this measurement process was due to the fact that it is difficult to value properties of this kind in view of the weakness of the real estate sector, to the difficulty in putting a value on the business in the light of the diseconomies of scale encountered in the past by Sanatrix Gestioni S.p.A. e and to the fact that ownership of a minority interest in a non-listed company does not necessarily mean that the investment is illiquid. The results of the test gave a variable range of estimates. This led to the decision that the criteria of IAS 39 AG 81 were applicable and the investments was therefore maintained at cost. It should also be noted that in January 2010 control was acquired of 100% of the company Duemiladue S.r.l., the company that has 50.53% control of the Sanatrix group, for a price of € 18.1 million including the majority premium. 7.f.

OTHER RECEIVABLES

The item “Other receivables” at December 31 2009 had a balance of € 207,899 thousand compared to € 236,147 thousand at December 31 2008 e and refers for € 4,000 thousand (€ 20,191 thousand at December 31 2008) to the subscription of Preferred Equity Certificates (PECS) by CIR International S.A. and CIR Investment Affiliate S.A. in the company KTP Global Finance (a jointly controlled entity). The lower balance is due to the write-down of approximately € 16 million made during the period. At December 31 2009 this item also included € 126,660 thousand (€ 126,506 thousand at December 31 2008) of receivables (unsecured and mortgage-based) of the securitization companies Zeus Finance S.r.l. and Urania Finance S.A., € 12,892 thousand (€ 20,800 thousand at December 31 2008) of tax credits for investments in depressed areas (“Visco Sud”) for the construction of two wind parks and € 16,787 thousand (€ 22,958 thousand at December 31 2008) of security deposits made as guarantees to suppliers of the wind plant equipment and as deposits paid to the GSE and electricity and natural gas distributors. 7.g.

SECURITIES

“Securities” amounted to € 83,051 thousand at December 31 2009, down from € 84,633 thousand at December 31 2008 and refer mainly to investments in private equity funds. These funds were

82

Consolidated Financial Statements


measured at fair value recognizing to the fair value reserve an amount of € 6,622 thousand (€ 6,351 thousand at December 31 2008). During the year the part of the fair value reserve relating to these funds released to the income statement was € 993 thouand. At December 31 2009 the remaining commitment for investment in private equity funds stood at € 25.3 million. 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)

Tax effect

2008 Amount of temporary differences

Tax effect

126,013 56,511

38,629 18,289

86,713 60,913

26,743 20,450

- revaluation of current liabilities

27,127

8,730

12,319

4,041

- revaluation of personnel provisions

31,510

9,837

33,909

10,600

- revaluation of provisions for risks and losses

82,948

24,933

66,822

19,740

406

130

205

66

35,851

11,625

24,862

7,617

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

- revaluation of long-term debt - write-down of financial instruments - tax losses from prior periods

2009 Amount of temporary differences

235,621

75,776

99,428

28,844

Total deferred tax assets

595,987

188,949

385,171

118,101

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

3,500 518,739

1,115 163,586

14,812 506,513

6,571 158,491

- write-down of current liabilities

3,646

1,171

5,259

2,733

- valuation of personnel provisions

23,815

6,846

19,245

5,283

895

774

1,931

605

- write-down of provisions for risks and losses - revaluation of financial instruments Total deferred tax liabilities Net deferred taxes

25,476

8,497

3,886

1,220

576,071

181,489

555,646

174,903

7,460

(56,802)

The deferred taxes credited directly to shareholders’ equity during the period amounted to € 200 thousand and the amount of deferred taxes debited directly to shareholders’ equity during the year was € 298 thousand. Earlier losses not utilized for the calculation of deferred taxes refer to CIR International for € 431 million, which can be carried forward without any limit, and to the Sogefi group for € 15.7 million. It should be pointed out that no deferred tax assets were calculated for these losses because present conditions are such that there is no certainty that they can be recovered.

Consolidated Financial Statements

83


The changes in “Deferred tax assets and liabilities” during the year was as follows: (in thousands of euro) Deferred tax assets: - income statement - shareholders’ equity

Balance at 31.12.2008

Use of deferred taxes from prior periods

Deferred taxes arising in period

Exch. rate differences

Balance at 31.12.2009

114,310 3,791

(13,457) (2,113)

82,501 3,249

668 --

184,022 4,927

(174,916) 13 (56,802)

11,621 (13) (3,962)

(16,286) (607) 68,857

(1,301) -(633)

(180,882) (607) 7,460

Deferred tax liabilities: - income statement - shareholders’ equity Net deferred taxes

8.

CURRENT ASSETS

8.a.

INVENTORIES

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

31.12.2009

31.12.2008

Raw materials, secondary materials and consumables

56,611

73,668

Work in progress and semi-finished goods

16,828

15,979

Finished goods and merchandise

82,539

105,537

172

127

156,150

195,311

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 takes into account the degree of obsolescence of finished goods, merchandise and secondary materials.

8.b.

TRADE RECEIVABLES

(in thousands of euro)

31.12.2009

31.12.2008

Receivables - clients

1,023,998

1,209,028

16,568

24,091

1,464

570

1,042,030

1,233,689

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 2009 provisions were made for the write-down of receivables for the sum of € 37,717 thousand compare with € 34,542 thousand in 2008.

84

Consolidated Financial Statements


“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 2009 refers mainly to receivables from Tirreno Power S.p.A.. 8.c.

OTHER RECEIVABLES

(in thousands of euro) Receivables – associated companies Tax receivables Receivables - others Total

31.12.2009

31.12.2008

1,727

1,288

139,550

111,875

59,350

250,590

200,627

363,753

The item “Receivables - others” at December 31 2009 includes the receivable of € 150 million with Verbund following the subscription of a Bond issued by Sorgenia Holding S.p.A., converted into equity on June 17 2009. The increase in the item “Tax receivables” is mainly due to the rise in the IVA receivables with Inland Revenue of the Sorgenia group. 8.d.

FINANCIAL RECEIVABLES

“Financial receivables” rose from € 25,721 thousand at December 31 December 2008 to € 27,229 thousand at December 31 2009 and refer mainly for € 1,445 thousand to the accrued interest on the swaps relating to the CIR International S.A. bond maturing in 2011 and the CIR S.p.A. bond maturing in 2024 and for € 24,296 thousand to the fair value measurement of differential contracts entered into by the Sorgenia group to hedge electricity purchases. 8.e.

SECURITIES

This item consists of the following categories of securities: (in thousands of euro) Italian Government securities or equivalent securities Investments funds or similar funds Bonds and notes Certificates of deposit and miscellaneous securities Total

31.12.2009

31.12.2008

4,010 20,218 131,578 122,742 278,548

345,223 38,253 36,130 93,756 513,362

The measurement at fair value of the item “Securities” involved a positive adjustment to the income statement of € 21.8 million. 8.f.

AVAILABLE-FOR-SALE FINANCIAL ASSETS

This item totals € 104,967 thousand and refers for € 79,788 thousand to shares in hedge funds and redeemable shares in asset management companies held by CIR International S.A.. The degree of liquidity of the investment is a function of the time required for the redemption of the funds, which normally varies from one to three months. The fair value measurement of these funds involved a value adjustment of € 13,256 thousand (€ 45,791 thousand at December 31 2008). The effects of this valuation on CIR’s equity for the amount pertaining to the Group came to € 13,256 thousand (€ 36,768 thousand at December 31

Consolidated Financial Statements

85


2008). The item also includes € 25,179 thousand of bonds held by the Espresso group which mature between July 30 2010 and February 29 2012. The effects of the change in these bonds on the CIR’s equity for the part pertaining to the group amounted to a negative € 8 million. 8.g.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents fell from € 616,363 thousand at December 31 2008 to € 549,321 million at December 31 2009. A breakdown of the change during the period is given in the cash flow statement. 8.h.

ASSETS HELD FOR DISPOSAL

This item includes the net value of € 700 thousand of the real estate property of the British subsidiary United Springs Ltd which is scheduled to be sold in 2010.

9.

SHAREHOLDERS’ EQUITY

9.a.

SHARE CAPITAL

Share capital rose from € 395,587,633.50 at December 31 2008 (comprising 791,175,267 shares each with a nominal value of € 0.50) to € 396,058,633.50 (792,117,267 shares) at December 31 2009 after the issuance of 942,000 shares following the exercise of stock options. At December 31 2009 the Company owned 43,074,000 of its own shares (5.44% of capital) for a total value of € 98,657 thousand, up from 42,974,000 shares with a total value of € 98,583 million at December 31 2008. 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 noted that Board of Directors was given the power for a period of five years starting from April 30 2009 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 2009 there were 52,152,400 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 € 5,455 thousand at December 31 2009.

86

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

Share premium reserve

Legal reserve

Fair value reserve

Translation reserve

Reserve for treasury stock held

Stock option reserve

Other reserves

Total reserves

33,359

115,969

154,860

(17,261)

19,822

11,794

94,440

412,983

--

--

243 13

243

--

--

--

--

--

--

--

--

--

--

13

---

--

--

(6,169)

--

--

(54,525)

--

--

(53,073)

--

--

(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

--

905

Effects of equity changes in subsidiaries

--

--

(10,921)

4

10,052

(865)

--

--

7,831

(1,152)

---

--

Currency translation differences

--

--

6,679

33,602

115,969

38,003

(18,409)

104,505

307,856

--

--

--

21,487 --

12,699

528

--

--

528

Dividends unclaimed as per Art. 23 of the Bylaws

--

--

--

--

--

--

14

14

Fair value measurement of hedging instruments

--

--

(285)

--

--

(285)

--

--

7,668

--

---

--

Fair value measurement of securities

--

--

7,668

Securities fair value reserve recognized to income statement

--

--

(38,918)

--

--

--

(38,918)

Adjustment for own share transactions

--

--

--

--

-50

--

--

50

Recognition of notional cost of stock options

--

--

--

--

--

5,455

--

5,455

Effects of equity changes in subsidiaries

--

--

9,204

3

(7,845)

1,362

--

--

(1,248)

13,501

---

--

Currency translation differences

--

--

12,253

34,130

115,969

14,424

(4,905)

21,537

18,154

96,674

295,983

Balance at December 31 2008 Capital increases

Balance at December 31 2009

The “Share premium reserve” totalled € 34,130 thousand at December 31 2009, up from € 33,602 thousand at December 31 2008. The change was due to the subscription of stock options for € 528 thousand. The “Fair value reserve” stood at € 14,424 thousand at December 31 2009 and referred for the positive amounts of € 6,622 thousand to the valuation of “Securities” in item 7.g. and for € 13,248 thousand to the valuation of “Available-for-sale financial assets” in item 8.f. and to the negative change of € 5,446 thousand from the valuation of hedging instruments.

Consolidated Financial Statements

87


The “Translation reserve” had a negative balance of € 4,905 thousand at December 31 2009 with the following breakdown: (in thousands of euro) Sogefi group CIR Ventures Medinvest Medinvest hedging effect Sorgenia Others Total

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

Increases 7,648 5,548 1,006 --14,202

Decreases -(383) -(315) -(698)

31.12.2009 (1,462) (3,166) --(369) 92 (4,905)

The item “Other reserves” had the following breakdown at December 31 2009: (in thousands of euro) Reserve for capital increases

3

Extraordinary reserve

103

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) 96,642 96,674

The changes in treasury stock during the year were as follows: (in thousands of euro) Balance at December 31 2008 Increases Balance at December 31 2009

9.c.

Number of shares

Value

42,974,000

98,583

100,000

74

43,074,000

98,657

RETAINED EARNINGS (LOSSES)

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

88

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

31.12.2009

31.12.2008

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

5.90%

266,911

266,724

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

6.03%

157,561

170,935

4.82%

291,720

307,221

6.50%

-2,070

150,000 578

718,262

895,458

Gruppo Editoriale L’Espresso S.p.A. 5.125% Note 2004/2014 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 2008) 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 € 12,000 thousand of the Note maturing in 2011. It should also be noted that the Sorgenia Holding S.p.A. bond was converted into equity on June 17 2009.

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

31.12.2009

31.12.2008

128,316

154,194

1,547,810

1,344,104

Leasing

80,210

67,067

Other borrowings

87,023

88,250

1,843,359

1,653,615

Collateralized bank loans Other bank loans

Total

The item “Other bank loans” consists mainly of the following: - € 307,500 thousand lent to Sorgenia Power by Banca Monte dei Paschi di Siena at a floating rate and maturity 2019, the interest rate being Euribor 3/6M + spread; - € 149,500 thousand lent to Sorgenia by Banca Intesa SanPaolo at a floating rate and maturity 2012, the interest rate being Euribor 3/6M + spread; - € 100,000 thousand lent to Sorgenia by Banca Intesa SanPaolo at a floating rate and maturity 2014, the interest rate being Euribor 3/6M + spread; - € 320,700 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;

Consolidated Financial Statements

89


- € 162,000 thousand lent to Sorgenia Power (formery Energia Molise S.p.A.) by Banca Monte dei Paschi di Siena at a floating rate and maturity 2019, the interest rate being Euribor 3/6M + spread; - € 231,478 thousand lent to Sorgenia Puglia S.p.A. by Banca Monte dei Paschi di Siena at a floating rate and maturity 2015, the interest rate being Euribor 3/6M + spread; - € 11,000 thousand lent to Sorgenia Idro S.r.l. by Banca Popolare di Milano at a floating rate and maturity 2015, the interest rate being Euribor 3/6M + spread; - € 42,479 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; - € 30,364 thousand as partial drawdown of a loan agreement of € 50,000 thousand, signed by Sogefi S.p.A. with maturity 2013 at a floating rate, the interest rate being Euribor 3/6M + spread; - € 66,078 thousand as partial drawdown of a loan agreement of € 100,000 thousand, signed by Sogefi S.p.A. with maturity 2013 and a floating rate, the interest rate being Euribor 3/6M + spread; - € 99,579 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 with banks lead-managed by ING Bank N.V. and Intesa Sanpaolo S.p.A., the interest rate being Euribor 3/6M + spread;

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

31.12.2009

31.12.2008

105,494

112,682

31,852

34,800

137,346

147,482

31.12.2009

31.12.2008

147,482

159,278

21,705

24,820

Increases for interest

6,230

5,480

Actuarial income or expense

(111)

(289)

(19,582)

(20,866)

(237)

2,088

Other changes

(18,141)

(23,029)

Closing balance

137,346

147,482

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

(in thousands of euro) Opening balance Provisions made for work done during the period

Benefits paid out Increases or decreases due to changes in consolidation area

90

Consolidated Financial Statements


TFR and Definited Benefit Provision Annual technical discount rate

4.0% - 4.25%

Annual inflation rate

2%

Annual rate of pay increases

2% - 3%

Annual rate of TFR increase

3%

Annual probability of making advance payouts

4%

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

63

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

Balance at December 31 2008

Provision for disputes in progress 15,304

Sums set aside during the year

2,610

8,187

22,368

33,165

(1,105)

(1,591)

(9,541)

(12,237)

877

--

66

943

Other changes

(6,539)

(274)

5,170

(1,643)

Balance at December 31 2009

11,147

11,056

54,716

76,919

(in thousands of euro)

Withdrawals Exchange rate differences

Provision for Provision for restructuring charges miscellaneous risks 4,734 36,653

Total 56,691

The breakdown and changes in the current part of these provisions is as follows:

Balance at December 31 2008 Sums set aside during the year Withdrawals Other changes

Provision for disputes in progress 8,122 334 (3,114) 913

Balance at December 31 2009

6,255

(in thousands of euro)

Provision for Provision for restructuring charges miscellaneous risks 19,113 52,765 25,604 10,572 (9,303) (10,004) (1,811) 2,487 33,603

55,820

Total 80,000 36,510 (22,421) 1,589 95,678

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

91


11.

CURRENT LIABILITIES

11.a. BONDS AND NOTES The balance of € 731 thousand refers to the Bond issue made by a company of the French group SFE. At December 31 2008 it referred to the CIR International S.A. 5.25% Bond 1999/2009 repaid on March 10 2009. 11.b. OTHER BORROWINGS (in thousands of euro)

31.12.2009

31.12.2008

Collateralized bank loans

22,481

24,076

Other bank loans

68,735

34,877

Finance leases

10,127

6,034

Other borrowings

31,156

81,929

--

71

132,499

146,987

31.12.2009

31.12.2008

27,266

20,892

Loans from subsidiaries and associates Total

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

1,383

1,197

Payables - suppliers

796,591

917,164

Advance payments

11,343

7,713

4

23

836,587

946,989

Payables in the form of notes Totale

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)

31.12.2009

31.12.2008

Due to employees

66,964

72,571

Tax payables

57,891

104,258

Social security payables

47,302

47,705

Other payables

56,021

52,619

228,178

277,153

Total

The reduction in the item “Tax payables” compared to last year refers to a reduction in the item in the Sorgenia group for an amount of € 51,386 thousand.

92

Consolidated Financial Statements


NOTES ON THE INCOME STATEMENT

12.

REVENUES

BREAKDOWN BY BUSINESS SECTOR 2009

(in millions of euro) amount

%

amount

%

Change %

2,325.8

54.5

2,432.0

51.5

(4.4)

886.6

20.8

1,025.5

21.7

(13.5)

Automotive components

781.0

18.3

1,017.5

21.5

(23.2)

Healthcare

273.4

6.4

246.3

5.2

11.0

--

--

5.7

0.1

--

4,266.8

100.0

4,727.0

100.0

(9.7)

Utilities Media

Others Total consolidated revenues

2008

BREAKDOWN BY GEOGRAPHICAL AREA (in millions of euro) 2009

Total revenues 2,325.8

North America --

South America --

Asia

2,297.1

Rest of Europe 28.7

--

Other countries --

Media

886.6

886.6

--

--

--

--

--

Automotive components

781.0

68.5

527.6

15.0

153.0

15.1

1.8

Healthcare

273.4

273.4

--

--

--

--

--

--

--

--

--

--

--

--

Total consolidated revenues

4,266.8

3,525.6

556.3

15.0

153.0

15.1

1.8

Percentages

100.0%

82.6%

13.0%

0.4%

3.6%

0.4%

0%

Italy 2,416.1

Rest of Europe 15.9

North America --

South America --

Asia

Utilities

Total revenues 2,432.0

--

Other countries --

Media

1,025.5

1,025.5

--

--

--

--

--

Automotive components

1,017.5

91.0

716.9

19.4

175.1

11.4

3.7

246.3

246.3

--

--

--

--

--

5.7

5.7

--

--

--

--

--

Total consolidated revenues

4,727.0

3,784.6

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%

Utilities

Others

(in millions of euro) 2008

Healthcare Others

Italy

The types of products marketed by the Group and the nature of the business sectors in which it operates mean that revenue 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

93


13.

OPERATING COSTS AND REVENUES

13.a. COSTS FOR THE PURCHASE OF GOODS This item declined from € 2,852,871 thousand in 2008 to € 2,554,020 thousand in 2009. The lower balance of “Costs for the purchase of goods” reflects the contraction in sales. 13.b. COSTS FOR SERVICES This item went down from € 782,395 thousand in 2008 to € 744,139 thousand in 2009, as can be seen from the following breakdown: (in thousands of euro)

2009

2009

Technical and professional consulting

139,973

138,586

Distribution and transportation costs

41,576

53,387

Outsourcing

56,385

68,635

Other expenses

506,170

521,787

Total

744,104

782,395

The reduction in this item is evidence of how the Group has adjusted its structure costs. 13.c. PERSONNEL COSTS Personnel costs totalled € 664,835 thousand in 2009 (€ 687,664 thousand in 2008). The Group had an average of 12,659 employees in 2009. (in thousands of euro)

2009

2008

Salaries and wages

442,504

460,442

Social security contributions

142,239

144,024

Employee leaving indemnity

21,924

22,004

(187)

2,527

Retirement and similar benefits Valuation of stock option plans

10,598

8,344

Other costs

47,757

50,323

664,835

687,664

2009 4,776 1,103 98,438 104,317

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

Total

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

The item “Non-recurring gains and other income” last year contained € 35,514 of penalties for the late delivery of the Modugno power plant.

94

Consolidated Financial Statements


13.e. OTHER OPERATING COSTS This item can be broken down as follows: (in thousands euro)

2009

2008

Writedowns and losses on receivables

43,467

36,202

Provisions made for risks and losses

20,167

18,928

Indirect taxes

22,757

26,601

Restructuring charges

17,162

11,474

3,980

1,108

31,577

36,162

139,110

130,475

Capital losses on disposal of assets Non-recurring losses and other charges Total

The increase in this item was mainly due to the rise in “writedowns and losses on receivables” and “Restructuring charges”. 14.

FINANCIAL INCOME AND EXPENSE

14.a. FINANCIAL INCOME This item has the following breakdown: (in thousands of euro)

2009

2008

Interest income on bank accounts

3,698

19,788

Interest on securities

8,539

14,000

Other interest income

22,160

22,227

2,357

968

16,468

10,763

601

1,358

53,823

69,104

Interest rate derivatives Exchange rate gains Other financial income Total

The item “Interest rate derivatives” for an amount of € 2,357 thousand includes € 848 relating to the net fair value measurement of hedging transactions. 14.b. FINANCIAL EXPENSE This item includes the following: (in thousands of euro)

2009

2008

Interest expense on bank accounts

42,880

71,877

Interest expense on bonds

43,116

59,610

Other interest expense

21,405

21,415

Interest rate derivatives

1,829

7,340

Exchange rate losses

26,442

18,507

Other financial expenses

22,224

20,080

157,896

198,829

Total

Consolidated Financial Statements

95


The item “Other financial expenses” includes € 10,201 thousand that refers to the writedown of the interest accrued on the PECs issued by KTP 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

2009

2008

76,735 7 74,776 151,518

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

The item “Shares and options - subsidiaries” refers to gains on the subscription of capital increases by Minority Shareholders in the company Sorgenia Holding. The balance for last year referred to the subscriptions made in the companies Sorgenia Holding (€ 114,935 thousand) and KOS (€ 2,875 thousand). 14.d. LOSSES FROM TRADING SECURITIES The breakdown of “Losses from trading securities” is the following: (in thousands of euro)

2009

2008

Shares and options - subsidiaries Shares and options - other companies Other securities and other losses Total

360 1,436 5,140 6,936

-8,190 13,153 21,343

14.e. ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS This item, amounting to € 4,008 thousand, refers essentially for € 16,191 thousand (€ 54,063 thousand in 2008) to the writedown of the investment in KTP Global Finance, for € 8,475 to the writedown of investments in private equity and to the measurement, a positive € 21,772 thousand (a negative € 53,068 thousand in 2008) of the fair value 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

2009

2008

50,752 (66,441) 11,355 (4,334)

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

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.

96

Consolidated Financial Statements


The item Deferred taxes is largely attributable to the tax receivables accruing in the year for the Sorgenia group in relation to its new investment in production capacity. The following chart shows the reconciliation of the ordinary tax rate and the effective tax rate for financial year 2009: (in thousands of euro) Pre-tax income resulting from financial statements

2009 185,079

Theoretical income taxes

50,897

Tax effect of non-deductible costs

10,912

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

(54,675) (226)

Tax effect on interest rate differentials of foreign companies

(8,595)

Non-taxable grants

(1,431)

Other

(29,886)

Income taxes

(33,004)

Average effective tax rate Theoretical tax rate

(17,8) 27.5

IRAP and other taxes

17,315

Tax charges from prior periods

11,355

Total taxes from financial statements

(4,334)

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 2009 was â‚Ź 1.2073 compared to an average fair value of â‚Ź 1.5684 in 2008.

Consolidated Financial Statements

97


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.

2009

2008

143,432

95,444

748,117,934

748,707,234

0.1917

0.1275

2009

2009

143,432

95,444

748,117,934

748,707,234

41,658,983

30,624,267

--

--

748,117,934

748,707,234

0.1917

0.1275

DIVIDENDS PAID OUT

The Company did not distribute any dividends during the year. In the previous year the dividend payout totalled â‚Ź 37,410 thousand, equal to â‚Ź 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. 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

98

Consolidated Financial Statements


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 2008 are also shown. Sensitivity Analysis EUR/USD exchange rate Shift in EUR/USD exchange rate

31.12.2009

31.12.2008

-5%

+5%

-5%

+5%

Effect on income statement (EUR/thousands)

7,306

(6,970)

(9,322)

8,364

Effect on Equity (EUR/thousands)

(5,787)

5,234

3,765

(3,408)

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. 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 “Other operating income (losses)� 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.

Consolidated Financial Statements

99


Regarding the hierarchical form of classification introduced by the recent Amendment to IFRS 7 which is based on three levels according to the method and the input used to determine fair value, it should be pointed out that the financial instruments used for managing commodity risk belong to level 1 and level 2. 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 generally no longer than 18 months. At December 31 there were no open positions in liquid fuel derivatives; the fair value for this kind of instrument was therefore zero. There were however open positions in derivatives on price formulae maturing in 2010 and 2011. In order to measure the exposure to the group to the risk of changes in the prices of commodities and gas and electricity price formulae, a sensitivity analysis was carried out based on the revaluation of the fair value of derivative contracts outstanding at December 31 2009 in the event of shifts in commodity prices. In order to revalue these financial instruments and quantify the effect on the accounts of shifts in the price curve of liquid fuels, guaranteeing the highest possible degree of accuracy of measurement, the same financial models were used as those used to produce the reports for management showing how exposure is constantly monitored. The following chart shows the sensitivity analysis results for commodities: (amounts in thousands of euro) Shifts Effect on the income statement Effect on shareholders’ equity

31.12.2009 -5% +5% (5,660) 5,988 (5,660) 5,988

31.12.2008 -5% (448) (448)

+5% 448 448

The higher exposure to the risk of changes in commodity prices, which is however offset by physica purchases and sales of fuels on the spot markets, is due to the fact that hedges were put in place using financial contracts over a longer time horizon than in the previous year and that there were more contracts outstanding at December 31 2009 compared to December 31 2008. In fact at that date all the positions were closed. As in 2008, in 2009 too the Sorgenia group minimized its exposure to the changes in commodity prices thanks to greater opportunities for defining sales formulae consistent with its sourcing formulae and thanks also to having established hedging strategies using financial instruments. 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 2009 the Sorgenia 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.

100

Consolidated Financial Statements


During the second half of the year 2009 the Sorgenia group also began a market intelligence activity aimed at finding market opportunties generated by actual or expected differences in commodity prices. This activity is separated out in a special portfolio and is monitored using appropriate stop loss limits. At December 31 2009 the fair value of contracts traded for market intelligence purposes was a positive € 68 thousand. The exposure to the risk of changes in commodity prices is zero because each position is offset by an equal opposite one. 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 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.

Consolidated Financial Statements

101


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

31.12.2009 -1% +1% 1,656 (5,485) (13,941) 20,128

31.12.2008 -1% 7,752 (2,483)

+1% (8,416) 838

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. 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.

102

Consolidated Financial Statements


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 2009, the Group had the following derivatives contracts booked as hedges at their notional value: (a) Interest hedges: Hedging interest on the CIR International fixed to floating bond issue (€ 148 million) maturing in 2011; Hedging interest on the fixed to floating CIR S.p.A. bond issue (270 million) maturing in 2024; Hedging Sogefi bank loans, notional value € 90 million maturing in 2010 (€ 35 million), in 2011 (€ 5 million), in 2012 (€ 30 million) and in 2013 (€ 20 million); Hedging bank loans to the Sorgenia group, notional value € 891.7 million; Hedging bank loans to the Kos group, notional value € 71.6 million; (b) Foreign currency hedges: Forward sales of a total of USD 193 million hedging investments in hedge funds and in private equity funds; Forward sale of USD 8.5 million against EUR maturing in 2010; Forward purchase of € 2.3 million agaisnt GBP maturing in 2010; Forward sale of ARP 1.9 million against BRL maturing in 2010; Forward purchase of USD 1.9 million against Brazilian Reals maturing in 2010; Forward purchase of USD 75.5 million against EUR. 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 8%.

Consolidated Financial Statements

103


Contractual clauses of loan agreements Some of the loan agreements in favour of the Group contain special clauses which envisage, in the event of failure to comply with certain economic and financial covenants, the possibility that the lending banks may require the loans to be repaid if the company involved does not immediately remedy the infringement of the said covenants as per the terms and conditions of the loan agreements. At December 31 2009 all the contractual clauses relating to medium and long term financial liabilities were fully complied with by the Group. It should be noted that during the year the Sogefi Group revised some of the clauses previously agreed upon. These were specifially as follows: - On June 30 2009 an amendment was agreed upon with Intesa Sanpaolo of the conditions set out in the loan agreement for € 50 million signed with the said bank on September 8 2006. Against payment of a commission of € 125 thousand and an increased spread, with reference to the measurements of the covenants of June 30 2009 and December 31 2009, the maximum ratio was raised between the consolidated net financial position and consolidated EBITDA and for the whole duration of the loan costs resulting from non-ordinary activities were excluded from the calculation of EBITDA; - On November 11 2009 an agreement was reached with Unicredit to amend the calculation of the covenants included in the loan agreement for € 100 million. Against payment of a commission of € 445 thousand and a higher spread, it was agreed that for the purposes of calculating EBITDA costs resulting from non-ordinary activities (up to a maximum of € 25 million per annum) would be excluded from the calculation of EBITDA for the whole duration of the loan; a period of six months was also given to remedy the situation in the event of the NFP/EBITDA=4 ratio being exceeded. Following these amendments the covenants relating to the debt of the Sogefi Group outstanding at the end of the year were the following: - Syndicated loan of € 160 million obtained by the Parent Company Sogefi S.p.A.: ratio of consolidated net financial position to consolidated EBITDA lower than or equal to 3.5; ratio of EBITDA to net interest expense no lower than 4; - Loan of € 100 million obtained by the Parent Company Sogefi S.p.A.: ratio of consolidated net financial position to consolidated EBITDA below 4; - Loan of € 50 million obtained by the Parent Company Sogefi S.p.A: in relation to the coverant measurements at June 30 2009 and at December 31 2009 the maximum ratio of consolidated net financial position to EBITDA has been raised from 3.5 to 4. For all the loan agreements indicated above the income and expense from non-ordinary operations are excluded from the EBITDA calculation. Measurement of financial assets and liabilities and fair value hierarchy The fair value of financial assets and liabilities is calculated as follows: • 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; • 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;

104

Consolidated Financial Statements


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. As from the balance sheet date December 31 2009 the company must indicated whether fair value is determined, totally or partly, from price quotations published in an active market (“Level 1”) or whether it is estimated using prices that can be inferred from market quotes for similar assets or through valuation techniques for which all significant factors are inferred from data observable in the market (“Level 2”) or from valuation techniques based mostly on input not observable in the market which therefore involve estimates and assumptions being made by management (“Level 3”).

Consolidated Financial Statements

105


The chart below shows the breakdown of financial assets and liabilities measured at fair value: Balance sheet items (in thousands of euro) NON-CURRENT ASSETS Financial assets (at fair value through profit and loss) - Other equity investments (item 7.e.) - Other receivables (item 7.f.) - Non-current securities (item 7.g.) Financial assets (at fair value through profit and loss) - Other equity investments (item 7.e.) - Non-current securities (item 7.g.) CURRENT ASSETS Financial assets (at fair value through profit and loss) Financial receivables (item 8.d.) - derivatives Current securities (item 8.f.) - Equity investments - Italian Government securities and similar instruments - Investment funds and similar instruments - Bonds and notes - Certificates of deposit and sundry securities Total current securities (item 8.f.) Financial assets (at fair value with offset in shareholders’ equity) Financial receivables (item 8.d.) - derivatives Available-for-sale financial assets (item 8.f.) - Equity investments - Italian Government securities and similar instruments - Investment funds and similar instruments - Bonds and notes - Certificates of deposit and sundry securities Total available-for-sale financial assets (item 8.f.) NON-CURRENT LIABILITIES Financial liabilities (at fair value with offset in shareholders’ equity) Other borrowings (item 10.b.) - derivatives Financial liabilities (at fair value through profit and loss) Other borrowings (item 10.b.) - derivatives CURRENT LIABILITIES Financial liabilities (at fair value with offset in shareholders’ equity) Other borrowings (item 10.b.) - derivatives Financial liabilities (at fair value through profit and loss) Other borrowings (item 11b.) - derivatives

106

Consolidated Financial Statements

Level 1

Level 2

Level 3

Total in Balance Sheet

----

-10,430 62,098

--20,803

-10,430 82,901

-150

---

---

-150

--

18,397

--

18,397

88 4,010 5,843 129,403 21 139,365

140 -14,375 2,175 122,493 139,183

-------

228 4,010 20,218 131,578 122,514 278,548

5,217

3,615

--

8,832

-25,179 ---25,179

--79,788 --79,788

-------

-25,179 79,788 --104,967

--

(4,493)

--

(4,493)

--

(6,174)

--

(6,174)

(5,722)

(12,878)

--

(18,600)

--

(489)

--

(489)


During 2009 no transfers were made between the different levels of fair value in the hierarchy. As far as the financial assets classified as level 3 are concerned, these are investments in venture capital which are measured using some market information that is not observable. They are held by the Group through CIR Ventures and where they refer to investments in companies operating in the information technology and communication sector (for a total amount of approximately € 10 million), and through Noventi Ventures, where they are investments in companies operating in the sector of innovative generation technologies and energy efficiency (for a total amount of approximately € 10.8 million). Changes in the year of financial assets at fair value (livello 3) FINANCIAL ASSETS

Opening position Increases - Purchases - Gains recognized to: Income Statement - of which capital gains Shareholders’ equity Trasferred from other levels Other increases Decreases - Sales - Repayments - Losses recognized to: Income Statement - of which capital losses Shareholders’ equity Transferred from other levels Other decreases Closing position

Held for trading --

Valued at fair value --

Available for sale 21,853

Hedges

--

--

1,097

--

------

------

--2,454 ---

------

--

--

--

--

-----

-----

---(3,860)

-----

---

---

-(741)

---

--

--

20,803

--

--

Consolidated Financial Statements

107


CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES SHOWN IN THE BALANCE SHEET FINANCIAL YEAR 2009

(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

9,629

--

--

1,091

10

8,528

--

--

--

9,629

85

--

Other receivables (*)

7.f

193,469

--

--

193,469

--

--

--

--

--

193,469

15,128

--

Securities

7.g

83,051

--

--

--

10,914

72,137

--

--

--

83,051

(6,859)

555

Trade receivables

8.b

1,042,030

--

--

1,042,030

--

--

--

--

--

1,042,030

31,256

--

Other receivables (**)

8.c

61,077

--

--

61,077

--

--

--

--

--

61,077

4,180

--

Financial receivables

8.d

27,229

1,503

--

25,726

--

--

--

--

--

27,229

4,145

1,085

Securities

8.e

278,548

278,548

--

--

--

--

--

--

278,548

45,757

--

Available-for-sale financial assets

8.f

104,967

--

--

--

--

104,967

--

--

--

104,967

44,864

(23,527)

Cash & cash equivalents

8.g

549,321

--

--

549,321

--

--

--

--

--

549,321

5,732

--

CURRENT ASSETS

NON-CURRENT LIABILITIES Bonds and notes

10.a

(718,262)

--

--

--

--

--

--

--

(718,262)

(638,703)

(28,786)

--

Other borrowings

10.b

(1,843,359)

--

--

--

--

--

--

--

(1,843,359)

(1,936,011)

(38,404)

(3,720)

(703)

--

--

--

--

--

--

--

(703)

(703)

--

Trade payables CURRENT LIABILITIES Bank overdrafts

(66,290)

--

--

--

--

--

--

--

(66,290)

(66,290)

(4,134)

--

Bonds and notes

11.a

(731)

--

--

--

--

--

--

--

(731)

(731)

(14,396)

--

Other borrowings

11.b

(132,499)

--

--

--

--

--

(4,768)

--

(127,731)

(168,285)

(9,628)

Trade payables

11.c

(836,587)

--

--

--

--

--

--

--

(836,587)

(836,587)

(5,187)

(*) Not including € 14,430 thousand of tax receivables (**) Not including € 139,550 thousand of tax receivables

--


CATEGORIES OF FINANCIAL 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 on 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 on 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

--

--

--

--

9,682

--

--

--

9,682

(462)

--

Other receivables (*)

7.f

198,025

--

--

198,025

--

--

--

--

--

198,025

(36,428)

--

Securities

7.g

84,633

--

--

--

153

84,480

--

--

--

84,633

(547)

(15,144)

Trade receivables

8.b

1,233,689

--

--

1,233,689

--

--

--

--

--

1,233,689

(33,161)

--

Other receivables (**)

8.c

251,878

--

--

251,878

--

--

--

--

--

251,878

13

--

Financial receivables

8.d

25,721

14,784

--

10,937

--

--

--

--

25,699

(4,032)

--

Securities

8.e

513,362

511,436

17

1,909

--

--

--

--

--

513,362

(38,886)

--

CURRENT ASSETS

Available-for-sale financial assets

8.f

217,420

--

--

--

--

217,420

--

--

--

217,420

68,597

(106,709)

Cash & cash equivalents

8.g

616,363

--

--

616,363

--

--

--

--

--

616,363

19,915

--

NON-CURRENT LIABILITIES Bonds and notes

10.a

(895,458)

--

--

--

--

--

--

--

(895,458)

(747,146)

(40,902)

--

Other borrowings

10.b

(1,653,615)

--

--

--

--

--

--

--

(1,653,615)

(1,718,651)

(55,338)

(5,563) --

CURRENT LIABILITIES Bank overdrafts

(164,801)

--

--

--

--

--

--

--

(164,801)

(164,801)

(11,109)

Bonds and notes

11.a

(347,445)

--

--

--

--

--

--

--

(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)

--

--

--

--

--

--

--

(946,989)

(946,989)

(1,844)

--

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


CLASSES OF RISK - FINANCIAL YEAR 2009 (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

7.e

9,629

--

--

--

9,629

Other receivables

7.f

193,469

--

--

--

193,469

Securities

7.g

83,051

--

--

--

83,051

Trade receivables

8.b

1,042,030

--

--

--

1,042,030

Other receivables

8.c

61,077

--

--

--

61,077

Financial receivables

8.d

27,229

--

--

--

27,229

Securities

8.e

278,548

--

--

--

278,548

Available-for-sale financial assets Cash & cash equivalents

8.f 8.g

104,967 549,321

---

-549,321

---

104,967 --

CURRENT ASSETS

NON-CURRENT LIABILITIES Bonds and notes

10.a

(718,262)

(718,262)

--

--

--

Other borrowings

10.b

(1,843,359)

(1,843,359)

--

--

--

(703)

(703)

--

--

--

--

--

--

Trade payables CURRENT LIABILITIES Bank overdrafts

(66,290)

(66,290)

Bonds and notes

11.a

(731)

(731)

Other borrowings

11.b

(132,499)

(132,499)

--

--

--

Trade payables

11.c

(836,587)

(836,587)

--

--

--

Value in Bal. Sheet

Liquidity risk

Int. Rate risk

Exch. rate risk

Credit risk

CLASSES OF RISK - FINANCIAL YEAR 2008 (in thousands of euro) Bal. Sheet items NON-CURRENT ASSETS Other equity investments

7.e

9,682

--

--

--

9,682

Other receivables

7.f

198,025

--

--

--

198,025

Securities

7.g

84,633

--

--

--

84,633

Trade receivables

8.b

1,233,689

--

--

--

1,233,689

Other receivables

8.c

251,878

--

--

--

251,878

Financial receivables

8.d

25,721

--

--

--

25,721

Securities

8.e

513,362

--

--

--

513,362

Available-for-sale financial assets Cash & cash equivalents

8.f 8.g

217,420 616,363

---

-616,363

---

217,420 --

CURRENT ASSETS

NON-CURRENT LIABILITIES Bonds and notes

10.a

(895,458)

(895,458)

--

--

--

Other borrowings

10.b

(1,653,615)

(1,653,615)

--

--

--

--

--

--

CURRENT LIABILITIES Bank overdrafts

(164,801)

(164,801)

Bonds and notes

11.a

(347,445)

(347,445)

Other borrowings

11.b

(146,987)

(146,987)

--

--

--

Trade payables

11.c

(946,989)

(946,989)

--

--

--


CREDIT RISK (in thousands of euro) Position at December 31 2009 Other receivables (non-current assets)

Bal. Sheet items 7.f

Total receivable

Not yet due

Overdue by >

0 - 30 days

30 - 60

60 - 90

over 90

Amt. due settled

193,469

61,462

132,007

--

--

--

132,007

--

Gross receivable

346,008

214,001

132,007

--

--

--

132,007

--

Provision for writedown

(152,539)

(152,539)

--

--

--

--

--

--

1,042,030

706,937

335,093

87,502

29,939

29,604

188,048

--

1,141,116

716,573

424,543

89,708

32,303

31,754

270,778

--

(99,086)

(9,636)

(89,450)

(2,206)

(2,364)

(2,150)

(82,730)

--

61,077

59,792

1,285

--

989

296

--

--

61,612

60,276

1,336

--

1,040

296

--

--

Trade receivables

8.b

Gross receivable Provision for writedown Other receivables (current assets)

8.c

Gross receivable Provision for writedown Total

Writedowns

(26,392)

(37,717)

(535)

(484)

(51)

--

(51)

--

--

--

(171)

1,296,576

828,191

468,385

87,502

30,928

29,900

320,055

--

(64,280)

Total receivable

Not yet due

Overdue by >

0 - 30 days

30 - 60

60 - 90

over 90

Amt. due settled

Writedowns

198,025

61,403

136,622

--

--

--

136,622

--

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

Bal. Sheet items 7.f

Gross receivable

324,172

187,550

136,622

--

--

--

136,622

--

Provision for writedown

(126,147)

(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)

Trade receivables

8.b

Gross receivable Provision for writedown Other receivables (current assets) Gross receivable Provision for writedown Total

8.c

251,878

251,852

26

--

--

--

26

--

252,303

252,236

67

--

--

--

67

--

(64,151)

(34,542)

(425)

(384)

(41)

--

--

--

(41)

--

(58)

1,683,592

1,073,826

609,766

175,811

38,701

41,739

340,004

13,511

(98,751)


PROVISION FOR WRITEDOWN OF RECEIVABLES

(in thousands of euro) Position at December 31 2009 Provision for writedown of receivables

Starting balance

Writedowns

Withdrawals

Exch. rate diff. +/-

Business comb. +/-

Closing balance

(197,569)

(64,280)

8,270

(107)

1,526

(252,160)

Starting balance

Writedowns

Withdrawals

Exch. Rate diff. +/-

Business comb. +/-

Closing balance

(105,556)

(98,751)

6,940

301

(503)

(197,569)

(in thousands of euro) Position at December 31 2008 Provision for writedown of receivables


LIQUIDITY RISK - FINANCIAL YEAR 2009 (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

40,517

188,498

31,063

30,480

315,786

425,282

1,031,626

166,687 8,294 6,053

146,137 8,154 8,273

630,468 8,010 80,845

286,960 6,176 1,031

211,188 5,180 620

439,791 46,610 4,396

1,881,231 82,424 101,218

Bank overdrafts

66,290

--

--

--

--

--

66,290

Trade payables

837,221

--

--

--

--

--

837,221

Hedging derivatives

8,898

776

472

274

113

(71)

10,462

Non-hedging derivatives

1,140

527

290

92

4

--

2,053

1,135,100

352,365

751,148

325,013

532,891

916,008

4,012,525

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

Derivative financial liabilities

TOTAL

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

--

--

--

--

--

165,807

Trade payables

946,900

--

--

--

--

--

946,900

27,033

1,502

800

1,563

252

206

31,356

3,337

--

--

--

--

--

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


19.

GUARANTEES AND COMMITMENTS

At December 31 2009 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 2009. 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: - Commitments for investment in private equity funds by CIR International for € 25.3 million; - An annual commitment to cover just the running costs of the company KTP Global Finance SCA, the holding company of the KTP group.

Sorgenia group Within the group there are guarantees made to third parties for a total amount of € 507,673 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 subsidiaries Sorgenia Puglia S.p.A. and Sorgenia Power S.p.A., the shares of the two companies (for an amount of € 256,294 thousand) have been pledged. The commitments outstanding at the reporting date of these financial statements refer mainly to guarantees issued by Sorgenia S.p.A. in favour of in favour of banks lending funds to Sorgenia Power S.p.A. for € 195,800 thousand for the Termoli power plant and € 660 thousand for the Aprilia and Bertonico-Lodigiano sites. Sorgenia S.p.A. has signed an undertaking to capitalize Sorgenia Power for up to € 200,000 thousand and to finance the same company for up to a maximum of € 50,000 thousand. There are 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 14,900 thousand have already been paid, respectively. The remaining commitment is for € 10,482 thousand. There is also a commitment of € 6,462 thousand in relation to the tender published for the urbanization works to be carried out on the industrial estate where the Bertonico-Turano Lodigiano power plant is being built (LO).

114

Consolidated Financial Statements


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 € 1,538 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. Commitments outstanding, for a total of € 4,166 thousand, referred to: - contracts for the purchase of plant and equipment (€ 1,493 thousand) mainly for Repubblica, Finegil Editoriale and l’Editoriale La Nuova Sardegna for the full-colour project; - a contract for the purchase mainly of the colour printing press for the Printing Centre of the Padua division of Finegil Editoriale (€ 1,135 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 December 10 2018 and the remaining instalments total USD 3,249 thousand, of which USD 442 thousand in up to one 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 2009 are as follows: (in thousands of euro)

2009

2008

Up to 1 year

4,774

4,480

Over 1 year but up to 5

9,388

11,211

Over 5 years

1,250

1,729

15,412

17,420

Total

Consolidated Financial Statements

115


Commitments for investments At December 31 2009 there were commitments for investments for a total of € 746 thousand. Guarantees issued The detail of these guarantees is as follows: (in thousands of euro)

2009

2008

987

974

Other guarantees in favour of third parties

9,714

9,714

Collateral security provided for debt shown in the balance sheet

1,557

1,587

Guarantees in favour of third parties

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 2009 the Sogefi group had assets belonging to third parties on the premises of its companies for a value of € 6,302 thousand. Kos group At December 31 2009 guarantees issued amounted to € 13,832 thousand. At December 31 2009 there were commitments for investments for an amount of € 3,907 thousand and and loaned equipment for an amount of € 2,030 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 KOS 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 Management Report 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).

116

Consolidated Financial Statements


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

8,609,990

472,932

Depreciation/ writedowns 92,133

Other European countries

1,172,758

41,933

38,318

North America

47,266

2,306

1,148

South America

99,287

5,852

5,205

Asia

23,373

2,840

609

(3,301,824)

(3,361)

9,238

6,650,850

522,502

146,651

Consolidation adjustments Total assets

21.

JOINTLY CONTROLLED COMPANIES

As of December 31 2009 the joint ventures were Tirreno Power and KTP. 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 KTP group: Tirreno Power (in millions of euro)

Financial year 2009

Financial year 2008

Change in absolute terms

Change %

14.4

14.8

(0.4)

(2.7)

1,240.9

1,466.8

(225.9)

(15.4)

261.4

323.0

(61.6)

(19.1)

79.8

99.9

(20.1)

(20.1)

31.12.2009

31.12.2008

Change in absolute terms

Net invested capital

1,451.6

1,322.8

128.8

Net financial debt

1,042.0

897.7

144.3

409.6

425.1

(15.5)

591

617

(26)

Income statement Electricity sold (TWh) Revenues from sales and services Gross operating margin Net income

Balance sheet

Shareholdersâ&#x20AC;&#x2122; equity No. of employees

Consolidated Financial Statements

117


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 € 39.9 million in 2009, down from € 49.9 million in 2008.

KTP (in millions of euro)

31.12.2009

31.12.2008

Assets - Current - Non-current

140,900 441,729

131,832 482,303

Total assets

582,629

614,135

Liabilities and equity - Current - Non-current

559,641 262,115

566,791 267,667

(239,127)

(220,263)

582,629

614,135

33,732 98,493

47,425 107,241

Total income

132,225

154,666

Interest expense

(43,132)

(63,542)

Shareholders’ equity Total liabilities and equity

Income statement Interest income Commission income

Commission expense

(45,470)

(58,334)

Operating costs and other

(59,665)

(100,862)

(5,087)

(5,894)

Total costs

(153,354)

(228,632)

Net result

(21,129)

(73,966)

Taxes

In accordance with the terms of IAS/IFRS international accounting standards, the value of the investments in Tirreno Power and KTP was subjected to an impairment test at December 31 2009.

118

Consolidated Financial Statements


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)

31.12.2009

31.12.2008

A.

Cash and bank deposits

549,321

616,363

B.

Other free cash flow

104,967

217,420

C.

Securities held for trading

278,548

513,362

D.

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

932,836

1,347,145

E.

Current financial receivables

F.

Current bank borrowings

G.

Bonds and notes issued

H.

Current part of non-current debt

I.

Other current borrowings

J.

27,229 (**)

(*)

175,721

(157,506)

(223,754)

(731)

(347,445)

(41,281)

(87,963)

(2)

(71)

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

(199,520)

(659,233)

K.

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

760,545

863,233

L.

Non-current bank borrowings

(1,676,126)

(1,498,298)

M.

Bonds and notes issued

(718,262)

(895,458)

N.

Other non-current borrowings

(167,233)

(155,317)

O.

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

(2,561,621)

(2,549,073)

P.

Net financial position (K) + (O)

(1,801,076)

(1,685,440)

(***) (***)

(*) Including € 150,000 thousand (classified in the Balance Sheet in the item “Other receivables”) (**) The amount of € 91,216 thousand (€ 157,506 - € 66,290) 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

CIR In 2009, the CIR Group revised the phantom stock option plans previously approved. More specifically, extraordinary stock option plans were approved by the companies of the Group affected, reserved for individuals who were already beneficiaries of phantom stock option plans 2007 and 2008, who are still employed by the Group, provided that they give up the rights deriving from the said phantom stock option plans. The chart below shows the incentive plans of the Parent Company of the CIR Group:

Consolidated Financial Statements

119


STOCK OPTION PLANS OUTSTANDING AT DECEMBER 31 2009 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 Stock Option Plan September 7 2001 Stock Option Plan March 7 2003 Stock Option Plan September 5 2003

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

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

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

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

No. of options

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

2,631,000

3.70

--

--

--

--

--

--

2,631,000

3.70

1.75

2,631,000

3.70

29,000

4.06

--

--

--

--

--

--

29,000

4.06

2.25

29,000

4.06

1,488,000

2.62

--

--

--

--

--

--

1,488,000

2.62

2.75

1,488,000

2.62

21,400

1.28

--

--

--

--

--

--

21,400

1.28

3.00

21,400

1.28

2,200

0.84

--

--

2,200

0.84

--

--

--

--

--

--

--

121,300

1.13

--

--

8,800

1.13

--

--

112,500

1.13

4.16

112,500

1.13

411,000

1.60

--

--

15,400

1.60

--

--

395,600

1.60

4.75

395,600

1.60

Stock Option Plan September 6 2004

1,540,700

1.56

--

--

22,000

1.56

--

--

1,518,700

1.56

6.16

1,518,700

1.56

Stock Option Plan March 11 2005

4,009,800

2.34

--

--

--

--

--

--

4,009,800

2.34

5.75

4,009,800

2.34

Stock Option Plan September 6 2005

2,705,000

2.49

--

--

--

--

--

--

2,705,000

2.49

6.17

2,688,300

2.49

Stock Option Plan 2006 1st tranche

2,765,000

2.50

--

--

--

--

--

--

2,765,000

2.50

7.01

2,302,500

2.50

Stock Option Plan 2006 2nd tranche

2,765,000

2.47

--

--

--

--

--

--

2,765,000

2.47

7.50

1,970,700

2.47

--

--

3,852,500

3.0877

--

--

--

--

3,852,500

3.0877

7.75

2,535,150

3.09

Stock Option Plan March 12 2004

Extraordinary Stock Option Plan 1st tranche Extraordinary Stock Option Plan 2nd tranche

--

--

3,852,500

2.7344

--

--

--

--

3,852,500

2.7344

8.25

2,072,850

2.73

Extraordinary Stock Option Plan 3rd tranche

--

--

3,935,000

1.6806

--

--

--

--

3,935,000

1.6806

8.75

1,645,200

1.66

Extraordinary Stock Option Plan 4th tranche

--

--

3,935,000

1.0718

534,500

1.0718

--

--

3,400,500

1.0718

9.25

638,500

1.07

Stock Option Plan 2009 1st tranche

--

--

4,090,000

0.9907

359,100

0.9907

--

--

3,730,900

0.9907

9.75

377,100

0.99

Stock Option Plan 2009 2nd tranche

--

--

3,890,000

1.5449

--

--

--

--

3,890,000

1.5449

10.17

--

--

18,489,400

2.5333

23,555,000

1.8392

942,000

1.0609

--

--

41,102,400

2.1693

7.25

24,436,300

2.4933

Total SHARES HELD Stock Option Plan January 11 2005

11,050,000

2.15

--

--

--

--

--

--

11,050,000

2.15

0.33

11,050,000

2.15

Total

11,050,000

2.15

--

--

--

--

--

--

11,050,000

2.15

0.33

11,050,000

2.15

Grand total

29,539,400

2.3899

23,555,000

1.8392

942,000

1.0609

--

--

52,152,400

2.1652

5.79

35,486,300

2.3864

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

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

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

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

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

No. of options

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

--

--

--

--

--

Phantom 2007 - 2nd tranche

3,052,500

2.7344

--

--

--

--

3,052,500

2.7344

--

--

--

--

--

Phantom 2008 - 1st tranche

3,125,000

1.6806

--

--

--

--

3,125,000

1.6806

--

--

--

--

--

Phantom 2008 - 2nd tranche

3,125,000

1.0718

--

--

--

--

3,125,000

1.0718

--

--

--

--

--

12,355,000

2.1348

--

--

--

--

12,355,000

2.1348

--

--

--

--

--

Total


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

Stock options assigned

Stock options exercised as of December 31 2008

Stock options exercised in 2009

Stock options exercised as of December 31 2009

December 22 1999

16,900,000

16,848,000

--

52,000

1,300,000

1,300,000

--

--

September 6 2000

18,070,000

18,070,000

--

--

October 24 2000

2,964,000

2,756,000

--

208,000

November 28 2000

2,496,000

2,496,000

--

--

September 28 2001

2,004,000

1,714,000

--

290,000

March 11 2002

1,785,000

1,718,000

67,000

--

April 15 2003

9,215,000

7,135,000

300,000

1,780,000

February 25 2005

8,236,300

408,000

--

7,828,300

22,120,565

--

--

22,120,565

200,000

--

--

200,000

9,515,300

228,000

--

9,287,300

21,723,005

--

305,064

21,417,941

2009-2012 II Tranche

15,122,800

--

16,800

15,106,000

May 18 2009

15,300,000

--

--

15,300,000

146,951,970

52,673,000

688,864

93,590,106

June 27 2000

July 29 2005 October 24 2005 April 18 2006 2009-2012 I Tranche

Total

In the period January 1 â&#x20AC;&#x201C; December 31 2009 688,864 options were exercised.

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

Consolidated Financial Statements

121


STOCK OPTION PLANS FOR EMPLOYEES AT DECEMBER 31 2009

Options in circulation at start of year No. of options

Options awarded during the year

Options cancelled during the year

Options exercised during the year

Options which expired during the year

Options in circulation at end of year

No. of options Weighted No. of options Average Weighted No. of options Weighted No. of options Weighted No. of options Weighted average strike average strike market price on average strike average strike average strike price exercise date price price price price

Options exercisable at end of year

Average strike price

Average duration (years)

No. of options

Weighted average strike price

1,285,000

25.60

140,000

25.60

1,145,000

25.60

0.75

1,145,000

25.60

Stock Option Plan April 24 2001

577,500

6.25

97,500

6.25

480,000

6.25

1.75

480,000

6.25

Stock Option Plan October 24 2001

113,200

2.51

12,600

2.51

100,600

2.51

2.25

100,600

2.51

Stock Option Plan March 6 2002

307,125

3.30

48,925

3.30

258,200

3.30

2.75

258,200

3.30

Stock Option Plan July 24 2002

368,050

3.36

79,100

3.36

288,950

3.36

3.00

288,950

3.36

Stock Option Plan February 26 2003

435,725

2.86

43,225

2.86

392,500

2.86

3.75

392,500

2.86

Stock Option Plan July 23 2003

599,450

3.54

97,900

3.54

501,550

3.54

4.00

501,550

3.54

Stock Option Plan February 25 2004

1,218,500

4.95

171,000

4.95

1,047,500

4.95

4.75

1,047,500

4.95

Stock Option Plan July 28 2004

1,225,500

4.80

168,000

4.80

1,057,500

4.80

5.00

1,057,500

4.80

Stock Option Plan February 23 2005

1,247,900

4.75

115,800

4.75

1,132,100

4.75

5.75

1,132,100

4.75

Stock Option Plan July 27 2005

1,265,700

4.65

110,800

4.65

1,154,900

4.65

6.00

1,154,900

4.65

1,271,200

4.33

91,400

4.33

1,179,800

4.33

7.00

999,000

4.33

1,253,200

3.96

81,800

3.96

1,171,400

3.96

7.50

855,000

3.96

Stock Option Plan 2000

Stock Option Plan 2006 - I tranche Stock Option Plan 2006 - II tranche Ord. Stock Option Plan 2009 - I tranche

1,520,000

3.84

24,400

3.84

1,495,600

3.84

7.75

997,500

3.84

Ord. Stock Option Plan 2009 - II tranche

1,520,000

3.60

31,000

3.60

1,489,000

3.60

8.25

815,100

3.60

Ord. Stock Option Plan 2009 - III tranche

1,790,000

2.22

37,600

2.22

Ord. Stock Option Plan 2009 - IV tranche

1,840,000

1.37

85,200

1.37

Extraord. Stock Option Plan 2009 - I tranche

2,500,000

1.00

Extraord. Stock Option Plan 2009 - II tranche

2,500,000

1.86

11,670,000

2.14

Total

11,168,050

6.86

1,436,250

6.24

1,752,400

2.22

8.75

746,100

2.22

201,300

1.37

1,553,500

1.37

9.25

339,000

1.37

158,500

1.00

2,341,500

1.00

9.75

291,500

1.00

2,500,000

1.86

10.25

21,042,000

4.38

7.12

12,602,000

5.97

359,800

1.21


SOGEFI Below is information on the stock option and phantom stock option plans outstanding in the Sogefi group: In 2009 the Board of Directors approved the following stock option plans: • Stock Option Plan 2009 for executives of the Company and its subsidiaries for a maximum of 2,335,000 shares (2.01% of share capital at December 31 2009) with a subscription price of 1.0371, exercisable between September 30 2009 and September 30 2019; • Extraordinary Stock Option Plan 2009 for people who were already beneficiaries of Phantom Stock Option Plans 2007 and 2008, who are still employed by the Company and its subsidiaries, provided that they give up the their rights under the above-mentioned phantom stock option plans. Extraordinary Stock Option Plan 2009 involves the award, at the same conditions as the options being replaced, of 1,015,000 options (corresponding to a maximum of 1,015,000 shares equal to 0.87% of share capital at December 31 2009), of which 475,000 (First Tranche options) replacing the options of Phantom Stock Option Plan 2007 and 540,000 (Second Tranche Options) in replacement of the options of Phantom Stock Option Plan 2008. The First Tranche options are exercisable until September 30 2017; the Second Tranche options are exercisable until September 30 2018. Apart from what is indicated above and what is shown in the following paragraph “Phantom Stock Option Plans”, the Group did not effect any other transaction involving the purchase of goods or services with share-based payments or any other equity instrument and thus it is not necessary to give the fair value of such goods or services. According to the terms of accounting standard IFRS 2 only plans awarded after November 7 2002 should be considered (it should be pointed out that the Company has no plans put in place before that date) which therefore means that, as well as those issued in 2009, the plans issued in 2004, 2005, 2006, 2007 and 2008 should also be considered. The main features of these plans are given below: • Stock Option Plan 2004 for a maximum of 1,880,000 ordinary shares (1.62% of share capital at December 31 2009) at € 2.64 per share and exercisable at the end of each four-month period from September 30 2004 to September 30 2014; • Stock Option Plan 2005 reserved for executives of the Company and its subsidiaries for a maximum of 1,930,000 shares (1.66% of share capital at December 31 2009) with strike price of € 3.87 and exercisable from September 30 2005 to September 30 2015; • Extraordinary Stock Option Plan 2005 reserved for employees of the Group with over 10 years’ service at December 31 2004 for a maximum of 1,445,000 share (1.24% of share capital at December 31 2009) with a strike price of € 4.50 and exercisable from October 1 to December 7 2008 and from May 1 to July 7 2009; • Stock Option Plan 2006 reserved for executives of the Company and its subsidiaries for a maximum of 1,770,000 shares (1.52% of share capital at December 31 2009) with a strike price of € 5.87, exercisable from September 30 2006 to September 30 2016; • Stock Option Plan 2007 reserved for executives of the foreign subsidiaries for a maximum of 715,000 shares (0.62% of share capital at December 31 2009) with an initial strike price of € 6.96, exercisable from September 30 2007 to September 30 2017. On April 22 2008 the Board of Directors, on the basis of the powers delegated by the Shareholders’ Meeting, adjusted the strike price from € 6.96 to € 5.78 in order to take into account the extraordinary part of the dividend distributed by the Shareholders’ at the AGM held on that date;

Consolidated Financial Statements

123


• Stock Option Plan 2008 reserved for executives of the foreign subsidiaries for a maximum of 875,000 shares (0.75% of share capital at December 31 2009) with a strike price of € 2.1045, exercisable from September 30 2008 to September 30 2018. The following chart shows the total number of options outstanding in relation to the plans for the period 2004-2009 and their average strike prices:

Investments 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

3,947,600 3,350,000 (778,200) -6,509,400 2,884,300

2009 Average strike price 4.55 1.90 4.58 -3.18 4.48

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

2008 Average strike price 4.82 2.10 4.87 3.30 4.55 4.92

The line “Non exercised/not exercisable at the end of the year” refers to the total amount of the options net of those exercised or cancelled during the period or in previous periods. The line “Exercisable at the end of the year” refers to the total amount of the options vested at the close of the year and not yet subscribed. The chart below shows the breakdown of the number of options exercisable at December 31 2009: Plans 2004 - 2009 No. of options remaining and exercisable at December 31 2008

1,953,400

Options which vested in the year

1,919,500

Options exercised in the year

--

Options cancelled in the year

(988,600)

No. of options remaining and exercisable at December 31 2009

2,884,300

Phantom Stock Option Plans Phantom stock options, unlike traditional stock option plans, do not grant the right to subscribe or purchase a share but involve payment to the beneficiaries of an extraordinary cash bonus that is variable and is equal to the difference between the value of a Sogefi share in the exercise period of the option and the value of the Sogefi share at the option award date. As described in the paragraph “Stock Option Plans”, in 2009 the Parent company gave the beneficiaries of Phantom stock option plans 2007 and 2008 the right to renounce the options of the aforesaid plans and take part in Extraordinary Stock Option Plan 2009. Below are the main features of the plans outstanding: • Phantom Stock Option Plan 2007 reserved for the Chief Executive, executives and staff of the Parent Company, as well as executives of the Italian subsidiaries, for a maximum of 1,760,000 options with an initial award value of € 7.0854 adjusted during the year 2008 to € 5.9054, exercisable from September 30 2007 to September 30 2017. Following the reorganization of the plan as described above, 475,000 options were given up;

124

Consolidated Financial Statements


â&#x20AC;˘ Phantom Stock Option Plan 2008 reserved for the Chief Executive and executives of the Parent Company, as well as executives of the Italian subsidiaries, for a maximum of 1,700,000 options with an award value of â&#x201A;Ź 2.1045, exercisable from September 30 2008 and September 30 2018. Following the reorganization of the plan as described above, 540,000 options were given up. The chart below shows the breakdown of the number of stock options at December 31 2009: 2009 2,966,800 -(1,136,800) -1,830,000 970,200

Not exercised/not exercisable at the start of the year Awarded 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

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

Consolidated Financial Statements

125


STOCK OPTION PLANS AT DECEMBER 31 2009

Options in circulation at start of year No. of Weighted options average strike price Stock Option Plan '02

2,400

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

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

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

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

4.925

--

--

--

--

--

--

2,400

4.925

3.25

Options exercisable at end of year No. of Weighted options average strike price 2,400

4.925

Option maturities Vesting Expiry date date (100%) 31/12/2006

31/03/2013

Stock Option Plan '03

63,200

5.0

--

--

--

--

--

--

63,200

5.0

4.25

63,200

5.0

31/12/2007

31/03/2014

Stock Option Plan '05

239,732

17.0

--

--

--

--

--

--

239,732

17.0

5.75

239,732

17.0

30/06/2009

30/09/2015

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

88,406

17.0

--

--

--

--

--

--

88,406

17.0

5.75

88,406

17.0

30/06/2009

30/09/2015

132,020

22.0

--

--

--

--

13,340

22.0

118,680

22.0

6.75

111,780

22.0

30/06/2010

30/09/2016

7,884

22.0

--

--

--

--

--

--

7,884

22.0

6.75

7,096

22.0

30/06/2010

30/09/2016

196,700

22.0

--

--

--

--

30,480

22.0

166,220

22.0

7.25

142,680

22.0

31/12/2010

31/03/2017

74,000

34.0

--

--

--

--

13,000

34.0

61,000

34.0

10.76

--

34.0

30/09/2010

30/09/2020

804,342

19.68

--

--

--

--

56,820

24.7

747,522

19.292

6.53

655,294

17.8


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. With reference to disputes in CIR’s favour, it should be mentioned that on October 3 2009 the Milan Law Court isused a first degree ruling which upheld CIR’s right to compensation from Fininvest for patrimonial damages in the so-called “lodo Mondadori” case, for an amount of approximately € 750 million. Following this ruling, Fininvest delivered to CIR a guarantee at the first request for an amount of 806 million euro issued by a prime bank should it be sentenced to pay the amount by the Court of Appeal.

25.

COMPANY ACQUISITIONS

During 2009 the Kos group made the following acquisitions: •

Acquisition of 100% of the shares of the company Iniziative Territoriali Integrate S.r.l. (I.T.I.) for a total price of approximately € 436 thousand which involved recognition of a difference betwween the price paid and the fair vallue of the assets acquired of € 393 thousand, which was allocated to goodwill; Acquisition by the company Istituti di Riabilitazione Santo Stefano S.r.l. of the “Residenza Dorica” business arm for a price of approximately € 966 thousand which involved the recognition of a difference between the price paid and the fair value of the assets acquired of € 1,002 thousand, which was allocated to goodwill. Acquisition of up to 80% control of the company Jesilab S.r.l. (previously valued at cost) for € 64 thousand. Liquidation of the company Cyber Therapy S.r.l..

The companies and business arms acquired were included in the consolidated accounts as from the date on which the risks and benefits of ownership were transferred to the group. This generally coincides with the acquisition date. The revenue impact of these acquisitions amounted to € 2,438 thousand. The total effect on the assets and liabilities of the group and on the net financial position of these acquisitions can be summed up in the following chart: (euro/’000)

31.12.2009

Fixed assets

842

Working capital

(62)

Net non-current assets / (liabilities)

129

Financial assets

2

Borrowings

(523)

Cash and cash equivalents

(378)

Goodwill

1,544

Acquisition price

1,553

Consolidated Financial Statements

127


26.

OTHER INFORMATION

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

As required by CONSOB Resolution no. 11971/99, the following chart shows the fees charged for services provided by the independent auditors, Deloitte & Touche S.p.A. and by other entities belonging to the same network: (in thousands of euro)

2009

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

130

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

2 3 --

Fees charged to the subsidiaries: a) by the firm of auditors, for auditing services

1,339

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

128

Consolidated Financial Statements

203 66 54


27.

CHART SHOWING THE KEY FIGURES OF THE FINANCIAL STATEMENTS FOR 2008 OF THE PARENT COMPANY COFIDE S.p.A. (Art. 2497-bis paragraph 4 Civil Code)

BALANCE SHEET (in euro)

ASSETS

31.12.2008

NON-CURRENT ASSETS

580.814.405

CURRENT ASSETS

133.454.484

TOTAL ASSETS

714.268.889

LIABILITIES AND SHAREHOLDERS’ EQUITY

31.12.2008

SHAREHOLDERS’ EQUITY NON-CURRENT LIABILITIES CURRENT LIABILITIES

561.087.376

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

714.268.889

151.142.351 2.039.162

INCOME STATEMENT (in euro)

%(**)

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

2,118,695

98.2

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

(69,097) (3,222,102) (657,600)

20.4

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

(1,132,549) (609,133) (94,102) (2,968,589)

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

2008 2,158,394

3,588,930 2,066,134

67.6

(9,100,133) 21,810,291 19,611,331

89.9

834,489 (22) 1.769,212 15,934,178 291,872 16,226,050

(*) 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 2008. For a correct and full understanding of the equity and financial situation of COFIDE S.p.A. at December 31 2008, 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.

Consolidated Financial Statements

129


130

Consolidated Financial Statements


CIR Group

Consolidated Financial Statements of Directly Controlled Subsidiaries as of December 31 2009

SORGENIA GROUP ESPRESSO GROUP SOGEFI GROUP KOS GROUP

131


SORGENIA GROUP STATEMENT OF FINANCIAL POSITION

(in euro)

ASSETS

31.12.2009

31.12.2008

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

213,653,830 1,573,078,168 247,307,789 1,091,000 19,444,127 40,223,718 99,356,389

192,928,949 1,162,866,915 253,925,737 588,500 15,803,900 53,050,551 37,879,976

TOTAL NON-CURRENT ASSETS

2,194,155,021

1,717,044,528

CURRENT ASSETS Inventories Current trade assets Current financial assets Other current assets Cash and cash equivalents

48,225,770 612,332,051 9,470,294 108,277,572 62,365,567

53,975,196 707,482,327 1,513,028 108,581,493 235,279,246

TOTAL CURRENT ASSETS

840,671,254

1,106,831,290

3,034,826,275

2,823,875,818

31.12.2009

31.12.2008

9,080,053 724,532,639 230,084,910 (10,029,250) 80,149,488

8,738,843 564,274,099 174,046,198 (8,596,500) 79,477,986

1,033,817,840

817,940,626

954,608,166 79,209,674

746,948,416 70,992,210

NON-CURRENT LIABILITIES Non-current bonds Non-current financial liabilities Non-current trade liabilities Other non-current liabilities Deferred taxes Personnel provisions Non-current provisions for risks & losses

2,069,858 1,365,394,330 634,220 36,000 31,639,335 1,985,562 15,965,699

578,339 1,124,163,504 -2,842,331 30,978,608 1,762,258 17,294,204

TOTAL NON-CURRENT LIABILITIES

1,417,725,004

1,177,619,244

CURRENT LIABILITIES Current financial liabilities Current bonds Current trade liabilities Other current liabilities Current provisions for risks and losses

50,664,409 730,844 489,186,046 31,571,200 11,130,931

133,693,225 2,872,841 591,182,094 91,186,194 9,381,594

TOTAL CURRENT LIABILITIES

583,283,430

828,315,948

3,034,826,274

2,823,875,818

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY Share capital Other reserves, Capital & minority reserve Retained earnings/losses of group Dividend payments on account Net income/loss for year of the group, Net income/loss for year Minority interests TOTAL EQUITY of which: GROUP EQUITY MINORITY SHAREHOLDERS' EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


SORGENIA GROUP INCOME STATEMENT

(in euro)

TRADE REVENUES Inventories Costs for the purchase of goods Costs for services Personnel costs

2009

2008

2,325,825,476

2,431,967,510

(10,599,759)

7,745,585

(2,036,435,897)

(2,175,893,753)

(136,912,133)

(119,493,042)

(38,845,916)

(33,570,754)

Other operating income

57,651,886

74,613,113

Other operating costs

(82,328,251)

(45,246,844)

Adjustments to value of investments consolidated at equity

39,462,031

49,556,502

Amortization, depreciation & writedowns of intangible & tangible assets

(46,896,929)

(35,009,216)

OPERATING INCOME

70,920,508

154,669,101

Financial income

10,954,016

9,165,348

Financial expense

(48,921,874)

(52,829,151)

Dividends

22,000

36,000

Adjustments to value of financial assets

13,718

(352,859)

INCOME (LOSS) BEFORE TAXES FROM OPERATING ACTIVITY

32,988,368

110,688,439

Income taxes

47,161,120

(31,210,453)

NET INCOME (LOSS) AFTER TAXES FROM OPERATING ACTIVITY

80,149,488

79,477,986

Income (Loss) from discontinued businesses

--

--

80,149,488

79,477,986

- NET INCOME/LOSS OF THE GROUP

66,850,378

66,671,488

- NET INCOME/LOSS OF MINORITY INTERESTS

13,299,110

12,806,498

NET INCOME (LOSS) FOR THE YEAR of which:


ESPRESSO GROUP

STATEMENT OF FINANCIAL POSITION

(in thousands of euro)

ASSETS

31.12.2009

31.12.2008

Intangible assets with an indefinite useful life Other intangible assets Intangible assets

656,419 3,119 659,538

656,093 4,311 660,404

Tangible assets Investments consolidated at equity Other equity investments Non-current receivables Deferred tax assets

203,617 28,334 2,486 1,272 48,561

220,980 27,750 2,568 1,486 47,633

NON-CURRENT ASSETS

943,808

960,821

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

23,243 229,945 25,179 20,630 17,368 135,012

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

CURRENT ASSETS

451,377

451,110

1,395,185

1,411,931

31.12.2009

31.12.2008

Share capital Reserves Retained earnings (losses) Net income (loss) for the year

61,439 217,096 201,245 5,825

61,385 245,853 150,583 20,624

Shareholders' equity of the Group

485,605

478,445

9,824

10,813

SHAREHOLDERS' EQUITY

495,429

489,258

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

348,582 40,407 83,907 110,999

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

NON-CURRENT LIABILITIES

583,895

602,869

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

19,804 48,844 147,553 12,735 86,925

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

CURRENT LIABILITIES

315,861

319,804

TOTAL LIABILITIES

899,756

922,673

1,395,185

1,411,931

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

Minority Shareholders' equity

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


ESPRESSO GROUP

INCOME STATEMENT

(in thousands of euro)

Revenues Change in product inventories Other operating income

2009

2008

886,649

1,025,548

(771)

(2,618)

19,829

17,689

Costs for purchases

(120,165)

(150,075)

Costs for services

(340,818)

(388,008)

(23,056)

(30,453)

1,013

1,145

Other operating costs Valuation of investments consolidated at equity Personnel costs

(316,018)

(330,701)

Amortization, depreciation and writedowns

(42,728)

(47,205)

Operating result

63,935

95,322

Net financial income/(expense)

(19,621)

(19,606)

Result before taxes

44,314

75,716

Taxes

(38,826)

(54,489)

NET RESULT

5,488

21,227

Result pertaining to Minority Shareholders Result pertaining to the Group

337 5,825

(603) 20,624

Basic earnings per share

0.015

0.051

Diluted earnings per share

0.014

0.049


SOGEFI GROUP STATEMENT OF FINANCIAL POSITION

(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 Buildings, plant and machinery Other tangible assets of which finance leases Intangible assets TOTAL FIXED ASSETS OTHER 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 debt and other borrowings of which finance leases TOTAL SHORT-TERM BORROWINGS Other short-term financial 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-LONG TERM BORROWINGS AND DERIVATIVES Bank borrowings Other medium-long term borrowings of which finance leases TOTAL MEDIUM-LONG TERM BORROWINGS Other medium-long term financial 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 EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF PARENT COMPANY Minority interests TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

31.12.2009

31.12.2008

111,583 46

49,456 841

85,915 126,549 5,545 9,911 3,055 230,975 342,604

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

14,175 211,623 5,731 13,723 131,372 362,901

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

101 472 68 9,029 35,001 44,671 407,572 700 750,876

101 464 -8,772 26,688 36,025 399,861 653 773,030

31.12.2009

31.12.2008

4,327 67,378 1,679 71,705 1,023 72,728 199,818 2,727 1,971 277,244

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

196,169 10,902 8,034 207,071 2,124 209,195

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

51,033 382 30,847 82,262 291,457

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

60,397 114,053 (7,639) 166,811 15,364 182,175 750,876

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


SOGEFI GROUP INCOME STATEMENT

(in thousands of euro)

2009

2008

Sales revenues

780,987

1,017,458

Variable costs of production

529,832

681,673

CONTRIBUTION MARGIN

251,155

335,785

Fixed production, research and development costs

90,370

107,299

Amortization and depreciation

42,150

42,484

Fixed sales and distribution costs

31,059

35,935

Administrative and general overheads

53,891

62,430

OPERATING INCOME

33,685

87,637

Restructuring costs

17,162

11,473

Capital losses (gains) on disposals

1,222

(15)

781

2,238

9,445

11,502

(11)

1,020

5,075

62,439

10,783

13,988

(75)

218

(5,633)

48,233

700

16,793

(6,333)

31,440

(1,306)

(2,945)

(7,639)

28,495

Basic

(0.067)

0.250

Diluted

(0.067)

0.250

Foreign currency (gains) losses Other non-operating expense (income) - of which non-recurring EBIT Net financial expense (income) Losses (income) from equity investments INCOME BEFORE TAXES AND MINORITY INTERESTS Income taxes NET INCOME BEFORE MINORITY INTERESTS NET INCOME OF THE GROUP Earnings per share (Euro):


KOS GROUP STATEMENT OF FINANCIAL POSITION (in thousands of euro)

ASSETS

31.12.2009

31.12.2008

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

309,328 122,494 175,898 5,413 -441 150 4,932

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

CURRENT ASSETS INVENTORIES RECEIVABLES - PARENT COMPANY TRADE RECEIVABLES OTHER RECEIVABLES FINANCIAL RECEIVABLES CASH AND CASH EQUIVALENTS

111,370 1,885 1,578 80,762 10,749 318 16,078

110,972 1,732 1,299 80,631 7,930 -19,380

--

--

420,698

408,351

31.12.2009

31.12.2008

SHAREHOLDERS' EQUITY SHARE CAPITAL RESERVES RETAINED EARNINGS (LOSSES)

139,730 6,480 143,804 (12,723)

140,698 6,480 144,324 (12,286)

SHAREHOLDERS' EQUITY OF THE GROUP

137,561

138,518

2,169

2,180

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

156,311 129,306 69 56 7,678 17,477 1,725

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

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

124,657 28,128 1,924 22,499 42,991 23,038 6,077

118,522 26,332 1,072 19,473 42,383 23,037 6,225

--

--

420,698

408,351

NON-CURRENT ASSETS HELD FOR DISPOSAL TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS' EQUITY

MINORITY SHAREHOLDERS' EQUITY

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


KOS GROUP INCOME STATEMENT

(in thousands of euro)

SALES REVENUES CHANGE IN INVENTORIES

2009

2008

273,404

246,345

--

--

(19,621)

(17,660)

COSTS FOR SERVICES

(107,637)

(105,083)

PERSONNEL COSTS

COSTS FOR PURCHASE OF GOODS

(103,973)

(87,527)

OTHER OPERATING INCOME

2,413

4,564

OTHER OPERATING COSTS

(11,560)

(11,889)

ADJUSTMENTS TO THE VALUE OF INVESTMENTS VALUED AT EQUITY

--

--

AMORTIZATION, DEPRECIATION & WRITEDOWNS

(16,505)

(14,083)

OPERATING INCOME (EBIT)

16,521

14,667

FINANCIAL INCOME FINANCIAL EXPENSE DIVIDENDS

512

928

(8,789)

(11,277)

301

--

GAINS FROM TRADING SECURITIES

--

--

LOSSES FROM TRADING SECURITIES

--

--

(331)

--

INCOME/(LOSS) BEFORE TAXES

8,214

4,318

INCOME TAXES

(8,210)

(5,507)

INCOME/(LOSS) FROM DISCONTINUED OPERATIONS AND ASSETS HELD FOR DISPOSAL

--

--

NET INCOME/(LOSS) FOR THE PERIOD INCLUDING MINORITY INTERESTS

4

(1,189)

- NET INCOME/LOSS OF MINORITY SHAREHOLDERS

358

292

- NET INCOME/LOSS OF THE GROUP

(354)

(1,481)

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS


140


CERTIFICATION OF THE CONSOLIDATED 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 accounting and corporate documents of CIR S.p.A., do 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 the Financial Statements during financial year 2009 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 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 2 2010

Signed by Rodolfo De Benedetti Chief Executive Officer

Signed by Alberto Piaser Officer Responsible

141


142


CIR S.p.A.

Financial Statements as of December 31 2009

STATEMENT OF FINANCIAL POSITION INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CASH FLOW STATEMENT OF CHANGES IN EQUITY EXPLANATORY NOTES

CIR S.p.A.

143


1.

STATEMENT OF FINANCIAL POSITION

(in euro)

ASSETS

%(**)

Notes

NON-CURRENT ASSETS

%(**)

31.12.2009 1,012,090,877

31.12.2008 1,041,152,254

INTANGIBLE ASSETS

(4.a)

213,639

191,477

TANGIBLE ASSETS

(4.b)

3,018,487

3,176,710

INVESTMENT PROPERTY

(4.c)

18,114,599

18,686,421

EQUITY INVESTMENTS

(4.d)

856,680,271

1,017,990,864

SUNDRY RECEIVABLES

(4.e)

of which with related parties (*) DEFERRED TAXES

133,296,990 133,272,790

(4.f)

CURRENT ASSETS

24,200 --

100.0

--

766,891

1,082,582

307,202,505

293,334,311

31,587,092 --

54,469,830

SUNDRY RECEIVABLES of which with related parties (*)

(5.a) (5.a)

FINANCIAL RECEIVABLES

(5.b)

1,418,000

--

SECURITIES

(5.c)

101,584,046

226,547,842

CASH AND CASH EQUIVALENTS

(5.d)

172,613,367

12,316,639

1,319,293,382

1,334,486,565

1,155,601

3.7

TOTAL ASSETS

%(**)

LIABILITIES AND SHAREHOLDERS' EQUITY

7,827,661

14.4

%(**)

31.12.2009

31.12.2008

SHAREHOLDERS' EQUITY

978,905,531

974,501,436

ISSUED CAPITAL

396,058,634

395,587,634

less OWN SHARES

(21,537,000)

(21,487,000)

SHARE CAPITAL

(6.a)

374,521,634

374,100,634

RESERVES

(6.b)

352,032,278

345,985,148

RETAINED EARNINGS / (LOSSES)

(6.c)

254,341,399

221,164,387

(1,989,780)

33,251,267

NET INCOME (LOSS) FOR THE YEAR NON-CURRENT LIABILITIES

297,733,880

298,631,544

BONDS AND NOTES

(7.a)

296,168,462

295,982,153

PERSONNEL PROVISIONS

(7.b)

1,565,418

2,649,391

42,653,971

61,353,585

28,513,339

11,306,639

CURRENT LIABILITIES OTHER PAYABLES

(8.a)

of which with related parties (*)

(8.a)

PROVISIONS FOR RISKS AND LOSSES

(8.b)

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

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

144

12,961,083

5,456,508

45.5

48.3

14,140,632

50,046,946

1,319,293,382

1,334,486,565


2.

INCOME STATEMENT

(in euro) %(**)

Notes SUNDRY REVENUES AND INCOME of which from related parties (*) COSTS FOR SERVICES of which from related parties (*)

(9) (9)

%(**)

7,139,502 5,729,000

80.2

(10) (10)

2009

7,053,387 5,916,115

83.9

(14,771,383) (1,805,000)

12.2

2008

(11,036,154) (2,280,000)

20.7

PERSONNEL COSTS

(11)

(9,202,151)

(5,086,680)

OTHER OPERATING COSTS

(12)

(2,138,073)

(37,921,421)

(865,553)

(866,662)

(19,837,658)

(47,857,530)

AMORTIZATION, DEPRECIATION & WRITEDOWNS INCOME BEFORE FINANCIAL ITEMS AND TAXES ( E B I T ) FINANCIAL INCOME

(13)

of which from related parties (*) FINANCIAL EXPENSE

32.3

(14)

of which with related parties (*) DIVIDENDS

10,207,930 3,302,156

2.9

(17,533,720) --

(15)

of which from related parties (*)

9,252,266 266,261

(17,871,672) (208,591)

1.2

138,689,930

99.9

11,392,025 11,361,610

99.7

138,738,023

GAINS FROM TRADING SECURITIES

(16)

6,910,176

253,220

LOSSES FROM TRADING SECURITIES

(17)

(942,498)

(2,396,079)

ADJUSTMENTS TO VALUE OF FINANCIAL ASSETS

(18)

INCOME / (LOSS) BEFORE TAXES INCOME TAXES

(19)

NET INCOME (LOSS) FOR THE YEAR

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

(20) (20)

2,527,965

(54,721,218)

(7,275,780)

25,397,010

5,286,000

7,854,257

(1,989,780)

33,251,267

(0.0027) (0.0027)

0.0444 0.0444

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

145


3.

STATEMENT OF COMPREHENSIVE INCOME

(in thousands of euro)

Net income (loss) for the year Other items of the comprehensive income statement TOTAL COMPREHENSIVE INCOME STATEMENT FOR THE YEAR

146

2009

2008

(1,989,780)

33,251,267

--

--

(1,989,780)

33,251,267


4.

STATEMENT OF CASH FLOW

(in euro)

2009

2008

OPERATING ACTIVITY NET INCOME FOR THE YEAR

(1,989,780)

33,251,267

ADJUSTMENTS: AMORTIZATION, DEPRECIATION & WRITEDOWNS

865,553

866,662

LOSSES/(GAINS) FROM SALE OF EQUITY INVESTMENTS & CURRENT SECURITIES

(4,630,177)

2,142,858

ACTUARIAL VALUATION OF STOCK OPTION PLANS

4,324,835

354,229

PROVISIONS MADE FOR LEAVING INDEMNITY (TFR)

287,329

263,683

(2,527,965)

54,721,218

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

35,896,586 10,903,845

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

CASH FLOW FROM OPERATING ACTIVITY

32,226,381

133,493,024

of which: - interest inflows (outflows) - dividend inflows - income tax inflows (outflows) *

4,677,352 10,582,025 8,342,358

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

(PURCHASE)/SALE OF CURRENT SECURITIES

128,061,387

(126,925,421)

(PURCHASE)/SALE OF FIXED ASSETS

129,325,474

(28,373,837)

CASH FLOW FROM INVESTMENT ACTIVITY

257,386,861

(155,299,258)

INVESTMENT ACTIVITY

FUNDING ACTIVITY INFLOWS FROM CAPITAL INCREASES

999,389

365,308

PAYOUT OF LEAVING INDEMNITY

(241,648)

(274,943)

BUYBACK OF OWN SHARES

(74,255)

(6,396,015)

(130,000,000)

--

--

(37,410,570)

CASH FLOW FROM FUNDING ACTIVITY

(129,316,514)

(43,716,220)

INCREASE (REDUCTION) IN NET CASH & CASH EQUIVALENTS

160,296,728

(65,522,454)

12,316,639

77,839,093

172,613,367

12,316,639

LOANS MADE TO SUBSIDIARIES DIVIDENDS PAID OUT

NET CASH & CASH EQUIVALENTS AT START OF YEAR NET CASH & CASH EQUIVALENTS AT END OF YEAR

* The amounts refer to current tax inflows resulting from participation in tax consolidation

147


5.

STATEMENT OF CHANGES IN EQUITY

(in euro)

Issued capital

less own shares

Share capital

Reserves

Retained earnings (losses)

Net income for year

Total

395,465,334

(19,822,000)

375,643,334

343,159,102

185,051,374

79,919,598

983,773,408

122,300

--

122,300

243,008

--

--

365,308

Dividends to Shareholders

--

--

--

--

--

(37,410,570)

(37,410,570)

Net income allocated to reserve

--

--

--

--

42,509,028

(42,509,028)

--

Unclaimed dividends as per Art. 23 of Bylaws

--

--

--

12,451

--

--

12,451

Adjustment for own share transactions

--

(1,665,000)

(1,665,000)

1,665,000

(6,396,015)

--

(6,396,015)

Notional recognition of stock options

--

--

--

905,587

--

--

905,587

Result for the year

--

--

--

--

--

33,251,267

33,251,267

395,587,634

(21,487,000)

374,100,634

345,985,148

221,164,387

33,251,267

974,501,436

471,000

--

471,000

528,389

--

--

999,389

Dividends to Shareholders

--

--

--

--

--

Net income allocated to reserve

--

--

--

--

33,251,267

(33,251,267)

--

Unclaimed dividends as per Art. 23 of Bylaws

--

--

--

14,253

--

--

14,253

Adjustment for own share transactions

--

(50,000)

(50,000)

50,000

(74,255)

--

(74,255)

BALANCE AT DECEMBER 31 2007 Capital increases

BALANCE AT DECEMBER 31 2008 Capital increases

--

Notional recognition of stock options

--

--

--

5,454,488

--

--

5,454,488

Result for the year

--

--

--

--

--

(1,989,780)

(1,989,780)

396,058,634

(21,537,000)

374,521,634

352,032,278

254,341,399

(1,989,780)

978,905,531

BALANCE AT DECEMBER 31 2009

148


EXPLANATORY NOTES

1. STRUCTURE OF THE FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPPLES 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 Statement of Financial Position 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 Statement of Comprehensive Income shows items of income suspended in shareholders’ equity. - The Statement of Cash Flow was prepared using the indirect method; - The Statement of Changes in Equity gives a breakdown of the changes which took place during 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 which occurred 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 11 2010. Below is a description of the accounting principles adopted in the preparation of these Financial Statements as of December 31 2009 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.

CIR S.p.A.

149


Intangible assets with a finite useful life are valued at purchase or production cost net of accumulated amortization and impairment. Intangible assets are initially recognized at purchase or production cost. Purchase cost is represented by the fair value of payments and any additional cost directly incurred for preparing the asset for use. The purchase cost is the equivalent price in cash as of the date of 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 recognized at purchase price or at production cost and are recognized net of any 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. 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 corporate or operating purposes 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.

150

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.

151


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.

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.

152

CIR S.p.A.


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 interest rate, taking into consideration any issuance costs incurred and any premium or discount applied at the time when the instrument is settled.

CIR S.p.A.

153


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)

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 2007) introduced some important changes to the way the TFR is regulated and introduced the possibility for workers to transfer their TFR maturing as from January 1 2007 to pension schemes of their choice. All TFR that had accumulated as of December 31 2006 for employees who exercised this choice, while still remaining as a defined benefit plan, was determined using actuarial methods which, however, excluded the actuarial/financial elements that refer to future salaries. In view of the fact that this new calculation method reduces the fluctuation of actuarial gains/losses, the decision was made to abandon the so-called corridor method and to recognize all actuarial gains and losses to the Income Statement. Accounting standard IFRS 2 â&#x20AC;&#x153;Share-based paymentsâ&#x20AC;? 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.

154

CIR S.p.A.


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. 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 are 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. Specifically, for instruments classified as cash flow hedges (interest rate swaps), gains and losses from marking them to market are posted directly to shareholders’ equity for the part which “effectively” hedges the risk for which it was entered into, while any “non-effective” part is recognized to the income statement. At December 31 2009 the company had a fixed to floating swap outstanding, hedging interest on the CIR Bond maturing in 2024 for a nominal amount of € 270 million. 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. 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.

CIR S.p.A.

155


There were no assets or liabilities in foreign currencies recorded in the financial statements as of December 31 2009.

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 2009 The following accounting standards, amendments and interpretations, revised also following the Annual Improvements process for 2008 conducted by the IASB, were applied by the Company for the first time as from January 1 2009. • IAS 1 Revised – Presentation of Financial Statements: the revised version of IAS 1 no longer allows the presentation of income items such as income and expense (defined as “changes generated by non-shareholder transactions) in the Statement of Changes in Shareholders’ Equity, requiring a separate indication from the changes generated by transactions with shareholders. According to the revised version of IAS 1, in fact, all changes generated by transactions with non-shareholders must be shown in a single separate statement showing the performance for the period (comprehensive income statement) or in two separate statements (an income statement and and a comprehensive income statement). These changes must be shown separately even in the Statement of Changes in Shareholders’ Equity. The Company applied the revised version of this standard retrospectively as from January 1 2009, opting to show all

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changes generated by transaction with non-shareholders in two charts showing performance for the period, entitled “Income Statement” and “Comprehensive Income Statement” respectively. Thus the Company has also changed the presentation of its Statement of Changes in Shareholders’ Equity. Moreover, as part of the Annual Improvement process for 2008 conducted by the IASB, an amendment was published to IAS 1 Revised stipulating that assets and liabilities resulting from financial instruments designated as hedges must be classified, in the Statement of Financial Position, with a distinction between current and non-current assets and liabilities. On this subject it should be noted that the adoption of this amendment made no difference to the presentation of the asset and liability items from derivative instruments because of the mixed form of presentation of the distinction between current and non-current items adopted by the Company as allowed by IAS 1. Amendment to IFRS 2 – Vesting conditions and cancellation: the amendment to IFRS 2 – Vesting conditions and cancellation establishes that for the purposes of measuring share-based payments, only the servicing and performance conditions can be considered as vesting conditions of the plans. Any other clauses must be considered as non-vesting conditions and incorporated into the fair value calculation at the award date of the plan. 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. This principle was applied retrospectively from January 1 2009. However from its application no accounting effects have emerged. Improvement to IAS 19 – Employee benefits: the improvement clarifies the defintion 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. This amendment is applicable prospectively to changes in plans that take place as from January 1 2009. The improvment also changed the definition of the yield on an asset servicing the plan, establishing that this item must be shown net of any administration charges that are not already included in the value of the bond, and it also clarified that the definition of short-term benefits and long-term benefits. It should also be noted that no significant accounting effects were noted at December 31 2009 following the adoption of this amendment. Amendment to IFRS 1 – First-time adoption of International Financial Reporting Standards and to IAS 27 – Consolidated and Separate Financial Statements: the improvement allows companies adopting IFRS for the first time as of January 1 2009 who decide to measure investments in subsidiaries, associates or jointly controlled entities at cost, to adopt one of the following values in their separate financial statements: - Cost determined in accordance with IAS 27; - Revalued cost, which may be determined either as fair value at the date of transition to IFRS or as the carrying amount under previous accounting practice. Moreover, the amendment to IAS 27 – Consolidated and Separate Financial Statements, establishes that all dividends received from subsidiaries, joint ventures and associates must be recognized in the income statement of the separate financial statements as and when the right to receive such dividends is established without distinguishing between whether they come from profits before or after the acquisition of the shareholding. In relation to this point, there has also been a revision to IAS 36 – Impairment of assets, to the effect that, when assessing whether or not there is evidence of impairment in cases where an investee has distributed dividends, it is necessary to consider the following aspects:

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-

The book value of the investment in the separate financial statements exceeds the carrying value of the equity of the investee (including any associated goodwill) as shown in the consolidated financial statements; - The dividend is more than the total comprehensive income of the investee in the period to which the dividend refers. The Company adopted the amendment to IAS 27 prospectively as from January 1 2009. However, from its application no accounting effects were produced because the dividends shown in the income statement of 2009 were distributed by subsidiaries on earnings reported after the acquisition. In accordance with the amendment introduced to IAS 36, for the purposes of recognizing any impairment of investees, the new impairment indicators were considered. Amendment to IFRS 7 – Financial instruments: additional disclosures: the improvement, applicable as from January 1 2009, was issued with a view to increasing the level of disclosure when measuring instruments at fair value and to boosting the effect of the existing principles on the subject of disclosures regarding the liquidity risk of financial instruments. In particular, the amendment requires disclosure to be given of the way the fair value measurement of financial instruments is carried out on the basis of a ranking. The adoption of this standard did not have any effect on the measurement and recognition of items in the accounts, but only only the type of information given in the Notes.

Amendments and interpretations applied as from January 1 2009 but not relevant for the Company The following amendments and interpretations, applicable as from January 1 2009, regulate situations not present at this balance sheet date: • • • • • • • • • • • • •

Improvement to IAS 16 – Property, Plant and Equipment Improvement to IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance IAS 23 Revised – Borrowing Costs Improvement to IAS 28 – Investments in Associates Improvement to IAS 29 – Financial Reporting in Hyperinflationary Economies. Amendment to IAS 32 – Financial Instruments: Presentation and to IAS 1 – Presentation of Financial Statements – Financial Instruments Improvement to IAS 36 – Impairment of Assets Improvement to IAS 38 – Intangible Assets Improvement to IAS 39 – Financial Instruments: Recognition and Measurement Improvement to IAS 40 – Investment Property IFRIC 13 – Customer Loyalty Programmes IFRIC 15 – Agreements for the Construction of Real Estate IFRIC 16 – Hedges of a Net Investment in a Foreign Operation

It should also be noted that on March 12 2009 the IASB issued an amendment to IFRIC 9 – Reassessment of Embedded Derivatives and to IAS 39 – Financial Instruments: Recognition and Measurement which allows entities to reclassify particular financial instruments out of the 'fair value through profit or loss' category in specific circumstances. These amendments clarify that on reclassification of a financial asset out of the 'fair value through profit or loss' category, all embedded derivatives have to be assessed and, if necessary, separately accounted for in the financial statements. The amendments apply retrospectively and must be applied as from December 31 2009 but their adoption had no accounting effect on the financial statements for the year.

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Accounting standards, amendments and interpretations not yet applicable and not adopted early Below are the main amendments and changes to accounting standards which are not yet applicable and which have not been adopted early. The company is currently examining the standards and interpretations indicated and assessing whether their adoption will have a significant impact on the financial statements. On January 10 2008 the IASB issued an updated version of IFRS 3 – Business Combinations, and amended IAS 27 – Consolidated and Separate Financial Statements. The main changes made to IFRS 3 concern the elimination of the obligation to value the individual assets and liabilities of the subsidiary at fair value in each subsequent acquisition, in the event of step acquisitions of subsidiaries. The goodwill will be determined only at the acquisition stage and will be equal to the difference between the value of the investments immediately before the acquisition, the transaction consideration and the value of the net assets acquired. Moreover in cases where the company does not acquire a stake of 100%, minority interests can be measured either at fair value or using the method previously given in IFRS 3. The revised version of this standard also states that all costs relating to the business combination must be charged to the income statement and that liabilities for contingent consideration should be recognized on the acquisition date. In the amendment to IAS 27 the IASB established that any changes to the percentage of the stake non constituting loss of control must be treated as equity transactions and thus have an offset in shareholders’ equity. It was also established that when a parent company cedes control of one of its investees but still continues to hold an investment in the company, it must measure the investment kept on its books 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 all losses attributable to minority shareholders be allocated to minority interests even when these losses are greater than portion of the capital of the investee. These new rules must be applied prospectively as from January 1 2010. As part of the Improvement 2008 process conducted by the IASB, the amendment made to IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations establishes that if a businesses is engaged in a plan of disposal involving the loss of control of a subsidiary, all the assets and liabilities of the subsidiary must be reclassified under assets held for sale, even if the business will still hold a minority shareholding in that subsidiary after the sale. This amendment must be applied prospectively as from January 1 2010. On July 31 2008 the IASB issued an amendment to IAS 39 – Financial Instruments: Recognition and Measurement, which must be applied retrospectively as from January 1 2010. The amendment 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 the competent authorities of the European Union have not yet completed the ratification process necessary for it to be applied.

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On November 27 2008 the IFRIC issued Interpretation IFRIC 17 – Distributions of Non-cash Assets to Owners in order to harmonize the accounting treatment of distributions of non-cash assets to shareholders. The interpretation specifically clarifies that a dividend payable must be recognized when the dividends have been authorized appropriately and that the payable must be measured at the fair value of the equity that will be used for the dividend payout. Lastly, the company must recognize to the income statement the difference between the dividend paid out and the net book value of the assets used for the payment. The interpretation is applicable prospectively from January 1 2010. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for it to be applied. On January 29 2009 the IFRIC issued Interpretation IFRIC 18 – Transfers of Assets from Customers which specifies the accounting treatment to be adopted if a company signs an agreement with a customer to receive from the customer a tangible asset to be used to connect the customer up to a network or provide him with goods and services (e.g. the supply of electricity, gas, water). In some cases the company actually receives cash from the client in order to build or acquire the tangible asset that will be used to fulfil the terms of the contract. This interpretation is applicable prospectively from January 1 2010. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for it to be applied. On April 16 2009 the IASB issued a set of improvements to IFRS. Below are those indicated by the IASB as changes which involve a change in presentation, recognition and measurement of the items in the financial statements, omitting those which will only involve a change in terminology or styling with minimum effects from the accounting viewpoint, or those which affect standards or interpretations not applicable to the Company. • IFRS 2 – Share-based payments: the amendment, which must be applied as from January 1 2010 (earlier application is permitted) clarified that since IFRS 3 has amended the definition of a business combination, the spin-off of a business arm for the formation of a joint venture or a combination of businesses or business arms into jointly controlled entities is no longer subject to the terms of IFRS 2. • IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations: the amendment, applicable prospectively as from January 1 2010, clarified that IFRS 5 and other IFRS that refer specifically to non-current assets (or groups of assets) classified as available for sale or as discontinued operations contain all the information needed for this kind of asset or operation. • IAS 1 – Presentation of Financial Statements: this amendment, which must be applied as from January 1 2010 changes the definition of current liabilities contained in IAS 1. The previous definition required all convertible liabilities that could be cancelled at any moment by the issue of equity instruments to be classified as current liabilities. This meant that liabilities relating to bonds convertible at any time by the issuer into equity had to be recorded as current liabilities. Following this amendment, for current/non-current classification it is now irrelevant whether a liability has a currently exercisable option for conversion into equity instruments. • IAS 7 – Cash Flow Statement: The amendment, which must be applied as from January 1 2010, requires that only cash flows from expenditure that leads to the recognition of an asset in the Balance Sheet can be classified in the Cash Flow Statement as from investment activity, while cash flows from expenditure which does not give rise to the recognition of a tangible asset (as may be the case for promotional and advertising expense or personnel training costs) must be classified as resulting from operating activity.

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IAS 17 – Leasing: following changes made, the general conditions of IAS 17 for the classification of a contract as a finance lease or an operating lease will now apply to leased land independently of whether title of ownership is obtained on expiry of the contract. Before the changes, the accounting standard stated that when ownership title of the land being leased was not transferred on expiry of the lease agreement, then the same was classified as an operating lease as it had an indefinite useful life. This amendment applies as from January 1 2010. As of the adoption date all land with a lease contract already in place which has not yet expired will have to be valued separately, with retrospective recognition of a new leasing agreement accounted for as if the contract was a finance lease. • IAS 36 – Impairment of assets: this amendment, which will apply prospectively from January 1 2010, requires that each operating unit or group of operating units to which goodwill is allocated for the purposes of the impairment test should not be larger than an operating segment as defined in paragraph 5 of IFRS 8, before the combination permitted by paragraph 12 of the same IFRS on the basis of similar economic characteristics or other elements of similarity. • IAS 38 – Intangible assets: the revision of IFRS 3 carried out in 2008 established that there is sufficient information to measure the fair value of an intangible asset acquired during a business combination if the asset is separable or if it derives from contractual or legal rights. IAS 38 was therefore amended to reflect this change to IFRS 3. The amendment also clarified the measurement techniques to be commonly used to measure the fair value of intangible assets for which there is no active market. Specifically these techniques include either an estimate of net cash flows generated by the asset discounted to present value, or an estimate of the costs that the company has avoided by owning the asset and not having to use it under lease from a third party, or an estimate of the costs necessary to recreate or replace it (as in the so-called cost method). This amendment should be applied prospectively from January 1 2010. • IAS 39 – Financial Instruments: Recognition and Measurement: this amendment limits the scope of exemption contained in paragraph 2g of IAS 39 to forward contracts between a purchaser and a shareholder seller for the purposes of the sale of a business into a business combination at a future acquisition date, when the completion of the business combination does not depend on further shares of one or the other of the parties, but only on the passing of an appropriate period of time. The amendment clarifies on the other hand that IAS 39 is applicable to option contracts (whether or not they are currently exercisable) that give one of the two parties control over whether or not future events take place and exercise of which would lead to control of a business. The amendment also clarifies that the implied penalties for the prepayment of loans, the price of which compensates the lender for the loss of any further interest, must be considered as strictly correlated with the loan agreement of which they are a provision, and thus shall not be accounted for separately. Lastly, the amendment clarifies that gains and losses on a hedged financial instrument must be reclassified from shareholders’ equity to the income statement in the period in which the expected cash flow affects the income statement. This amendment applies prospectively from January 1 2010. • IFRIC 9 – Reassessment of Embedded Derivatives: the amendment, which applies prospectively as from January 1 2010, excludes from the scope of application of IFRIC 9 any derivatives embedded in contracts acquired during business combinations at the moment that jointly controlled companies or joint ventures are formed. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for the above improvements to be applied.

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161


In June 2009, the IASB issued an amendment to IFRS 2 – Share-based Payments. The amendment clarifies the scope of application of IFRS 2 and the relationships existing between this and other accounting standards. In particular it clarifies that a company receiving goods or services under share-based payment plans must account for these goods or services independently of which company of the group actually settles the transaction, and independently of whether settlement takes place in cash or in shares. It also establishes that the term “group” should have the same meaning that it has in IAS 27 – Consolidated and Separate Financial Statements, i.e. it should include the parent company of the group and its subsidiaries. The amendment also specifies that a company must measure the goods or services received within the scope of a transaction settled in cash or in shares from its own viewpoint, which might not coincide with that of the group or with the amount recognized in the consolidated financial statements. The amendment incorporates the guidelines previously included in IFRIC 8 – Scope of IFRS 2 and in IFRIC 11 – IFRS 2 – Group and Treasury Share Transactions. As a result of this, the IASB has withdrawn IFRIC 8 and IFRIC 11. This amendment applies from January 1 2010. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application. On October 8 2009, the IASB issued an amendment to IAS 32 – Financial Instruments: Presentation: Classification of Rights Issues in order to regulate accounting for rights issues (rights, options or warrants) denominated in a different currency from the functional currency of the issuer. Previously these rights were accounted for as liabilities from derivative financial instruments. The amendment requires that, under certain conditions, these rights be classified in shareholders’ equity, whatever currency the strike price is denominated in. This amendment is applicable retrospectively as from January 1 2011. As of the date of these Financial Statements it is not considered likely that this will have any effect. On November 4 2009 the IASB issued a revised version of IAS 24 – Disclosure of Related Party Transactions which simplifies the type of disclosures required in the event of transaction with related parties controlled by the State and clarifies the definition of related parties. This standard is applicable as from January 1 2011. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application. On November 12 2009 the IASB published IFRS 9 – Financial Instruments covering the classification and measurement of financial assets and applicable as from January 1 2013. This publication is the first step of a process that will entirely replace IAS 39. The new standard uses a single approach based on ways of managing financial instruments and on the characteristics of the cash flows involved in financial asset contracts to determine the measurement criterion, replacing the different rules set out in IAS 39. Furthermore, the new standard will involve a single method for calculating impairment of financial assets. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application. On November 26 2009 the IASB published a minor amendment to IFRIC 14 – Prepayments of a Minimum Funding Requirement which allows companies prepaying a minimum funding requirement to recognize it as an asset. The amendment is applicable as from January 1 2011. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application.

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On November 26 2009 the IFRIC published IFRIC 19 â&#x20AC;&#x201C; Extinguishing Financial Liabilities with Equity Instruments, which provides guidelines for recognizing the extinguishment of a financial liability through the issue of equity instruments. The interpretation establishes that if a company renegotiates the conditions for extinguishing a financial liability and its creditor accepts extinguishment through the issue of shares in the company, then the shares issued in that company become part of the price paid to extinguish the financial liability and must be measured at fair value. The difference between the carrying value of the finanical liability extinguished and the initial value of the shares issued must be recognized to the income statement in the period. The amendment is applicable as from January 1 2011. As of the date of these Financial Statements the competent authorities of the European Union have not yet completed the ratification process necessary for its application.

2.

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 financial issues, it was considered useful to devote a special section to the accounting treatment of IAS 32, IAS 39 and IFRS 7. 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.

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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. 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 “residual” category which includes non-derivative financial instruments that are designated as available for sale and are not included in any of the previous categories. Financial instruments held for trading are recognized at their fair value plus any transaction costs. Gains and losses are recognized to a separate item of equity until the financial instruments are sold or have been impaired. In such cases the profit or loss accumulated under shareholders’ equity is released to the income statement. Fair value is the price at which an asset can be traded, or a liability may be extinguished in a free transaction between independent parties at arm’s length. In the case of securities listed on regulated markets, the fair value is the bid price at the close of trading on the last day of the accounting period. Where no market prices are available, fair value is determined either on the basis of the fair value of another financial instrument that is substantially similar or by using appropriate financial techniques (for example the discounted cash flow method).

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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.

3.

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 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.

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BALANCE SHEET

4.

NON-CURRENT ASSETS

4.a

INTANGIBLE ASSETS

Historical cost 506 128 634

Starting position Accum. amort. & writedowns (427) -(427)

Balance 31.12.2007 79 128 207

Acquisitions

Historical cost 629 48 677

Starting position Accum. amort. & writedowns (486) -(486)

Balance 31.12.2008 143 48 191

Acquisitions

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

2009 (in thousands of euro) Concessions, licenses, trademarks & similar rights Assets in process & advance payments Total

AMORTIZATION RATES Description

Concessions, licenses, trademarks & similar rights

%

5-30%

43 -43

85 -85

Changes in the year Disposals Reclassified cost acc. amort. 80 --(80) ------

Amort. & writedowns (59) -(59)

Historical cost 629 48 677

Closing position Accum. amort. & writedowns (486) -(486)

Balance 31.12.2008 143 48 191

Changes in the year Disposals Reclassified cost acc. amort. --------

Amort. & writedowns (62) -(62)

Historical cost 714 48 762

Closing position Accum. amort. & writedowns (548) -(548)

Balance 31.12.2009 166 48 214


4.b.

TANGIBLE ASSETS

Starting position

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

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

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

Acquisitions

Reclassified

--12 30 -42

-1 ---1

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

Acquisitions

Reclassified

--11 62 -73

-------

Starting position

2009 (in thousands of euro) Land Buildings Plant and machinery Other assets Assets under construction & advance payments Total

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

Accum. deprec. & writedowns -(4,116) (892) (2,261) -(7,269)

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

Description Buildings and investment properties Plant and machinery Other assets: - Electronic office equipment - Furniture and fittings - Motor vehicles

% 3.00% 10.00-25.00%

20.00% 12.00% 25.00%

Deprec. & writedowns -(6) (71) (159) -(236)

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

Deprec. & writedowns -(6) (66) (160) -(232)

Historical cost 723 4,251 1,006 4,539 -10,519

Changes in the year Disposals cost acc. depr. -------------

Tangible assets declined from â&#x201A;Ź 3,177 thousand at December 31 2008 to â&#x201A;Ź 3,018 thousand at December 31 2009.

DEPRECIATION RATES

Closing position

Changes in the year Balance 31.12.2007 723 140 162 2,356 -3,381

Accum. deprec. & writedowns -(4,116) (892) (2,261) -(7,269)

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

Closing position Accum. deprec. & writedowns -(4,122) (958) (2,421) -(7,501)

Balance 31.12.2009 723 129 48 2,118 -3,018


4.c.

INVESTMENT PROPERTY

(in thousands of euro) Properties Total

Starting position Accum. deprec. & writedowns (1,040) (1,040)

Balance 31.12.2007 19,259 19,259

Acquisitions

Reclassified

---

---

Historical cost 20,299 20,299

Starting position Accum. deprec. & writedowns (1,612) (1,612)

Balance 31.12.2008 18,687 18,687

Acquisitions

Reclassified

---

---

2009 (in thousands of euro) Properties Total

Changes in the year

Historical cost 20,299 20,299

2008

Disposals cost acc. depr. -----

Deprec. & writedowns (572) (572)

Historical cost 20,299 20,299

Closing position Accum. deprec. & writedowns (1,612) (1,612)

Balance 31.12.2008 18,687 18,687

Deprec. & writedowns (572) (572)

Historical cost 20,299 20,299

Closing position Accum. deprec. & writedowns (2,184) (2,184)

Balance 31.12.2009 18,115 18,115

Changes in the year Disposals cost acc. depr. -----

Investment property declined from â&#x201A;Ź 18,687 thousand at December 31 2008 to â&#x201A;Ź 18,115 thousand at December 31 2009. The value in the balance sheet corresponds substantially to market value.


4.d.

EQUITY INVESTMENTS 2008

(in thousands of euro)

Starting position

Changes in the year

Closing position Writedowns/ Revaluations

31.12.2007

Reclassified

Increases

Decreases

Val. restored

31.12.2008

no. shares

amount

no. shares

amount

no. shares

amount

no. shares

amount

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

--

--

--

--

--

--

--

--

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

10

--

--

--

4

--

--

(13)

10,000

1

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

(70,000)

--

(73)

50,000

47

--

(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

--

--

--

--

--

--

--

--

1,231,319

--

EMITTENTI TITOLI S.p.A.

232,000

132

--

--

--

--

--

--

--

232,000

132

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

409,520

--

--

--

--

--

--

--

--

409,520

--

1

--

--

--

--

--

1,350

IST. EDIL. ECONOM. POPOLARE S.r.l. Total other companies TOTAL EQUITY INVESTMENTS

1,350

--

(1)

133

--

--

--

(1)

132

1,029,798

--

28,299

--

(40,106)

1,017,991

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

--


4.d.

EQUITY INVESTMENTS 2009

(in thousands of euro)

Starting position

Changes in the year

Closing position Writedowns/ Revaluations

31.12.2008

Reclassified

Increases

Decreases

Val. restored

31.12.2009

no. shares

amount

no. Shares

amount

no. Shares

amount

no. Shares

amount

amount

no. Shares

amount

88,555,309

189,527

--

--

--

--

--

--

--

88,555,309

189,527

220,775,235

341,680

--

--

--

--

--

--

--

220,775,235

341,680

65,739,962

106,784

--

--

--

--

--

--

--

65,739,962

106,784

4,239,139

93,543

--

--

--

--

--

--

--

4,239,139

93,543

55,000

--

--

--

4,945,000

109,380

--

--

--

5,000,000

109,380

CIR INTERNATIONAL S.A.

100,000

--

--

--

900,000

47,000

--

--

1,000,000

11,112

COFIDEFIN SERVICOS LDA

93,000

180

--

--

32,000

204

(125,000)

(384)

--

--

--

500,000

512

--

--

--

--

--

(300)

--

500,000

212

CIR VENTURE S.r.l.

10,000

1

--

--

--

(10,000)

(1)

--

--

CIRINVEST S.p.A.

121,750

122

--

--

--

--

--

--

(14)

121,750

108

JUPITER FINANCE S.p.A.

592,800

6,482

--

--

1,482,000

--

--

(3,071)

(429)

2,074,800

2,982

CIGA LUXEMBOURG S.A.R.L.

318,200

278,981

--

--

--

--

(317,200)

(281,000)

3,193

1,000

1,174

50,000

47

--

--

--

--

50,000

47

Subsidiaries SORGENIA HOLDING S.p.A. GRUPPO EDITORIALE L’ESPRESSO S.p.A. SOGEFI S.p.A. KOS S.p.A. (formerly Holding Sanità e Servizi S.p DRY PRODUCTS S.p.A.

INTERGEFI S.r.l.

NEXENTI S.r.l. Total subsidiaries

1,017,859

--

156,584

(35,888) (*)

(284,756)

(33,138)

856,549

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