Gruppo Editoriale L Espresso. Società per azioni

Transcription

1 Gruppo Editoriale L Espresso Società per azioni Annual Report 2005

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4 Gruppo Editoriale L Espresso Società per azioni Annual Report 2005

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6 Gruppo Editoriale L Espresso Contents Financial Highlights 9 Report of the Board of Directors Adoption of International Financial Reporting Standards 13 Operating performance and consolidated results at December 31, Results by area 15 Subsequent events and outlook 19 Consolidated results at December 31, Results of the Parent Company Gruppo Editoriale L Espresso SpA 27 Proposal of allocation of 2005 Net Profit 31 Information required by Consob - Resolution n Consolidated Financial Statements at December 31, 2005 Balance Sheet 44 Income Statement 45 Statement of Cash Flows 46 Statement of changes in the Shareholders Equity 47 Notes to the Consolidated Financial Statements 51 Attachments 102 Transition to IFRS 109 Report of the Independent Auditors 123 Financial Statements of Gruppo Editoriale L Espresso SpA at December 31, 2005 Balance Sheet 126 Income Statement 127 Statement of Cash Flows 128 Statement of changes in the Shareholders Equity 129 Notes to Financial Statements of the Parent Company 133 Transition to IFRS 175 Report of the Independent Auditors 189 Report of the Board of Statutory Auditors 193 Reclassified summary financial data of subsidiaries 199 Report on Corporate Governance 203

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8 Gruppo Editoriale L Espresso Company Gruppo Editoriale L Espresso Società per Azioni Share Capital Euro 65,071, Tax ID and Rome Company Register no VAT no Registered office Rome, Via Cristoforo Colombo, 149 Secondary office Rome, Via Cristoforo Colombo, 90 Board of Directors: Chairman Managing Director Directors Excutive Committee: Board of Statutory Auditors: Chairman Auditors Indipendent Auditors Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Cristina Busi Giulia Maria Crespi Mozzoni Carlo De Benedetti Rodolfo De Benedetti Francesco Dini Pierluigi Ferrero Milvia Fiorani Franco Girard Paolo Mancinelli Gianluigi Melega Alberto Milla Piero Ottone Alberto Piaser Vittorio Ripa di Meana Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Rodolfo De Benedetti Alberto Piaser Vittorio Bennani Claudio Berliri Federico Gamna PricewaterhouseCoopers SpA

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10 Gruppo Editoriale L Espresso Financial Highlights Consolidated operation data ( million) Revenues 1,081 1,080 Gross operating income Operating income Pre-tax profit Net profit Consolidated financial data ( million) Jan. 1, 2005 Dec. 31, 2005 Net capital employed Shareholders Equity (incl. minority interests) Group Shareholders Equity Minority interests Net financial position (143) (253) Dividends distributed (47) (56) Personnel Employees at year-end 3,271 3,397 Average number of employees 3,204 3,389 Main ratios ROS 17.8% 16.4% ROCE 30.1% 21.8% ROE 20.0% 20.7%

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12 Report of the Board of Directors

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14 Report of the Board of Directors 13 Report of the Board of Directors at December 31, 2005 Adoption of International Financial Reporting Standards In the preparation of the Consolidated Financial Statements and the statutory accounts of the Parent Company and its subsidiaries at December 31, 2005, the Espresso Group adopted international accounting principles (International Financial Reporting Standards, IFRS). To allow a like-for-like comparison with figures for the previous year, the financial statements at January 1, 2004, December 31, 2004 and January 1, 2005, were restated under IFRSs. Independent auditors PricewaterhouseCoopers SpA issued their Auditors Report on the above restated accounts. The adoption of IFRSs had a positive impact on the results of the Group. The most relevant one is represented by the book value of intangible assets (publications, trademarks and radio and television frequencies), that are no longer amortized but subject annually to an impairment test. In the opening Balance Sheet at January 1, 2004, as the fair value was considerably higher than the book value, the historical cost of such items was restored and accumulated amortization was reversed, resulting in an increase in the Shareholders Equity. The table below shows the main effect of the adoption of IFRSs on the 2004 Financial Statements mn Italian GAAP IFRS Sales 1, ,080.7 Operating income Pre-tax profit Net profit Shareholders Equity * Net financial position (131.1) (143.2)* * At January 1, The analysis below makes reference to 2004 figures under IFRSs. Operating performance and consolidated results at December 31, 2005 The Espresso Group closed 2005 reporting a consolidated net profit of million, up 17.7% on 98.9 million in 2004, thanks partly to the lower tax expense (due to lower current taxes and higher deferred tax assets) in connection with the merger into Elemedia (formerly Kataweb) of radio broadcasting and Internet activities. Consolidated revenues, including revenues for nine months of 2005 of TV network All Music, acquired in April and accounting for 13.7 million, amounted to 1,079.9 million, in line with 1,080.7 million in Consolidated gross operating profit amounted in 2005 to million, down from million in the previous year, while the consolidated operating profit declined from million (17.8% on sales) in 2004, to million in 2005 (16.4% on sales). The decline is due exclusively to lower sales and margins on add-on products sold with Group publications which, though registering also in 2005 a strong sales performance, were lower than in 2004 when they were affected by the unrepeatable success of the l Enciclopedia di Repubblica series and the La Storia collection of books. With the exception of add-on products, all activities of the Group registered profits in line or improving on the previous year, with margins reflecting the same performance. This was possible thanks to the completion of the full color project investments, the decision to manage internally the production of some printing plants, ongoing efforts to improve the efficiency of processes and extraordinary grants on paper purchases which are no longer expected to be received in Net financial indebtedness of the Group at December 31, 2005 was equal to million, up from million at January 1, 2005, after the distribution of 55.8 million in dividends, the capital expenditure of 63.7 million, of which 21.4 million relating to television frequencies, and the acquisition of TV network All Music ( 115 million).

15 14 Report of the Board of Directors Consolidated Shareholders Equity grew from million at January 1, 2005, to 550 million at December 31, The Espresso Group has completed its multimedia presence with the acquisition of All Music and is today able to reach the public with its contents through several platforms and with different ways to enjoy contents in time. A first example of multimedia synergy is represented by RadioTV Repubblica, that has been broadcasting for close to a year on the Internet live audio-video information and in-depth analysis programs produced by la Repubblica and Radio Capital s editing and correspondents. Since a few weeks it is also possible to follow one of Radio Deejay s most successful programs (Deejay chiama Italia) not just on radio but also on All Music s analog frequencies, on Deejay Television s satellite broadcast and on internet. At the same time it is now possible to download audio and video programs (podcasting) at a later time than the actual broadcasting. The first cases are RadioTV Repubblica, Deejay chiama Italia program, which is the most downloaded file from the itunes Store, All Music s I Diari and some of Radio Deejay s radio programs. Advertising revenues for the Group grew in 2005 by 7.2% to million. In comparable terms excluding advertising sales of All Music and those made on third parties media the increase in the year is equal to 5.6% (as compared with 2.1% in 2004 on 2003 sales), thanks particularly to commercial advertising of la Repubblica (up 9.3%), of radio stations (up 10.5%), achieved despite a downturn in the market and of internet (up 47.6%). In 2005 add-on products confirmed their structural role in the activities of the Group. In the year, 45 new sales initiatives were launched, as compared with 35 in 2004, while sales reached over 24 million copies of books, DVDs and other products. Circulation of Group newspapers and periodicals was stable: la Repubblica sold an average of 626 thousand copies per issue, local newspapers an average of 483 thousand and L espresso an average of 391 thousand copies per week. According to market polls carried out by Audipress, the number of readers of Group newspapers (local and national) grew by 2.8%. La Repubblica continued to rank first in terms of readers among information newspapers in Italy, with an average of close to 3 million daily readers. Circulation revenues were negatively affected by 7 days of strike called by journalists in the context of negotiations for the renewal of the contract for the category. In the radio sector, Audiradio figures for 2005 show a growth of Radio Deejay which confirmed its ranking as the radio station with the largest weekly audience, with an average of 13.4 million, and that with the largest daily audience among private radio stations, with 5.6 million listeners. Among the Group s radio station, m2o registered the strongest growth reaching an average daily audience of over one million listeners (up 11%) and a weekly audience of 2.8 million (up 23.5%). Radio Capital also registered an improvement, with an average daily audience of close to 2 million listeners (up 2%) and an average weekly one of 6.3 million (up 12.3%). In the internet area, Repubblica.it confirmed its leadership position among domestic information sites with over 24% more unique users per month than the previous year, up from an average of 3.8 million in January to 4.7 million in December. The success of the site contributed to the Group s internet site network to exceed at the end of the year the 7.7 million unique users mark and million page views (source: RedSheriff). At the end of the year the Group employed 3,397 persons, 126 more than the 3,271 at the end of 2004 due to the inclusion of personnel of newly acquired TV network All Music (110 employees), and the decision to manage directly printing activities of the Padua printing center, with the consequent hiring of personnel formerly working for a cooperative.

16 Report of the Board of Directors 15 Results by area Repubblica Division mn % change Revenues % Operating and personnel costs (436.2) (429.6) -1.5% Gross operating income % Depreciation, amortization and write-downs (16.0) (14.0) -12.6% Operating income % Employees Figures for the division include the share in revenues and costs of the Parent Company that may not be attributed to a specific activity In the year the Group introduced many changes to its newspapers which include the new graphic design consequent to the introduction of full color printing, the launch of the l Almanacco dei libri, a book review, la Domenica di Repubblica supplements, a Sunday magazine that marks the introduction in Italy of an editorial format customary in the international press and the publication of monthly magazine XL, focusing on issues of interest for a young audience (music, cinema, technology and trends). As a result of the strong success with the public, la Repubblica s site accelerated the adoption of technologies allowing to provide users with multimedia information publications and products that include audio and video articles, radio broadcasting, an audio gallery and news broadcasting. By providing more advertising space and new color formats, the growth in la Repubblica s advertising revenues, at 8.2% (including local edition), was almost two percentage points higher than that of the average of national newspapers, as compared with a 6% growth in advertising revenues for the overall market (source: FCP, December). The year was furthermore characterized by a strong recovery of advertising on the newspaper s supplements that registered an overall growth of 7.5%. In the year, add-on products sold in conjunction with la Repubblica registered sales of over 16.5 million copies, helped by the success of the three collections launched in 2005 L Italia, Le Religioni and La Scienza that sold over 7.5 million copies. Two new collections were launched in December: the Grande Enciclopedia dei Ragazzi whose first issues reached sales of 180 thousand copies, and the L Enciclopedia della Cucina Italiana series that sold out all of the 260 thousand copies of the first non-complimentary issue and went into reprint. As already pointed out in this report, it has not however been possible to achieve sales and profits in line with the previous year, boosted by the unrepeatable success of the l Enciclopedia di Repubblica and La Storia series. The profitability of the division remains however high, with an operating margin on sales of 15.3%, unchanged from the previous year. Periodicals Division mn % change Revenues % Operating and personnel costs (103.2) (117.6) +14.0% Gross operating income % Depreciation, amortization and write-downs (0.6) (0.8) +31.1% Operating income % Employees Figures for the division include the share in revenues and costs of the Parent Company that may not be attributed to a specific activity The division includes weekly magazine L espresso, monthly magazine National Geographic, the two quarterly magazines Limes and Micromega and The Guide Books of L espresso. The issue dated September 30 marked L espresso s 50th anniversary, publishing for the occasion a collection of 5 volumes dedicated to those articles and photos that made it a reference point in the political and social history of Italy.

17 16 Report of the Board of Directors To face the growing competition of the market for add-on products, the Group s magazines focused more closely on the quality of publications and the choice of new titles. The strategy followed resulted in a further increase in revenues and copies of add-on products sold (6.4 million), though margins were negatively affected by higher launch and production costs. Despite difficulties encountered in the market for news magazines, circulation of L espresso remained constant over the months at around 391 thousand copies per week. This performance was favored by in-depth journalistic enquiries made in The contribution of other periodicals continues to be positive both in terms of circulation and margins. Monthly magazine National Geographic sold an average of 126 thousand copies per issue, while magazines Limes and Micromega recorded a circulation of respectively 17 thousand and 16 thousand copies per issue. In 2005, the operating profit of these publications was equal to about 1.7 million. The overall profit of the division was negatively affected by the poor performance of bi-monthly magazine TvMagazine that, in a crowded and very competitive market, did not manage to gain ground and has therefore discontinued publication after the last issue in Local newspapers mn % change Revenues % Operating and personnel costs (188.5) (196.6) +4.3% Gross operating income % Depreciation, amortization and write-downs (11.6) (14,0) +20.0% Operating income % Employees 1,281 1,309 The area includes all local publications published by the Group, consisting in 16 newspapers and a bi-weekly magazine, reaching 3.1 million readers in 10 italian regions. In 2005, circulation declined by 1% on the previous year, to an average of 483 thousand copies per issue. Newspapers La Nuova Sardegna, Le Gazzette and Il Centro encountered some difficulties due to the launch by competing papers in the respective areas of sales initiatives in some cases made in conjunction with other newspapers with lower prices. Circulation of Veneto area newspapers grew instead by 3%, gaining new readers through a stronger focus on news reporting and local information. Advertising revenues for the year declined by 1.1% on 2004, due partly to promotional policies followed by large distributors and legal classified advertising customers. The Group s newspapers were affected by such factors, but managed to contain the decline in local commercial advertising thanks to higher color advertising sales (up 24.1% on 2004). The add-on market registered a good performance. Despite strong competition in the sector and large-scale initiatives promoted by national newspapers, collections L Enciclopedia universale and La Grande Storia della Canzone Italiana, involving in various phases all Group publications, sold a total of 700 thousand copies. The public showed appreciation also for regional initiatives devoted to the history, culture and traditions of

18 Report of the Board of Directors 17 the respective areas, among which collections Storia per immagini, il Friuli Venezia Giulia in Cucina, and l Enciclopedia della Sardegna, that sold about 525 thousand copies. In April, the Padua Division of Finegil Editoriale took over the activity of the Centro Stampa delle Venezie printing center, transferring in-house all production processes of newspapers Il Mattino di Padova, La Tribuna di Treviso, La Nuova di Venezia e Mestre and of the copies of la Repubblica distributed in Northeastern Italy. The operation resulted in the transfer of 27 employees formerly working for the cooperative. The good performance of add-on products offset only in part the decline in circulation and advertising revenues, the impact of the lower number of issues due to strikes and higher depreciation charges resulting from the coming into operation of full color presses. Operating income thus declined from 54.2 million in 2004, to 49.5 million in The operating margin of the Division remains close to 20%, one of the highest in the Group. Radio mn % change Revenues % Operating and personnel costs (36.6) (38.0) +4.0% Gross operating income % Depreciation, amortization and write-downs (3.3) (3.3) -0.4% Operating income % Employees strong increase in revenues (up 7.3% on the previous year) and in the operating profit (up 12.2% on 2004). Gaining an ever growing audience, Radio Deejay strengthened its notoriety in the domestic radio sector by offering programs and characters that have become part of the everyday life of listeners. Unique users of the radio station s internet site grew in December to 705 thousand, registering 11.2 million page views, inside which Linus blog became one of the most visited Italian blogs. Radio Capital reached an average daily audience of 2 million listeners and has invested further in its programming offer, introducing new speakers and reorganizing programming at different times of the day. m2o continued to focus on the production of music and video CDs (with a double audio and video track) sold at news-stands and specialized stores, selling over 226 thousand copies. Its music compilations reached top sales rankings. In addition to the quality of the editorial production, a determining factor in the good performance achieved in 2005 is represented by the ongoing technological innovation. Recording studios were renovated, while a large part of the 847 broadcasting stations distributed over the national territory were upgraded through the introduction of signal control equipment. The investment in Radio Bonton a.s., owner of Czech radio station Radio Deejay Prague, was sold in the year, while Radio Deejay Kft., a Hungarian company that broadcasts Radio Deejay Budapest, was put into liquidation. On December 16, 2005, subsidiary Elemedia SpA, holder of the broadcasting licenses for Radio Deejay, Radio Capital and m2o, was merged with EleTv and StudioVit into Kataweb SpA, that changed its corporate name to Elemedia SpA. In 2005, despite a weak advertising market in the radio sector, the Group s radio stations posted a

19 18 Report of the Board of Directors Internet (Kataweb) Television mn % change Revenues % Operating and personnel costs (15.4) (13.4) -13.2% Gross operating income (2.2) 0.0 n.s. Depreciation, amortization and write-downs (0.8) (0.4) -41.1% Operating income (2.9) (0.4) n.s. Employees As mentioned in the introductory part of the present report, the year was characterized by a strong growth in audience registered by the Group s internet sites and consequently advertising revenues of the same also registered growth rates above other media. Kataweb s sites posted a 40.3% growth thanks also to the introduction of new advertising formats, among which TV-format video commercials were very successful. The Kataweb portal was enriched with new content (the Viaggi channel) and services (Voice, that allows to make calls on the internet, and Annunci, a portal for minor classified ads that benefits from links with national and local newspapers of the Group), giving birth to a busy blog community. The internet area worked in cooperation with the rest of the Group to allow customers to download audio and video files from all the sites (podcasting), with remarkable results. Technical support provided by Kataweb to other Group companies and the increase in advertising revenues of internet sites allowed the Division to achieve a gross operating income breakeven. mn % change Revenues n.s. Operating and personnel costs - (11.7) n.s. Gross operating income n.s. Depreciation, amortization and write-downs - (1.5) n.s. Operating income n.s. Employees Following the acquisition of national TV network All Music on April 14, 2005, consolidated figures of the Espresso Group include also results of Rete A and its subsidiary All Music for nine months of the year, in which the two companies reported sales of 13.7 million and an operating income of 0.5 million (3.4% on sales). After a rapid initial phase in which the organizational and managerial structure of the acquired company was defined and was invested in the strengthening of the analog signal and in the development of digital terrestrial television, the last months were dedicated to the development of the new TV programming. The first changes in the graphic design, logo and set design were introduced already in October, while the launch of the new programming schedule took place on January 23, 2006, meeting a very good reception by the public. Advertising sales mn % change Revenues % Operating and personnel costs (545.1) (572.6) +5.0% Gross operating income % Depreciation, amortization and write-downs (0.5) (0.4) -26.6% Operating income % Employees

20 Report of the Board of Directors 19 Advertising sales of A. Manzoni&C. do not include sales of All Music, whose advertising for 2005 was still managed by PubliKompass. In 2005 the advertising market continued along its positive trend, registering a 2.8% increase on the previous year (source: Nielsen Media Research). Contrary to past years, television and radio s advertising sales registered a slowdown in the growth rate, increasing respectively by 2.7% and 0.3%, while printed paper advertising sales staged a recovery (up 3.5%) thanks primarily to the good performance of periodicals (up 4.5%) that represented the media with the strongest growth. Newspaper advertising also improved, registering a 2.7% increase despite the decline in classified and service advertising. Advertisers showed a growing interest for the internet sector, in which sales grew by 18%, thus approaching the level registered in Finally, a new Sunday weekly magazine of la Repubblica dedicated to foreigners who live in Italy, was launched on January 15. The new magazine provides a guide on how to deal with everyday problems such as schooling, health and work-related issues. In this framework, Manzoni s revenues grew by 4.4% on the previous year. Almost all media of the Group registered growth above the average for their respective market. The performance of la Repubblica and its supplements (up 8.1% on 2004), that of radio stations (up 10.5%) and of the Group s internet sites (up 47.6%), were particularly strong. Advertising sales of L espresso and of local newspapers remained instead weak. Subsequent events and outlook Projections on the advertising market for 2006 confirm the prospective improvement of all of the Group s media. Also the performance of newly launched add-on products was good. Series L Enciclopedia della Cucina Italiana and Grande Enciclopedia dei Ragazzi, sold in conjunction with la Repubblica had reached respectively an average of 200 thousand and 150 thousand copies per issue, while books on the history of philosophy distributed with L espresso sold an average of over 80 thousand copies per issue.

21 20 Report of the Board of Directors Consolidated results at December 31, 2005 Consolidated Income Statement mn Revenues 1, ,079.9 Change in inventories (0.3) 2.1 Other operating income Purchases (160.1) (158.9) Services received (427.7) (433.3) Other operating charges (18.6) (19.5) Valuation of investments at equity Personnel costs (257.6) (283.9) Depreciation, amortization and write-downs (41.9) (44.8) Operating income Financial income (expense) (17.7) (25.6) Pre-tax profit Income taxes (74.9) (35.1) NET PROFIT Minority interests Group net profit Revenues and operating performance were already discussed in the first part of the current report. The section that follows examines costs and the results of financial management. Other operating income includes 21.7 million of grants on paper purchases ( 9.4 million in 2004), on the distribution of newspapers abroad and for capital expenditure (article 8 and 7 of Law no. 62/2001). Purchases include paper and supplies for printing, in addition to costs for the acquisition of products sold optionally with Group publications. The 1.2 million decline is due to the lower number of copies sold by the initiatives launched in the year. Services received and other operating charges include printing costs, the cost of rights, promotion and transport, editorial costs for photos, freelance work, traveling expenses and news agencies, in addition to accruals to the risks and receivable write-down. The 6.5 million increase on 2004 was due to the launch of TvMagazine, the production and broadcast of programs of newly consolidated subsidiary All Music, and higher costs for utilities and energy of new full color rotary presses. Savings were instead achieved through the direct management of production at the Rotocolor (since August 2004) and Padua printing plants (since April 2005). Personnel costs amount to million, up 26.3 million on 2004 due to the combined effect of contractual increases and the hiring by Rotocolor and the Padua operating Division of Finegil Editoriale respectively of personnel of STEC, formerly in charge of printing la Repubblica in Rome, and of the former printing cooperative in Padua. In 2005, personnel costs include

22 Report of the Board of Directors 21 also those relating to personnel of All Music for nine months of the year. Depreciation, amortization and write-downs increase by 2.9 million due primarily to the coming into operation of la Repubblica s full color rotary presses. Financial income amounts to 25.6 million, up 7.9 million on The bond issue carried out in October 2004, in advance of actual financial needs, resulted in a large cash inflow that was invested in term bank deposits. This determined an increase in financial charges on the previous year of about 3 million due to the negative spread between the fixed interest paid on the bond and the floating interest earned on the investment of the proceeds. Moreover, as a result of the acquisition of All Music, the financial exposure of the Group increased, though at lower interest rates in comparing with 2004, by 100 million, determining a 2 million increase in the interest expense. Finally, following the adoption of IAS and adjustments on the recording of interest rate swap contracts entered into in connection with the bond issue, the interest expense grew by a further 2 million.

23 22 Report of the Board of Directors Consolidated Balance Sheet ASSETS Jan. 1 Dec. 31 mn Intangible assets with an indefinite useful life Other intangible assets Total intangible assets Property, plant and equipment Investments valued at equity Other investments Non-current receivables Deferred tax assets NON-CURRENT ASSETS Inventories Trade receivables Marketable securities Current financial receivables Tax receivables Other receivables Cash and cash equivalents CURRENT ASSETS TOTAL ASSETS 1, ,552.2 LIABILITIES AND SHAREHOLDERS EQUITY Jan. 1 Dec. 31 mn Share capital Reserves Retained earnings (loss carry-forwards) Net profit (loss) Group Shareholders Equity Minority interests SHAREHOLDERS EQUITY Financial debt Provisions for risks and charges Employee termination indemnity and other retirement benefits Deferred tax payables NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges Trade payables Tax payables Other payables CURRENT LIABILITIES TOTAL LIABILITIES 1, TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1, ,552.2

24 Report of the Board of Directors 23 Intangible assets with an indefinite useful life amount to 638 million, up million on million at January 1, The increase is due primarily to the recording of television broadcasting frequencies of newly acquired network All Music and expenditure made by the same in the upgrade of its broadcasting network and the development of the digital terrestrial television network. Property, plant and equipment amount to 250 million, down 9 million on January 1, 2005 ( 259 million). Capital expenditure in the year amounts to 41.7 million, of which 11.5 million resulting from the consolidation of All Music, offset by net divestments amounting to 8.4 million, in addition to depreciations amounting to 41.3 million and write-downs amounting to 0.9 million relating to obsolete printing equipment, no longer in use due to the introduction of full color printing. Investments value at equity amount to 28 million and are unchanged from 27.8 million at January 1, Non-current receivables amount to 2.6 million and consist of security deposits and tax receivables on advances paid on Employee termination indemnity. At January 1, 2005, the item included the fair value ( 5.4 million) of fixed/floating interest rate swap contracts entered into to hedge interest rate risk relating to the 300 million bond issue and ended in March, Deferred tax assets amount to 47.5 million and include temporary differences between amounts recorded in the balance sheet and those recognized for tax purposes, in addition to part of the tax credit to which Elemedia is entitled as a result of Kataweb s accumulated losses. Inventories amount to 32.2 million and include inventories of paper, printing material, publications and products sold optionally with publications. Trade receivables amount to million, up 24.7 million on January 1, 2005 due primarily to higher advertising sales and higher receivables from news-stands and distributors resulting from the launch at the end of the year of numerous add-on products. Marketable securities amount to 0.1 million and relate to Government Bonds held by subsidiary Rete A. In 2005, 20.3 million of bonds were redeemed upon expiration. Current financial receivables amount to 0.4 million, in line with 0.1 million at January 1, Tax receivables amount to 59.9 million, as compared with 41.5 million at January 1, The increase is due primarily to the grant received on paper purchases and to Elemedia s receivables on tax advances due by Parent Company CIR in compliance to tax consolidation regulations. Other receivables amount to 22.6 million, up 2.7 million on 19.9 million at January 1, 2005 due primarily to the recording of the amount receivable on subsidized loans stipulated in the

25 24 Report of the Board of Directors year ( 8.6 million). After having obtained by the President of the Council of Ministers the right to receive a subsidy on interest payments (as per article 7, Law 62/2001) on applications for financing submitted by some Group companies, in the last quarter of 2005 a number of 10- year loan contracts were stipulated at market conditions. Total loans amount to 112 million, on whose interest payments the State will provide a subsidy of about 2%. At January 1, 2005, the item included also the 5 million advance paid towards the purchase of network All Music. Shareholders Equity at December 31, 2005 amounts to million ( million at January 1, 2005), of which 550 million belonging to the Group ( million at the end of 2004) and 10.8 million relating to minority interests ( 11 million at January 1, 2005). Non-current financial debt amount to million and include the amount of bonds issued on October 27, 2004 and subsidized loans extended in the year. Employee termination indemnity and other retirement benefits amount to 105 million ( 95.9 million at January 1, 2005) and cover personnel benefits accrued at December 31, Deferred tax liabilities grow by 48.4 million due primarily to the tax impact of the recording of TV broadcasting frequencies of All Music. Current financial debt amounts to 25 million, down million on January 1, 2005, due to the repayment of the 200 bond issue maturing in the year. Trade payables amount to million, down 12.8 million due to the reduction in debt relating to capital expenditure (down 10.9 million), which from January 1, 2005 included the unpaid balance for the purchase of la Repubblica s full color rotary presses, and payables on paper and printing supplies purchased (down 4.7 million) as a result of the lower number of add-on products produced. Tax payables amount to 16.1 million and include mainly income tax payables and IRPEF and are in line with the previous year. Other payables amount to 90.1 million, up 11.3 million on January 1, 2005 due to the recording of the share relating to future years of subsidies on loans (as per article 7, Law 62/2001) that the State will pay on subsidized loans extended in the year

26 Report of the Board of Directors 25 Consolidated Statement of Cash Flows mn OPERATING ACTIVITIES Net profit (loss) for the period, including minority interests Adjustments: - Depreciation, amortization and write-downs Accruals to provisions for stock option costs Net change in provisions for personnel costs Net change in provisions for risks and charges (1.7) Losses (gains) on disposal of equity investments (0.0) (0.7) - Write-down (revaluation) of equity investments Adjustment for investments valued at equity (0.4) (0.2) - Dividends received (0.0) (0.0) - Losses (gains) on sale of fixed assets (0.2) (0.3) Cash flow from operating activities Change in current assets and other flows 21.8 (58.9) CASH FLOW FROM OPERATING ACTIVITIES Of which: Interest received (paid) (12.3) (23.6) Income taxes paid (65.6) (58.0) INVESTING ACTIVITIES Outlay for purchase of fixed assets (96.1) (171.6) Received on disposal of fixed assets Public grants received Dividends received CASH FLOW FROM INVESTING ACTIVITIES (91.5) (167.6) FINANCING ACTIVITIES Increases in capital and reserves Acquisition of treasury stocks (4.5) (1.4) Issue (repayment) of bonds (191.0) Issue (repayment) of other financial debt (3.9) 99.1 Net change in marketable securities and available-for-sale assets Dividends paid (47.1) (55.8) Other changes (0.3) (0.7) CASH FLOW FROM FINANCING ACTIVITIES (125.6) Increase (decrease) in cash and cash equivalents (179.7) Cash and cash equivalents at beginning of the period CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

27 26 Report of the Board of Directors Cash flow from operating activities amounts to million, down from million at January 1, The increase in the profit for the year was in fact offset by the decline in net current assets resulting from higher receivables from advertising customers (due to the growth in sales) and receivables from news-stands and distributors (due to the launch at of add-on products at the end of the year), by government grants on paper purchases and by tax receivables arising in connection with the merger of radio and internet activities. Cash flow from investing activities is negative by million due primarily to the acquisition of TV broadcasting All Music. Other investments in the period relate primarily to the television sector ( 26 million) for the development of broadcasting equipment of the newly acquired television station and the development of the digital terrestrial television network. Capital expenditure included the printing centers of la Repubblica and local newspapers ( 8.7 million), the renovation of the new Rome offices of the Group, of local newspapers editorial offices and radio broadcasting studios ( 6.3 million), in addition to the upgrade of information and editing systems and the development of network infrastructure ( 6 million). Cash flow from financing activities absorbed resources amounting to million. In the year, the 200 million bond issue was repaid on maturity, 112 million in subsidized loans were extended to the Group, while dividends payments amounted to 55.8 million. Net financial debt of the Group grew from million at January 1, 2005 to million at December 31, The cash flow generated by operations managed to offset part of the growth in debt resulting from the acquisition of TV network All Music ( 115 million), the capital expenditure amounting to 63.7 million and the payment of 55.8 million in dividends. The table that follows shows the breakdown of the net financial position of the Group. mn Jan. 1 Dec Marketable securities Financial receivables* Cash and cash equivalents Total financial assets Bonds (508.8) (309.1) Bank debt and loans (27.1) (134.5) Other financial debt (7.6) (4.3) Total financial liabilities (543.6) (447.9) NET DEBT (143.2) (252.6) * At January 1, 2005 financial receivables include the fair value ( 5.4 million) of the fixed/floating interest rate swap contracts entered into to hedge the 300 million bond ended in March This amount is included within Non-current receivables.

28 Report of the Board of Directors 27 Results of the Parent Company Gruppo Editoriale L Espresso SpA Income Statement mn Revenues Change in inventories (0.3) 2.0 Other operating income Purchases (118.0) (116.2) Services received (317.3) (334.8) Other operating charges (7.5) (9.2) Personnel costs (103.8) (111.8) Depreciation, amortization and write-downs (16.6) (14.7) Operating income Financial income (expense) (20.3) (21.5) Dividends Pre-tax profit Income taxes (35.1) (29.9) NET PROFIT

29 28 Report of the Board of Directors Balance Sheet ASSETS Jan. 1 Dec. 31 mn Intangible assets with an indefinite useful life Other intangible assets Total intangible assets Property, plant and equipment Investments value at equity Non-current receivables Deferred tax assets NON-CURRENT ASSETS Inventories Trade receivables Marketable securities Current financial receivables Tax receivables ,8 Other receivables Cash and cash equivalents ,7 CURRENT ASSETS TOTAL ASSETS 1, ,120.5 LIABILITIES AND SHAREHOLDERS EQUITY Jan. 1 Dec. 31 mn Share capital Reserves Retained earnings (loss carry-forwards) Net profit (loss) SHAREHOLDERS EQUITY Financial debt Provisions for risks and charges Employee termination indemnity and other retirement benefits Deferred tax liabilities NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges Trade payables Tax payables Other payables CURRENT LIABILITIES TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1, ,120.5

30 Report of the Board of Directors 29 Statement of Cash Flows mn OPERATING ACTIVITIES Net profit (loss) for the period, including minority interests Adjustments: - Depreciation, amortization and write-downs Accruals to provision for stock option costs Net change in provision for personnel costs Net change in provisions for risks and charges (0.6) (1.3) - Write-down (revaluation) of equity investments Dividends received (27.2) (47.2) - Losses (gains) on sale of fixed assets (0.1) 0.0 Cash flow from operating activities Change in current assets and other flows 16.3 (29.5) CASH FLOW FROM OPERATING ACTIVITIES of which: Interest received (paid) (11.4) (22.5) Income taxes paid (30.3) (17.6) INVESTING ACTIVITIES Outlay for purchase of fixed assets (53.9) (139.2) Received on disposal of fixed assets 2.0 (0.0) Dividends received CASH FLOW FROM INVESTING ACTIVITIES (24.7) (92.1) FINANCING ACTIVITIES Increases in capital and reserves Acquisition of treasury stocks (4.5) (1.4) Issue (repayment) of bonds (191.0) Issue (repayment) of other financial debt Net change in intragroup current account balance Net change in marketable securities and available-for-sale assets Dividends paid (47.1) (55.8) Other changes CASH FLOW FROM FINANCING ACTIVITIES (116.5) Increase (decrease) in cash and cash equivalents (181.8) Cash and cash equivalents at beginning of the period CASH AND CASH EQUIVALENTS AT END OF THE PERIOD

31 30 Report of the Board of Directors The operating performance was described in the section on individual divisions to which we refer; below we discuss the financial performance of the Parent Company. Capital expenditure of the Parent Company in 2005 amounted to 15.7 million and consisted primarily in the renovation of new offices, the development of information systems of the Group and the Repubblica Division for the optimization of the operation of new rotary presses. Despite the good level of cash flow generated by operating activities, the above mentioned capital expenditure, the 115 million outflow for the acquisition of television network All Music and the payment of 55.8 million in dividends resulted in an increase in the Group s net debt from million at January 1, 2005 to million at December 31, At the end of the year, the Parent Company employed 943 persons, 3 more than at December 31, Other information Treasury stocks held by the Parent Company at December 31, 2005 were 3.2 million (nominal value 0.15) and represented 0.7% of the share capital. Pursuant to Legislative Decree no.196 dated June 30, 2003, providing the Private data security Code (or Privacy Code ), it is acknowledged that as every year and in compliance with current regulations, Gruppo Editoriale L Espresso has updated the Safety Protocol for the year In compliance with the provisions of the Privacy Code, the Company has moreover taken steps to make such document compatible with law provisions requiring the adoption of new safety measures by the term set at March 31, Companies that form the Espresso Group make reference to the risk evaluation Document provided for by the law on workplace safety that mandates an analysis of risks present in the company and the subsequent devising of measures and timing for the implementation of the same to minimize risks and maintain an adequate level of security. These documents are prepared for all Group companies and therefore cover all personnel. With reference to the management of working activities, the above analysis did not uncover any specific risk situations. Employees involved in risk issues underwent training on emergency management. Training updates on risks connected with the use of video terminals were scheduled for With regard to information requirements of article 2428 of the Italian Civil Code on transactions with subsidiaries, affiliated and parent companies, direction and coordination activities, and risk management, we refer to the related sections in the notes to the accounts.

32 Report of the Board of Directors 31 Proposal of allocation of 2005 Net Profit To our Shareholders: the Financial Statements of Gruppo Editoriale L Espresso SpA that we submit to your approval close reporting a net profit of 83,128, We propose to distribute a dividend of to each of the 430,610,988 ordinary shares in circulation at present (keeping into account the 3,200,000 treasury stocks held by the Company) and to allocate the remainder to the voluntary reserve, having the Legal Reserve already reached an amount equal to 20% of the share capital. Thus we propose to allocate: 62,438, to ordinary dividends to be distributed to shareholders in a proportion of for each share in circulation, to be paid out on May 25, 2006, with an ex-dividend date of May 22, 2006 against the presentation of Coupon 10; 20,689, to retained earnings. The proposed allocation of net profit keeps into account the provisions of article 2357 ter., 2 nd para. of the Italian Civil Code, providing for dividends accrued by treasury stocks to be distributed proportionally to other shares. The exact amount to be destined to the distribution of dividends and to retained earnings may vary according to the number of treasury stocks held at the date of the Meeting or according to the possible issue, on March 31, 2006, of a maximum of 5,857,750 shares with rights accruing January 1, 2005 as part of applicable stock option plans. Rome, February 22, 2006 Allocation of 2005 Net Profit resolved by the Shareholders Meeting of April 26, 2006 The Shareholders Meeting held on April 26, 2006, having acknowledged the proposal of the Board of Directors and keeping into account that 199,800 ordinary shares of par value 0.15, accruing rights from January 1, 2005, were issued on March 31, 2006 to service existing stock option plans, resolved the following allocation of 2005 Net Profit of Gruppo Editoriale L Espresso SpA, amounting to 83,128,474.05, as follows: 62,467, to ordinary dividend to be assigned to shareholders in a proportion of 0.145, gross of withholding taxes, for each of the 430,810,788 ordinary shares in circulation (keeping into account 3,200,000 treasury stock held by the company), with rights accruing from January 1, 2005, to be paid out from May 25, 2006 against the clipping of coupon no. 10 on May 22, 2006; 20,660, to retained earnings. The proposed allocation of net profit for the year keeps into account the provisions of article 2357 ter, second paragraph of the Italian Civil Code, that establishes that right to receive dividends pertaining to treasury stock held is attributed proportionally to all other shares. Rome, April 26, 2006

33

34 Information required by Consob - Resolution no

35

36 Information required by Consob - Resolution no Information about existing stock option plans Stock option plans for managers of the Parent Company and its subsidiaries holding strategic positions within the Group assign the right to exercise at a pre-determined price and for a set term an option for the underwriting of new shares to be issued by the company pursuant to the related stock option plan resolutions. The related rules regulate, among other terms and conditions, also the case in which the assignee of the said options ceases for whatever reason to be employed by the company. Starting from 2001, ad hoc stock option plans were assigned to the Managing Director of the company, Marco Benedetto, giving him the right to acquire from the company at a pre-determined price and for a set term, a number of shares equal to the options already assigned to him. At the present date, the existing stock option plans are: 2000 Stock option plan On February 23, 2000, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 29, 1996, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 2,155,000 shares at a price of of which 0.15 of nominal value and of premium over par, determined in relation to the higher between the official price and the listed price on the Italian Stock Market (Borsa Italiana S.p.A.) on February 22, 2000 to service the 2000 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from September 30, 2000 and at subsequent quarterly intervals until September 30, 2010; b) up to a maximum for each quarter of 6% of options assigned in the period between December 31, 2000 and March 31, 2004, and at subsequent quarterly intervals until September 30, 2010; c) the residual 4% of options assigned starting from June 30, 2004 and up until September 30, To the present date no option was exercised but, pursuant to the stock option plan, 620,000 options have expired. The residual number of shares is thus 1,535,000. April 24, 2001 Stock option plan On April 24, 2001, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 930,000 shares at a price of 6.25 of which 0.15 of nominal value and 6.10 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the April 24, 2001 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from September 30, 2001 and at subsequent quarterly intervals until September 30, 2011; b) up to a maximum for each quarter of 6% of options assigned in the period between December 31, 2001 and March 31, 2005, and at subsequent quarterly intervals until September 30, 2011; c) the residual 4% of options assigned starting from June 30, 2005 and up until September 30, To the present date no option was exercised but, pursuant to the stock option plan, 210,000 options have expired. The residual number of shares is thus 720,000.

37 36 Information required by Consob - Resolution no October 24, 2001 Stock option plan On October 24, 2001, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 885,000 shares at a price of 2.51 of which 0.15 of nominal value and 2.36 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the October 24, 2001 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from March 31, 2002 and at subsequent quarterly intervals until March 31, 2012; b) up to a maximum for each quarter of 6% of options assigned in the period between June 30, 2002 and September 30, 2005, and at subsequent quarterly intervals until March 31, 2012; c) the residual 4% of options assigned starting from December 31, 2005 and up until March 31, To the present date 654,300 options were exercised but, pursuant to the stock option plan, 17,700 options have expired. The residual number of shares is thus 213,000. March 6, 2002 Stock option plan On March 6, 2002, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,330,000 shares at a price of 3.30 of which 0.15 of nominal value and 3.15 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the March 6, 2002 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from September 30, 2002 and at subsequent quarterly intervals until September 30, 2012; b) up to a maximum for each quarter of 6% of options assigned in the period between December 31, 2002 and March 31, 2006, and at subsequent quarterly intervals until September 30, 2012; c) the residual 4% of options assigned starting from June 30, 2006 and up until September 30, To the present date 781,575 options were exercised but, pursuant to the stock option plan, 61,900 options have expired. The residual number of shares is thus 486,525. July 24, 2002 Stock option plan On July 24, 2002, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,322,500 shares at a price of 3.36 of which 0.15 of nominal value and 3.21 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the July 24, 2002 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from December 31, 2002 and at subsequent quarterly intervals until September 30, 2012; b) up to a maximum for each quarter of 6% of options assigned in the period between March 31, 2003, and June 30, 2006 and at subsequent quar-

38 Information required by Consob - Resolution no terly intervals until December 31, 2012; c) the residual 4% of options assigned starting from September 30, 2006 and up until December 31, To the present date 714,300 options were exercised but, pursuant to the stock option plan, 59,800 options have expired. The residual number of shares is thus 548,400. February 26, 2003 Stock option plan On February 26, 2003, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,367,500 shares at a price of 2.86 of which 0.15 of nominal value and 2.71 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the February 26, 2003 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from September 30, 2003 and at subsequent quarterly intervals until September 30, 2013; b) up to a maximum for each quarter of 6% of options assigned in the period between December 31, 2003 and March 31, 2007, and at subsequent quarterly intervals until September 30, 2012; c) the residual 4% of options assigned starting from June 30, 2007 and up until September 30, To the present date 581,175 options were exercised but, pursuant to the stock option plan, 80,700 options have expired. The residual number of shares is thus 705,625. July 23, 2003 Stock option plan On July 23, 2003, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,332,500 shares at a price of 3.54 of which 0.15 of nominal value and 3.39 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the July 23, 2003 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from December 31, 2003 and at subsequent quarterly intervals until December 31, 2013; b) up to a maximum for each quarter of 6% of options assigned in the period between March 31, 2004 and June 30, 2007, and at subsequent quarterly intervals until December 31, 2013; c) the residual 4% of options assigned starting from September 30, 2007 and up until December 31, To the present date 454,950 options were exercised but, pursuant to the stock option plan, 66,850 options have expired. The residual number of shares is thus 810,700. February 25, 2004 Stock option plan On February 25, 2004, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,485,000 shares at a price of 4.95 of which 0.15 of nominal value and 4.80 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month,

39 38 Information required by Consob - Resolution no to service the February 25, 2004 Stock Option Plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from September 30, 2004 and at subsequent quarterly intervals until September 30, 2014; b) up to a maximum for each quarter of 6% of options assigned in the period between December 31, 2004 and March 31, 2008, and at subsequent quarterly intervals until September 30, 2013; c) the residual 4% of options assigned starting from June 30, 2008 and up until September 30, To the present date no options were exercised and, pursuant to the stock option plan, 75,000 options have expired. The residual number of shares is thus 1,410,000. July 28, 2004 Stock option plan On July 28, 2004, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,450,000 shares at a price of 4.80 of which 0.15 of nominal value and 4.65 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the July 28, 2004 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from December 31, 2004 and at subsequent quarterly intervals until December 31, 2014; b) up to a maximum for each quarter of 6% of options assigned in the period between March 31, 2005 and June 30, 2008, and at subsequent quarterly intervals until December 31, 2014; c) the residual 4% of options assigned starting from September 30, 2008 and up until December 31, To the present date no options were exercised but, pursuant to the stock option plan, 30,000 options have expired. The residual number of shares is thus 1,420,000. February 23, 2005 Stock option plan On February 23, 2005, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,485,000 shares at a price of 4.75 of which 0.15 of nominal value and 4.60 of premium over par, determined in relation to the provision article 9, paragraphvvv IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the February 23, 2005 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned starting from six calendar months from the date of their attribution; b) up to a maximum for each quarter of 6% of options assigned at the end of each of the fourteen quarters subsequent to six calendar months from the date of their attribution; c) up to a maximum of 4% of options assigned at the end of the fifteen quarters subsequent to six calendar months from the date of their attribution and up until September 30, To the present date no options were exercised but, pursuant to the stock option plan, 30,000 options have expired. The residual number of shares is thus 1,455,000.

40 Information required by Consob - Resolution no July 27, 2005 Stock option plan On July 27, 2005, the Board of Directors, in application of the proxy assigned by the Shareholders Meeting on April 6, 2001, resolved a capital increase pursuant to article 2441, last paragraph, of the Italian Civil Code, for a total of 1,455,000 shares at a price of 4.65 of which 0.15 of nominal value and 4.50 of premium over par, determined in relation to the provision article 9, paragraph IV of the Unified Tax Code that makes reference to the simple arithmetic mean of official stock market prices of the company s shares in the previous month, to service the July 27, 2005 stock option plan. The stock option plan provides for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the total of options assigned at December 31, 2005; b) up to a maximum for each quarter of 6% of options assigned at the end of each of the fourteen quarters subsequent to December 31, 2005; c) up to a maximum of 4% of options assigned at the end of the fifteen quarter subsequent to December 31, 2005 and up until December 31, To the present date no options were exercised. Stock option plans attributed to Marco Benedetto, Managing Director of the Company In 2005, Marco Benedetto, Managing Director of the company, was assigned 1,500,000 options to acquire an equivalent number of ordinary shares of the Company according to terms and conditions in line with previous stock option plans. On February 23, 2005, the Board of Directors assigned to Marco Benedetto 750,000 stock options at a price of 4.75 each, subsequently assigning on July 27, 2005 a further 750,000 stock options at a strike price of The 1,500,000 options may be exercised on a daily basis starting from March 31, 2007 and until March 31, The strike price of all of the above plans are determined in accordance with article 9, paragraph 4 of the Unified Tax Code, and are therefore calculated with reference to the simple arithmetic average of official stock market prices of the shares of the company for the month prior to the issue of the plan. The company has committed itself to purchase an equivalent number of shares to service stock option plans in favor of Marco Benedetto. In addition to the stock options assigned in the year, the following stock option plans are still effective: 1) the April 24, 2001 stock option plan, assigning 500,000 options for the acquisition of an equivalent number of shares at 6.25, exercisable on a daily basis until April 30, 2006; 2) the February 25, 2004 stock option plan, assigning 600,000 options for the acquisition of an equivalent number of shares at 4.95, exercisable on a daily basis from March 31, 2006 until March 31, 2009; 3) the July 28, 2004 stock option plan, assigning 600,000 options for the acquisition of an equivalent number of shares at 4.80, exercisable on a daily basis from March 31, 2006 until March 31, Based on the above, at December 31, 2005, unexercised stock options giving the right to purchase shares of the company amount to 10,759,250, representing 2.48% of the overall share capital of the company.

41 40 Information required by Consob - Resolution no Information Required by Consob - art.79 - Resolution no Table 2 STOCK OPTION GRANTED TO DIRECTORS AND GENERAL MANAGERS Stock options held at Stock options granted Stock options exercised Stock options Stock options held at beginning of the year in the year in the year expired in the end of the year the year (A) (B) 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) Name Position No. of stock Average Average No. of stock Average Average No. of stock Average Average No. of stock No. of stock Average Average and Surname options exercise expiration options exercise expiration options exercise market price options options exercise expiration price (years) price (years) price price (years) Marco Benedetto Managing Director 3,150, ,500, ,200, ,450, Marco Barina General Manager of Espresso Division until July 27, , , , , Corrado Corradi General Manager of Espresso Division from July 27, , , , Carlo Ottino General Manager of Repubblica Division 291, , , , Fabio Tacciaria General Manager of Parent Company 600, , , , Note: average expiration was calculated considering exclusively the last expiration date for each stock option plan still effective, regardless of the period in which the exercise of the stock option is possible (further detail is provided in the information provided above the present table).

42 Information required by Consob - Resolution no Information Required by Consob - art.79 - Resolution no Table 3 INVESTMENTS HELD BY DIRECTORS, STATUTORY AUDITORS AND GENERAL MANAGER Name and Surname Stake held in No. of shares No. of shares No. of shares No. of shares owned acquired sold owned at at in the year in the year December 31, December 31, Carlo Caracciolo Gruppo Editoriale L Espresso SpA 38,744, ,744,720 Marco Benedetto Gruppo Editoriale L Espresso SpA - 1,200,000 1,200,000 - Giulia Maria Crespi Mozzoni Gruppo Editoriale L Espresso SpA 9,654, ,654,423 of which: throught trust company Biennebi SpA (1) 1,161, ,161,090 throught Alpa SpA (2) 8,493, ,493,333 Carlo De Benedetti Gruppo Editoriale L Espresso SpA 218,826, ,826,235 of which: throught CIR SpA (3) 218,825, ,825,235 throught Romed SpA (4) 1, ,000 Pierluigi Ferrero Gruppo Editoriale L Espresso SpA 30, ,000 Milvia Fiorani Gruppo Editoriale L Espresso SpA 194, ,684 of which: held directly 90, ,000 throught spouse Roberto Paris 104, ,684 Vittorio Ripa Di Meana Gruppo Editoriale L Espresso SpA 15, ,000 Marco Barina Gruppo Editoriale L Espresso SpA 10,500 21,000 31,500 - Carlo Ottino Gruppo Editoriale L Espresso SpA 51,900 77,700 70,000 59,600 Fabio Tacciaria Gruppo Editoriale L Espresso SpA 80, , ,900 (1) Fiduciaria Biennebi SpA - via San Pietro all Orto, 22 - Milan - VAT no (2) Alpa SpA - via San Pietro all Orto, 22 - Milan - VAT no (3) Cir - Compagnie Industriali Riunite SpA -strada Volpiano, 53 - Leinì (Turin) - VAT no (4) ROMED SpA - via Valeggio, 41 - Turin - VAT no

43 42 Information required by Consob - Resolution no Information Required by Consob - art.78 - Resolution no Table 1 COMPENSATIONS PAID TO DIRECTORS, STATUTORY AUDITORS AND GENERAL MANAGERS IN THE FINANCIAL YEAR 2005 A) B) C) D) (1) (2) (3) (4) Name and Position Term of Expiration Emoluments for the position Non-monetary Bonus and Other surname held position held of position in the company that prepares benefits other compensations the financial statements incentives Carlo Caracciolo Chairman of the Board and Executivee Commitee Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 510,000 12,000 (1) Marco Benedetto Managing Director and member of the Executivee Commitee Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 15,000 (1) Oliviero Maria Brega Director and member of the Executive Commitee Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 Cristina Busi Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 21,042 (9) Giulia Maria Crespi Mozzoni Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 Carlo De Benedetti Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 (2) Rodolfo De Benedetti Director and member of the Executive Commitee Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 Francesco Dini Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 3,000 (1) Pierluigi Ferrero Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 Milvia Fiorani Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 29,000 (9) (1) Franco Girard Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 Paolo Mancinelli Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 15,322 (9) Gianluigi Melega Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10, ,635 (3) Alberto Milla Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 21,250 (9) Alberto Piaser Director and member of the Executive Commitee Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 Piero Ottone Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10,000 79,200 (4) Vittorio Ripa di Meana Director Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 10, ,980 (5) Vittorio Bennani Chairman of the Board of Statutory Auditors Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 40,000 95,706 (6) (9) Claudio Berliri Auditor Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 27,000 16,780 (9) (6) Federico Gamna Auditor Jan. 1, Dec.31, 2005 approval of the 2005 Fin. Stat. 27,000 Marco Barina General Manager of the Espresso Division July 27, , , ,898 (7) Corrado Corradi General Manager of the Espresso Division from July 27, 2005 until appointed 3, , ,416 (7) Carlo Ottino General Manager of the Repubblica Division until appointed 4, , ,076 (7) Fabio Tacciaria General Manager of the Parent Company until appointed 5, , ,305 (8) (1) Other compensations include emoluments for positions as director in other Group companies. (2) The emolument for the position of director in Gruppo Editoriale L Espresso SpA is paid to ROMED SpA. (3) Other emoluments relate to consulting work and emoluments for positions as director in other Group companies. (4) Other emoluments relate to journalist work. (5) Other emoluments relate to professional work. (6) Other compensation includes emoluments for Auditor positions held in other Group companies. (7) Other compensation includes emoluments for employment work. (8) Other compensation includes emoluments for employment work and emoluments for position as Director in other Group companies. (9) Other emoluments relate to the position as member of the Supervisory Board as per Legislative Decree 231/2001 in the company and its subsidiaries.

44 Consolidated Financial Statements at December 31, 2005

45 44 Consolidated Finanacial Statements Consolidated Balance Sheet ASSETS Note Jan. 1, Dec. 31, ( 000) Intangible assets with an indefinite useful life 461, ,552 Other intangible assets 4,288 4,476 Intagible assets (1) 465, ,028 Property, plant and equipment (2) 258, ,975 Investments valued at equity (3) 23,907 23,925 Other investments (4) 3,868 4,072 Non-current receivables (5) 9,254 2,610 Deferred tax assets (6) 26,835 47,494 NON-CURRENT ASSETS 788, ,104 Inventories (7) 30,189 32,186 Trade receivables (8) 241, ,391 Marketable securities (9) 20, Current financial receivables (10) Tax receivables (11) 41,471 59,921 Other receivables (12) 19,906 22,631 Cash and cash equivalents (13) 384, ,496 CURRENT ASSETS 738, ,123 TOTAL ASSETS 1,526,759 1,552,227 LIABILITIES AND SHAREHOLDERS EQUITY Note Jan. 1, Dec. 31, ( 000) Share capital (14) 64,896 65,072 Reserves (15) 308, ,462 Retained earnings (loss carry-forwards) (15) 11,388 26,138 Net profit (loss) 98, ,336 Group Shareholders Equity 484, ,008 Minority interests (16) 11,005 10,775 SHAREHOLDERS EQUITY 495, ,783 Financial debt (17) 328, ,606 Provisions for risks and charges (18) 13,022 13,369 Employee termination indemnity and other retirement benefits (19) 95, ,954 Deferred tax liabilities (6) 54, ,556 NON-CURRENT LIABILITIES 491, ,485 Financial debt (17) 224,635 25,015 Provisions for risks and charges (18) 10,273 10,029 Trade payables (20) 209, ,707 Tax payables (21) 16,481 16,145 Other payables (22) 78,797 90,063 CURRENT LIABILITIES 539, ,959 TOTAL LIABILITIES 1,031, ,444 TOTAL LIABILITIES AND SHOREHOLDERS EQUITY 1,526,759 1,552,227 Notes from page 51 to 99 are an integral part of the present financial statements.

46 Consolidated Financial Statements 45 Consolidated Income Statement ( 000) Note Revenues (23) 1,080,709 1,079,919 Change in inventories (7) (342) 2,094 Other operating income (24) 16,163 34,454 Purchases (25) (160,077) (158,922) Services received (26) (427,688) (433,297) Other operating charges (27) (18,612) (19,463) Investments valued at equity (3) 1,544 1,344 Personnel costs (28) (257,618) (283,890) Depreciation, amortization and write-downs (29) (41,882) (44,772) Operation income 192, ,468 Financial income (expense) (30) (17,673) (25,560) Pre-tax profit 174, ,908 Income taxes (31) (74,927) (35,116) NET PROFIT 99, ,792 Minority interests (32) Group net profit 98, ,336 Earnings per share, basic (33) Earnings per share, diluted (33) Notes from page 51 to 99 are an integral part of the present financial statements.

47 46 Consolidated Finanacial Statements Statement of Consolidated Cash Flows ( 000) Note OPERATING ACTIVITIES Net profit (loss) for the period, including minority interests 99, ,792 Adjustments: - Depreciation, amortization and write-downs (29) 41,882 44,772 - Accruals to provisions for stock option costs (28) 2,465 3,073 - Net change in provisions for personnel costs (19) 4,197 7,866 - Net change in provisions for risks and charges (18) (1,656) Losses (gains) on disposal of equity investments (9) (665) - Write-down (revalutation) of equity investments Adjustments for investments valued at equity (425) (209) - Dividends received (32) (35) - Losses (gains) on disposal of assets (196) (259) Cash flow from operating activities 145, ,415 Change in current assets and other flows 21,802 (58,859) CASH FLOW FROM OPERATING ACTIVITIES 167, ,556 on which: Interest received (paid) (12,272) (23,600) Income taxes paid (65,624) (57,956) INVESTING ACTIVITIES Outlay for purchase of fixed assets (96,136) (171,598) Received on disposal of fixed assets 2,614 3,885 Public grants received 1, Dividends received CASH FLOW FROM INVESTING ACTIVITIES (91,491) (167,600) FINANCING ACTIVITIES Increases in capital and reserves 2,623 3,705 Acquisition of tresury stocks (4,529) (1,351) Issue (repayment) of bonds 298,005 (190,980) Issue (repayment) of other financial debt (3,933) 99,064 Net change in marketable securities and available-for-sale assets 3 20,437 Dividends paid (34) (47,114) (55,833) Other changes (333) (686) CASH FLOW FROM FINANCING ACTIVITIES 244,722 (125,644) Increase (decrease) in cash and cash equivalents 320,873 (179,688) Cash and cash equivalents at beginning of the period 53, ,489 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 374, ,801

48 Consolidated Financial Statements 47 Statement of changes in the consolidated Shareholders Equity Share Share Treasury Fair value IFRS Stock option Equity Retained Net Group Minority Total ( 000) capital premium stocks reserve reserve reserve reserves earnings profit Sh. Equity Interests Sh. Equity Balance at January 1, ,769 63,991 8,663-47, ,179-67, ,956 10, ,576 Allocation of net profit ,838 (67,838) Dividends (47,114) - (47,114) (343) (47,457) Capital increases, capital contribuited by shareholders 127 2, ,623-2,623 Stock options , ,465-2,465 Treasury stock transactions - (4,529) 4, Transfers between capital and reserves ,215 (10,215) Net profit (loss) ,869 98, ,597 Other changes (28) - - (28) - (28) Balance at December 31, ,896 61,958 13,192-47,685 3, ,366 10,509 98, ,771 11, ,776 Effect of adoption of IAS 32-13,192 (27,204) (13,192) - (13,192) Effect of adoption of IAS (2,240) 1, (501) - (501) Balance at January 1, ,896 75,150 (14,012) (2,240) 49,365 3, ,366 11,388 98, ,078 11, ,083 Allocation of net profit ,869 (98,869) Dividends (55,833) - (55,833) (686) (56,519) Capital increases, capital contributed by shareholders 176 3, ,705-3,705 Stock options , ,073-3,073 Treasury stock transactions - - (1,058) - - (795) (1,351) - (1,351) Transfers between capital and reserves , ,552 (28,792) Net profit (loss) , , ,792 Other changes Balance at December 31, ,072 78,679 (15,070) - 49,365 5, ,918 26, , ,008 10, ,783

49

50 Notes to the Consolidated Financial Statements

51

52 Notes to the Consolidated Financial Statements 51 Notes to the Consolidated Financial Statements 1. General information Gruppo Editoriale L Espresso SpA (the Parent Company ) and those companies in which it holds either directly or indirectly an interest (further on in the present document referred jointly to as the Espresso Group or the Group ) operates mainly in the publishing sector and more specifically in the newspapers and periodicals segment, that of radio stations, advertising, online publishing, and terrestrial and satellite television. Gruppo Editoriale L Espresso SpA has its registered office in Italy at Via Cristoforo Colombo, 149, Rome. CIR Compagnie Industriali Riunite SpA, holds control of the Company. The Espresso stock is listed on the screen-based trading circuit (Mercato Telematico Azionario, MTA) of the Italian Stock Exchange (Reuters code: ESPI.MI, Bloomberg code: ES IM). The stock is included in the S&P/MIB index. The present Consolidated Report at December 31, 2005 was approved by the Board of Directors of the Parent Company on February 22, Form, content and accounting principles The present consolidated financial statements were prepared in accordance with international accounting principles (International Accounting Standards, IAS and International Financial Reporting Standards - IFRS), as integrated by the related interpretations (Standing Interpretations Committee, SIC and International Financial Reporting Interpretations Committee - IFRIC) issued by the International Accounting Standards Boards (IASB). EU Regulation no. 1606/2002 of July 19, 2002, requires, for companies whose stock is admitted to listing in a regulated market and whose financial statements is required in a consolidated form, the application of the above-mentioned principles and interpretations, starting with the financial year ending December 31, Said regulation has allowed individual Member States of the EU to extend such obligation to other types of companies. Law no. 306 dated October 31, 2003 (2003 EU Law) gave mandate to the Government to apply the said EU Regulation. Legislative Decree no. 38, dated February 28, 2005 extended the obligation, starting with 2006, to the statutory accounts of companies issuing financial instruments admitted to trading on regulated markets. The entire legislative body was adopted by CONSOB (Italy s stock market regulator) which, through Resolution no dated April 14, 2005 required, starting with the financial year beginning January 1, 2005, for companies whose stock is admitted to listing in a regulated market of the EU, the preparation of consolidated financial statements under IFRS in place of the accounting principles of individual Member States. In 2005, the IASB and the IFRIC published new Principles and Interpretations. Despite the fact that at the present date such Principles and Interpretations have not yet been incorporated into EU legislation, the Group has taken into account their effect, describing in Note 9 of the present document the potential impact on its financial statement. As required by IFRS 1, principles of consolidation and valuation criteria described below were applied in addition to the preparation of the present Consolidated Annual Report, also to the opening Consolidated Balance Sheet at January 1, 2004, to the Consolidated Financial Statements at December 31, 2004, with the exception of those relating to financial instruments, whose application was postponed to January 1, 2005, as allowed under IFRS, and to exem-

53 52 Notes to the Consolidated Financial Statements ptions to the retroactive application of IFRS allowed under IFRS 1, as reported in the section Transition to IFRS. The principle adopted for the preparation of the annual report is that of the historical cost for all assets and liabilities, with the exception, from January 1, 2005, of derivative instruments and certain financial assets, accounted for at their fair value. Figures provided for comparative purposes in the financial statements and in the related notes make reference to January 1, 2005, to allow a more meaningful understanding of the trend in the year. Detailed information between balances at December 31, 2004 and those at January 1, 2005 is provided in the Transition to IFRS section and relates mainly to effect generated from IAS 32 and IAS 39. Assets and liabilities in the balance sheet are classified under current and non-current as, contrary to the classification by degree of liquidity, this classification is deemed to better represent the financial position of the Group. The Balance Sheet consists of separate and counterposed sections. The order in which items are reported is Assets, Shareholders Equity, and Liabilities, from the least to the most liquid (from non-current to current). In order keep the structure of the Balance Sheet linear and to allow the use of the same format also for interim reports, balance sheet captions include only major classes. All sub-classifications (by nature of the debtor/creditor, expiration, etc.) are instead disclosed in the notes. The content of the Balance Seet complies with minimum requirements of IAS 1 as, with the exclusion of mastheads, radio and television frequencies, and trademarks, no significant or special items requiring separate reporting were devised. Balance Sheet items are classified by nature as, in consideration of the activity carried out by the Group, a classification by use is not deemed to provide a better description of the Group s financial position. In the Statement of Cash Flows, cash flows from operating activities, those from investing activities, financing activities and discontinued operations are reported separately. Unless otherwise specified, amounts reported in the financial statements and tables are stated in thousands of euros, rounded off to the nearest unit. A reconciliation between net profit and Shareholders Equity of the Parent Company and those resulting from the Consolidated Financial Statements is provided in the table below: Net profit Shareholders Equity Jan. 1, 2005 Dec. 31, 2005 Parent Company s statutory accounts 72,350 83, , ,684 Dividends received from subsidiaries (34,253) (56,070) - - Shareholders Equity and net profit of consolidated subsidiaries 49,995 84, , ,549 Book value of consolidated companies 10,414 4,279 (306,573) (434,023) Goodwill of publications, trademarks and frequencies , ,006 Book value of investments in associates companies valued at equity ,907 23,925 Other consolidation adjustments (62) (159) (1,213) (1,133) Consolidated Financial Statements 98, , , ,008

54 Notes to the Consolidated Financial Statements Principles of consolidation The consolidation area includes the Financial Statements of the Parent Company, its subsidiaries and associates. Subsidiaries are those companies in which the Parent Company exercises control on financial and operating policy. Control is deemed to occur when more than half of actual voting rights or those potentially exercisable at a shareholders meeting are held by the company either directly or indirectly at the date of the financial statements. Associates are those in which the Parent Company exercises a significant influence. Such influence is deemed to occur when the Group controls 20% or more of actual voting rights or those potentially exercisable at the date of the financial statements. Subsidiaries are consolidated from the date at which the Group acquires control and deconsolidated from the date at which control is lost. Subsidiaries and associates are recorded with the acquisition cost method, corresponding to the value of assets acquired, shares issued or liabilities generated at the time of acquisition, in addition to other costs incurred in the acquisition. The excess of the acquisition cost over the book value of assets of subsidiaries acquired by the Group is recorded as goodwill, while that of associates acquired is included in the value of the investment. The accounting treatment of goodwill is described in note 4.1. Subsidiaries were consolidated under the line-by-line method, thus including all assets and liabilities, costs and revenues of subsidiaries regardless of the share held. The book value of consolidated companies was therefore netted against the related Shareholders Equity. Transactions, balances and unrealized gains and losses among Group companies were therefore eliminated. The share in the Shareholders Equity and profits accruing to minority shareholders were recorded separately under Shareholders Equity in the consolidated balance sheet and under a separate caption in the consolidated income statement. At the time of their acquisition, investments in associates are recorded under the equity method, recording the share of the Group in the profit and in the change in reserves, respectively in the income statement and in the balance sheet under Shareholders Equity. The share in unrealized gains and losses between associates is eliminated. When the Group s share in the loss of an affiliated company is equal or higher than the book value of the investment, the Group does not recognize further losses, excluding if has obligations to cover losses or has made payments on behalf of the affiliated company. All financial statements of Group companies are prepared at the same date, with the same accounting principles and relate to a financial year of the same duration. 4. Valuation criteria 4.1 Intangible assets Intangible assets are recorded at the acquisition or production cost. The acquisition cost is represented by the fair value of the price paid for the asset, inclusive of any direct cost incurred to put the asset to use. The acquisition cost is the equivalent of price paid in cash at the time of the acquisition. In case the amount paid for the acquisition is deferred beyond normal payment terms, the difference with respect to the equivalent cash price is recorded as interest over the longer payment term. The cost of intangible assets developed internally is recorded by separating costs incurred in the research phase (not capitalized) and costs incurred in the subsequent development phase (capitalized). In case the two phases cannot be separated, the whole project is accounted for as research. Interest charges on the acquisition are never capitalized. The book value of intangible assets is in line with the amount expected to be retrieved through

55 54 Notes to the Consolidated Financial Statements future use or transfer. In case there arise doubts as to possibility to retrieve the book value of an asset, the latter is subjected to an impairment test, as described in note 4.5. Publications, trademarks and frequencies The useful life of publications mastheads, broadcasting frequencies and certain trademarks is considered as undefined. Such assets are not amortized and are instead subjected annually, or any time there is an indication that the asset may have experienced a loss in value, to an impairment test. Losses in value are recorded in the income statement under Depreciation, amortization and write-downs. Goodwill Goodwill represents the premium paid over the fair value of the share of assets and liabilities, including potential ones, identifying at the acquisition date. Goodwill arising from the acquisition of associates is included in the value of the related equity investment. Goodwill acquired for a consideration is not amortized and is subjected at least annually to an impairment test. With such end, goodwill is allocated from the date of acquisition or by the end of the subsequent financial year, to one or more cash generating units (CGUs). Reductions in value resulting from an impairment test do not give rise to adjustments in subsequent years and are recorded in the income statement under Depreciation, amortization and write-downs. Other intangible assets Other intangible assets are represented by industrial patents and intellectual property rights, concessions, licenses and similar rights, and software. They are recorded at cost, net of accumulated amortization calculated on a straight line basis over their expected useful life and possible possible permanent impairment. In view of the homogeneity of assets recorded in the balance sheet, barring specific relevant cases, the useful life of other intangible assets is estimated at 3 to 5 years. Amortization criteria applied are reviewed and redefined at least at the end of each financial period to keep into account possible significant changes. 4.2 Property, plant and equipment Property, plant and equipment are recorded at the acquisition cost, represented by the fair value of the price paid for the acquisition of the asset, inclusive of any direct cost incurred to put the asset to use. The acquisition cost is the equivalent of price paid in cash at the time of the acquisition. In case the amount paid for the acquisition is deferred beyond normal payment terms, the difference with respect to the equivalent cash price is recorded as interest over the longer payment term. Interest charges on the acquisition are never capitalized. The capitalization of costs for the upgrade, update or improvement of structural elements owned or leased from third parties is carried out exclusively when the same fulfill the requisites that allow their separate classification as assets or part of assets. Ordinary maintenance costs are charged to the income statement. After the initial recording, property, plant and equipment are carried at cost, net of accumulated depreciation (with the exception of land) and possible permanent impairment. The amortizable value of each significant component of a tangible asset with a different useful life is calculated on a straight line basis over its expected useful life. Depreciation criteria, the useful life of assets and their residual value are reviewed and redefi-

56 Notes to the Consolidated Financial Statements 55 ned at least at the end of each financial period to keep into account possible significant changes. Capitalized costs relating to leasehold improvements are attributed to the classes of assets to which they relate and amortized over the shorter between the residual term of the lease and the residual useful life of the asset to which the leasehold improvement relates. The book value of property, plant and equipment is in line with the amount expected to be retrieved through future use. In case doubts arise as to possibility to retrieve the book value of an asset, the latter is subjected to an impairment test, as described in note 4.5. The original value is restored when the reasons that gave rise to the impairment cease to exist. 4.3 Leases Leases relating to assets for which the Group bears all costs and benefits deriving from ownership are classified as financial leases. Assets held under a financial lease are recorded at the lower between the current value of the asset leased and the present value of minimum lease payments provided for in the lease contract. Such payments are accounted for as interest and principal so as to obtain a fixed rate of interest on the residual part of the debt. Residual lease payments, net of interest, are recorded as financial debt. Interest payments are charged to the income statement over the life of the lease. Assets held under a financial lease are depreciated in line with assets owned. Leasing contracts in which the lessor holds a significant share of risks and benefits deriving from ownership are classified as operating leases. Lease payments are recorded in the income statement in equal installments over the life of the lease contract. In sale and lease-back operations, the difference between the sale price and the book value of the asset is not recorded, except in the case of a write-down in the value of the asset. 4.4 Grants Grants are recorded when there exists, regardless of the formal granting of the amount, a reasonable certainty that the company will meet the conditions for the entitlement to the grant and that the same will actually be received. Capital grants are recorded in the balance sheet as deferred income and not as an adjustment to the value of the item for which the grant has been obtained. The contribution is credited to the income statement based on the useful life of the asset for which it is granted by discounting it so as to net out the related amortization expense recorded. Grants receivable as compensation for expenses and costs already incurred or aimed at providing immediate financial help to the company not correlated to future costs are recorded as income in the year in which they become receivable. 4.5 Loss in value of assets A loss in value of an asset originates whenever the book value of an asset is higher than the amount expected to be retrieved from the same. At each accounting date, the presence of factors indicating a possible loss in value is assessed. Whenever one of these factors is present, the retrievable value of the asset is assessed through an impairment test and the write-down is recorded where appropriate. Assets not yet available for use, those recorded in the financial statements in the current financial year, intangible assets with an indefinite useful life and goodwill are subject at least annually to an impairment test, independently from the presence of factors indicating possible loss in value.

57 56 Notes to the Consolidated Financial Statements The retrievable value of an asset is the higher between its fair value, net of sales costs, and its value in use. The retrievable value is calculated with reference to each individual asset, unless said asset is able to generate positive financial flows deriving from ongoing use independently from positive cash flows generated by other assets or groups of assets, in which case the test is carried out at the level of the smallest Cash Generating Unit that includes said asset. The original value of the asset is restored whenever the reasons for the loss in value cease to exist, with the exception of goodwill whose original value is not restored. 4.6 Investments valued at equity Investments in associates, or those in which the Parent Company exercises a significant influence, are recorded in according with the equity method. Investments in companies in which the Parent Company does not exercise a significant influence are valued at fair value, corresponding to the cost net of any loss in value in case the current value of the investment cannot be determined in a reliable manner. For a more detailed analysis of accounting principles regarding financial assets, see note Other investments Investments in companies in which the Parent Company does not exercise a significant influence are valued at fair value, corresponding to the cost net of any loss in value in case the current value of the investment cannot be determined in a reliable manner. For a more detailed analysis of accounting principles regarding financial assets, see note Marketable securities Marketable securities are represented by financial assets having a fixed maturity which the companies have the intention or the ability to hold to maturity and as such carried at the amortized cost. For a more detailed analysis of accounting principles regarding financial assets, see note Inventories Inventories are recorded at the lower between the acquisition cost, determined applying the weighted average cost method, and the net realizable value. Cost is represented by the fair value of the price paid and any other cost that may be attributed, with the exception of interest expenses. The net realizable value is represented by the estimated sale price under normal conditions, net of completion costs and selling expenses. Possible write-down is reversed in subsequent years when the reasons for their recording cease to exist Trade receivables Trade receivables are recorded at the fair value of future cash flows, written down for losses in value Contract work in progress Contract work in progress is represented by specific projects being completed on behalf of others. In the case of projects for which the outcome can be estimated in a reliable manner, contractual revenues and related costs are recorded under the percentage of completion method. The percentage of completion is determined according to the ratio between costs incurred in the

58 Notes to the Consolidated Financial Statements 57 activity carried out at the closing date of the accounts and total costs estimated to the completion. When it appears probable that total costs will exceed contractual revenues, the expected loss is recorded directly in the income statement. In the case of projects for which a reliable estimate is not available, contractual revenues are recorded in line with costs incurred, provided such costs are expected to be retrieved. The sum of costs incurred and of profits recorded on each project is compared with invoices issued against the work carried out up until the date of the financial statements. When costs incurred and profits recorded (net of losses) are higher that invoices issued, the difference is recorded among current assets under Trade receivables. When invoices issued are higher than the sum of costs incurred and profits recorded (net of losses), the difference is accounted for among current liabilities under Trade payables Cash and cash equivalents Cash and cash equivalents are represented, as well as by cash on hand, by short-term investments in highly liquid assets that may easily be converted in known amounts of cash posing a minimal risk of fluctuation in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash, demand or forward deposits with banks, other highly liquid short-term financial assets with an original maturity not exceeding an average of 3 months, and bank overdrafts. For the purposes of the balance sheet, the latter are included among financial payables under current liabilities Financial assets Financial assets are classified into the following categories: financial assets valued at fair value, recorded also in the income statement; financial assets held to maturity; loans and other financial receivables; available-for-sale financial assets. The Group carries out the classification of financial assets at the time of acquisition. Financial assets are classified as follows: financial assets valued at fair value, recorded also in the income statement, consisting of financial assets acquired primarily with the intent of realizing a gain from short-term trading (over a term no longer than 3 months), or financial assets designated as such from inception; financial assets held to maturity, consisting of financial assets having a set maturity and generating a fixed cash flow or one that may be determined, which the Group intends and has the ability to hold to maturity; loans and other financial receivables, consisting of financial assets generating a fixed cash flow or one that may be determined, not listed on a market and different from those classified from inception as financial assets valued at fair value, recorded also in the income statement as available-for-sale financial assets; available-for-sale financial assets, consisting of financial assets other than the above or those designated as such from inception. Acquisitions and sales of financial assets are recorded at the settlement date. The acquisition cost corresponds to the fair value at the acquisition date, inclusive of transaction costs. After the initial recording, financial assets valued at fair value, recorded also in the income statement and available-for-sale financial assets are valued at fair value, while financial assets held to maturity and loans and other financial receivables are valued at the amortized cost.

59 58 Notes to the Consolidated Financial Statements Realized and unrealized gains and losses resulting from fluctuations in the fair value of financial assets valued at fair value, with conpensation in the income statement are recorded in the income statement in the year in which they occur. Unrealized gains and losses resulting from fluctuations in the fair value of available for sale financial assets are recorded under Shareholders Equity. The fair values of financial assets are determined according to listed bid prices or through the use of financial models. The fair values of unlisted financial assets are estimated using specific estimation techniques adjusted to the specific condition of the issuer. Financial assets for which the current value cannot be reliably determined are recorded at cost, adjusted downwards for losses in value. At each financial closing date, the presence of factors indicating loss of value is verified and the write-down is recorded in the income statement. Losses in value accounted for are reversed in case the circumstances that led to their recording no longer exist, with the exception of assets valued at cost Share capital The share capital is represented by capital underwritten and paid -up. Costs strictly correlated with the issue of shares are recorded as a reduction of the equity reserves, if directly attributable to operations involving the share capital Treasury stocks Treasury stocks are recorded in a specific Shareholders Equity reserve. Gains or losses on the purchase, sale, issue or cancellation of treasury stocks are not recorded in the income statement Fair value reserves Fair value reserves include changes in the fair value, net of the related tax effect, of items recorded at fair value with compensation in the Shareholders Equity Other reserves Other reserves are represented by specific capital reserves of the Parent Company Retained earnings (loss carry-forwards) Retained earnings (loss carry-forwards) include the part not distributed and not accrued to mandatory reserve (in case of profits) or not balanced (in case of losses), of profits for previous years. The item includes also transfers from other equity reserves freed-up, in addition to the effect of the change in accounting principles and relevant errors Employee benefits Short-term benefits Short-term employee benefits are recorded in the income statement in the period in which the employment takes place. Defined benefit plans Employee termination indemnity and Fixed indemnity for managers of newspapers are determined by independent actuaries to estimate the amount of the future benefits that the employees have accrued at the balance sheet date.

60 Notes to the Consolidated Financial Statements 59 Net actuarial gains (losses) accrued are not recorded until their absolute value exceeds 10% of the present value of the liability ( corridor approach ). Possible net actuarial gains (losses) are recorded in the income statement. Defined contribution plans The Group participates in defined contribution public pension plans contributing to mandatory, contractual or voluntary. The payment of contributions extinguishes the obligation of the Group towards its employees. Contributions constitute therefore costs for the period in which they are due. Share-based compensations The Group recognizes additional benefits to certain top managers through stock option plans. The cost of such operations, recorded in the income statement, is calculated based on the fair value of options at the time at which they are assigned. The cost is recorded in the period included between the date at which the options are assigned and that at which they become exercisable, with compensation under Shareholders Equity Provisions for risks and charges, potential assets and liabilities Provisions for risks and charges are possible liabilities whose amount and/or timing is uncertain, resulting by previous events and whose fulfillment requires the use of financial resources. Accruals are made exclusively when there exists an actual obligation, either legal or implicit, towards third parties that requires the use of financial resources, and whenever a reliable estimate of the obligation can be made. The accrual recorded represents the best estimate of the liability relating to the fulfillment of the obligation at the date of the financial statements. Accruals made are reviewed at each accounting date and adjusted to the best available estimate. Where the payment of the obligation takes place beyond normal payment terms and the discounting back effect is relevant, the amount accrued is represented by the present value of expected future payments needed to extinguish the obligation. Potential gains and losses are not recorded in the financial statements, though information about the same is provided Financial liabilities Financial liabilities are recorded initially at the fair value of amounts received, net of transaction costs, and subsequently carried at the amortized cost Derivative instruments Derivative contracts are recorded in the income statement at fair value. The recording of differences in the fair value varies according to the purpose of the derivative instrument (speculative or hedging) and the nature of the risk hedged (fair value hedge or cash flow hedge). In the case of contracts designated as speculative, changes in the fair value are recorded directly in the income statement. In the case of contracts designated as hedging contracts, the Group documents the relationship with the instrument hedged at the time it enters into the contract. The documentation includes the identification of the hedging contract, the item or operation hedged, the nature of the risk hedged, the criteria with which the effectiveness of the hedging contract will be evaluated, and the related risk. The effectiveness of the hedge is evaluated by comparing fluctuations in the

61 60 Notes to the Consolidated Financial Statements fair value or the cash flow of the instrument hedged with fluctuations in the fair value or the cash flow of the hedging instrument. The effectiveness of the hedge is evaluated both at the start of the operation and regularly throughout the duration of the hedge. The on-going evaluation is in any case carried out at least at each accounting date. More specifically, the hedge is considered as efficient when the fluctuation in the fair value or the cash flow of the instrument covered is almost entirely offset by the fluctuation in the fair value or cash flow of the hedging instrument and results are included in an interval between 80% and 125%. The Fair Value Hedge instruments are accounted for by recording in the income statement changes in the fair value of the hedging instrument and the instrument covered, regardless of the valuation criteria adopted for the latter. In particular, adjustments to the book value of hedged financial instruments generating interest are amortized in the income statement over the residual term of the asset/liability hedged using the effective interest rate method. The Cash Flow Hedge instruments are accounted for by suspending under Shareholders Equity the portion of the change in the fair value of the hedging instrument which is recognized as effective hedge, while recording in the income statement the ineffective part. Changes recorded directly under Shareholders Equity are released to the income statement in the same year or in the years in which the asset or liability hedged influences the income statement. The accounting effects of the termination of a hedge contract are recorded differently for Fair Value Hedges and Cash Flow Hedges. In the case of Fair Value Hedges the underlying instrument recorded in the financial statements ceases to be hedged from the date at which the hedging contract is terminated or becomes ineffective and the instrument is thus again valued according to the method used in absence of a hedge. In case of financial instruments valued at the amortized cost, the difference between the valuation at the fair value of the risk covered and the amortized cost at the date of the termination of the hedge-accounting period, is amortized over the residual life of the financial instruments based on rules used in the calculation of the effective rate of interest. In the case of Cash Flow Hedges, the gain or loss suspended in the Shareholders Equity remains suspended until the transaction takes place, when it is no longer probable or it is no longer expected to be carried out, or when flows originally hedged will have an impact on the income statement Cost and revenue recognition Revenues from the sale of assets are valued at the fair value of the amount received or receivable, keeping into account trade discounts, where appropriate. Revenues from the provision of services are accounted for under the percentage of completion method, defined as the ratio between the amount of services provided at the accounting date and the total value of services to be provided. Revenues from contracts work in progress are recorded as described in note Revenues are recorded in accordance with the following criteria: revenues from the sale of publications are recorded at the time of shipping, net of related returns; revenues from the sale of advertising are recorded at the time of publication. Costs are recorded according to criteria in line with those applied for revenues, and in any case under the accrual method. Interests received and paid are recorded based on the accrual method, keeping into account the effective rate of interest applicable. Dividends are recorded in the year in which distribution is resolved.

62 Notes to the Consolidated Financial Statements Income taxes Income taxes for the year are calculated based on expectable taxable income and current tax regulations. Deferred and prepaid taxes arising from timing differences between the profit reported in the financial statements and that reported for tax purposes, and the carry-forward of losses and tax credits not retrieved, are also recorded, provided their retrieval (elimination) reduces (increases) future tax payments with respect to the amount that would be payable in the future in case such retrieval (elimination) did not have a tax effect. The tax effect of operations are recorded in the income statement or directly under Shareholders Equity in the same manner as operations or events that originate a tax imposition Currency Entries in the financial statements of each Group company are recorded in the currency of the primary economic environment in which each company operates ( functional currency ). The consolidated financial statements are prepared in Euro, which is the functional currency of the Parent Company. Transactions denominated in other currencies are translated into the functional currency at the exchange rate at the date of the transaction. Foreign-exchange gains and losses arising from the settlement of these transactions and the translation of assets and liabilities denominated in currencies other than the functional currency are recorded in the income statement. 5. Financial data by sector Sectors of activity and primary and secondary sectors in which the Group is active were determined keeping into account the principal source and nature of risks and returns of the Group, the organizational structure and the internal reporting system. In particular, as the Group s risks and returns are influenced exclusively by differences in products and services rendered, the primary reporting schedule adopted by the Group is the breakdown by type of activity, while information by geographical area is not applicable and is therefore not provided. For assets or liabilities that cannot be attributed to a specific sector, specific parameters were applied in their attribution. Assets and liabilities of the National newspapers-periodicals and Radio-Internet sectors, are unified because the distinctives of the sectors, with particular reference to the marketing of editorial products, do not allow for an objective assessment of individual values. Assets and liabilities that may not be attributed with specific parameters are reported separately in the table below. Transactions between sectors are carried out at remunerative terms, in line with market conditions applicable to the respective sectors.

63 62 Notes to the Consolidated Financial Statements Operating and financial data by sector National newspapers Periodicals Local newspapers Radio Internet Television Advertising Other activities Adjustments TOTAL ( milion) Revenues from others (0.1) (0.9) 1, ,079.9 Revenues from other sectors (526.8) (572.4) - - Operating income (2.9) (0.4) (0.1) (0.0) Financial income (expense) (17.7) (25.6) Adjustments to value of financial assets Taxes and minority interests (75.7) (35.6) Net profit (loss) Net capital expenditure (0.3) (0.8) 15.3 (1.2) Write-downs (2.5) (0.9) - - (0.0) (0.0) (0.3) (2.8) (0.9) Depreciation (13.5) (13.0) (0.6) (0.8) (11.6) (14.0) (3.3) (3.3) (0.7) (0.4) - (1.5) (0.5) (0.4) (8.9) (10.5) 0.1 (0.1) (39.0) (43.8) Non-monetary costs (4.8) (7.9) (1.1) (2.5) (4.7) (7.8) (1.0) (0.8) (0.5) (0.3) - (0.1) (1.2) (1.4) (0.7) (1.8) - - (14.1) (22.6) National newspapers Local newspapers Radio e Internet Television Advertising Other activities Adjustments TOTAL and periodicals ( milion) Assets 1, , (644.7) (605.7) 1, ,444.8 Tax assets Total assets 1, ,552.2 Liabilities (273.2) (348.3) Tax liabilities Total liabilities 1,

64 Notes to the Consolidated Financial Statements Change in accounting principles, errors and adjustments to estimates Accounting principles adopted are modified from one financial year to the next only in case the change is required by an accounting Principle or if it contributes to provide more reliable and relevant information on the effect of transactions carried out on the financial position, economic performance or financial flows of the entity involved. The effects of changes in accounting principles are recorded retrospectively in the Shareholders Equity for the first accounting year in which the change is introduced, and comparative information is adapted accordingly. Such approach is adopted only when it is impractical to restate the accounts for comparative purposes. The application of a new or modified accounting principle is accounted for as required by the same principle. In case the principle does not provide for the transition, the change is accounted for under the retrospective method or, when this is impractical, through the use of projections. In case of relevant errors, the method described in the paragraph above with reference to accounting principles applies. In case of immaterial errors, the recording is carried out in the income statement in the period in which it is detected. Changes in estimates are accounted for through the use of projections in the income statement in the year in which the review takes place in case changes affect only such year, or in the year in which the review takes place and in subsequent years in case the change has an impact also in subsequent accounting periods. 7. Subsequent events Subsequent events occurred after the date of the financial statements till the date at which the publication of the same is authorized. The date of approval for the publication of the financial statements is the date at which the Board of Directors approves them. Such date is indicated in Note 1. Subsequent events relate to facts that provide evidence of situations existing at the date of the financial statements (subsequent events that imply adjustments) or facts providing evidence of situations after the balance sheet date (subsequent events that do not require adjustments). The effect related to the first is recorded in the financial statements and the appropriate note is adjusted accordingly, while in the second case only relevant information is provided in the notes, where relevant. 8. Risk management The management of financial risk is regulated by a set of rules, defined by the Group, that outlines the objectives, strategies, guidelines and operating procedures. In the management of financial resources and treasury, the Group adopts a procedure that implies the application of strict prudence and limited risk criteria in the choice of financial and investment policies, prohibiting all speculative operations except for those motivated and approved by the Board of Directors. The Parent Company Gruppo Editoriale L Espresso SpA manages and coordinates a centralized intragroup current account, in which all subsidiaries take part, aiming at obtaining economic advantages in relationships with financial counterparts and stronger operating efficiency. Centralization allows in fact more efficient planning and control of financial flows, ensures higher consistency in financing and investment choices, optimizes the risk profile of the overall Group and, above all, strengthens its contractual power with the banking system. The Group, whose rating issued by Standard&Poors is BBB- with a positive outlook, uses pre-

65 64 Notes to the Consolidated Financial Statements valently two channels to raise financial resources: the international bond market and long-term bank loans extended against investments in publishing activities for which subsidies are provided by the Italian law, reducing the interest rate on the loan by several percentage points. In this framework and in view of the good liquidity of the market and of favorable interest rates, the Parent Company placed on the market in October 2004 a 300, 10-year bond, bearing a 5.125% fixed rate of interest to be used to repay the existing 200 million bond expiring August 1, 2005, in addition to providing liquidity for future acquisitions and investments. The 300 million bond issue and the related interest payments are not guaranteed and do not contain covenants or clauses providing for their early repayment. The proceeds of the bond resulted temporarily in a strong liquidity, invested in time deposits with primary Italian banks. To limit the effect of the negative spread between the fixed interest paid out and the floating interest earned until the expiration of the old bond issue and the settlement of the acquisition of Rete A, the Group entered into interest rate swap contracts, swapping the fixed rate into a floating rate. The operation was reversed in March 2005 with a gain of about 9 million, achieved thanks to a further reduction in interest rates in the period. In addition to the bond issue mentioned above, in November 2005 the Parent Company and some subsidiaries were extended ten-year loans, subsidized in accordance to the Law on publishing, amounting to 112 million, at an interest rate, net of the State subsidy, of 2.35%. Were it be in need of additional financial resources over those provided by the operating cash flow, the Group will however be in a position to draw on a number of uncommitted credit lines which are currently unutilized. The Group is currently not exposed to any financial risk connected with fluctuations in interest rates or exchange rates. Price risk As it is active in the publishing sector, the Group acquires large quantities of paper. To achieve a more efficient management of paper purchases and to strengthen its bargaining position with counterparts, thus promoting competition among suppliers, the management of paper purchases for the Group was unified. Over the course of time, the Group stipulated a number of paper swap contracts on a portion of its paper needs but, verifying their ineffectiveness in the medium term, has decided to discontinue the use of such instruments. The last three years old paper swap contract expired on September 30, Credit risk The credit risk exposure of the Group relates to trade and financial receivables. Due to the sector in which it operates, the Group is not subjet to significant credit risk on trade receivables. Though there are no significant concentrations of such risks, the Group however adopts operating procedures that bar the sale of products or services to customers that do not possess an adequate credit profile or provide collateral guarantees. With regard to financial receivables, investments in short-term financial instruments and trading in derivatives are carried out only with banks that possess a high credit standing.

66 Notes to the Consolidated Financial Statements 65 In accordance with IAS 32 paragraph 74, we give the following information: <1 >1<2 >2<3 >3<4 >4<5 >5 Total ( 000) INTEREST BERING Fixed-rate Other reiceivables ,193 1,193 Cash and cash equivalents 191, ,400 Bond issues , ,357 Other financial payables 14,730 18,023 16,931 16,270 15,662 59, ,569 Floating rate Other reicevables ,417 1,417 Marketable securities Cash and cash equivalents 12, ,493 Bank overdrafts 9, ,695 NON-INTEREST BEARING Trade receivables 266, ,391 Other receivables 22, ,631 Financial receivables Cash and cash equivalents Trade payables 196, ,707 Other payables 67,484 1, ,900 74, New IFRS and interpretations of the IFRIC In the last months of 2005, the IASB and the IFRIC published new Standards and Interpretations. Despite the fact that at the present date such Standards and Interpretations have not the obligatoriness or have not yet been incorporated in the EU legislation, the Group has however taken into account their effects, summarizing the potential impacts on its balance sheet and income statement as follows: IFRS IFRIC Interpretation IFRS 6 Exploration for and evaluation of mineral resources IAS 19 amended Employee benefits IAS 39 amended Financial instruments IFRS 4 amended Insurance contracts IFRS 7 Disclosure requirements and changes to IAS 1- Presentation of Financial Statements IFRIC 4 Determining whether an arrangement contains a lease IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental funds SIC 12 amended Special purpose companies IFRIC 6 Liabilities arising from participating in a specific market - waste electrical and electronic equipment Effect on the accounts of the Group Not applicable to the Group The Group does not foresee the adoption of changes introduced in the short term No significant impact Not applicable to the Group The application of the Principle will involve exclusively wider disclosure on financial instruments and share capital No significant impact Not applicable to the Group No significant impact Not applicable to the Group

67 66 Notes to the Consolidated Financial Statements 10. Main causes of uncertainty over estimates Estimates are made primarily in the context of the recording of write-downs on the value of assets, to estimate returns of publications, accruals to credit risk, employee benefits, taxes and other accruals and provisions. Estimates and assumptions are reviewed periodically and the effects of each resulting change are reflected immediately in the income statement. In particular, estimates of returns of publications and the related add-on products are carried out monthly with statistical methods and constantly updated with information available. Estimates of legal risks keep into account the nature of the litigation pending (civil and penal). Estimates for homogeneous risk are weighted against the performance in the previous three years. Historical data shows a stable trend. 11. Consolidation area 11.1 Changes in the consolidation area Companies included in the consolidation area are listed in Attachment 1. On April 14, 2005, the Espresso Group acquired 100% of Rete A SpA, owner of national TV network All Music, which in turn holds 100% of company All Music SpA. The price paid for the acquisition amounts to 115 million, financed using part of the proceeds of the 300 million bond issue launched in October Below we report the Balance Sheet of the two companies at June 30, 2005, as restated under IFRS and expressed in thousands of euros. Assets Liabilities and Shareholders Equity Intangible assets with an indefinite useful life 156,634 Share capital 6,198 Other intangible assets 6 Reserves 111,319 Intangible assets 156,640 Retained earnings (loss carry-forwards) (2,517) Property, plant and equipment 8,098 Net Profit (loss) 849 Other investments 14 Shareholders Equity 115,849 Non-current receivables 30 Financial debt 562 Non-current assets 164,782 Employee term. indemnity and other retirement benefits 1,180 Trade receivables 5,103 Deferred tax liabilities 45,363 Marketable securities 52 Non-current liabilities 47,105 Current financial receivables 6,012 Financial debt 10,733 Tax receivables 597 Trade payables 2,904 Other receivables 1,715 Tax payables 1,190 Cash and cash equivalents 758 Other payables 1,238 Current assets 14,237 Current liabilities 16,065 TOTAL ASSETS 179,019 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 179,019 The fair value of a building owned by Rete A, carried at 126 thousand, was estimated through an independent expert opinion at 2,673 thousand. The value of television broadcasting frequencies, determined using market multiples used in recent similar transactions, is equal to 118,192 thousand. The premium paid upon an acquisition over the value of identifiable assets and liabilities acquired, in addition to potential liabilities, represents goodwill. In the case of Rete A, goodwill amounted to 34,839 thousand, representing the difference between the 115,000 thousand

68 Notes to the Consolidated Financial Statements 67 paid for the acquisition, and the fair value of assets and liabilities acquired, amounting to 80,161 thousand. Goodwill can be attributed to the creation of synergies with other trademarks and activities of the Group in the media sector, leading to the integrated use of all media platforms to publish editorial content. The cash outflow for the acquisition was made up as follows: Price paid 115,000 Cash and cash equivalent of acquired company (7,093) Cash outflow 107,907 In December 2005, Elemedia SpA concluded the sale of Czech subsidiary Radio Bonton and put in liquidation Hungarian subsidiary Radio Deejay Kft. For these reasons, and for the immateriality of the two companies for the purposes of the consolidation, the two subsidiaries were excluded from the consolidation area from January 1, The merger of Elemedia SpA, Eletv SpA and Studiovit Srl into subsidiary Kataweb SpA was concluded on December 16, The financial statements of the incorporating company, Kataweb SpA, thus include the results of the merged companies from January 1, Kataweb SpA has subsequently changed its name to Elemedia SpA. On July 21, 2005, the Parent Company acquired 28,358 shares (representing a 0.032% of the share capital) of subsidiary Editoriale FVG SpA for 32 thousand, thus bringing its share to 91.99% of the capital stock Conversion into Euro of financial statements denominated in other currencies The conversion into Euro of the financial statements of foreign subsidiaries operating in countries outside the euro zone, none of which is an economy characterized by hyper-inflation, as defined under IAS 29, is carried out at the respective exchange rate at the date of the financial statements in the case of balance sheet items, and at average exchange rates for the period in the case of income statement items. Differences arising from the translation of the Shareholders Equity of foreign subsidiaries outside the euro zone at year-end exchange rates and of the conversion of income statement items at the average exchange rate for the period are recorded in the Shareholders Equity under Other reserves. Main exchange-rates used were: Average Dec. 31, 2004 Average Dec. 31, 2005 Hungary Forint/euro (HUF/ ) Czech Republic Koruny/euro (CZK/ )

69 68 Notes to the Consolidated Financial Statements 12. Notes on balance sheet items Assets Intangible assets (1) Intangible assets are made up as follows: Jan. 1, 2005 Dec. 31, 2005 Publications and trademarks 400, ,245 Frequencies 58, ,961 Goodwill 2,507 37,346 Industrial patents and intellectual property rights 22 8 Concessions and licenses 4,211 4,363 Work in progress Other intangible assets 16 - TOTAL INTANGIBLE ASSETS 465, ,028 of which: Intangible assets with an indefinite useful life 461, ,552 Intangible assets with a definite useful life 4,288 4,476 No intangible asset is generated internally. Research and Development costs are not capitalized and no write-up of intangible assets was carried out. The breakdown of intangible assets and changes in the year are shown in the tables that follow. Intangible assets with an indefinite useful life Publications and trademarks Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 400, ,244 Accumulated amortization and write-downs - - Opening balance 400, ,244 ADJUSTMENTS TO ORIGINAL COST Increases - 2 Purchase/(sale) of companies - - Decreases - (1) Reclassifications - - Closing balance Original cost 400, ,245 Accumulated amortization and write-downs - - Closing balance 400, ,245

70 Notes to the Consolidated Financial Statements 69 Frequencies Jan.1, 2005 Dec. 31, 2005 Opening balance Original cost 58,544 58,695 Accumulated amortization and write-downs - - Opening balance 58,544 58,695 ADJUSTMENTS TO ORIGINAL COST Increases ,152 Purchase/(sale) of companies - 118,209 Decreases (340) (95) Reclassifications - - Closing balance Original cost 58, ,961 Accumulated amortization and write-downs - - Closing balance 58, ,961 Goodwill Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 2,507 2,507 Accumulated amortization and write-downs - - Opening balance 2,507 2,507 ADJUSTMENTS TO ORIGINAL COST Increases - - Purchase/(sale) of companies - 34,839 Decreases - - Reclassifications - - Closing balance Original cost 2,507 37,346 Accumulated amortization and write-downs - - Closing balance 2,507 37,346 A detailed list of intangible assets with an indefinite useful life and the respective book value for the current year and the previous one are shown in the table below.

71 70 Notes to the Consolidated Financial Statements Book value at Book value at Jan. 1, 2005 Dec. 31, La Repubblica 229, , La Nuova Sardegna 6,113 6, Finegil Editoriale 48,898 48, FVG 104, , Alto Adige 5,120 5, La Città La Sentinella del Canavese Free Press 3,372 3, Radio frequencies 58,695 58, TV frequencies - 137, Deejay trademark 1,171 1, All Music goodwill - 34,839 TOTAL 458, ,044 The impairment test carried out on publications, frequencies and trademarks, considered assets with an indefinite useful life, and on goodwills, did not result in the emergence of losses in value to be recorded in the financial statements. The expected retrievable value of assets was estimated based on fair value less cost to sell and value in use. The table that follows shows main information used to carry out the impairment test for each cash generating unit or group of units whose value is significant: Cash Book value Criterion used Sector Impairment loss Generating Unit at Dec. 31, La Repubblica 229,952 Value in use National newspapers - 2. La Nuova Sardegna 6,113 Value in use Local newspapers - 3. Finegil Editoriale 48,898 Value in use Local newspapers - 4. FVG 104,527 Value in use Local newspapers - 5. Alto Adige 5,120 Value in use Local newspapers - 6. La Città 466 Value in use Local newspapers - 7. La Sentinella del Canavese 625 Value in use Local newspapers - 8. Free Press 3,372 Value in use Local newspapers - 9. Radio frequencies 58,937 Fair value Radio TV frequencies 137,024 Fair value Television Deejay trademark 1,171 Value in use Radio All Music goodwill 34,839 Value in use Television - The Group recorded goodwill amounting to 37,346 thousand, consisting primarily of goodwill relating to national TV network All Music.

72 Notes to the Consolidated Financial Statements 71 Determination of value in use of Cash Generating Units The value in use of Cash Generating Units was determined by discounting back at an appropriate rate future cash flows, both positive and negative, generated by the unit in its productive phase and upon disposal. In other terms, the value in use was estimated by applying the Discounted Cash Flow model using the unlevered (or asset side) version that applies a formula that includes the discouting back of cash flows analytically expected during the period of the anticipatory plans and the expected terminal value of the cash generating unit. In order to estimate correctly the value in use of a Cash Generating Unit, it has been necessary to estimate the cash flows generated by it over time; expectations regarding possible fluctuations in the amount and timing of cash flows; the discounting back rate to be applied; and possible risk factors inherent in the long-term nature of the capital investment made in the unit. With regard to the characteristics of cash flows to be discounted, IAS 36 explicitly requires that in the estimation of the discounted value, positive and negative cash flows generated by financial management and financial flows relating to taxes must not be taken into account. Cash flows to be discounted are therefore only operating cash flows, unlevered, differential (as they relate to the specific unit), and gross of taxes. In the specific case, a pre-tax WACC (in line with the financial flow gross of the tax effect) was estimated at December 31, Factors considered in determining the discounting back rate to be used included: the determination of a proper rate of return, an estimate of the cost of capital borrowed and the determination of the characteristics of the sources of financing. Below we summarize factors used for each individual test: Cash Time horizon in years Growth rate Discounting back rate Generating Unit (pre-tax WACC) 1. La Repubblica Zero 6.61% 2. La Nuova Sardegna Zero 7.61% 3. Finegil Editoriale Zero 7.61% 4. FVG Zero 7.61% 5. Alto Adige Zero 7.61% 6. La Città Zero 7.61% 7. La Sentinella del Canavese Zero 7.61% 8. Free Press Zero 7.61% 9. Radio frequencies Zero 7.25% 10. TV frequencies Zero 7.25% 11. Deejay trademark Zero 7.25% 12. All Music goodwill Zero 7.25% The determination of fair value less costs to sell of Cash Generating Units IAS 36 establishes that the fair value less costs to sell of an asset or a group of assets (for example a Cash Generating Unit) is best expressed through a price set in a binding sale offer between independent parties, net of direct costs incurred in the disposal of the asset. In case such evidence does not exist, the fair value net cost to sell can be determined making reference, in order of importance, to the following values: the current price negotiated in an active market; the price recorded in previous similar transactions; the price estimated on the bases of other information gathered by the company.

73 72 Notes to the Consolidated Financial Statements In the specific case, the fair value less cost to sell was determined following a different approach between assets in the publishing sector, for which, in absence of an active trading market, direct multiples were used, and assets in the radio and television sector, for which a price/users type of multiple was adopted, observing transfer prices of similar frequencies in relation to the population that may potentially be reached by the related signal. To determine the possible price of a Cash Generating Unit in the publishing sector, entity side multiples were used, either of the trailing or leading indicator type. It is worth reminding that valuation methods based on multiples are usually divided into those based on an equity approach to valuation and those based on an entity approach to valuation. The first approach leads to the direct and immediate valuation of the economic value of the capital of a company, a business or an operating unit, while the second approach involves an indirect and pondered valuation obtained as the difference between the enterprise value (economic value of the assets), and the market value of financial debt. The estimate of the fair value less cost to sell of operating units in the radio and television sector was carried out based on prices recorded on the sale of similar frequencies, verified through an assessment of the potential audience reached by the signal. The use of this approach allows to estimate the fair value of radio and television frequencies by correlating the market price of the frequency and the number of inhabitants reached by the signal. Intangible assets with a definite useful life The table below shows the useful life of intangible assets with a definite useful life and the amortization rate used: Useful life Amortization rate Industrial patents and intellectual property rights 3 years 33.33% Concessions and licenses 3-5 years 20%-33.33% Other intangible assets 3-6 years 16.67%-33.33% The breakdown and changes in intangible assets are shown below.

74 Notes to the Consolidated Financial Statements 73 Industrial patents and intellectual property rights Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 6,881 6,883 Accumulated amortization and write-downs (6,847) (6,861) Opening balance ADJUSTMENTS TO ORIGINAL COST Increases 7 8 Purchase/(sale) of companies - - Decreases (5) - Reclassifications - - ADJUSTMENTS TO PROVISIONS Increases (198) (20) Purchase/(sale) of companies - (2) Decreases 6 - Reclassifications Closing balance Original cost 6,883 6,891 Accumulated amortization and write-downs (6,861) (6,883) Closing balance 22 8 Concessions and licenses Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 31,982 33,503 Accumulated amortization and write-downs (26,834) (29,292) Opening balance 5,148 4,211 ADJUSTMENTS TO ORIGINAL COST Increases 1,413 2,616 Purchase/(sale) of companies Decreases (237) (491) Reclassifications ADJUSTMENTS TO PROVISIONS Increases (2,362) (2,457) Purchase/(sale) of companies - (344) Decreases Reclassifications (201) - Closing balance Original cost 33,503 35,965 Accumulated amortization and write-downs (29,292) (31,602) Closing balance 4,211 4,363

75 74 Notes to the Consolidated Financial Statements Work in progress Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost Accumulated amortization and write-downs - - Opening balance ADJUSTMENTS TO ORIGINAL COST Increases Purchase/(sale) of companies - - Decreases - - Reclassifications (248) (13) Closing balance Original cost Accumulated amortization and write-downs - - Closing balance Other intangible assets Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 4,095 4,010 Accumulated amortization and write-downs (4,015) (3,994) Opening balance ADJUSTMENTS TO ORIGINAL COST Increases 12 - Purchase/(sale) of companies Decreases - (64) Reclassifications (97) - ADJUSTMENTS TO PROVISIONS Increases (50) (14) Purchase/(sale) of companies - (669) Decreases Reclassifications 23 - Closing balance Original cost 4,010 4,614 Accumulated amortization and write-downs (3,994) (4,614) Closing balance 16 -

76 Notes to the Consolidated Financial Statements 75 Property, plant and equipment (2) The following table shows the details of property, plan and equipment: Jan. 1, 2005 Dec. 31, 2005 Lands 6,338 6,108 Buildings and construction 47,598 49,769 Leasehold improvements 10,774 16,818 Plant and machinery 155, ,547 Technical equipment Furniture, fixtures and vehicles 14,644 14,486 Tangible assets under construction 22,016 4,389 Other assets 1,026 1,269 TOTAL PROPERTY, PLANT AND EQUIPMENT 258, ,975 In view of the homogeneity of assets recorded in the balance sheet, the expected useful life of property, plant and equipment by category is as follows: Useful life Depreciation rate Lands Indefinite useful life - Industrial and civil buildings 33 years 3.00% Printing plants 6-10 years 10.00%-15.50% Generic plant 3-10 years 10.00%-33.33% Air conditioning 5 years 20.00% Other plant and equipment 4-8 years 12.50%-20.00% Rotary presses 5 years 20.00% Full color rotary presses 10 years 10.00% Industrial equipment 4-6 years 19.00%-25.00% Vehicles 4-5 years 20.00%-25.00% Furniture, fixtures and ordinary equipment 8 years 12.00% PCs and audio-video equipment 3-5 years 20.00%-33.33% Electronic equipment 3-5 years 20.00%-33.33% Editorial systems 4 years 25.00% Leasehold improvements Term of contract 10.00%-33.33% A breakdown of property, plant and equipment owned and held under a lease is included in the tables that follow.

77 76 Notes to the Consolidated Financial Statements Lands Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 5,828 6,338 Accumulated depreciation and write-downs - - Opening balance 5,828 6,338 ADJUSTMENTS TO ORIGINAL COST Increases Purchase/(sale) of companies - - Decreases - (402) Reclassifications - - Closing balance Original cost 6,338 6,108 Accumulated depreciation and write-downs - - Closing balance 6,338 6,108 of which: Guarantees and commitments 448 1,039 Industrial and civil buildings Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 57,896 70,430 Accumulated depreciation and write-downs (21,030) (22,832) Opening balance 36,866 47,598 ADJUSTMENTS TO ORIGINAL COST Increases 5, Purchase/(sale) of companies - 3,187 Decreases (165) (954) Reclassifications 7,654 1,848 ADJUSTMENTS TO PROVISIONS Increases (1,807) (2,304) Purchase/(sale) of companies - (514) Decreases Reclassifications - - Closing balance Original cost 70,430 75,251 Accumulated depreciation and write-downs (22,832) (25,482) Closing balance 47,598 49,769 of which: Leasing principal Accumulated depreciation on leased assets (100) (128) Guarantees and commitments 2,893 6,707

78 Notes to the Consolidated Financial Statements 77 The subject matter of the leasing contract is the building held by subsidiary A. Manzoni&C. in Rimini and it hosts offices. The contract was stipulated on December 11, 2000 with the company SBS Leasing SpA, and has a term of 144 months. The value of the building, assessed through an independent survey, on which leasing payments were calculated, is 644 thousand and is in line with market value. Interest is calculated at a fixed rate of interest set in the contract. The cumulative value of leasing payments is equal to 876 thousand and includes the principal amount, interest and the value of the buy-back option, worth 6 thousand. Leasehold improvements Jan.1, 2005 Dec. 31, 2005 Opening balance Original cost 22,418 29,709 Accumulated depreciation and write-downs (20,538) (18,935) Opening balance 1,880 10,774 ADJUSTMENTS TO ORIGINAL COST Increases 9,212 7,363 Purchase/(sale) of companies - - Decreases (2,701) (200) Reclassifications ADJUSTMENTS TO PROVISIONS Increases (1,151) (2,225) Purchase/(sale) of companies - - Decreases 2, Reclassifications (53) - Closing balance Original cost 29,709 37,780 Accumulated depreciation and write-downs (18,935) (20,962) Closing balance 10,774 16,818

79 78 Notes to the Consolidated Financial Statements Plants and machinery Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 285, ,621 Accumulated depreciation and write-downs (224,064) (248,655) Opening balance 61, ,966 ADJUSTMENTS TO ORIGINAL COST Increases 23,267 13,591 Purchase/(sale) of companies - 6,217 Decreases (7,978) (6,383) Reclassifications 103,938 17,362 ADJUSTMENTS TO PROVISIONS Increases (30,279) (31,562) Purchase/(sale) of companies - (4,728) Decreases 5,697 6,121 Reclassifications (9) (37) Closing balance Original cost 404, ,408 Accumulated depreciation and write-downs (248,655) (278,861) Closing balance 155, ,547 of which: Leasing principal 10,846 15,721 Accumulated depreciation on leased assets (6,779) (10,670) Guarantees and commitments 59, ,537 Plant leased relates to subsidiaries Rete A SpA and Rotosud SpA. Rete A is currently a partner in 31 lease contracts, strictly in connection with television activities, all with Finegil Lombarda SpA. All contracts have a term of 36 months and lease payments are monthly. Rotosud SpA s lease contract relates to printing plant and machinery and was stipulated with leasing company Intesa Leasing SpA on September 30, 1998 for a term of 10 years. The principal value of the asset leased is 10,846 thousand. Lease payments are made quarterly and amount to 313 thousand each, in addition to an advance payment of 2,169 thousand made upon signing the lease contract. The increase in liens on item Plant and machinery is due primary to secured quarantees granted to banks that extended subsidized loans on rotary presses, printing equipment and similar equipment in 2005.

80 Notes to the Consolidated Financial Statements 79 Technical equipment Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 2,413 2,890 Accumulated depreciation and write-downs (2,136) (2,280) Opening balance ADJUSTMENTS TO ORIGINAL COST Increases Purchase/(sale) of companies Decreases (67) (63) Reclassifications ADJUSTMENTS TO PROVISIONS Increases (214) (220) Purchase/(sale) of companies - (113) Decreases Reclassifications - (157) Closing balance Original cost 2,890 3,303 Accumulated depreciation and write-downs (2,280) (2,714) Closing balance of which: Guarantees and commitments Furniture, fixtures and vehicles Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 52,301 59,185 Accumulated depreciation and write-downs (40,855) (44,541) Opening balance 11,446 14,644 ADJUSTMENTS TO ORIGINAL COST Increases 8,164 5,129 Purchase/(sale) of companies - 16 Decreases (1,387) (1,746) Reclassifications 107 8,142 ADJUSTMENTS TO PROVISIONS Increases (4,923) (5,380) Purchase/(sale) of companies - (36) Decreases 1,237 1,466 Reclassifications - (7,749) Closing balance Original cost 59,185 70,726 Accumulated depreciation and write-downs (44,541) (56,240) Closing balance 14,644 14,486 of which: Guarantees and commitments - 81

81 80 Notes to the Consolidated Financial Statements Tangible assets under construction Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 80,444 22,016 Accumulated depreciation and write-downs - - Opening balance 80,444 22,016 ADJUSTMENTS TO ORIGINAL COST Increases 54,306 2,466 Purchase/(sale) of companies - - Decreases (214) - Reclassifications (112,520) (20,093) Closing balance Original cost 22,016 4,389 Accumulated depreciation and write-downs - - Closing balance 22,016 4,389 Other tangible assets Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 17,435 17,316 Accumulated depreciation and write-downs (16,247) (16,290) Opening balance 1,188 1,026 ADJUSTMENTS TO ORIGINAL COST Increases 699 1,234 Purchase/(sale) of companies - 1,242 Decreases (845) (1,940) Reclassifications 27 (8,324) ADJUSTMENTS TO PROVISIONS Increases (897) (590) Purchase/(sale) of companies - (244) Decreases Reclassifications 62 7,943 Closing balance Original cost 17,316 9,528 Accumulated depreciation and write-downs (16,290) (8,259) Closing balance 1,026 1,269 of which: Leasing principal Accumulated depreciation on leased assets (165) (357) Guarantees and commitments - -

82 Notes to the Consolidated Financial Statements 81 Assets held under a financial lease relate prevalently to subsidiary Ksolutions SpA and consist of hardware and software necessary to serve a contract with the Sardinia Region. The assets are expected to be purchased by exercising the option upon termination of the lease and subsequently resold to the Sardinia Region. Discontinued operations Discontinued operations consist of foreign subsidiary Radio Bonton a.s., owner of radio broadcasting station Radio Deejay Prague. Jan. 1, 2005 Dec. 31, 2005 Total assets Total liabilities Fixed assets Working capital Net non-current assets/(liabilities) 7 - Financial assets - - Financial debts (205) - Cash and cash equivalents Capital gain (loss) Sale price - 1,000 FLOW GENERATED BY THE SALE Revenues Operating costs (808) (865) Depreciation, amortization and write-downs (49) (25) Operating income (102) (64) Financial income (expense) (2) 25 Pre-tax profit (104) (39) Income taxes - - Investments valued at equity (3) The table that follows shows investments valued at equity and the percentage share owned. % held Jan. 1, 2005 Dec. 31, 2005 Le Scienze SpA 50% 50% Saire Srl 50% 50% Editoriale Libertà SpA 35% 35% Altrimedia SpA 35% 35%

83 82 Notes to the Consolidated Financial Statements The tables that follow show the value of investments valued at equity and changes in the year: Jan. 1, Dec. 31, 2005 Incr. Decr. Dividends Profit Other 2005 Le Scienze SpA (121) Saire Srl Editoriale Libertà SpA 22, (875) 917 (190) 22,543 Altrimedia SpA (140) TOTAL INVESTMENTS VALUED AT EQUITY 23, (1,136) 1,344 (190) 23,925 The retrievable value of the investment in Editoriale La Libertà was determined, in accordance with IAS 36, as the larger between the fair value net cost to sell and the value in use. The first value was estimated based on market multiples, while the second was quantified on the basis of the expected cash flows generated by operating activities. The impairment test on Editoriale La Libertà resulted in a value in line with that at which it is carried. Financial highlights of the mentioned investments are reported below: Assets Liabilities Jan. 1, 2005 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2005 Le Scienze SpA 2,883 3,518 2,520 2,822 Saire Srl Editoriale Libertà SpA 21,376 20,971 7,035 7,084 Altrimedia SpA 3,899 4,010 2,450 2,595 Revenues Profit/(loss) Le Scienze SpA 3,357 3, Saire Srl Editoriale Libertà SpA 16,131 2,967 3, Altrimedia SpA 10,005 10, The financial year of the above companies coincides with that of Gruppo Editoriale L Espresso SpA. Other investments (4) Book value at January 1, ,868 (Sale of investments) - Purchase of investments 204 Book value at December 31, ,072

84 Notes to the Consolidated Financial Statements 83 The table that follows shows other investments, changes in the percentage of ownership and the book value: % held Book value Jan. 1, 2005 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2005 Sandalyaweb Srl (in liquidation) 100% 100% Radio Deejay Kft. (in liquidation) 100% 100% - - Telelibertà SpA - 19% Ansa Soc. Coop.a r.l % 17.32% 2,209 2,209 E Ink Corporation Inc. 0.43% 0.26% 1,481 1,481 Trento Press Service Srl 14.4% 14.4% A.G.F. Srl 10% 10% Audiradio Srl 4% 4% Other investments TOTAL OTHER INVESTMENTS 3,868 4,072 The financial year of the above companies coincides with that of Gruppo Editoriale L Espresso SpA. Non-current receivables (5) Jan. 1, 2005 Dec. 31, 2005 Withholding taxes on Employee termination indemnity receivables 2,371 1,417 Long-term security deposits 1,441 1,193 Other non-current financial receivables 5,442 - TOTAL NON-CURRENT RECEIVABLES 9,254 2,610 In application of IAS 39, the fair value of fixed/floating interest rate swap contracts entered into to hedge the interest rate risk resulting from bonds issued on October 27, 2004, amounting to 5,435 thousand, was recorded under Other receivables at January 1, 2005, as described in note 17. A matching liability was recorded under Non-current financial receivables as an increase of the liability resulting from the bond issue.

85 84 Notes to the Consolidated Financial Statements Deferred/Prepaid-tax assets (6) The table that follows shows the changes in deferred/prepaid tax assets: Prepaid taxes Taxable amount Jan. 1, 2004 Increase Reversal Jan. 1, 2005 Increase Reversal Dec. 31, 2005 in of timing in of timing differences differences from differences differences from previous years previous years On personnel provision 3,417 3,186 (1,026) 5,577 2,663 (4,409) 3,831 On risk provisions 17,400 4,235 (3,450) 18,185 7,583 (8,604) 17,164 On write-down of current assets 7,368 9,225 (3,821) 12,772 18,554 (8,621) 22,705 On write-down of fixed assets 30,415 9,154 (9,581) 29,988 8,191 (13,207) 24,972 On revaluation of medium - and long - term debt On write-down of financial instruments - 13,440-13,440 2,718 (5,067) 11,091 On previous years losses 4,112 5 (1,515) 2,602 88,320 (29,625) 61,297 TOTAL 62,712 39,245 (19,393) 82, ,029 (69,533) 141,060 Prepaid taxes assets Jan. 1, 2004 Increase in Uses of Jan. 1, 2005 Increase in Uses of Dec. 31,2005 prepaid prepaid prepaid prepaid tax assets tax assets tax assets tax assets On personnel provisions 1,147 1,052 (348) 1, (1,465) 1,265 On risk provisions 6,056 1,553 (1,228) 6,381 2,239 (3,002) 5,618 On write-down of current assets 2,279 3,244 (1,440) 4,083 7,109 (3,140) 8,052 On write-down of fixed assets 10,124 2,942 (3,173) 9,894 3,073 (4,413) 8,554 On revaluation of medium- and long-term debt On write-down of financial instruments - 4,600-4, (1,714) 3,784 On previous years losses (502) 27 29,530 (9,336) 20,221 TOTAL 20,132 13,393 (6,690) 26,835 43,729 (23,071) 47,494 The increase in taxable amounts on the basis of which 88,320 thousand of prepaid tax assets were recorded in the income statement is due primarily to losses accumulated by subsidiary Elemedia in previous years, recorded on the basis of expected income for the next two years.

86 Notes to the Consolidated Financial Statements 85 Deferred taxes Taxable amount Jan. 1, 2004 Increase in Reversal of Jan. 1, 2005 Increases in Uses of Dec. 31, 2005 differences taxable deferred deferred differences tax provision tax provision from previous years On lower valuation of personnel provisions 6, (362) 7,205 1,249 (1,583) 6,871 On lower valuation of risk provisions (99) (353) 191 On higher valuation of current assets (4) (232) 255 On higher valuation of fixed assets 116,399 14,266 (6,186) 124, ,171 (3,097) 261,553 On revaluation of financial instruments 5,311 9,171-14,482 - (6,731) 7,751 TOTAL 129,127 24,531 (6,651) 147, ,610 (11,996) 276,621 Deferred tax provision Jan. 1, 2004 Increase in Uses of Jan. 1, 2005 Increase in Uses in Dec. 31,2005 deferred tax deferred deferred deferred tax provision tax provision tax provision provision On lower valuation of personnel provisions 2, (33) 2, (529) 2,282 On lower valuation of risk provisions (37) (133) 52 On higher valuation of current assets (1) (80) 77 On higher valuation of fixed assets 43,147 5,377 (2,153) 46,371 52,036 (1,149) 97,258 On revaluation of financial instruments 1,975 3,188-5,163 - (2,277) 2,886 TOTAL 47,492 8,937 (2,224) 54,205 52,518 (4,167) 102,556 Elements whose deferred effect is not recorded Jan. 1, 2005 of which: that may be carried forward indefinitely Deductible temporary differences Unused loss carry-forwards 123,016 99,886 Unused tax credits - -

87 86 Notes to the Consolidated Financial Statements Inventories (7) Jan. 1, 2005 Dec. 31, 2005 Inventories, Depreciations Inventories, Inventories, Depreciations Inventories, gross net gross net Paper (raw materials) 23,849 (3) 23,846 24,136-24,136 Printing materials (raw materials) 2,190 (11) 2,179 2,286 (11) 2,275 Publications (finished products) Add-on and multi-media products (finished products) 7,045 (4,177) 2,868 8,085 (4,075) 4,010 Other goods 2,349 (1,437) 912 7,943 (6,848) 1,095 TOTAL INVENTORIES 35,817 (5,628) 30,189 43,120 (10,934) 32,186 At December 31, 2005, the change in inventories recorded in the income statement amounted to 2,009 thousand ( 756 thousand at December 31, 2004), of which 2,094 thousand relating to the positive change in inventories included under Change in inventories (at December 31, 2004 such change was negative by 342 thousand), and 85 thousand relating to the negative change in paper inventories, raw materials and other goods included under Purchases (as compared with 414 thousand in the same period in the previous year). Trade receivables (8) Jan. 1, 2005 Dec. 31, 2005 News-stands and distributors 12,783 20,861 Advertising 218, ,688 Other trade receivables 10,008 13,282 Receivables from Group companies TOTAL TRADE RECEIVABLES 241, ,391 At December 31, 2005, the provision for doubtful accounts amounts to 12,476 thousand ( 12,613 thousand at January 1, 2005). Receivables from Group companies consist of trade receivables of the Parent Company from Le Scienze. Marketable securities (9) Balance at December 31, ,538 Impact of application of IAS 32 and 39 (13,192) Balance at January 1, ,346 Purchases 52 (Sales)/Repayments (20,346) Balance at December 31, of which: Current portion 52

88 Notes to the Consolidated Financial Statements 87 Current financial receivables (10) Jan. 1, 2005 Dec. 31, 2005 Financial receivables from Group companies Other financial receivables TOTAL CURRENT FINANCIAL RECEIVABLES Tax receivables (11) Jan. 1, 2005 Dec. 31, 2005 Corporate income tax (Ires) and regional tax on productive activities (Irap) receivables 958 2,797 Ires receivables from Parent 1,734 12,694 Ires/Irap to be reimbursed 10,345 10,395 VAT receivables 606 1,652 Grants on publishing under Law 62 receivables 17,253 15,014 Grants on paper purchases receivables 4,494 10,412 Other tax receivables 6,081 6,957 TOTAL TAX RECEIVABLES 41,471 59,921 Receivables for grants relate to tax credits on capital expenditure as per Law 62/2001 (Law on Publishing), in addition to subsidies on paper purchases granted by Law 311 dated December 30, Law 62/2001 grants a 3% tax credit on eligible capital investments for the following five years. Grants not pertaining to the year are discounted and used-up over time based on the depreciation schedule of the assets to which they relate. Law 311 dated December 30, 2004 provides subsidies for paper used in 2005 for the printing of publications, granting a 10% tax credit on total paper purchases. The Law sets a limit of 95 million for grants to be extended in Though lacking a communication as to the amount of the grant, in view of the full granting of the amount applied for in the previous year, the company decided to recognize in full the amount due for 2005, equal to 10,278 thousand. The cost of paper actually consumed in 2005, for which the grant is provided, is detailed below: Dec. 31, 2005 Paper purchased 125,233 Paper on which the grant is provided 102,779 10% credit provided 10,278

89 88 Notes to the Consolidated Financial Statements Other receivables (12) Jan. 1, 2005 Dec. 31, 2005 Contributions and subsidies receivables 1,855 1,041 Receivables on interest subsidies - 8,609 Social security receivables Short-term security deposits Advances to suppliers and agents 6,017 1,048 Receivables from employees and associates Other receivables 10,539 10,362 TOTAL OTHER RECEIVABLES 19,906 22,631 Receivables on interest subsidies relate to subsidized loans concluded in 2005 to finance capital expenditure incurred in the context of the full color project. Advances to suppliers at January 1, 2005 included the 5,000 thousand paid upon the acquisition of national television network All Music. Other receivables consist prevalently of right paid for future years and prepaid rent. Cash and cash equivalents (13) Jan. 1, 2005 Dec. 31, 2005 Current account balances 383, ,893 Cash on hand Checks Accrued income 1, TOTAL CASH AND CASH EQUIVALENTS 384, ,496 Current account balances are highly liquid short-term financial investments that are readily convertible into known cash amounts and not subject to relevant fluctuations in value. Such investments are made according to the financial needs of the Group, have maturities averaging around three months and are remunerated at a pre-set fixed rate based on Euribor.

90 Notes to the Consolidated Financial Statements 89 Liabilities and Shareholders Equity Share capital (14) At December 31, 2005, the share capital amounted to 65,071, and was made up of 433,810,988 shares with par value of 0.15 each. With respect to January 1, 2005, the share capital increased by 175,590 as a result of the underwriting of 1,170,600 shares in execution of stock option plans. Jan. 1, 2005 Dec. 31, 2005 No. of shares resolved 442,882, ,822,188 No. of ordinary shares issued 432,640, ,810,988 of which: No. of treasury stocks 3,300,000 3,200,000 All ordinary shares issued are fully paid-in. There do not exist shares on which there is a restriction on the distribution of dividends, with the exception of the provisions of article 2357 of the Italian Civil Code regarding treasury stocks. Reserves (15) The breakdown of reserves and changes incurred in the period are reported in the Statement of changes in the Consolidated Shareholders Equity. Minority interests (16) Jan. 1, 2005 Dec. 31, 2005 Editoriale FVG SpA 9,226 9,190 Edigraf Srl Seta SpA 1,561 1,367 TOTAL MINORITY INTERESTS 11,005 10,775 Financial debt (17) Jan. 1, 2005 Dec. 31, 2005 Maturing between 1 Maturing between 2 Maturing and 2 years and 5 years over 5 years Bonds 303, , , ,084 Bank loans 22, ,239 16,348 48,055 59,836 Leasing payables 3,229 2,600 1, TOTAL NON CURRENT FINANCIAL DEBT 328, ,606 18,647 50, ,037 To hedge against the risk resulting from the 300 million fixed-interest bond issue, at January 1, 2005 the company was a counterpart in interest rate swaps contracts converting such fixed rate into a floating rate of interest. As a result of the termination (in March 2005) of said swap contracts prior to the expiration and as provided by IAS 39, the loan was accounted for the amortized cost. The same was determined keeping into account on the one hand costs incurred and issue discounts, and on the other the share pertaining to the period (on the basis of the residuel life of the bond) of the positive spread between the fair value of the bond issue at the

91 90 Notes to the Consolidated Financial Statements time of the early termination of connected hedging instruments and its original costs, equal to 9,020 thousand. The bond has a term of 10 years and bears an annual interest of 5.125%. The effective interest rate is 4.824%. Jan. 1, 2005 Dec. 31, 2005 Bonds 205,386 3,328 Bank loans 14,852 19,990 Financial payables to Group companies 5 - Leasing payables 1,048 1,697 Payables to other financing entities 3,344 - TOTAL CURRENT FINANCIAL DEBT 224,635 25,015 At January 1, 2005 item Bonds included the 200 million bond issue expiring August 1, 2005 (6.25% nominal half-yearly interest rate, equivalent to a 6.68% effective yearly rate). In application of IAS 39, on January 1, 2005 the value of the paper swap contract with which the price of part of paper supplies is fixed until September 2005 was recorded on January 1, 2005 under Current financial debt, while a matching reduction in the Reserve for fair value was recorded at the same date. The expiration of this contract resulted in the write-off of such items and the riclassification of an equivalent amount from the Fair value reserve to Retained earnings (loss carry-forward). Bank loans are made up as follows: Jan.1, 2005 Dec.31, 2005 Non-current secured loans 21, ,855 Non-current unsecured loans 1, Total non-current loans 22, ,239 Current secured loans 4,195 9,539 Current unsecured loans Total current loans 4,924 10,295 TOTAL BANK LOANS 27, ,534 A breakdown by maturity is provided in note 8 Risk management. Leasing payables are shown in the table that follows: Balance at Increases and Repayment of Repurchases Balance at Jan. 1, 2005 changes principal Dec. 31, 2005 in term Short-term portion 1,048 2,370 (1,710) (11) 1,697 Coming due between 1 and 5 years 3,111 1,566 (2,072) (66) 2,539 Coming due over 5 years 118 (57) TOTAL 4,277 3,879 (3,782) (77) 4,297

92 Notes to the Consolidated Financial Statements 91 Provisions for risks and charges (18) Legal Social Renewal of Early Sundry Total of which of which proceedings security contracts retirement risks provisions current non-current litigation incentives portion portion Opening balance 9,852 7,749-1,404 4,290 23,295 10,273 13,022 Uses (3,183) (1,557) (89) (893) (779) (6,501) (5,681) (820) Transfers current/non-current ,971 (2,971) Accruals/(release) 4,592 (895) 1,056 1,604 (244) 6,113 2,466 3,647 Change due to discouting back Ending balance 11,474 5, ,115 3,308 23,398 10,029 13,369 Non-current portion Legal Social Renewal of Early Sundry Total proceedings security contracts retirement risks provisions litigation incentives Opening balance 5,322 5, ,305 13,022 Uses - (41) - - (779) (820) Transfers current/non-current (2,662) (562) (2,971) Accruals/(release) 4,280 (754) ,647 Change due to discouting back Ending balance 7,153 4, ,126 13,369 Current portion Legal Social Renewal of Early Sundry Total proceedings security contracts retirement risks provisions litigation incentives Opening balance 4,530 2,354-1,404 1,985 10,273 Uses (3,183) (1,516) (89) (893) - (5,681) Transfers current/non-current 2, (253) 562 2,971 Accruals/(release) 312 (141) 1,056 1,604 (365) 2,466 Change due to discouting back Ending balance 4, ,862 2,182 10,029 The long-term components of such provisions, except for which relating to social security litigation (accruing a legal 2.5% rate of interest), were discounted at a 4% rate, gross of the related tax effect. Provisions for legal proceedings and labor litigation include risks deriving from libel suits, common to all publishers, risks connected with trade litigation, labor litigation and risks connected with social security audits.

93 92 Notes to the Consolidated Financial Statements The provision for early retirement incentives relates to the accrual of costs expected to be incurred in 2006 in the restructuring of subsidiaries Ksolutions and Editoriale FVG. The provision for sundry risks includes accruals for tax contestation on premium transactions, and other risks. Provisions for Employee termination indemnity and other retirement benefits (19) Defined benefit plans The Provision for Employee termination indemnity and Fixed indemnity for managers of newspapers falls within the defined benefit plan category and is therefore determined according to actuarial methods. It represents the present value of the future legal obligation. Benefits are calculated based on the following: Employee termination Fixed indemnity indemnity Yearly discounting back rate 4.0% 4.0% Yearly inflation rate 2.0% 2.0% Yearly increase in retributions 3.5% 3.5% Yearly increase in Employee termination indemnity 3.0% - Advances expected to be paid-out annually 4.0% - Amounts recorded in the Balance Sheet were calculated as follows: Provision for Employee termination indemnity Jan. 1, 2005 Dec. 31, 2005 Opening balance 86,993 90,824 Accrual for employment in the period (service cost) 10,278 11,030 Increase due to interest (interest cost) 4,593 4,263 Actuarial (gain) loss (38) 376 Benefits paid (11,002) (8,066) Increase/decrease resulting from a business combination - - Other changes - - Ending balance 90,824 98,427 Actuarial (gain) loss not recorded in the Income Statement 2,998 5,048

94 Notes to the Consolidated Financial Statements 93 Provision for Fixed indemnity Jan. 1, 2005 Dec. 31, 2005 Opening balance 4,697 5,063 Accrual for employment in the period (service cost) Increase due to interest (interest cost) Actuarial (gain) loss 86 1,433 Benefits paid (324) (768) Increase/decrease resulting from a business combination - - Other changes - - Ending balance 5,063 6,527 Actuarial (gain) loss not recorded in the Income Statement The average number of employees for the year and the actual number at the end of 2005 are shown in the table that follows: Average number of Number of employees employees at year-end Jan. 1, 2005 Dec. 31, 2005 Journalists 1,189 1,192 1,188 1,187 Manual workers Office workers 1,377 1,440 1,385 1,450 Managers Fixed-term employees Total 3,204 3,389 3,271 3,397 Share-based compensation Stock option plans for managers of the Parent Company and its subsidiaries holding strategic positions within the Group, assign the right to exercise at a pre-determined price and for a set term an option for the underwriting of new shares to be issued by the company pursuant to the related stock option plan resolutions. The related rules regulate, among other terms and conditions, also the case in which the assignee of the said options ceases for whatever reason to be employed by the company. Starting from 2001, ad hoc stock option plans were assigned to the Managing Director of the company, Marco Benedetto, giving him the right to acquire from the company at a pre-determined price and for a set term, a number of shares equal to the options already assigned to him. For a description of stock option plans, reference is made to Information required by Consob, Resolution no Attachment 2 a) and 2 b) summarizes information relating to each stock option plan in force at December 31, Stock option plans were valued according to the binomial tree method based on the original Cox, Ross and Rubinstein approach. This entails the subdivision of the life of the stock option contract into discrete intervals, t, assuming that the price of the share can rise by a certain percentage (u), or decline by a certain percentage (d) in the space of the interval. The value of the option is thus calculated according to its pay-off. Assumptions used in determining the fair value of stock option plans are summarized in the table below.

95 94 Notes to the Consolidated Financial Statements Feb. 26, 2003 July 23, 2003 Feb. 25, 2004 July 28, 2004 Feb. 23, 2005 July 27, 2005 plan plan plan plan plan plan No. options assigned 1,367,500 1,332,500 2,085,000 2,050,000 2,235,000 2,205,000 Average price of the stock at time of assignment Value of stock at time of assignment 3,979,425 4,770,350 10,445,850 9,204,500 10,504,500 10,868,445 Average strike price Expected volatility % 27.23% 24.19% 25.86% 20.84% 18.41% Expected dividend growth rate % % % % % % Risk-free rate % 4.173% 4.312% 4.49% 3.788% % At December 31, 2005, the cost relating to stock option plans recorded in the financial statements was equal to 3,073 thousand ( 2,465 thousand at December 31, 2004). Trade payables (20) Jan. 1, 2005 Dec. 31, 2005 Payables to suppliers of: 208, ,950 Paper 41,319 42,227 Printing services 32,229 26,654 Transport and distribution 5,587 4,279 Capital goods 31,089 20,158 Promotions 12,157 16,114 Products sold optionally with publications 17,461 13,100 Freelance work 6,277 7,035 Other suppliers 62,808 65,383 Advances received 169 1,064 Other payables TOTAL TRADE PAYABLES 209, ,707 Terms of payment range normally between 60 and 90 days. Tax payables (21) Jan. 1, 2005 Dec. 31, 2005 Corporate (Ires) and local income taxes (Irap) payables 1, Personnel withholding and income taxes payables 9,305 10,093 VAT payables 5,335 4,416 Other tax payables TOTAL TAX PAYABLES 16,481 16,145

96 Notes to the Consolidated Financial Statements 95 Other payables (22) Jan. 1, 2005 Dec. 31, 2005 Social Security payables 14,032 14,792 Payables to personnel for holidays 14,209 15,767 Other payables to personnel 13,161 16,719 Payables to Directors, Statutory Auditors and Shareholders Accrued liabilities 2,654 2,825 Payables on subscriptions 10,087 9,679 Payables for contributions under Law 62/ ,182 15,887 Payables for grants on subsidized loans - 8,348 Other payables 3,861 5,326 TOTAL OTHER PAYABLES 78,797 90,063 Other payables include deferred retributions. 13. Income Statement Revenues (23) Circulation 496, ,561 Advertising 546, ,660 Printing services provided to third parties 6,606 5,954 Conference, seminars and training Rights and trademark royalties Sale of contents 1,479 1,327 E-commerce Sale of hardware and software 3, Sale of internet services and software development 4,071 2,073 Sale of other products and services 20,745 16,894 TOTAL REVENUES 1,080,709 1,079,919 Other operating income (24) Grants 9,442 21,736 Capital gains on disposal of assets Extraordinary gains 3,830 8,139 Rent Other operating income 2,205 3,848 TOTAL OTHER OPERATING INCOME 16,163 34,454

97 96 Notes to the Consolidated Financial Statements Purchases (25) Paper for newspapers and periodicals 96,223 99,640 Paper for add-on products and promotions 25,616 25,447 Printing materials 15,801 17,346 Purchase of add-on products and supports 14,464 10,852 Consumables 4,939 4,592 E-commerce and other goods 3, Capitalized cost of internal construction (249) (192) Change in raw materials and merchandise inventories TOTAL PURCHASES 160, ,922 Services received (26) Printing and other work carried out by third parties 111,077 96,005 Editing costs 53,405 56,793 Distribution 30,206 31,741 Reproduction rights and other copyright costs 34,559 36,769 Promotions 45,620 51,030 Publisher fees 20,109 17,971 Commissions and agent fees 28,433 31,122 Advisory 15,727 16,984 Postage, telephone and data transmission 8,441 7,549 Maintenance and utilities 17,922 21,205 TV production and internet sites technical services 8,978 6,963 Rent 16,342 20,482 Security and cleaning 4,988 5,020 Other services 31,881 33,663 TOTAL SERVICES RECEIVED 427, ,297 Other operating charges (27) Accrual to provision for risks and charges 3,187 6,534 Taxes and duties 2,182 2,221 Public relations and gifts 1,219 1,188 Membership fees Settlements and reimbursements Extraordinary losses 2,660 3,478 Write-down of receivables 4,767 2,221 Other operating charges 3,018 2,084 TOTAL OTHER OPERATING CHARGES 18,612 19,463

98 Notes to the Consolidated Financial Statements 97 Personnel costs (28) Wages and salaries 180, ,693 Social Security 57,150 63,237 Accruals for Employee termination indemnity 10,240 11,406 Accruals for retirement benefits 654 1,985 Accruals for contract renewals - 1,056 Underwriting of stock options 2,465 3,073 Early retirement incentives 1,561 2,387 Other personnel costs 5,520 6,053 TOTAL PERSONNEL COSTS 257, ,890 Depreciation, amortization and write-downs (29) Intangible asset amortization 2,543 2,491 Property, plant and equipment depreciation 36,505 41,342 Write-down of intangible assets 67 - Write-down of property, plant and equipment 2, TOTAL DEPRECIATION, AMORTIZATION AND WRITE-DOWNS 41,882 44,772 Financial income (expense) (30) Interest received on current accounts and short-term deposits 3,009 5,721 Financial income on derivatives 2,738 1,079 Foreign-exchange gains Interest on marketable securities Financial income from application of IAS Other financial income 545 1,230 Net financial income 7,463 8,440 Interest paid on current account overdrafts (134) (111) Accessory banking expenses (512) (507) Interest on bonds issued (15,738) (22,420) Bond issue expenses (276) - Interest on loans and financing (950) (1,366) Financial charges on derivatives (1,823) - Foreign-exchange losses (128) (313) Leasing payments (246) (146) Financial charges on application of IAS (4,752) (5,002) Other financial expense (577) (4,135) Net financial expense (25,136) (34,000) TOTAL FINANCIAL INCOME (EXPENSE) (17,673) (25,560)

99 98 Notes to the Consolidated Financial Statements Income taxes (31) Corporate income taxes amount to 35,116 thousand and are made up as follows: Current taxes (73,775) (52,716) Deferred and prepaid taxes (1,152) 17,600 TOTAL INCOME TAXES (74,927) (35,116) The tables that follows shows the reconciliation between the theoretical tax expense and actual tax expense, in addition to the theoretical tax rate and the actual tax rate ) Pre-tax profit as reported in the accounts 174, ,908 2) a. Theoretical income taxes (at national tax rate) 57,593 50,130 b. Tax effect of non-deductible costs 8,567 8,739 c. Tax effect of losses that do not originate deferred tax assets in the year (49) (85) d. Tax effect of previous years losses that originate deferred tax assets in the year (781) (29,567) e. Tax effect on interest rate spread (over the national) of foreign subsidiaries - - f. Dividends (30) (33) g. Non-taxable income/grants (4,871) (7,191) h. Prepaid taxes not accrued in previous years (1,760) (3,877) i. Other (3,818) (3,478) 3) Income taxes 54,851 14,638 4) Regional tax on productive activities (IRAP) 20,076 20,478 5) Total income taxes as reported in the accounts 74,927 35,116 Average effective tax rate 42.93% 23.12% Theoretical tax rate 37.25% 37.25% Minority interest (32) This refers to the portion of net profit attributable to minority interests of Editoriale FGV, Seta and Edigraf.

100 Notes to the Consolidated Financial Statements 99 Earnings per share (33) Earnings per share are calculated by dividing the net profit for the period pertaining to the Group by the weighted average number of ordinary shares in circulation in the period. The diluted earnings per share are calculated by dividing the net profit for the year attributed to ordinary shareholders by the weighted average number of ordinary shares in circulation in the period, adjusted for the diluting effect of stock options. The table that follows shows earnings per share and other information used in the calculation of the diluted income per share: Net profit 98, ,336 Weighted average number of ordinary shares in circulation ( 000) 428, ,926 Earnings per share, basic ( per one thousand shares) Net profit 98, ,336 Weighted average number of ordinary shares in circulation ( 000) 428, ,926 No. of options ( 000) 12,093 13,670 Earnings per share, diluted ( per one thousand shares) Dividends paid (34) At December 31, 2004, dividends recorded for the 2003 financial year, as resolved by the Shareholders Meeting held on April 21, 2004 in a proportion of 0.11 for each of the 428,306,388 ordinary shares in circulation, amounted to 47,114 thousand. The Shareholders Meeting held on April 20, 2005 resolved the distribution of an ordinary dividend of 55,833 thousand, to be distributed to shareholders in a proportion of 0.13 for each of the 429,486,288 ordinary shares in circulation. Dividends paid at December 31, 2005 amount therefore to 55,833 thousand. 14. Other information 14.1 Commitments In addition to guarantees on printing equipment and rotary presses granted to banks against loans extended in the year (see note 2), at December 31, 2005, commitments of the Group amount to 4,658 thousand relating to: contracts for the purchase of plant and equipment ( 3,474 thousand) relating primarily to Repubblica and Editoriale La Nuova Sardegna in the context of the full color project; risks connected to a Court injunction on litigation involving Editoriale FVG ( 1,184 thousand) Guarantees granted amount to 6,604 thousand and relate to guarantees in favor of subsidiaries Elemedia, Editoriale La Nuova Sardegna and A. Manzoni&C. on the lease of the respective head offices and of subsidiary Ksolutions in favor of the Public Administrations for contracts involving the supply of services by the subsidiary.

101

102 Attachments

103 102 Attachments Consolidated companies ATTACHMENT No. 1 Name and Registered Share % Held by activity office capital the company PARENT COMPANY Gruppo Editoriale L Espresso SpA Rome 65,072 CIR SpA publishing SUBSIDIARIES CONSOLIDATED LINE-BY-LINE Finegil Editoriale SpA Rome 18, Gruppo Editoriale L Espresso SpA publishing Editoriale La Nuova Sardegna SpA Sassari Finegil Editoriale SpA publishing EAG SpA Pavia Finegil Editoriale SpA publishing Edizioni Nuova Europa SpA Ivrea Finegil Editoriale SpA publishing (Turin) Editoriale La Città SpA Salerno Finegil Editoriale SpA publishing S.E.T.A. SpA Bolzano Gruppo Editoriale L Espresso SpA publishing Editoriale FVG SpA Udine 87, Gruppo Editoriale L Espresso SpA publishing Edigraf Srl Trieste Editoriale FVG SpA printing A. Manzoni & C. SpA Milan 15, Gruppo Editoriale L Espresso SpA advertising concessionaire Elemedia SpA Rome 25, Gruppo Editoriale L Espresso SpA radio, internet and satellite Tv broadcasting Rete A SpA Sesto San Giovanni 9, Gruppo Editoriale L Espresso SpA television broadcasting (Milan) All Music SpA Sesto San Giovanni 6, Rete A SpA content provider (Milan) Rotosud SpA Oricola 2, Gruppo Editoriale L Espresso SpA printing (L Aquila) C.P.S. SpA Rome Gruppo Editoriale L Espresso SpA pre-printing Rotocolor SpA Rome 23, Gruppo Editoriale L Espresso SpA printing Somedia SpA Milan Gruppo Editoriale L Espresso SpA services Selpi SpA Rome 3, Gruppo Editoriale L Espresso SpA services 30 Finegil Editoriale SpA Kataweb News Srl Rome Elemedia SpA internet publishing Ksolutions SpA San Giuliano 1, Elemedia SpA internet services Terme (Pisa) Editoriale Metropoli SpA Rome Elemedia SpA publishing Note: Amounts in thousands of euros unless otherwise specified

104 Attachments 103 Name and Registered Share % Held by activity office capital the company AFFILIATED COMPANIES CONSOLIDATED AT EQUITY Le Scienze SpA Rome Gruppo Editoriale L Espresso SpA publishing Saire Srl Milan Gruppo Editoriale L Espresso SpA printing Editoriale Libertà SpA Piacenza 1, Finegil Editoriale SpA publishing Altrimedia SpA Piacenza Finegil Editoriale SpA advertising concessionaire SUBSIDIARIES AND AFFILIATED COMPANIES VALUE AT COST Radio Deejay Kft (in liquidation) Budapest 50,000(.000) HUF 100 Elemedia SpA radio Hungary SandalyaWeb Srl (in liquidation) Sassari Editoriale La Nuova Sardegna SpA e-commerce 49 Elemedia SpA Cellularmania.com Srl (in liquidation) Rome Elemedia SpA internet services Benedettine Srl (in liquidation) Piacenza Finegil Editoriale SpA real estate Enotrya Srl (in liquidation) Rome Elemedia SpA e-commerce Zivago SpA (in liquidation) Milan 3, Elemedia SpA e-commerce Alsoft Srl (in liquidation) San Giuliano Ksolutions SpA internet services Terme (Pisa) Uhuru Multimedia Srl (non-operating) Rome Ksolutions SpA internet services OTHER COMPANIES VALUE AT COST A.G.F. Srl Rome Gruppo Editoriale L Espresso SpA photo agency Agenzia ANSA Soc. Coop. a r.l. Rome 12, Gruppo Editoriale L Espresso SpA press agency 3.21 Finegil Editoriale SpA 3.21 Editoriale La Nuova Sardegna SpA 3.21 Editoriale FVG SpA 1.92 EAG SpA 2.56 S.E.T.A. SpA Consuledit Società Consortile a r.l. Milan Gruppo Editoriale L Espresso SpA market research 3.99 Finegil Editoriale SpA 0.62 Editoriale La Nuova Sardegna SpA 0.39 EAG SpA 0.49 S.E.T.A. SpA 0.47 Editoriale FVG SpA Note: Amounts in thousands of euros unless otherwise specified

105 104 Attachments Name and Registred Share % Held by activitiy office capital the company Club DAB Italia - syndicate Milan Elemedia SpA radio broadcasting service E-Ink Corporation Cambridge 71,191 (.000) $ USA 0.26 Gruppo Editoriale L Espresso SpA printing technologies (USA - MA) Presto Technologies Inc. (non-operating) Cambridge 7,664 (.000) $ USA 7.83 Elemedia SpA internet services (USA - MA) Consorzio Energia Sassari (in liquidation) Sassari Editoriale La Nuova Sardegna SpA purchase of electricity Agenzia Informativa Adriatica d.o.o. Capodistria 2,120 (.000) Talleri 19 Editoriale FVG SpA production and trasmission of informations (Slovenia) Trento Press Service Srl Gardolo di Trento S.E.T.A. SpA newspapers distribution (Trento) Immobiliare Editori Giornali Srl Rome S.E.T.A. SpA real estate 0.12 Editoriale La Nuova Sardegna SpA Audiradio Srl Milan A. Manzoni & C. SpA market research Consorzio Emittenti Radio Televisive - CERT Bologna Rete A SpA broadcasting services Consorzio Colle Maddalena Turin Rete A SpA broadcasting services Telelibertà SpA Piacenza Finegil Editoriale SpA broadcasting services Note: Amounts in thousands of euros unless otherwise specified

106 Attachments 105 Employees Stock Option Plans at December 31, 2005 ATTACHMENT 2 (a) Options in circulation Option assigned in Options expired Options exercised Options in circulation at the end Options that may be at beginning the period in the period in the period of the period exercised at the end of the period of the period No. of Weighted No. of Weighted No. of Weighted No. of Weighted Average market No. of Weighted Average No. of Weighted options average price options average price options average price options average price price at the options price expiration options average price for period for period for period for period exercise date for period (years) for period 2000 Stock Option Plan 1,615, , ,535, ,535, April 24, 2001 Stock Option Plan 780, , , , October 24, 2001 Stock Option Plan 372, , , , , March 6, 2002 Stock Option Plan 728, , , , , July 24,2002 Stock Option Plan 834, , , , , February 26, 2003 Stock Option Plan 985, , , , , July 23, 2003 Stock Option Plan 1,084, , , , , February 25, 2004 Stock Option Plan 1,440, , ,410, , July 28, 2004 Stock Option Plan 1,450, , ,420, , February 23, 2005 Stock Option Plan - - 1,485, , ,455, , July 27, 2005 Stock Option Plan - - 1,455, ,455, , TOTAL 9,291, ,940, , ,170, ,759, ,320,

107 106 Attachments Managing Director Stock Option plans at December 31, 2005 ATTACHMENT 2 (b) Options in circulation Options assigned Options expired Options exercised Options in circulation at Options that may be at beginning in the period in the period in the period the end of the period exercised at the end of the period of the period No. of Weighted No. of Weighted No. of Weighted No. of Weighted Average market No. of Weighted Average No. of Weighted options average price options average price options average price options average price price at the options price expiration options average price for period for period for period for period exercise date for period (years) for period April 24, 2001 Stock Option Plan 500, , , February 26, 2003 Stock Option Plan 600, , July 23, 2003 Stock Option Plan 600, , February 25, 2004 Stock Option Plan 600, , July 28, 2004 Stock Option Plan 600, , February 23, 2005 Stock Option Plan , , July 27, 2005 Stock Option Plan , , TOTAL 2,900, ,500, ,200, ,200,

108 Consolidated Financial Statements of Espresso Group Transition to IFRS

109

110 Transition to IFRS 109 Transition to IFRS Foreword The Consolidated Financial Statements of the Group at December 31, 2005 is the first financial statements prepared under IFRS. The Espresso Group adopted IFRS from January 1, 2005 while the transition date is January 1, The Group has therefore prepared an opening balance sheet at the transition date applying all mandatory exceptions and some of the exemptions to the retroactive application of IFRS allowed under IFRS 1. Until December 31, 2004, the Consolidated Financial Statements of the Espresso Group were prepared in accordance with Italian Law, as interpreted and integrated by the Italian Accounting Profession Board and by documents and remarks issued by the Italian Accounting Organization (referred to jointly as Italian GAAP ). For certain aspects such principles differ from IFRS. To conform to IFRS, the Group modified some accounting methods and valuation principles used in the preparation of consolidated financial statements for previous years. The notes that follow describe the choices made by the Group with regard to exemptions to the retroactive application of IFRS allowed under IFRS 1, in addition to the reconciliation and description of effects of the transition from Italian GAAP to IFRS required by Consob. The following reconciliation schedules and related notes were prepared with such end: 1. Shareholders Equity Reconciliation of the Shareholders Equity at the following dates: date of transition to IFRS (January 1, 2004); closing date of the last financial statements prepared under Italian GAAP (December 31, 2004); date from which IAS 32 and IAS 39 have been adopted (January 1, 2005). 2. Net Profit Reconciliation of net profit for the following periods: last financial year for which the financial statements were prepared under Italian GAAP (2004 financial year). The Espresso Group appointed independent auditors PricewaterhouseCoopers SpA, that also audited the financial statements at December 31, 2004, to carry out a full audit of the preliminary IFRS reconciliation schedules at January 1, 2004, December 31, 2004 and January 1, Adjustments were made in accordance with IFRS in force at the date of approval of the present report. IFRS reconciliation schedules are prepared exclusively for the purposes of the transition in the context of the preparation of the first full financial statements under IFRS approved by the European Commission and lack therefore comparative data and the necessary notes that would be required to provide a full representation of the consolidated operating, financial and income performance of the Espresso Group under IFRS. With respect to the appendix relating to the transition to IFRS included in the Consolidated Financial Statements at June 30, 2005, to provide a better representation of the financial position and operating performance of the Group, a number of reclassifications of balance sheet

111 110 Transition to IFRS and income statement items for the various periods considered were carried out. Main reclassifications performed are described below. Balance Sheet at January 1, 2004, 63.2 million was reclassified from item IFRS reserve to item Equity reserves with the aim of representing under the IFRS reserve exclusively the impact of the transition to IFRS of the Parent Company. At the same date, 67.8 million was reclassified from item Retained earnings to Net profit (loss), and 111 million was reclassified from Retained earnings to Equity reserves ; part of item Trademarks, amounting to 1.2 million, was reclassified from Other intangible assets to Intangible assets with an indefinite useful life ; accrued income and liabilities, of an amount not significant, were recorded directly as a reduction and/or increase of the item to which they relate. These reclassifications relate to all periods under exam (January 1, 2004, December 31, 2004 and January 1, 2005). As a result of the application of IAS 32 and 39, issue discounts and expenses relating to bond issues (classified under item Other current receivables ) at January 1, 2005, were recorded as a reduction of the same ( 2.2 million). Income Statement Changes in inventories were reported separately in the Income Statement; the 4.8 million receivable write-down was reclassified from Depreciation, amortization and write-downs to Other operating charges ; other personnel costs amounting to 1.1 million were reclassified from accruals to provision for risks and charges ( Other operating charges ) to Personnel costs. Opening balance sheet As required under IFRS 1, a consolidated balance sheet was prepared at the date of transition to IFRS (January 1, 2004) in which: all assets and liabilities whose recording is required under IFRS, including those not required under Italian GAAP, were recorded; all assets and liabilities whose recording is not allowed under IFRS, were excluded; assets and liabilities were recorded at the value that would have applied in case IFRS had been applied retrospectively; items previously reported in the financial statements in a manner different from that provided under IFRS were reclassified. The effect of the adjustment to IFRS of beginning balances of assets and liabilities was recorded in the Shareholders Equity in the Reserve for the conversion to IFRS and under Retained earnings (loss carry-forwards), net of the related tax effect. In the preparation of the opening Consolidated Balance Sheet at January 1, 2004, the Espresso Group decided to take advantage of the following exceptions to the retroactive application of IFRS: 1. business combinations, acquisition of investments in affiliates and joint control: the retroactive application of IFRS 3 ( Business combinations ) requires the review of the recording of all aggregations of companies (mergers, acquisitions, contributions, spin-offs, etc.) carried out in the past from the initial incorporation of the company. IFRS 1 allows the choice not to apply IFRS 3 retroactively, or to apply the same from a date set by the company. The exemption

112 Transition to IFRS 111 applies also to all past acquisitions of shares in affiliated companies and joint ventures. The Espresso Group decided to take advantage of the exemption to the retroactive application of IFRS 3 for the acquisition of shares in affiliated companies and joint ventures occurred before January 1, 2004; 2. value at which property, plant and equipment and intangible assets are recorded: the retroactive application of IAS 16 ( Property, plant and equipment ), IAS 38 ( Intangible assets ) and IAS 40 ( Investment property ) requires for those tangible and intangible assets are recorded at cost the restatement of the historical cost, and the accumulated depreciation and write-downs. The Espresso Group decided to apply the estimated cost with reference to part of land and buildings on the basis of expert valuations prepared by independent appraisers. There lacking an active market for intangible assets, the Group could not benefit from the application of the estimated cost in the valuation of the same; 3. employee benefits (Employee termination indemnity and other retirement benefits): in the recording of defined benefit plans (which include also the Employee termination indemnity) IAS 19 allows the suspension of actuarial gains and losses that do not exceed a certain limit ( corridor approach ). The retroactive application of IAS 19 requires the quantification of actuarial gains and losses arising over time from the initial incorporation of the company for all personnel employed at the date of the transaction with the aim of determining the ones to be recorded and those to be suspended. IFRS 1 allows the use of the corridor approach. The Espresso Group opted for the application of the corridor approach. Actuarial gains and losses at the date of the transition are recorded in full, with a parallel recording under Shareholders Equity; 4. financial instruments (recognition and measurement): IAS 39 requires the designation of a financial instrument to a specific category to be carried out at the time of its first recording. As permitted under IAS 39, IFRS 1 allows the designation designation to be carried out at the transition date. The Espresso Group decided to apply IAS 32 and 39 starting from January 1, 2005 and opted for the exemption to the restating of the related comparative data. The designation of financial instruments was therefore carried out at the date of adoption of IAS 32 and IAS 39; 5. stock options: the exemptions to stock options allows to wave the application of IFRS 2 for stock options granted before November 7, 2002 (date of publication of the principle) and for stock options granted after November 7, 2002 and maturing before January 1, The early application of the principle is however allowed only when the company has disclosed the fair value of stock options granted. The Espresso Group opted for the exemption to the application of IFRS 2 for stock option plans issued before November 7, 2002 and for stock options granted after such date and expiring before January 1, 2005.

113 112 Transition to IFRS Effects of the adoption of IFRS on the Balance Sheet at January 1, 2004 ASSETS Italian Reclassifications IAS/IFRS IAS/IFRS ( million) GAAP adjustments Jan. 1, 2004 Intangible assets with an indefinite useful life Other intangible assets 10.0 (2.6) (1.9) 5.4 Total intangible assets (2.6) Property, plant and equipment Investments valued at equity Other investments 25.6 (21.6) Long-term securities Non-current receivables 4.9 (0.2) Deferred tax assets NON-CURRENT ASSETS Inventories 36.5 (5.5) Trade receivables Marketable securities Current financial receivables Tax receivables 55.0 (19.5) (0.3) 35.2 Other receivables (0.7) 11.3 Cash and cash equivalents CURRENT ASSETS (9.6) (1.0) TOTAL ASSETS ,141.6 LIABILITIES AND SHAREHOLDERS EQUITY Italian Reclassifications IAS/IFRS IAS/IFRS ( million) GAAP adjustments Jan, Share capital Reserves Retained earnings (loss carry-forwards) Net profit (loss) Group Shareholders Equity Minority interest SHAREHOLDERS EQUITY Financial debt Provisions for risks and charges (1.2) 17.2 Employee termination indemnity and other retirement benefits 98.5 (0.5) (6.2) 91.7 Deferred tax payables NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges 25.9 (18.0) (0.2) 7.7 Trade payables Taxes payable Other payables CURRENT LIABILITIES (8.1) TOTAL LIABILITIES TOTAL LIABILITIES AND SHAREHOLDERS EQUITY ,141.6

114 Transition to IFRS 113 Main reclassifications regard leasehold improvements from intangible assets to property, plant and equipment, that of work in progress from inventories to trade receivables, the breakdown of provisions for risks and charges between current and non-current, the reclassification of current trade receivables and current financial payables, limited to the part relating to bills discounted with banks and collections at December 31, 2003 recorded in Two new captions were introduced: Investments valued at equity, whose amount is reported separately from Other investments, and Deferred tax assets, whose amount is indicated separately from Tax receivables. The table that follows and the related notes summarize main impacts on the Consolidated Shareholders Equity at January 1, ( million) Consolidated Shareholders Equity under Italian GAAP Intangible assets Investments valued at equity Property, plant and equipment Leased assets Employee benefits Provisions for risks and charges Other adjustments (0.6) Tax effect (41.5) Total IFRS adjustments Consolidated Shareholders Equity under IFRS Notes: 1. Intangible assets (IAS 38) Under IAS 38 intangible assets with an indefinite useful life are not amortized but are subject annually, or any time there is an indication that the asset has experienced a loss in value, to an impairment test to identify possible reductions in value. At the transition date, publications, trademarks, frequencies and goodwills were classified as intangible assets with an indefinite useful life. The retroactive application of IAS 38 required the re-recording of the historical cost of these assets (totaling million) with the subsequent elimination of accrued amortization (amounting to 135 million). The impairment test carried out on these assets did not detect losses in value. Net adjustments to item Other intangible assets (equal to 1.9 million) includes prevalently the elimination of the value of self-developed software not covered by patents. Such adjustment determined a reduction in the Consolidated Shareholders Equity equal to 0.6 million net of the related tax effect. Overall, the above adjustments resulted in an increase in the Consolidated Shareholders Equity equal to 97.7 million, net of the related 35.3 million tax effect. Such effect includes taxes calculated by individual companies on the restoring of the historical cost of publications, trademarks and frequencies (equal to 36.8 million) and taxes resulting from consolidation adjustments (positive 1.5 million).

115 114 Transition to IFRS 2. Investments valued at equity (IAS 28) Adjustments relating to investments valued at equity consist in the restoring at the date of transition of accumulated amortization of the publication owned by Editoriale la Libertà. The adjustment resulted in a 1.9 million increase of the Consolidated Shareholders Equity. 3. Property, plant and equipment (IAS 16) Under IAS 16, individual components of a complex fixed asset, characterized by a different useful life, are recorded separately and depreciated over their respective useful life. In particular, under IAS 16, it is necessary to identify and to record separately the value of land (no longer depreciated) from the value of buildings that insist on the same and, consequently, to depreciate only the buildings. In the transition to IFRS, the Group has therefore identified the two components, eliminating accumulated depreciation relating to land amounting to 1.2 million. Leasehold improvement costs were reclassified under Property, plant and equipment and the requisites for their capitalization were verified. Such verification resulted in the elimination of certain capitalized costs amounting to 0.4 million. The above adjustments resulted in an increase in the Consolidated Shareholders Equity equal to 0.2 million net of 0.6 million of deferred tax effect that includes of 0.3 million relating to the elimination of the provision for reinvested capital gains accrued pursuant to Article 54, Presidential Decree no. 597/73. In addition to the above described gross effect ( 0.8 million), adjustments to item Property, plant and equipment includes the effect of the application of IAS 17 ( 14.2 million) described in the note below. 4. Leased assets (IAS 17) Under IAS 17, all assets held under a financial lease are accounted for by recording interest payments and depreciation charges in the income statement, and the asset and the residual portion of debt in the balance sheet. In the transition to IFRS, the Group recorded in the balance sheet leased assets amounting to 14.2 million ( 8.1 million relating to leased assets redeemed, and 6.1 million to assets still held under a lease), adjusted prepaid expenses by 1.2 million and recorded under liabilities 5.3 million of financial debt, separating the current portion from the non-current portion. These adjustments resulted in an increase in the Consolidated Shareholders Equity of 4.8 million, net of 2.9 million of the related tax effect. 5. Employee benefits (IAS 19) Under IAS 19, liabilities relating to the Employee termination indemnity and the Fixed indemnity for managers of newspapers were restated under the actuarial method. This adjustment resulted in an increase in the Consolidated Shareholders Equity of 4.4 million, net of 1.9 million of the related tax effect. 6. Provisions for risks and charges (IAS 37) Under IAS 37, accruals to the provisions for risks and charges are represented by the present value of expected payments to extinguish the obligation. This adjustment resulted in an increase in the Consolidated Shareholders Equity of 1 million, net of 0.4 million of the related tax effect.

116 Transition to IFRS Other adjustments Other adjustments have a negative impact on the Consolidated Shareholders Equity equal to 0.6 million and are represented by individually not significant adjustments Income Statement Italian GAAP Reclassifications IAS/IFRS IAS/IFRS ( million) adjustments 2004 Revenues 1, ,080.7 Change in inventories 0.5 (0.9) - (0.3) Other operating income (0.7) 16.2 Purchases (160.1) - - (160.1) Services received (428.7) (427.7) Other operating charges (19.4) (18.6) Valuation of investments at equity Personnel costs (259.9) (257.6) Depreciation, amortization and write-downs (57.1) (41.9) Operating income Financial income (expense) (12.0) (1.1) (4.6) (17.7) Pre-tax profit Income taxes (71.6) - (3.3) (74.9) NET PROFIT Minority interest Group net profit The table that follows and the related notes show the effect on the 2004 Consolidated Net Profit. ( million) Italian GAAP Consolidated Net Profit Intangible assets Investments valued at equity Property, plant and equipment Leased assets (0.2) 5. Stock options (2.5) 6. Employee benefits Provisions for risks and charges (0.3) 8. Other adjustments 0.2 Tax effect (3.3) Total IFRS adjustments 11.1 IFRS Consolidated Net Profit 98.9 Notes 1. Intangible assets (IAS 38) The application of IAS 38 resulted in a 0.2 million increase in costs for services received due to those costs that may no longer be capitalized, in addition to a 16.1 million decline in the amortization expense of publications, trademarks and radio frequencies.

117 116 Transition to IFRS The overall impact on the Consolidated Net Profit was positive by 11.2 million, net of 4.7 million of deferred taxes. The tax effect includes taxes of individual companies on restoring the historical cost of publications, trademarks and frequencies ( 4.6 million) and taxes on consolidation adjustments (positive by 0.1 million). 2. Investments valued at equity (IAS 28) The elimination of the amortization of the publication owned by Editoriale la Libertà had a 0.5 million positive effect on the Consolidated Net Profit. 3. Property, plant and equipment (IAS 16) The elimination of leasehold improvement costs, no longer capitalized ( 0.8 million gross of the tax effect), the lack of recording of depreciation on land ( 0.2 million, gross of the related tax effect) and other negative adjustments to depreciations ( 0.4 million, gross of the related tax effect), resulted in a net positive adjustment to Consolidated Net Profit of 0.3 million, net of 0.2 million of deferred tax assets. The last effect includes 0.4 million relating to the impact of the elimination of the provision for reinvested capital gains accrued pursuant to Article 54, Presidential Decree no. 597/73, as previously mentioned. 4. Leased assets (IAS 17) The adoption of a new accounting treatment of leasing contracts resulted in the elimination of 1.2 million in leasing payments and a 1.5 million increase in depreciation and amortization, having a combined negative effect on Consolidated Net Profit of 0.1 million, net of the related 0.1 million tax effect. 5. Stock options (IFRS 2) The fair value recording of stock options determined a 2.5 million increase in personnel costs and a consequent 1.7 million reduction in the Consolidated Net Profit, net of the related 0.8 million tax effect. 6. Employee benefits (IAS 19) The restatement in accordance with the actuarial method of liabilities relating to the Employee termination indemnity and the Fixed indemnity due to managers of companies publishing newspapers resulted in a 4.8 million reduction in the cost of personnel and a 4.2 million increase in financial charges, with a positive impact on Consolidated Net Profit of 0.6 million, net of the 0.1 million deferred taxes. 7. Provisions for risks and charges (IAS 37) The net effect of the discounting back of provisions for risks and charges determined a 0.3 million increase in financial charges. The overall impact on Consolidated Net Profit was negative by 0.2 million, net of the 0.1 million tax effect. 8. Other adjustments Other adjustments have a positive impact on Consolidated Net Profit of 0.2 million and are represented by adjustments individually not significant.

118 Transition to IFRS 117 Balance Sheet at December 31, 2004 ASSETS Italian Reclassifications IAS/IFRS IAS/IFRS ( million) GAAP adjustments Dec. 31, 2004 Intangible assets with an indefinite useful life Other intangible assets 17.7 (11.3) (2.1) 4.3 Total intangible assets (11.3) Property, plant and equipment Investments valued at equity Other investments 25.4 (21.5) Long-term securities Non-current receivables 4.0 (0.1) Deferred tax assets NON-CURRENT ASSETS Inventories 36.6 (6.4) Trade receivables Marketable securities Current financial receivables Tax receivables 59.6 (18.1) Other receivables (0.7) 22.0 Cash and cash equivalents CURRENT ASSETS (17.3) (0.7) TOTAL ASSETS 1, ,536.5 LIABILITIES AND SHAREHOLDERS EQUITY Italian Reclassifications IAS/IFRS IAS/IFRS ( million) GAAP adjustments Dec. 31, 2004 Share capital Reserves Retained earnings (loss carry-forwards) Net profit (loss) Group Shareholders Equity Minority interest SHAREHOLDERS EQUITY Financial debt Provisions for risks and charges (0.8) 13.0 Employee termination indemnity and other retirement benefits (0.4) (6.9) 95.9 Deferred tax payables NON-CURRENT LIABILITIES Financial debt Provisions for risks and charges 23.8 (13.3) (0.2) 10.3 Trade payables Tax payable Other payables 78.9 (0.2) CURRENT LIABILITIES (10.9) TOTAL LIABILITIES ,027.7 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1, ,536.5

119 118 Transition to IFRS The table that follows provides a summary of changes in the Consolidated Shareholders Equity at December 31, Such adjustments are not commented as they follow from those recorded in the opening balance sheet above. ( million) Consolidated Shareholders Equity under Italian GAAP Intangible assets Investments valued at equity Property, plant and equipment Leased assets Employee benefits Provisions for risks and charges Other adjustments (0.1) Tax effect (44.3) Total IFRS adjustments Consolidated Shareholders Equity under IFRS 497.8

120 Transition to IFRS 119 IAS 32 and 39: Balance Sheet reconciliation at January 1, 2005 As allowed under IFRS 1, the Espresso Group decided to apply IAS 32 and 39 from January 1, The reconciliation that follows summarizes the effect of such application on the Consolidated Balance Sheet at January 1, ASSETS IAS/IFRS IAS IAS IAS/IFRS ( million) Dec. 31, 2004 reclassifications adjustments Jan. 1, 2005 Intangible assets with an indefinite useful life Other intangible assets Total intangible assets Property, plant and equipment Investments valued at equity Other investments Long-term securities 13.2 (13.2) - - Non-current receivables Deferred tax assets NON-CURRENT ASSETS (13.2) Inventories Trade receivables Marketable securities Current financial receivables (2.7) 0.1 Tax receivables Other receivables (2.1) 19.9 Cash and cash equivalents CURRENT ASSETS (4.9) TOTAL ASSETS 1,536.5 (13.2) 3.5 1,526.8 LIABILITIES AND SHAREHOLDERS EQUITY IAS/IFRS IAS IAS IAS/IFRS ( million) Dec. 31, 2004 reclassifications adjustments Jan. 1, 2005 Share capital Reserves (14.0) (0.6) Retained earnings (loss carry-forwards) Net profit (loss ) Group Shareholders Equity (13.2) (0.5) Minority interest SHAREHOLDERS EQUITY (13.2) (0.5) Financial debt Provisions for risks and charges Employee termination indemnity and other retirement benefits Deferred tax payables NON-CURRENT LIABILITIES Financial debt (1.3) Provisions for risks and charges Trade payables Taxes payable Other payables CURRENT LIABILITIES (1.3) TOTAL LIABILITIES 1, ,031.7 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,536.5 (13.2) 3.5 1,526.8

121 120 Transition to IFRS Reclassifications relate to treasury stocks and are recorded as a reduction of the Shareholders Equity. The table and the related notes that follow provides a summary of changes in the Consolidated Shareholders Equity at January 1, 2005, net of the related tax effect, resulting from the application of IAS 32 and 39. ( million) Consolidated Shareholders Equity at January 1, Treasury stocks (13.2) 2. Fair value reserve (2.2) 3. Application of amortized cost to bond issues 1.7 Total adjustments due to adoption of IAS 32 and 39 (13.7) Consolidated Shareholders Equity at January 1, 2005 under IFRS Notes: 1. Treasury stocks (IAS 32) Treasury stocks were recorded under Italian GAAP among fixed assets and valued at cost, net of permanent losses in value. An equivalent amount was recorded in a specific Shareholders Equity reserve. The effect of transactions involving own shares were recorded in the Income Statement. As a result of the adoption of IAS 32, the book value of own shares was reclassified in a specific Shareholders Equity reserve, while the reserve for own shares was reclassified in the reserve used for its recording and their original cost was restored. Such adjustment reduced the Consolidated Shareholders Equity by 13.2 million, representing the net effect of the 14 million reclassification of the book value of the shares, and the elimination of write-downs carried out in the past, amounting to 0.8 million. 2. Fair value reserve (IAS 39) At January 1, 2005 a paper swap contract through which the company fixed the price of part of its paper needs until September 2005 had not expired. Under Italian GAAP, price differentials were recorded in the income statement under the accrual method. As a result of the adoption of IAS 39, the fair value of the contract, amounting to 2.2 million, net of the related tax effect, was recorded also in a specific Shareholders Equity reserve. 3. Application of amortized cost to bond issues (IAS 39) As a result of the application of IAS 39, at January 1, 2005, the original cost of bond issues was re-determined keeping into account issue costs and discounts, in addition to the current portion (calculated on the basis of the residual life of the issue) of the positive spread between the original cost of the bond issue and its fair value recorded at the time of the reversal of fixed/floating interest rate swap contracts originally entered into to hedge the 300 million bond. The adjustment resulted in a 1.7 million increase in the Consolidated Shareholders Equity. Main changes to the Statement of Cash Flows At December 31, 2004, net consolidated debt amounted to million. As a result of the application of IAS 32 and 39, the net financial position of the Group amounts to an indebtedness of million. Main changes relate to the restatement of financial debt at the amortized cost.

122 Report of the Indipendent Auditors

123

124 Report of the Indipendent Auditors 123

125 124 Report of the Indipendent Auditors

126 Financial Statements of Gruppo Editoriale L Espresso SpA at December 31, 2005

127 126 Financial Statements of the Parent Company Balance Sheet ASSETS Note Jan. 1, 2005 Dec. 31, 2005 (Euro) Intangible assets with an indefinite useful life 220,660, ,660,858 Other intangible assets 2,946,765 3,369,339 Intangible assets (1) 223,607, ,030,197 Property, plant and equipment (2) 77,996,477 74,132,977 Investments valued at equity (3) 256,020, ,552,649 Non-current receivables (4) 6,881, ,242 Deferred tax assets (5) 19,988,421 16,670,203 NON-CURRENT ASSETS 584,494, ,113,267 Inventories (6) 25,791,122 27,790,838 Trade receivables (7) 103,248, ,860,859 Marketable securities (8) 20,346,174 - Current financial receivables (9) 30,520,368 39,354,664 Tax receivables (10) 34,043,213 38,765,743 Other receivables (11) 12,292,139 9,893,993 Cash and cash equivalents (12) 373,763, ,739,034 CURRENT ASSETS 600,005, ,405,130 TOTAL ASSETS 1,184,500,530 1,120,518,397 LIABILITIES AND SHAREHOLDERS EQUITY Note Jan. 1, 2005 Dec. 31, 2005 (Euro) Share capital (13) 64,896,058 65,071,648 Reserves (14) 156,325, ,351,911 Retained earings (loss carry-forwards) (14) 11,388,435 26,133,512 Net profit (loss) 72,349,079 83,128,474 SHAREHOLDERS EQUITY 304,959, ,685,545 Financial debt (15) 313,406, ,249,565 Provisions for risks and charges (16) 7,325,196 7,582,603 Employee termination indemnity and other retirement benefits (17) 41,779,980 45,555,984 Deferred tax liabilities (5) 32,594,167 35,117,100 NON-CURRENT LIABILITIES 395,105, ,505,252 Financial debt (15) 284,881, ,377,992 Provisions for risks and charges (16) 4,541,973 2,993,100 Trade payables (18) 150,605, ,589,349 Tax payables (19) 8,202,444 6,804,244 Other payables (20) 36,204,081 38,562,916 CURRENT LIABILITIES 484,435, ,327,601 TOTAL LIABILITIES 879,541, ,832,852 TOTAL LIABILITIES AND SHOREHOLDERS EQUITY 1,184,500,530 1,120,518,397 Notes from page 133 to page 172 are an integral part of the present financial statements.

128 Financial Statements of the Parent Company 127 Income Statement Note (Euro) Revenues (21) 656, ,191,974 Change in inventories (6) (331,913) 2,042,701 Other operating income (22) 7,546,709 22,852,133 Purchases (23) (118,006,068) (116,232,470) Services received (24) (317,281,447) (334,793,421) Other operating charges (25) (7,547,439) (9,155,075) Personnel costs (26) (103,783,970) (111,836,005) Depreciation, amortization and write-downs (27) (16,567,015) (14,733,432) Operating income 100,445,603 87,336,406 Dividends (28) 27,230,709 47,175,878 Financial income (expense) (29) (20,259,160) (21,503,583) Pre-tax profit 107,417, ,008,701 Income taxes (30) (35,068,072) (29,880,227) NET PROFIT 72, ,128,474 Earnings per share, basic (31) Earnings per share, diluted (31) Notes from page 133 to page 172 are an integral part of the present financial statements.

129 128 Financial Statements of the Parent Company Statement of Cash Flows Note ( 000) OPERATING ACTIVITIES Net profit (loss) for the period 72,350 83,129 Adjustments: - Depreciation, amortization and write-downs (27) 16,566 14,734 - Accruals to provisions for stock option costs (26) 2,465 3,073 - Net change in provisions for personnel costs (17) 2,234 3,776 - Net change in provisions for risk and charges (16) (595) (1,292) - Write-down (revaluation) of equity investments 5, Dividends received (27.230) (47,176) - Losses (gains) on disposal of assets (106) 7 Cash flow from operating activities 71,224 56,251 Change in current assets and other flows 16,273 (29,493) CASH FLOW FROM OPERATING ACTIVITIES 87,497 26,758 of which: Interest received (paid) (11,419) (22,527) Income taxes paid 30,285 17,588 INVESTING ACTIVITIES Outlay for purchase of fixed assets (53,929) (139,237) Received on disposal of fixed assets 2,022 (11) Dividendes received 27,230 47,176 Other changes CASH FLOW FROM INVESTING ACTIVITIES (24,677) (92,072) FINANCIAL ACTIVITIES Increases in capital and reserves 2,623 3,705 Acquisition of treasury stock (4,529) (1,351) Issue (repayment) of bonds 298,005 (190,980) Issue (repayment) of other financial debt 1,048 28,123 Net change in Group current account 2,383 79,407 Net change in marketable securities and available-for-sale assets - 20,437 Dividends paid (32) (47,114) (55,833) Other changes 10 - CASH FLOW FROM FINANCING ACTIVITIES 252,426 (116,492) Increase (decrease) in cash and cash equivalents 315,246 (181,806) Cash and cash equivalents at beginning of the period 55, ,094 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 371, ,288

130 Financial Statements of the Parent Company 129 Statement of changes in the Shareholders Equity Share Share Treasury Fair Value IFRS Stock option Equity Retained Net Own ( 000) capital premium Stocks reserve reserve reserve reserves earnings profit Sh. Equity Balance at January 1, ,769 63,991 8,663-47, ,656-57, ,320 Movements in net profit ,725 (57,725) - Dividends (47,114) - (47,114) Capital increases, capital contributed by shareholders 127 2, ,623 Stock options , ,465 Treasury stock transactions - (4,529) 4, Transfers between capital and reverses (102) - - Net profit (loss) ,350 72,350 Other changes Balance at Dicember 31, ,896 61,958 13,192-47,685 3,296 44,768 10,509 72, ,654 Effect of adoption of IAS 32-13,192 (27,204) (13,192) Effect of adoption of IAS (2,240) 1, (501) Balance at January 1, ,896 75,150 (14,012) (2,240) 49,365 3,296 44,768 11,388 72, ,961 Allocation of net profit ,350 (72,350) - Dividends (55,833) - (55,833) Capital increases, capital contributed by shareholders 176 3, ,705 Stock options , ,073 Treasury stock transactions - - (1,058) - - (795) (1,351) Transfers between capital and reserves , (2,274) - - Net profit (loss) ,129 83,129 Balance at December 31, ,072 78,679 (15,070) - 49,365 5,574 44,802 26,133 83, ,684

131

132 Notes to the Financial Statements Gruppo Editoriale L Espresso SpA

133

134 Notes to the Financial Statement of the Parent Company 133 Notes to the Financial Statements of the Parent Company 1. General information Gruppo Editoriale L Espresso SpA (the Company ) operates mainly in the publishing sector and more specifically in the newspapers and periodicals segment, and in the segment of on-line publishing. Gruppo Editoriale L Espresso SpA has its registered office in Italy at Via Cristoforo Colombo, 149, Rome, Italy. CIR Compagnie Industriali Riunite SpA, whose summary financial data from the last approved financial statements is included in note 11.4, holds control of the Company. The Espresso stock is listed on the screen-based trading circuit (Mercato Telematico Azionario, MTA) of the Italian Stock Exchange (Reuters code: ESPI.MI, Bloomberg code: ES IM). The stock is included in the S&P/MIB index. The present balance at December 31, 2005 were approved by the Board of Directors of the Parent Company on February 22, Form, content and accounting principles The present financial statements were prepared in accordance with international accounting principles (International Accounting Standards, IAS and International Financial Reporting Standards, IFRS), as integrated by the related interpretations (Standing Interpretations Committee, SIC and International Financial Reporting Interpretations Committee, IFRIC) issued by the International Accounting Standards Boards (IASB). EU Regulation no. 1606/2002 of July 19, 2002, requires for companies whose stock is admitted to listing in a regulated market and whose financial statements is required in a consolidated form, starting with the financial year beginning January 1, 2005, the preparation of consolidated financial statements under the above-mentioned principles and interpretations. Said regulation has allowed individual Member States of the EU to extend such obligation to other types of companies. Law no. 306 dated October 31, 2003 (2003 EU Law) gave mandate to the Government to apply the said EU Regulation. Legislative Decree no. 38, dated February 28, 2005 extended the obligation, starting with 2006, to the statutory accounts of companies issuing financial instruments admitted to trading on regulated markets. The Company, in line with directives issued for the whole Group, opted to adopt the said principles in the preparation of its financial statements. The entire legislative body was adopted by CONSOB (Italy s stock market regulator) which, through Resolution no dated April 14, 2005 required, starting with the financial year beginning January 1, 2005, for companies whose stock is admitted to listing in a regulated market of the EU, the preparation of consolidated financial statements under IFRS in place of the accounting principles of individual Member States. In 2005, the IASB published new Principles and Interpretations. Despite the fact that at the present date such Principles and Interpretations have not yet been incorporated into EU legislation, the Group has taken into account their effect, describing in note 7 of the present document the potential impact on financial statements. As required by IFRS 1, principles of consolidation and valuation criteria described below were applied in addition to the preparation of the present financial statements, also to the opening Balance Sheet at January 1, 2004, to the Financial Statements at December 31, 2004, with the exception of those relating to financial instruments, whose application was postponed to

135 134 Notes to the Financial Statements of the Parent Company January 1, 2005, as allowed under IFRS 1, and to exemptions to the retroactive application of IFRS allowed under IFRS 1, as reported in the section Transition to IFRS. The principle adopted for the preparation of the annual report is that of the historical cost for all assets and liabilities, with the exception, from January 1, 2005, of derivative instruments and certain financial assets, accounted for at their fair value. Figures provided for comparative purposes in the financial statements and in the related notes make reference to January 1, 2005, to allow a more meaningful understanding of the trend of the year. Detailed information between balances at December 31, 2004 and those at January 1, 2005 is provided in the Transition to IFRS section and relates mainly to effects generated from IAS 32 and IAS 39. Assets and liabilities in the balance sheet are classified under current and non-current as, contrary to the classification by degree of liquidity, this classification is deemed to better represent the financial position of the Company. The Balance Sheet consists of separate and counterposed sections. The order in which items are reported is Assets, Shareholders Equity and Liabilities, from the least to the most liquid (from non-current to current). In order keep the structure of the Balance Sheet linear and to allow the use of the same format also for interim reports, balance sheet captions include only major classes. All sub-classifications (by nature of the debtor/creditor, expiration, etc.) are instead disclosed in the notes. The content of the Balance Seet complies with minimum requirements of IAS 1 as, with the exclusion of publications, no significant or special item requiring separate reporting were devised. Income Statement items are classified by nature as, in consideration of the activity carried out by the Company, a classification by use is not deemed to provide a better description of the Company s financial position. In the Statement of Cash Flows, cash flows from operating activities, those from investing activities, financing activities and discontinued operations are reported separately. Unless otherwise specified, amounts reported in the present tables and notes are stated in thousands of euros, rounded off to the nearest unit. 3. Valuation criteria 3.1 Intangible assets Intangible assets are recorded at the acquisition or production cost. The acquisition cost is represented by the fair value of the price paid for the asset, inclusive of any direct cost incurred to put the asset to use. The acquisition cost is the equivalent of price paid in cash at the time of the acquisition. In case the amount paid for the acquisition is deferred beyond normal payment terms, the difference with respect to the equivalent cash price is recorded as interest over the longer payment term. The cost of intangible assets developed internally is recorded by separating costs incurred in the research phase (not capitalized) and costs incurred in the subsequent development phase (capitalized). In case the two phases cannot be separated, the whole project is accounted for as research. Interest charges on the acquisition are never capitalized. The book value of intangible assets is in line with the amount expected to be retrieved through future use or transfer. In case there arise doubts as to possibility to retrieve the book value of an asset, the latter is subjected to an impairment test, as described in note 3.5. Publications The useful life of publications mastheads is considered as undefined. Such assets are not amortized and are instead subjected annually, or any time there is an indication that the asset may

136 Notes to the Financial Statement of the Parent Company 135 have experienced a loss in value, to an impairment test. Losses in value are recorded in the income statement under Depreciation, amortization and write-downs. Goodwill Goodwill represents the premium paid over the fair value of the share of assets and liabilities, including potential ones, identifying at the acquisition date. Goodwill arising from the acquisition of af associates is included in the value of the related equity investment. Goodwill acquired for a consideration is not amortized and is subjected at least annually to an impairment test. With such end, goodwill is allocated from the date of acquisition or by the end of the subsequent financial year, to one or more cash generating units (CGUs). Reductions in value resulting from an impairment test do not give rise to adjustments in subsequent years and are recorded in the income statement under Depreciation, amortization and writedowns. Other intangible assets Other intangible assets are represented by industrial patents and intellectual property rights, concessions, licenses, similar rights and software. They are recorded at cost, net of accumulated amortization calculated on a straight line over their expected useful life and possible durable losses in value. In view of the homogeneity of assets recorded in the balance sheet, barring specific relevant cases, the useful life of other intangible assets is estimated at 3 to 5 years. Amortization criteria applied are reviewed and redefined at least at the end of each financial period to keep into account possible significant changes. 3.2 Property, plant and equipment Property, plant and equipment are recorded at the acquisition cost, represented by the fair value of the price paid for the acquisition of the asset, inclusive of any direct cost incurred to put the asset to use. The acquisition cost is the equivalent of price paid in cash at the time of the acquisition. In case the amount paid for the acquisition is deferred beyond normal payment terms, the difference with respect to the equivalent cash price is recorded as interest over the longer payment term. Interest charges on the acquisition are never capitalized. The capitalization of costs for the upgrade, update or improvement of structural elements owned or leased from third parties is carried out exclusively when the same fulfill the requisites that allow their separate classification as assets or part of assets. Ordinary maintenance costs are charged to the income statement. After the initial recording, property, plant and equipment are carried at cost, net of accumulated depreciation (with the exception of land) and possible durable losses in value. The depreciable value of each significant component of a tangible asset having a different useful life is calculated on a straight line over its expected useful life. Depreciation criteria, the useful life of assets and their residual value are reviewed and redefined at least at the end of each financial period to keep into account possible significant changes. Capitalized costs relating to leasehold improvements are attributed to the classes of assets to which they relate and depreciated over the shorter between the residual term of the lease and the residual useful life of the asset to which the leasehold improvement relates. The book value of property, plant and equipment is in line with the amount expected to be retrieved through future use. In case doubts arise as to possibility to retrieve the book value of

137 136 Notes to the Financial Statements of the Parent Company an asset, the latter is subjected to an impairment test, as described in note 3.5. The original value is restored when the reasons that gave rise to the impairment cease to exist. 3.3 Leases Leasing contracts relating to assets for which the Company bears all costs and benefits deriving from ownership are classified as financial leases. Assets held under a financial lease are recorded at the lower between the current value of the asset leased and the present value of minimum lease payments provided for in the lease contract. Such payments are accounted for as interest and principal so as to obtain a fixed rate of interest on the residual part of the debt. Residual lease payments, net of interest, are recorded as financial debt. Interest payments are charged to the income statement over the life of the lease. Assets held under a financial lease are depreciated in line with assets owned. Leasing contracts in which the lessor holds a significant share of risks and benefits deriving from ownership are classified as operating leases. Lease payments are recorded in the income statement in equal installments over the life of the lease contract. In sale and lease-back operations, the difference between the sale price and the book value of the asset is not recorded, except in the case of a write-down in the value of the asset. 3.4 Grants Grants are recorded when there exists, regardless of the formal granting of the amount, a reasonable certainty that the company will meet the conditions for the entitlement to the grant and that the same will actually be received. Capital grants are recorded in the balance sheet as deferred income and not as an adjustment to the value of the item for which the grant has been obtained. The contribution is credited in the income statement based on the useful life of the asset for which it is granted by discounting it so as to net out the related amortization expense recorded. Grants receivable as compensation for expenses and costs already incurred or aimed at providing immediate financial help to the company not correlated to future costs are recorded as income in the year in which they become receivable. 3.5 Loss in value of assets A loss in value of an asset originates whenever the book value of an asset is higher than the amount expected to be retrieved from the same. At each accounting date, the presence of factors indicating a possible loss in value is assessed. Whenever one of these factors is present, the retrievable value of the asset is assessed through an impairment test and the write-down is recorded where appropriate. Assets not yet available for use, those recorded in the financial statements in the current financial year, intangible assets with an indefinite useful life and goodwill are subject at least annually to an impairment test, independently from the presence of factors indicating possible loss in value. The retrievable value of an asset is the higher between its fair value, net of sales costs, and its value in use. The retrievable value is calculated with reference to each individual asset, unless the said asset is able to generate positive financial flows deriving from ongoing use independently from positive cash flows generated by other assets or groups of assets, in which case the test is carried out at the level of the smallest Cash Generating Unit that includes the said asset. The original value of the asset is restored whenever the reasons for the loss in value cease to exist, with the exception of goodwill whose original value is not restored.

138 Notes to the Financial Statement of the Parent Company Investments Investments in subsidiaries and associates, or those in which the Parent Company exercises a significant influence, are recorded at cost, net of losses in value. Investments in companies in which the Parent Company does not exercise a significant influence are valued at fair value, corresponding to the cost net of any loss in value in case the current value of the investment cannot be determined in a reliable manner. For a more detailed analysis of accounting principles regarding financial assets, see note Marketable securities Marketable securities are represented by financial assets having a fixed maturity which the Company has the intention or the ability to hold to maturity and as such carried at the amortized cost. For a more detailed analysis of accounting principles regarding financial assets, see note Inventories Inventories are recorded at the lower between the acquisition cost, determined applying the weighted average cost method, and the net realizable value. The cost is represented by the fair value of the price paid and any other cost that may be attributed, with the exception of interest expenses. The net realizable value is represented by the estimated sale price under normal conditions, net of completion costs and selling expenses. Possible write-down is reversed in subsequent years when the reasons for their recording cease to exist. 3.9 Trade receivables Trade receivables are recorded at the fair value of future cash flows, written-down for losses in value Contract work in progress Contract work in progress is represented by specific projects being completed on behalf of others. In the case of projects for which the outcome can be estimated in a reliable manner, contractual revenues and related costs are recorded under the percentage of completion method. The percentage of completion is determined according to the ratio between costs incurred in the activity carried out at the closing date of the accounts and total costs estimated to the completion. When it appears probable that total costs will exceed contractual revenues, the expected loss is recorded directly in the income statement. In the case of projects for which a reliable estimate is not available, contractual revenues are recorded in line with costs incurred, provided such costs are expected to be retrieved. The sum of costs incurred and of profits recorded on each project is compared with invoices issued against the work carried out up until the date of the financial statements. When costs incurred and profits recorded (net of losses) are higher than invoices issued, the difference is recorded among current assets under Trade receivables. When invoices issued are higher than the sum of costs incurred and profits recorded (net of losses), the difference is accounted for among current liabilities under Trade payables Cash and cash equivalents Cash and cash equivalents are represented, as well as by cash on hand, by short-term investments in highly liquid assets that may easily be converted in known amounts of cash posing a minimal risk of fluctuation in value.

139 138 Notes to the Financial Statements of the Parent Company For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash, demand or forward deposits with banks, other highly liquid short-term financial assets with an original maturity not exceeding an average of 3 months, and bank overdrafts. For the purposes of the Balance Sheet, the latter are included among financial payables under current liabilities Financial assets Financial assets are classified into the following categories: financial assets valued at fair value, recorded also in the income statement; financial assets held to maturity; loans and other financial receivables; available-for-sale financial assets. The Company carries out the classification of financial assets at the time of acquisition. Financial assets are classified as follows: financial assets valued at fair value, recorded also in the income statement, consisting of financial assets acquired primarily with the intent of realizing a gain from short-term trading (over a term no longer than 3 months), or financial assets designated as such from inception; financial assets held to maturity, consisting of financial assets having a set maturity and generating a fixed cash flow or one that may be determined, which the Company intends and has the ability to hold to maturity; loans and other financial receivables, consisting of financial assets generating a fixed cash flow or one that may be determined, not listed on a market and different from those classified from inception as financial assets valued at fair value, recorded also in the income statement or available-for-sale financial assets; available-for-sale financial assets, consisting of financial assets other than the above or those designated as such from inception. Acquisitions and sales of financial assets are recorded at the settlement date. The acquisition cost corresponds to the fair value at the acquisition date, inclusive of transaction costs. After the initial recording, financial assets valued at fair value, recorded also in the income statement and available-for-sale financial assets are valued at fair value, while financial assets held to maturity and loans and other financial receivables are valued at the amortized cost. Realized and unrealized gains and losses resulting from fluctuations in the fair value of financial assets valued at fair value, recorded also in the income statement are recorded in the income statement in the year in which they occur. Unrealized gains and losses resulting from fluctuations in the fair value of available-for-sale financial assets are recorded under Shareholders Equity. The fair values of financial assets are determined according to listed bid prices or through the use of financial models. The fair value of unlisted financial assets is estimated using specific estimation techniques adjusted to the specific condition of the issuer. Financial assets for which the current value cannot be reliably determined are recorded at cost, adjusted downwards for losses in value. At each financial closing date, the presence of factors indicating loss of value is verified and the write-down is recorded in the income statement. Losses in value accounted for are reversed in case the circumstances that led to their recording no longer exist, with the exception of assets valued at cost.

140 Notes to the Financial Statement of the Parent Company Share capital The share capital is represented by capital underwritten and paid-up. Costs strictly correlated with the issue of shares are recorded as a reduction of the equity reserves, if directly attributable to operations involving the share capital Treasury stocks Treasury stocks are recorded in a specific Shareholders Equity reserve. Gains or losses on the purchase, sale, issue or cancellation of treasury stocks are not recorded in the income statement Fair value reserves Fair value reserves include changes in the fair value, net of the related tax effect, of items recorded at fair value and under Shareholders Equity Other reserves Other reserves are represented by specific capital reserves Retained earnings (loss carry-forwards) Retained earnings (loss carry-forwards) include the part not distributed and not accrued to mandatory reserve (in case of profits) or not balanced (in case of losses), of profits for the previous years. The item includes also transfers from other equity reserves freed-up, in addition to the effect of the change in accounting principles and relevant errors Employee benefits Short-term benefits Short-term employee benefits are recorded in the income statement in the period in which the employment takes place. Defined benefit plans Employee termination indemnity and Fixed indemnity for managers of newspapers are determined by independent actuaries to estimate the amount of the future benefits that the employees have accrued at the balance sheet date. Net actuarial gains (losses) accrued are not recorded until their absolute value exceeds 10% of the present value of the liability ( corridor approach ). Possible actuarial gains (losses) are recorded in the income statement. Defined contribution plans The Company participates in defined contribution public pension plans contributing to mandatory, contractual or voluntary. The payment of contributions extinguishes the obligation of the Company towards its employees. Contributions constitute therefore costs for the period in which they are due. Share-based compensations The Company recognizes additional benefits to certain top managers through stock option plans. The cost of such operations involving shares, recorded in the income statement, is calculated based on the fair value of options at the time at which they are assigned. The cost, is recorded in the period included between the date at which the options are assigned and that at which they become exercisable, with compensation under Shareholders Equity.

141 140 Notes to the Financial Statements of the Parent Company 5.19 Provisions for risks and charges, potential assets and liabilities Provisions for risks and charges are possible liabilities whose amount and/or timing is uncertain, resulting by previous events and whose fulfillment requires the use of financial resources. Accruals are made exclusively when there exists an actual obligation, either legal or implicit, towards third parties that requires the use of financial resources, and whenever a reliable estimate of the obligation can be made. The accrual recorded represents the best estimate of the liability relating to the fulfillment of the obligation at the date of the financial statements. Accruals made are reviewed at each accounting date and adjusted to the best available estimate. Where the payment of the obligation takes place beyond normal payment terms and the discounting back effect is relevant, the amount accrued is represented by the present value of expected future payments needed to extinguish the obligation. Potential gains and losses are not recorded in the financial statements, though information about the same is provided Financial liabilities Financial liabilities are recorded initially at the fair value of amounts received, net of transaction costs, and subsequently carried at the amortized cost Derivative instruments Derivative contracts are recorded in the income statement at fair value. The recording of differences in the fair value varies according to the purpose of the derivative instrument (speculative or hedging) and the nature of the risk hedged (Fair Value Hedge or Cash Flow Hedge). In the case of contracts designated as speculative, changes in the fair value are recorded directly in the income statement. In the case of contracts designated as hedging contracts, the Company documents the relationship with the instrument hedged at the time it enters into the contract. The documentation includes the identification of the hedging contract, the item or operation hedged, the nature of the risk hedged, the criteria with which the effectiveness of the hedging contract will be evaluated, and the related risk. The effectiveness of the hedge is evaluated by comparing fluctuations in the fair value or the cash flow of the instrument hedged with fluctuations in the fair value or the cash flow of the hedging instrument. The effectiveness of the hedge is evaluated both at the start of the operation and regularly throughout the duration of the hedge. The ongoing evaluation is in any case carried out at least at each accounting date. More specifically, the hedge is considered as efficient when the fluctuation in the fair value or the cash flow of the instrument covered is almost entirely offset by the fluctuation in the fair value or cash flow of the hedging instrument and results are included in an interval between 80% and 125%. The Fair Value Hedge instruments are accounted for by recording in the income statement changes in the fair value of the hedging instrument and the instrument covered, regardless of the valuation criteria adopted for the latter. In particular adjustments to the book value of hedged financial instruments generating interest are amortized in the income statement over the residual term of the asset/liability hedged using the effective interest rate method. The Cash Flow Hedge instruments are accounted for by suspending under Shareholders Equity the portion of the change in the fair value of the hedging instrument which is recognized as effective hedge, while recording in the income statement the ineffective part. Changes recorded directly under Shareholders Equity are released to the income statement in the same year or in the years in which the asset or liability hedged influences the income statement. The accounting effects on the financial statements of the termination of a hedge contract are

142 Notes to the Financial Statement of the Parent Company 141 recorded differently for Fair Value Hedges and Cash Flow Hedges. In the case of Fair Value Hedges the underlying instrument recorded in the financial statements ceases to be hedged from the date at which the hedging contract is terminated or becomes ineffective and the instrument is thus again valued according to the method used in absence of a hedge. In case of financial instruments valued at the amortized cost, the difference between the valuation at the fair value of the risk covered and the amortized cost at the date of the termination of the hedgeaccounting period, is amortized over the residual life of the financial instruments based on rules used in the calculation of the effective rate of interest. In the case of Cash Flow Hedges, the gain or loss suspended in the Shareholders Equity remain suspended until the transaction takes place, when it is no longer probable or it is no longer expected to be carried out, or when flows originally hedged will have an impact on the income statement Costs and revenues recognition Revenues from the sale of assets are valued at the fair value of the amount received or receivable, keeping into account trade discounts, where appropriate. Revenues from the provision of services are accounted for under the percentage of completion method, defined as the ratio between the amount of services provided at the accounting date and the total value of services to be provided. Revenues from contract work in progress are recorded as described in note Revenues are recorded in accordance with the following criteria: revenues from the sale of publications are recorded at the time of shipping, net of related returns; revenues from the sale of advertising are recorded at the time of publication. Costs are recorded according to criteria in line with those applied for revenues, and in any case under the accrual method. Interests received and paid are recorded based on the accrual method, keeping into account the effective rate of interest applicable. Dividends are recorded in the year in which distribution is resolved Income taxes Income taxes for the year are calculated based on expectable taxable income and current tax regulations. Deferred and prepaid taxes arising from timing differences between the profit reported in the financial statements and that reported for tax purposes, and the carry-forward of losses and tax credits not retrieved, are also recorded, provided their retrieval (elimination) reduces (increases) future tax payments with respect to the amount that would be payable in the future in case such retrieval (elimination) did not have a tax effect. The tax effect of operations are recorded in the income statement or directly under Shareholders Equity in the same manner as operations or events that originate a tax imposition Currency Entries in the financial statements of the Company are recorded in the currency of the primary economic environment in which the entity operates ( functional currency ). The financial statements are prepared in Euro. Transactions denominated in other currencies are translated into the functional currency at the exchange rate at the date of the transaction. Foreign-exchange gains and losses arising from the

143 142 Notes to the Financial Statements of the Parent Company settlement of these transactions and the translation of assets and liabilities denominated in currencies other than the functional currency are recorded in the income statement. 4. Change in accounting principles, errors and adjustments to estimates Accounting principles adopted are modified from one financial year to the next only in case the change is required by an accounting Principle or if it contributes to provide more reliable and relevant information on the effect of transactions carried out on the financial position, economic performance or financial flows of the entity involved. The effects of changes in accounting principles are recorded retrospectively in the Shareholders Equity for the first accounting year in which the change is introduced, and comparative information is adapted accordingly. Such approach is adopted only when it is impractical to restate the accounts for comparative purposes. The application of a new or modified accounting principle is accounted for as required by the same principle. In case the principle does not provide for the transition, the change is accounted for under the retrospective method or, when this is impractical, through the use of projections. In case of relevant errors, the method described in the paragraph above with reference to accounting principles applies. In case of immaterial errors, the recording is carried out in the income statement in the period in which it is detected. Changes in estimates are accounted for through the use of projections in the income statement in the year in which the review takes place in case changes affect only such year, or in the year in which the review takes place and in subsequent years in case the change has an impact also in subsequent accounting periods. 5. Subsequent events Subsequent events occurred after the date of the financial statements till the date at which the publication of the same is authorized. The date of approval for the publication of the financial statements is the date at which the Board of Directors approves them. Such date is indicated in Note 1. Subsequent events relate to facts that provide evidence of situations existing at the date of the financial statements (subsequent events that imply adjustments) or facts providing evidence of situations after the balance sheet date (subsequent events that do not require adjustments). The effect related to the first is recorded in the financial statements and the appropriate note is adjusted accordingly, while in the second case only relevant information is provided in the notes, where relevant. 6. Risk management The management of financial risk is regulated by a set of rules, defined by the Group, that outline the objectives, strategies, guidelines and operating procedures. In the management of financial resources and treasury the Company adopts a procedure that implies the application of strict prudence and limited risk criteria in the choice of financial and investment policies, prohibiting all speculative operations except for those motivated and approved by the Board of Directors. The Company manages and coordinates a centralized intragroup current account, in which all subsidiaries take part, aiming at obtaining economic advantages in relationships with financial counterparts and stronger operating efficiency. Centralization allows in fact more efficient planning and control of financial flows, ensures higher consistency in financing and investment

144 Notes to the Financial Statement of the Parent Company 143 choices, optimizes the risk profile of the overall Group and, above all, strengthens its contractual power with the banking system. The Company, whose rating issued by Standard&Poors is BBB- with a positive outlook, uses prevalently two channels to raise financial resources: the international bond market and longterm bank loans extended against investments in publishing activities for which subsidies are provided by the Italian law, reducing the interest rate on the loan by several percentage points. In this framework and in view of the good liquidity of the market and of favorable interest rates, the Company placed on the market in October 2004 a 300, 10-year bond, bearing a 5.125% fixed rate of interest to be used to repay the existing 200 million bond expiring August 1, 2005, in addition to providing liquidity for future acquisitions and investments. The 300 million bond issue and the related interest payments are not guaranteed and do not contain covenants or clauses providing for their early repayment. The proceeds of the bond resulted temporarily in a strong liquidity, invested in time deposits with primary Italian banks. To limit the effect of the negative spread between the fixed interest paid out and the floating interest earned until the expiration of the old bond issue and the settlement of the acquisition of Rete A, the Group entered into interest rate swap contracts, swapping the fixed rate into a floating rate. The operation was reversed in March 2005 with a gain of about 9 million, achieved thanks to a further reduction in interest rates in the period. In addition to the bond issue mentioned above, in November 2005 were extended ten-year loans, subsidized in accordance to the Law on publishing, amounting to 33.8 million at an interest rate, net of the State subsidy, of 2.35%. With these operations the Company obtained abundant long-term financial resources. Were it be in need of additional financial resources in addition to those provided by the operating cash flow, it will however be in a position to draw on a number of uncommitted credit lines which are currently unutilized. The Company is currently not exposed to any financial risk connected with fluctuations in interest rates or exchange rates. Price risk As it is active in the publishing sector, Gruppo Editoriale l Espresso S.p.A. acquires large quantities of paper. To achieve a more efficient management of paper purchases and to strengthen its bargaining position with counterparts, thus promoting competition among suppliers, the management of paper purchases for the Group was unified. Over the course of time, the Company stipulated a number of paper swap contracts on a portion of its paper needs, but verifying their ineffectiveness in the medium term, has decided to discontinue the use of such instruments. The last paper swap three years old contract expired on September 30, Credit risk The credit risk exposure of the Company relates to trade and financial receivables. Due to the sector in which it operates, Gruppo Editoriale l Espresso S.p.A.is not subject to significant credit risk on trade receivables. Though there are no significant concentrations of such risks, the Company however adopts operating procedures that bar the sale of products or services to customers that do not possess an adequate credit profile or provide collateral guarantees.

145 144 Notes to the Financial Statements of the Parent Company With regard to financial receivables, investments in short-term financial instruments and trading in derivatives are carried out only with banks that possess a high credit standing. In accordance with IAS 32 paragraph 74, we give the following information: <1 >1<2 >2<3 >3<4 >4<5 >5 Total ( 000) Intragroup Third parties INTEREST BEARING Fixed-rate Other receivables Non-current receivables Cash and cash equivalents - 188, ,400 Bond issues , ,357 Other financial payables - 7,053 5,876 5,106 5,144 5,182 18,175 46,536 Bank payables - 4,315 5,876 5,106 5,144 5,182 18,175 43,798 Financial accrued liabilities - 2, ,738 Floating rate Financial receivables 39, ,354 Non-current receivables Cash and cash equivalents - 2, ,268 Other financial payables 159,283 1, ,734 Bank payables - 1, ,451 Financial payables to Group companies 159, ,191 Financial accrued liabilities NON-INTEREST BEARING Trade receivables 98,783 20, ,861 Other receivables - 9, ,850 Cash and cash equivalents Trade payables 21, , ,589 Other payables - 30, ,449

146 Notes to the Financial Statement of the Parent Company New IFRS and interpretations of the IFRIC In the last months of 2005, the IASB and the IFRIC published new Standards and Interpretations. Despite the fact that at the present date such Standards and Interpretations have not the obligatoriness or have not yet been incorporated in EU legislation, the Company has however taken into account their effects, summarizing the potential impact on its balance sheet and income statement as follows: IFRS IFRIC Interpretation IFRS 6 Exploration for and evaluation of mineral IAS 19 amended Employee benefits IAS 39 amended Financial instruments IFRS 4 amended Insurance contracts IFRS 7 Disclosure requirements and changes to IAS 1- Presentation of Financial Statements IFRIC 4 Determining whether an arrangement contains a lease IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental funds SIC 12 amended Special purpose entities IFRIC 6 Liabilities arising from participating in a specific market - waste electrical and electronic equipment Effect on the accounts of the Company Not applicable to the Company The Company does not foresee the adoption of changes introduced in the short term No significant impact Not applicable to the Company The application of the Principle will involve exclusively wider disclosure on financial instruments and share capital No significant impact Not applicable to the Company No significant impact Not applicable to the Company 8. Main causes of uncertainty over estimates Estimates are made primarily in the context of the recording of write-downs on the value of assets, to estimate returns of publications, accruals to credit risk, employee benefits, taxes and other accruals and provisions. Estimates and assumptions are reviewed periodically and the effect of each resulting change are reflected immediately in the income statement. In particular, estimates of returns of publications and the related add-on products are carried out monthly with statistical methods and constantly updated with informations available. Estimates of legal risks keep into account the nature of the litigation pending (civil and penal). Estimates for homogeneous risk are weighted against the performance in the previous three years. Historical data shows a stable trend.

147 146 Notes to the Financial Statements of the Parent Company 9. Notes on Balance sheet items Assets Intangible assets (1) Intangible assets are made up as follows: Jan. 1, 2005 Dec. 31, 2005 Publications 220, ,661 Concessions and licenses 2,947 3,369 TOTAL INTANGIBLE ASSETS 223, ,030 of which: Intangible assets with an indefinite useful life 220, ,661 Intangible assets with a definite useful life 2,947 3,369 No intangible asset is generated internally. No write-ups were carried out in the year. The breakdown and changes in intangible assets with an indefinite useful life are shown in the tables that follow. Intangible assets with an indefinite useful life Publications Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 220, ,661 Accumulated amortization and write-downs - - Opening balance 220, ,661 ADJUSTMENTS TO ORIGINAL COST Increases Purchase/(sale) of companies Decreases Reclassifications Closing balance Original cost 220, ,661 Accumulated amortization and write-downs - - Closing balance 220, ,661

148 Notes to the Financial Statement of the Parent Company 147 Assets with an indefinite useful life and the respective book values for the current year and previous one are shown in the table below: Book value at Book value at Jan. 1, 2005 Dec. 31, La Repubblica 220, ,527 Total 220, ,527 The impairment test carried out on the publication, that represents a CGU, ascertained that there do not exist losses in value to be recorded in the financial statements. The retrievable value was estimated making reference to the value in use. Determination of value in use of Cash Generating Units The value in use of Cash Generating Units was determined by discounting at an appropriate rate future cash flows, both positive and negative, generated by the unit in its productive phase and upon disposal. In other terms, the value in use was estimated by applying the Discounted Cash Flow model using the unlevered (or asset side) version that applies a formula that includes the discouting back of cash flows analytically expected during the period of the anticipatory plans and the expected terminal value of the cash generating unit. In order to estimate correctly the value in use of a Cash Generating Unit, it has been necessary to estimate the cash flows generated by it over time; expectations regarding possible fluctuations in the amount and timing of cash flows; the discounting back rate to be applied; and possible risk factors inherent in the long-term nature of the capital investment made in the unit. With regard to the characteristics of cash flows to be discounted, international accounting principles explicitly require that in the estimation of the discounted value, positive and negative cash flows generated by financial management and financial flows relating to taxes must not be taken into account. Cash flows to be discounted are therefore only operating cash flows, unlevered, differential (as they relate to the specific unit), and gross of taxes. In the specific case, a pre-tax WACC (in line with the financial flow gross of the tax effect) was estimated at December 31, Factors considered in determining the discounting back rate to be used included: the determination of a proper rate of return, an estimate of the cost of capital borrowed and the determination of the characteristics of the sources of financing. Below we summarize factors used for each individual test: Cash Time horizon Growth rate Discounting back rate Generating Unit in years (pre-tax wacc) 1. La Repubblica Zero 6.61%

149 148 Notes to the Financial Statements of the Parent Company Intangible assets with a definite useful life The table below shows the useful life of intangible assets with a definite useful life and the amortization rate used: Useful life Amortization rate Concessions and licenses 3 years 33% The changes are shown below: Concessions and licenses Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 13,112 14,143 Accumulated amortization and write-downs (9,919) (11,196) Opening balance 3,193 2,947 ADJUSTMENTS TO ORIGINAL COST Increases 1,031 1,995 Purchase/(sale) of companies - - Decreases - - Reclassifications - - ADJUSTMENTS TO PROVISIONS Increases (1,273) (1,573) Purchase/(sale) of companies - Decreases (4) - Reclassifications - - Closing balance Original cost 14,143 16,138 Accumulated amortization and write-downs (11,196) (12,769) Closing balance 2,947 3,369 Property, plant and equipment (2) The following table shows the detail of property, plant and equipment: Jan. 1, 2005 Dec. 31, 2005 Lands 1,064 1,064 Buildings and constructions 5,486 5,275 Leasehold improvements 7,216 11,453 Plants and machinery 54,683 47,127 Furniture, fixtures and vehicles 9,473 9,094 Tangible assets under construction 12 Other assets TOTAL PROPERTY, PLANT AND EQUIPMENT 77,998 74,133

150 Notes to the Financial Statement of the Parent Company 149 In view of the homogeneity of assets recorded in the balance sheet, the expected useful life of property, plant and equipment by category is as follows: Useful life Depreciation rate Lands Undefined useful life Industrial and civil buildings 33 years 3% Printing plants 7 years 15.5% Generic plants 10 years 10% Other plants and equipment 5 years 20% Rotary presses 5 years 20% Full color rotary presses 10 years 10% Industrial equipment 4 years 25% Vehicles 4 years 25% Furniture, fixtures and ordinary equipment 8 years 12% Electronic equipment 3 years 33% Editorial systems 4 years 25% Leasehold improvements Term of contract Term of contract A breakdown of Property, plant and equipment owned is included in the tables that follow. Lands Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 1,064 1,064 Accumulated depreciation and write-downs - - Opening balance 1,064 1,064 ADJUSTMENTS TO ORIGINAL COST Increases - - Purchase/(sale) of companies - - Decreases - - Reclassifications - - Closing balance Original cost 1,064 1,064 Accumulated depreciation and write-downs - - Closing balance 1,064 1,064

151 150 Notes to the Financial Statements of the Parent Company Buildings and constructions Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 8,312 9,067 Accumulated depreciation and write-downs (3,314) (3,581) Opening balance 4,998 5,486 ADJUSTMENTS TO ORIGINAL COST Increases Purchase/(sale) of companies - - Decreases - - Reclassifications ADJUSTMENTS TO PROVISIONS Increases (267) (274) Purchase/(sale) of companies - - Decreases - - Reclassifications - - Closing balance Original cost 9,067 9,130 Accumulated depreciation and write-downs (3,581) (3,855) Closing balance 5,486 5,275 Leasehold improvements Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 13,176 20,595 Accumulated amortization and write-downs (12,984) (13,379) Opening balance 192 7,216 ADJUSTMENTS TO ORIGINAL COST Increases 7,339 5,520 Purchase/(sale) of companies - - Decreases (7) - Reclassifications 87 - ADJUSTMENTS TO PROVISIONS - Increases (402) (1,283) Purchase/(sale) of companies - - Decreases 7 - Reclassifications - - Closing balance Original cost 20,595 26,115 Accumulated depreciation and write-downs (13,379) (14,662) Closing balance 7,216 11,453

152 Notes to the Financial Statement of the Parent Company 151 Plant and machinery Jan.1, 2005 Dec. 31, 2005 Opening balance Original cost 102, ,973 Accumulated depreciation and write-downs (91,328) (99,290) Opening balance 11,417 54,683 ADJUSTMENTS TO ORIGINAL COST Increases 10, Purchase/(sale) of companies - - Decreases (4,949) (954) Reclassifications 45,689 - ADJUSTMENTS TO PROVISIONS Increases (8,808) (7,362) Purchase/(sale) of companies - - Decreases 3, Write-downs (2,482) (939) Reclassifications - - Closing balance Original cost 153, ,773 Accumulated depreciation and write-downs (99,290) (106,646) Closing balance 54,683 47,127 of which: Guarantees and commitments 28,813 86,662 Furniture, fixtures and vehicles Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 29,760 35,278 Accumulated depreciation and write-downs (22,593) (25,805) Opening balance 7,167 9,473 ADJUSTMENTS TO ORIGINAL COST Increases 5,617 2,873 Purchase/(sale) of companies - - Decreases (99) (199) Reclassifications - - ADJUSTMENTS TO PROVISIONS Increases (3,222) (3,265) Purchase/(sale) of companies - - Decreases Reclassifications - - Closing balance Original cost 35,278 37,952 Accumulated depreciation and write-downs (25,805) (28,858) Closing balance 9,473 9,094

153 152 Notes to the Financial Statements of the Parent Company Tangible assets under construction Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 46,091 - Accumulated depreciation and write-downs - - Opening balance 46,091 - ADJUSTMENTS TO ORIGINAL COST Increases - 12 Purchase/(sale) of companies - - Decreases - Reclassifications (46,091) Closing balance Original cost - 12 Accumulated depreciation and write-downs - - Closing balance - 12 The main increases in the year are due to the refurbishing of the new Rome head offices (amounting to 4,996 million). The increase of commitments relating to Plant and machinery is due primarily to guarantees pledged in favor of banks that extended subsidized loans on rotary presses, printing plant and similar equipment. Other tangible assets Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 1,380 1,517 Accumulated depreciation and write-downs (1,333) (1,441) Opening balance ADJUSTMENTS TO ORIGINAL COST Increases Purchase/(sale) of companies - - Decreases - - Reclassifications - - ADJUSTMENTS TO PROVISIONS Increases (98) (38) Purchase/(sale) of companies - - Decreases (10) - Write-downs - - Reclassifications - - Closing balance Original cost 1,517 1,587 Accumulated depreciation and write-downs (1,441) (1,479) Closing balance

154 Notes to the Financial Statement of the Parent Company 153 Investments (3) Changes in investments are reported below: Jan. 1, 2005 Dec. 31, 2005 Opening balance Original cost 282, ,317 Write-downs (47,757) (53,297) Opening balance 234, ,020 ADJUSTMENTS TO ORIGINAL COST Increases 27, ,532 Purchase/(sale) of companies - - Decreases - - ADJUSTMENTS TO PROVISIONS Write-downs (5,540) - Revaluations - - Closing balance Original cost 309, ,849 Accumulated amortization and write-downs (53,297) (53,297) Closing balance 256, ,552 The main increase in 2005 is due to the acquisition of national Tv network All Music, for a consideration of 115 million.

155 154 Notes to the Financial Statements of the Parent Company The table that follows shows investments included in the category, changes in the percentage of ownership and the respective book value: % held Book value Jan. 1, 2005 Dec. 31, 2005 Jan. 1, 2005 Dec. 31, 2005 Investments in subsidiaries Finegil Editoriale SpA % % 66,413 66,413 A. Manzoni & C. SpA % % 14,631 14,631 Elemedia SpA * % % 8,559 36,098 Rotosud SpA % % 5,104 5,104 Centro Preparazione Stampa - C.P.S. SpA % % Rotocolor SpA % % 22,326 22,326 Somedia SpA % % Kataweb SpA * % - 20,209 - EleTv SpA * 95.00% - 1,830 - Editoriale FVG SpA 91.95% 91.99% 101, ,563 Selpi SpA 70.00% 70.00% 2,241 2,241 Rete A SpA % - 118,000 S.E.T.A. SpA 71.00% 71.00% 8,640 8,640 Total subsidiaries 252, ,223 Investments in associates Le Scienze SpA 50.00% 50.00% 1,361 1,361 Saire Srl 50.00% 50.00% Total associates 1,384 1,384 Other investments A.G.F. Srl 10.00% 10.00% 9 9 Agenzia ANSA Società Coop. a r.l. 3.14% 3.21% Consuledit Società Consortile a r.l. 6.62% 6.62% 1 1 E-Ink Corporation 0.43% 0.26% 1,481 1,481 Total other investments 1,945 1,945 TOTAL INVESTMENTS 256, ,552 * Companies merged by incorporation on December 16, 2005 Summary financial data of subsidiaries and associates is included in attachment 11.1 Related parties. The financial year of the above companies coincides with that of Gruppo Editoriale L Espresso SpA. The merger of Elemedia SpA, EleTv SpA and Studiovit Srl into subsidiary Kataweb SpA was concluded on December 16, The financial statements of the incorporating company, Kataweb SpA, thus include the results of the merged companies from January 1, Kataweb SpA has subsequently changed its name to Elemedia SpA.

156 Notes to the Financial Statement of the Parent Company 155 Non-current receivables (4) Non-current receivables are shown in the table that follows: Jan. 1, 2005 Dec. 31, 2005 Withholding taxes on Employee termination indemnity receivables Long-term security deposits Other non-current financial receivables 5,435 - TOTAL NON-CURRENT RECEIVABLES 6, In application of IAS 39, the fair value, of fixed/floating interest rate swap contracts entered into to hedge the interest rate risk resulting from bonds issued on October 27, 2004, amounting to 5,435 thousand, was recorded under Other receivables at January 1, 2005, as described in note 15. A matching liability was recorded under Non-current financial debt as an increase of the liability resulting from the bond issue. Deferred/prepaid tax assets (5) Deferred and prepaid taxes are shown in the tables that follow. Prepaid taxes Taxable amount Jan. 1, Increases Reversal of Jan. 1, Increases Reversal of Dec. 31, 2004 in temporary 2005 in temporary 2005 differences differences from differences differences from provious year provious year On personnel provisions 1,378 2,719-4, (3,466) 1,150 On risk provisions 11,851 2,340 (2,441) 11,750 3,875 (5,605) 10,019 On write-down of current assets 3,846 7,985 (3,009) 8,822 10,172 (6,755) 12,238 On write-down of fixed assets 25,942 7,872 (8,623) 25,191 1,271 (8,623) 17,838 On write-down of financial instruments - 9,566-9,566 2,670 (4,073) 8,162 TOTAL 43,016 30,481 (14,074) 59,424 18,507 (28,523) 49,407 Prepaid tax assets Jan. 1, Increase in Uses of Jan. 1, Increase in Uses of Dec. 31, 2004 prepaid prepaid 2005 prepaid prepaid 2005 tax assets tax assets tax assets tax assets On personnel provisions , (1,144) 379 On risk provisions 4, (876) 4, (1,913) 3,020 On write-down of current assets 1,407 2,892 (1,096) 3,203 3,775 (2,509) 4,469 On write-down of fixed assets 8,562 2,507 (2,846) 8, (2,846) 6,106 On write-down of financial instruments - 3,157-3, (1,344) 2,693 TOTAL 14,531 10,275 (4,818) 19,988 6,435 (9,756) 16,668

157 156 Notes to the Financial Statements of the Parent Company The increase in taxable amounts on the basis of whitch 10,172 thousand of prepaid tax assets were recorded in the income statement is due primarily to temporary differences between fiscal values and civil law values relating to financial gains from the extintion of bond s interest rate swap contracts. Deferred taxes Taxable amount Jan. 1, Increases Reversal of Jan. 1, Increases in Uses of Dic. 31, 2004 in taxable 2005 deferred tax deferred tax 2005 differences differences from provision provision provious years On lower valutation of personnel provisions 2, , (504) 3,245 On higher valuation of current assets On higher valuation of fixed assets 73,627 7,027 (1,073) 79,581 14,147 (1,024) 92,704 On revaluation of financial instruments - 5,442-5,442 - (5,397) 45 TOTAL 76,602 13,046 (1,073) 88,575 14,401 (6,925) 96,050 Deferred tax provision Jan. 1, Increases of Uses of deferred Jan. 1, Increases in Uses of Dec. 31, 2004 deferred tax tax provision 2005 deferred tax deferred tax 2005 provision provision provision On lower valutation of personnel provisions , (166) 1,071 On higher valuation of current assets On higher valuation of fixed assets 27,423 2,618 (400) 29,641 4,769 (381) 34,029 On revaluation of financial instrumentes - 1,796-1,796 - (1,781) 15 TOTAL 28,389 4,604 (400) 32,593 4,853 (2,329) 35,117 The increase in taxable amounts on the basis of whitch 14,147 thousand of deferred tax assets were recorded in the income statement is due primarily to the non-accounting deduction of amortizations of intagible assets with an indefinite useful life.

158 Notes to the Financial Statement of the Parent Company 157 Inventories (6) At December 31, 2005, raw material (paper) inventories amounted to 22,429 thousand (as compared with 22,545 thousand in 2004). Finished products inventories amounted to 5,308 thousand ( 3,246 thousand at December 31, 2004). Add-on products and media support inventories, and the related depreciations, grow significantly due to the higher number of the larger number of sales initiatives. The breakdown is shown in the table that follows: Inventories, Accumulated Inventories, Jan. 1, 2005 gross depreciations net Paper (raw materials) 22,548 (3) 22,545 Publications (finished products) Add-on products and multimedia supports (finished products) 7,043 (4,177) 2,866 Other goods 275 (275) - TOTAL INVENTORIES AT JAN. 1, ,246 (4,455) 25,791 Inventories, Accumulated Inventories, Dec. 31, 2005 gross depreciations net Paper (raw materials) 22,429-22,429 Publications (finished products) Add-on products and multimedia supports (finished products) 13,807 (9,187) 4,620 Other goods 347 (275) 72 TOTAL INVENTORIES AT DEC. 31, ,253 (9,462) 27,791 At December 31, 2005, the change in inventories recorded in the income statement amounted to 2,000 thousand (as compared with negative 559 thousand at December 31, 2004), of which 2,004 thousand relating to the change in inventories, and 44 thousand relating to the change in paper inventories and other goods. Trade receivables (7) Jan. 1, 2005 Dec. 31, 2005 Newsstands and distributors 9,441 17,279 Sundry trade receivables 2,643 2,799 Receivables from Group companies 91,164 98,783 TOTAL TRADE RECEIVABLES 103, ,861 At December 31, 2005, the provision for doubtful accounts amounted to 2,097 thousand ( 2,512 thousand at January 1,2005). A more detail description of receivables from Group companies is provided note 1.1 Related parties. Marketable securities (8) The table that follows shows changes in marketable securities and the effect at January 1, 2005 of the application of IAS 32 and 39:

159 158 Notes to the Financial Statements of the Parent Company Treasury stocks Securities Total Balance at January 1, ,663 20,528 29,191 Purchase treasury stocks 7,821-7,821 (Sales)/Repayments (4,112) - (4,112) Revaluations/(write-downs) 820 (182) 638 Balance at December 31, ,192 20,346 33,538 Effect of application of IAS 32 and 39 (13,192) - (13,192) Balance at January 1, ,346 20,346 Purchase of treasury stock (Sales)/Repayments - (20,346) (20,346) Balance at December 31, Securities held at January 1, 2005 have reached maturity. Current financial receivables (9) Jan. 1, 2005 Dec. 31, 2005 Financial receivables from Group companies 30,455 39,215 Other financial receivables TOTAL CURRENT FINANCIAL RECEIVABLES 30,521 39,354 Financial receivables from other Group companies are summarized analytically in note Tax receivables (10) Jan. 1, 2005 Dec. 31, 2005 Corporate income tax (Ires) and regional tax on productive activities (Irap) receivables Ires receivables from Parent 4,360 6,185 Ires/Irap to be reimbursed 9,976 9,910 VAT receivables Group VAT receivables 3, Grants on publishing ex Law 62 receivables 5,299 5,299 Grants on paper purchases receivables 4,036 8,506 Other tax receivables 5,374 6,892 TOTAL TAX RECEIVABLES 34,044 38,766 Receivables for grants relate to tax credits on capital expenditure as per Law 62/2001 (Law on Publishing), in addition to subsidies on paper purchases granted by Law 311 dated December 30, Law 62/2001 grants a 3% tax credit on eligible capital investments for the following five years. Grants not pertaining to the year are discounted and used-up over time based on the depreciation schedule of the assets to which they relate. Law 311 dated December 30, 2004 provides subsidies for paper used in 2005 for the printing of publications, granting a 10% tax credit on total paper purchases. The Law sets a limit of 95 million for grants to be extended in Though lacking a communication as to the

160 Notes to the Financial Statement of the Parent Company 159 amount of the grant, in view of the full granting of the amount applied for in the previous year, the amount due for 2005, equal to 8,506,393 was recognized in full. The cost of paper actually consumed in 2005, for which the grant is provided, is detailed below: Dec. 31, 2005 Paper purchased 105,536, Paper on which the grant is provided 85,063, % credit provided 8,506, Other receivables (11) Jan. 1, 2005 Dec. 31, 2005 Receivables on interest subsidies - 2,570 Social security receivables Short-term security deposits Advances to suppliers and agents 5, Receivables from employees and associates Other receivables 6,629 6,672 TOTAL OTHER RECEIVABLES 12,292 9,894 Receivables on interest subsidies relate to subsidized loans concluded in 2005 to finance capital expenditure incurred in the context of the full color project. Advances to suppliers decline sharply due to the fact that opening balances included the advance paid on the acquisition of Rete A. Item other receivables accrued include rights pertaining to future years and rent prepayments. Cash and cash equivalents (12) Jan. 1, 2005 Dec. 31, 2005 Cash on hand Current account balances 372, ,429 Accrued income 1, TOTAL CASH AND CASH EQUIVALENTS 373, ,739 Current account balances are highly liquid short-term financial investments that are readily convertible into known cash amounts and not subject to relevant fluctuations in value. Such investments have maturities averaging around three months and are remunerated at a pre-set fixed rate based on Euribor (averaging about 2.387%). Cash and cash equivalents decreased by 183,025 thousand for the repayment of a five-year bond with a nominal value of 200 million that fell due and the amount paid for the acquisition of Tv network All Music. Such repayments were partially offset by new subsidized loans, for which reference is made to note 15.

161 160 Notes to the Financial Statements of the Parent Company Liabilities and Shareholders Equity Shareholders Equity The table below shows the breakdown of the Shareholders Equity by availability and possibility of distribution Nature/description Total Uses Portion Summary of uses in amount allowed avaible the past three years (a 000) loss coverage other SHARE CAPITAL 65,072 EQUITY RESERVES: Share premium reserve 78,679 ABC 63,609-57,783 Capital grants 17,839 ABC 17, Dividend equalization reserve 3,869 ABC 3, Revaluation reserve under Law. 413/ ABC EQUITY RESERVES 101,173 86,103-57,783 RETAINED EARNINGS RESERVES: Legal reserve 13,014 B Voluntary reserve 25,412 ABC 25,412-40,662 Retained earnings 721 ABC Reserve under Law 675/ ABC Reserve for reinvested capital gains under art ABC Merger differences 7,870 ABC 7, RETAINED EARINGS RESERVES 48,441 34,607-40,662 IFRS RESERVE: Positive changes 51,148 2, Negative changes (1,783) IFRS RESERVE 49,365 2, TREASURY STOCKS RESERVE (15,070) STOCK OPTION RESERVE 5, TOTAL EQUITY AND RESERVES 254, ,125-98,445 Legend: A capital increases B coverage of losses C distribution to shareholders The classification of some reserves reported above is due to the transition from Italian GAAP to International Accounting Principles (firsttime adoption of IAS/IFRS) and the resulting regulations set in article 7 of Legislative Decree no.38 of As these are the first financial statements prepared under IFRS and in which regulations, set in Legislative Decree no.38 of 2005 are applied for the first time, and to the fact that the same contain a number of uncertain points, the above classification of reserves may undergo changes in the future to keep into account new orientations issued by the competent bodies. Share capital (13) At December 31, 2005, the share capital amounted to 65,071, and was made up of 433,810,988 shares with par value of 0.15 each. With respect to January 1, 2005, the share capital increased by 175,590 as a result of the underwriting of 1,170,600 shares in execution of stock option plans.

162 Notes to the Financial Statement of the Parent Company 161 Jan. 1, 2005 Dec. 31, 2005 No. of shares resolved 442,882, ,822,188 No. of ordinary shares: 432,640, ,810,988 of which: No. of treasury stocks 3,300,000 3,200,000 All ordinary shares issued are fully paid-in. There do not exist shares on which there is a restriction on the distribution of dividends, with the exception of the provisions of article 2357 of the Italian Civil Code regarding treasury stocks. Reserves (14) The breakdown of reserves and changes incurred in the period are reported in the Statement of Changes in the Shareholders Equity. Financial debt (15) Jan.1, Dec. 31, Maturing Maturing MAturing between 1 between 2 over 5 years and 2 years and 5 years Bonds 303, , , ,084 Bank loans 9,966 39,483 5,876 15,432 18,175 TOTAL NON-CURRENT FINANCIAL DEBT 313, ,250 6,500 17, ,259 To hedge against the risk resulting from the 300 million fixed-interest bond issue, at January 1, 2005 the Company was a counterpart in interest rate swap contracts converting such fixed rate into a floating rate of interest. Such contracts were terminated in advance in March In application of IAS 39, the adjustment to the book value of the bond issue was amortized in the income statement keeping into account costs incurred and issue discounts, and the share accrued (calculated on the basis of the residual life of the bond) in the positive spread between the fair value of the same at the time of the reversal of the hedging instruments, and the original cost of the bond ( 9,020 thousand). The bond issue has a maturity of 10 years and bears an annual rate of interest of 5.125%. The effective tax rate is 4.824%. Jan. 1, 2005 Dec. 31, 2005 Bonds 205,386 3,328 Bank loans 2,365 4,315 Bank overdrafts 2,670 1,451 Financial payables to Group companies 71, ,283 Payables to other financing entities 3,344 - TOTAL CURRENT FINANCIAL DEBT 284, ,377 At January 1, 2005, item Bonds in current liabilities includes the 200 million bond issue expiring August 1, 2005 (6.25% nominal half-yearly interest rate, equivalent to a 6.68% effective yearly rate).

163 162 Notes to the Financial Statements of the Parent Company In application of IAS 39, on January 1, 2005 the value of the paper swap contract with which the price of part of paper supplies is fixed until September 2005 was recorded on January 1, 2005 under Current financial debt, while a matching reduction in the Fair value reserve was recorded at the same date. The expiration of this contract resulted in the write-down in full of the related items and the reclassification on an equivalent amount from the Fair value reserve to Retained earnings (loss carry-forwards). Below is a breakdown of bank loans: Jan. 1, 2005 Dec. 31, 2005 Non-current secured loans 8,833 39,099 Non-current unsecured loans 1, Total non-current loans 9,966 39,483 Current secured loans 1,643 3,566 Current unsecured loans Total non-current loans 2,365 4,315 BANK LOANS 12,331 43,798 For further details on maturity dates and interest rate, reference is made to paragraph 6 Risk management. Provisions for risks and charges (16) Table that follows shows non-current and current provisions for risks and charges: Legal Social Renawal of Early Sundry Provisions Total proceedings security contracts retirement risks for other provisions litigation incentives charges Opening balance 4,735 5, ,867 Uses (2,257) (1,223) (472) (3,952) Transfers current/non-current Accruals/(Release) 3,190 (1,290) (251) 2,319 Change due to discounting back Ending balance 5,775 3, ,575 Non-current provisions Legal Social Renawal of Early Sundry Provisions Total proceedings security contracts retirement risks for other provisions litigation incentives charges Opening balance 2,675 3, ,325 Uses (197) (20) (217) Transfers current/non-current (2,059) (335) - (2,394) Accruals/(Release) 3,190 (754) (251) 2,527 Change due to discounting back Ending balance 3,716 3, ,582

164 Notes to the Financial Statement of the Parent Company 163 Current provisions Legal Social Renawal of Early Sundry Provisions Total proceedings security contracts retirement risks for other provisions litigation incentives charges Opening balance 2,060 2, ,542 Uses (2,060) (1,223) (452) (3,735) Transfers current/non-current 2, ,394 Accruals/(Release) - (536) (208) Change due to discounting back Ending balance 2, ,993 The long-term components of such provisions, except for which related to social security litigation (accruing a legal 2.5% rate of interest), were discounted at a 4% rate, gross of the related tax effect. Provisions for legal proceedings and security litigation include risks deriving from libel suits, common to all publishers, risks connected with trade litigation, labor litigation and risks connected with social security audits. The provision for sundry risks and other charges includes accruals for tax contestation on premium transactions, and other risks. Provisions for Employee termination indemnity and other retirement benefits (17) Defined benefit plans The provision for Employee termination indemnity and Fixed indemnity for managers of newspapers fall within the defined benefit plan category and are therefore determined according to actuarial methods. They represent the present value of the future legal obligation. Benefits are calculated based on the following hypotesis: Employee termination Fixed indemnity indemnity Yearly discounting back rate 4.0% 4.0% Yearly inflation rate 2.0% 2.0% Yearly increase in retributions 3.5% 3.5% Yearly increase in Employee termination indemnity 3.0% - Advances expected to be paid-out annually 4.0% -

165 164 Notes to the Financial Statements of the Parent Company Amounts recorded in the Balance Sheet were calculated as follows: Provision for Employee termination indemnity Jan. 1, 2005 Dec. 31, 2005 Opening balance 36,479 38,211 Accrual for employment in the period (service cost) 4,128 4,377 Increase due to interest (interest cost) 1,660 1,775 Actuarial (gain) loss - - Benefits paid (4,056) (3,670) Other changes Ending balance 38,211 40,839 Actuarial (gain) loss not recorded in the Income Statement 1,237 1,810 Provision for Fixed indemnity Jan. 1, 2005 Dec. 31, 2005 Opening balance 3,067 3,569 Accrual for employment in the period (service cost) Increase due to interest (interest cost) Actuarial (gain) loss 38 1,191 Benefits paid (5) (627) Other changes - - Ending balance 3,569 4,717 Actuarial (gain) loss not recorded in the Income Statement The average number of employees for the year and the actual number at the end of 2005 are shown in the table that follows: Average number of Number of employees employees at year-end Jan. 1, 2005 Dec. 31, 2005 Journalists Office workers Managers Total Employee benefits contributed in shares Stock option plans at December 31, 2005 and their characteristics are described in the section Information required by Consob - Resolution n At December 31, 2005, the cost of stock option plans recorded in the financial statements amounts to 3,073 thousand ( 2,465 thousand at December 31, 2004).

166 Notes to the Financial Statement of the Parent Company 165 Trade payables (18) Payables to suppliers of: Jan. 1, 2005 Dec. 31, 2005 Paper 36,653 36,653 Printing services 27,811 21,829 Transport and distribution 5,027 3,663 Capital goods 11,046 6,628 Promotions 8,727 9,665 Products sold optionally with publications 17,087 12,104 Freelance work 4,333 4,673 Other suppliers 15,143 15,761 Trade payables to other Group companies 24,779 21,613 TOTAL TRADE PAYABLES 150, ,589 Terms of payment range normally between 60 and 90 days. Trade payables to other Group companies are described in the note Tax payables (19) Jan. 1, 2005 Dec. 31, 2005 Advances and corporate (Ires) income taxes payable 3,844 3,807 VAT payable 3,822 2,379 Group VAT payable Other tax payables TOTAL TAXES PAYABLES 8,203 6,803 Other payables (20) Jan. 1, 2005 Dec. 31, 2005 Social Security payables 5,243 5,523 Payables to personnel for holidays 9,177 10,061 Other payables to personnel 4,589 5,203 Payables to Directors, Statutory Auditors and Shareholders Payables on subscriptions 7,839 7,442 Payables for contributions under Law 62/2001 6,890 5,630 Payables for grants on subsidized loans - 2,485 Other payables 2,437 2,190 TOTAL OTHER PAYABLES 36,205 38,564 Other payables also include deferred compensations.

167 166 Notes to the Financial Statements of the Parent Company 10. Notes on Income Statement items Revenues (21) Circulation 380, ,342 Advertising 267, ,382 Distribution services provided to others Conference, seminars and training Rights and trademark royalties Sale of other services 5,815 6,246 Sale of audiovisuals - 28 Sale of internet services and software development 4 11 Sale of other products Sale of rejects and returns 1,948 1,673 TOTAL REVENUES 656, ,192 The decline in circulation revenues (down 29.1 million, or 7.7%) can be attributed to the decline in margins and sales of add-on products sold with publications. The very good performance (la Repubblica s sales of add-on publications reached 16.5 million copies) did not allow to generate profits in line with 2004, boosted by the issue of very successful series (l Enciclopedia and La Storia). Advertising revenues registered instead a growth of 22.1 million on 2004 (up 8.2%), thanks to the positive performance of commercial advertising on la Repubblica. Other operating income (22) Grants 4,939 16,733 Capital gains on disposal of assets Extraordinary gains 2,070 3,289 Other operating income 407 2,828 TOTAL OTHER OPERATING INCOME 7,548 22,852 The increase in grants is due mainly to contribution on paper purchases, extended also in 2005 and, as already commented in the note on receivables from tax authorities, expected to be received in full. Purchases (23) Paper for newspapers and periodicals 77,860 80,730 Paper for add-on products and promotions 25,593 24,385 Printing materials 1,307 - Purchase of goods and merchandise 11,452 9,328 Consumables 1,794 1,861 Change in raw materials and merchandise inventories - (72) TOTAL PURCHASES 118, ,232

168 Notes to the Financial Statement of the Parent Company 167 Services received (24) Printing and other work carried out by third parties 148, ,151 Editing costs 18,706 22,196 Distribution 23,527 25,022 Reproduction rights and other copyright costs 30,994 30,676 Promotions 44,150 48,896 Publisher fees 18 3 Advisory 10,656 11,577 Telephone and data transmission 3,260 2,438 Maintenance and utilities 3,149 3,647 Leases and rentals 5,066 7,957 Other services 28,973 31,230 TOTAL SERVICES RECEIVED 317, ,793 Other operating charges (25) Accrual to provision for risks and charges 1,473 4,028 Taxes and duties Public relations and gifts Membership fees Settlements and reimbursements Extraordinary losses 1,735 1,917 Write-down of receivables Other operating charges 2,133 1,250 TOTAL OTHER OPERATING CHARGES 7,548 9,155 Personnel costs (26) Wages and salaries 72,521 76,023 Social Security 21,347 23,036 Accruals for Employee termination indemnity 4,128 4,377 Accruals for retirement benefits 360 1,597 Accruals for contract renewals Underwriting of stock options 2,465 3,073 Early retirement incentives Other personnel costs 2,838 3,403 TOTAL PERSONNEL COSTS 103, ,837

169 168 Notes to the Financial Statements of the Parent Company Depreciation, amortization and write-downs (27) Intangible asset amortizations 1,273 1,573 Property, plant and equipment depreciations 12,797 12,222 Write-down of intangible assets 4 - Write-down of property, plant and equipment 2, TOTAL DEPRECIATION, AMORTIZATION AND WRITE-DOWNS 16,566 14,734 Dividends received (28) ( 000) from subsidiaries Finegil Editoriale SpA 16,345 22,883 SELPI SpA Editoriale Fvg SpA 2,426 4,853 Elemedia SpA 4,500 15,000 Rotosud SpA 2,860 3,003 CPS SpA S.E.T.A. SpA from associates Le Scienze SpA TOTAL DIVIDENDS RECEIVED 27,230 47,176 Financial income (expense) (29) Interest received on current accounts and short-term deposits 2,805 5,474 Financial income on derivatives 2,738 1,078 Foreign-exchange gains Interest on marketable securities Other financial income 1,457 1,617 Net financial income 7,844 8,555 Interest paid on current account overdrafts (20) (20) Accessory banking expenses (62) (66) Interest on loans and financing (404) (528) Interest on bonds issued (15,738) (22,420) Foreign-exchange losses (102) (125) Financial charges on application of IAS (2,197) (2,295) Write-down of financial assets (5,721) - Other financial charges (3,860) (4,604) Net financial expense (28,104) (30,058) TOTAL FINANCIAL INCOME (EXPENSE) (20,260) (21,503)

170 Notes to the Financial Statement of the Parent Company 169 Financial income (expense) amount to 21.5 million, up 1.2 million on the previous year. The bond issue carried out in October 2004 provided abundant financial resources to be used in the future, temporarily invested in time deposits with banks. This determined a 3 million increase in financial expense on the previous year due to the negative spread between the fixed interest paid on the bond issue and the variable interest rate earned on deposits. Moreover, as a result of the acquisition of All Music, the Company s financial debt grew by about 100 million, though financed at lower interest rates than in previous period, determining a 2million increase in financial charges. Finally, as a result of the application of IAS and adjustments to the recording of interest rate swaps contracts connected with the bond issue, financial expense registered a further 2 million increase. In 2004 the caption included the 5,540 thousand write-down of the investments in Kataweb SpA. Income taxes (30) Corporate income taxes amount to 29,880 thousand and are made up as follows: Current taxes 35,218 24,039 Deferred and prepaid taxes (150) 5,841 TOTAL INCOME TAXES 35,068 29,880 The table that follows shows a reconciliation between the theoretical tax expense and actual tax expense, in addition to the theoretical tax rate and the actual tax rate ) Pre-tax profit as reported in the financial statements 107, ,009 2) a. Theoretical income tax expense (at national tax rate) 35,448 37,293 b. Tax effect of non-deductible costs 3,239 3,091 c. Dividends (8,939) (15,477) d. Non-taxable income/grants (1,762) (4,536) e. (Prepaid)/Deferred taxes not accrued in previous years (2,064) 863 f. Tax effect of losses that do not originate deferred tax assets in the year - (272) 3) Income taxes 25,922 20,961 4) Regional tax on productive activities (IRAP) 9,146 8,919 5) Income taxes as reported in the financial statements 35,068 29,880 Average effective tax rate 32.65% 26.44% Theoretical tax rate 37.25% 37.25% Earnings per share, basic (31) Basic earnings per share were calculated by dividing the net profit for the period by the weighted average number of ordinary shares in circulation in the period. The diluted earnings per share were calculated by dividing the net profit for the year attributed to ordinary shareholders by the weighted average number of ordinary shares in circulation in the period, adjusted for the diluting effect of stock options.

171 170 Notes to the Financial Statements of the Parent Company The table that follows shows income and other information used in the calculation of basic and diluted earnings per share Net profit 72,350 83,129 Weighted average number of ordinary shares in circulation ( 000) 428, ,926 Earnings per share, basic ( per one thousand shares) Net profit 72,350 83,129 Weighted average number of ordinary shares in circulation ( 000) 428, ,926 No. of options ( 000) 12,093 13,670 Earnings per share, diluted ( per one thousand shares) Dividends paid (32) The Shareholders Meeting held of April 20, 2005 resolved the distribution of an ordinary dividend of 55,833 thousand, relating to 2004 financial year, to be distributed to shareholders in a proportion of 0.13 for each of the 429,486,288 ordinary shares in circulation. 11. Other information 11.1 Relationships with related parties Transactions between the Company and related parties, including intragroup transactions, are carried out in the normal course of business and are settled at market rates. In the period under consideration there were no atypical or unusual transactions falling outside the scope of ordinary business to report. It is to be noted that the conclusion of operations with related parties is subject to a specific procedure approved by the Board of Directors and described in the Report on Corporate Governance available in the Group s institutional site and at the Italian Stock Exchange (Borsa Italiana SpA). Gruppo Editoriale L Espresso SpA, holds with its subsidiaries and associates both trade relationships and relationships involving the provision of services and of operating and financial advice. Among the most important trade relationships are those held with subsidiary A. Manzoni & C. SpA, concessionaire for the advertising space of L espresso and la Repubblica, those with the subsidiary Elemedia SpA (formerly Kataweb SpA) for the management of sites, and those held with subsidiaries Rotocolor SpA, Rotosud SpA, CPS SpA and Finegil Editoriale SpA, supplying typeset and printing services. The Company also manages a current account to which most subsidiaries and associates participate according to individual debit and credit positions. Gruppo Editoriale L Espresso SpA receives in turn from its parent company CIR SpA, services and advice on strategic, administrative, financial and tax matters. It is to be noted that the provision of such services on the part of the Parent Company is deemed as preferable to the provision of the same on the part of third parties thanks, among other things, to the wide knowledge and experience CIR SpA has acquired over time on the company and the sector in which Gruppo Editoriale L Espresso SpA operates. The new Testo Unico tax law (TUIR) introduced the possibility for companies of a same group to

172 Notes to the Financial Statement of the Parent Company 171 determine an overall profit corresponding in principle to the algebraic sum of taxable profits of each company (parent company and companies controlled directly and/or indirectly with a share over 50%) and, consequently, to determine a single income tax liability for the whole Group. Starting with the 2004 financial year, Gruppo Editoriale L Espresso SpA with the most part of its subsidiaries, participates in parent company s CIR tax consolidation procedure pursuant to a general agreement regulating the rights and obligations of CIR and consolidated companies with respect to the participation in the tax. In the year, Gruppo Editoriale L Espresso SpA and the majority of its subsidiaries continued to adopt the Group s VAT procedure. The table below shows operating and financial relationship between Gruppo Editoriale L Espresso SpA and its parent, subsidiaries and associates companies. Relationships between Gruppo Editoriale L Espresso SpA and other Group companies ( 000) Costs Revenues Financial Financial Receivables Payables Garantees expense income Trade Financial Trade Financial granted (*) SUBSIDIARIES Finegil Editoriale SpA 19,079 3, , ,935 29,274 17,190 Editoriale La Nuova Sardegna SpA 5, ,467 - E A G SpA 1, ,364 1,728 Edizioni Nuova Europa SpA ,194 - Editoriale La Città SpA S.E.T.A. SpA ,515 1,192 Editoriale FVG SpA , ,091 - Elemedia SpA 5,956 5, ,023 2,691-3,352 34, Rete A SpA , All Music SpA ,761 - A. Manzoni & C. SpA 4, , ,857 9,154 1, Rotosud SpA 29, , ,386 13,146 5,766 C.P.S. SpA 3, ,520 - Rotocolor SpA 19, ,819 15,179 - Selpi SpA 1, ,559 - Somedia SpA 6, , Kataweb News Srl Ksolutions SpA , Editoriale Metropoli SpA , ASSOCIATES Le Scienze SpA PARENT COMPANIES CIR SpA 2, , (*) including dividends received by subsidiaries 11.2 Commitments In addition to liens on printing plant and rotary presses granted to banks against loans extended, described in the related note to the financial statements at December 31, 2005, the Com-

173 172 Notes to the Financial Statements of the Parent Company pany is committed to purchase equipment and software for editing systems, data security, administration and other uses, amounting to 1,375 thousand. Guarantees granted amount to 29,493 thousand and relate to guarantees in favor of subsidiaries Rotosud, EAS, Finegil and SETA, granted primarily against the extension of loans Condensed Financial Statements of CIR SpA (art bis para. 4 of the Italian Civil Code) The Company is subject to the direction and coordination of CIR SpA, as resulting from corporate deeds and correspondance. Pursuant to article 2497-bis, comma para. 4, of the Italian Civil Code, below it s provided a summary financial information relating to the last approved financial statements of CIR. For a correct and more complete understanding of the financial position and performance of CIR SpA at December 31, 2004, and of the results of the company for the year ended at such date, we refer to the financial statements of the company which is available at the head office of Borsa Italiana SpA, complete with an Auditing Report. CIR Compagnie Industriali Riunite SpA - Financial Statements at December 31, 2004 Balance sheet ( 000) ASSETS Dec. 31, 2003 Dec. 31, 2004 A - Capital contributions receivables from shareholders - - B - Fixed assets 705, ,231 C - Current assets 241, ,657 D - Accrued income and prepaid expenses 804 7,059 TOTAL ASSETS 948,190 1,342,947 LIABILITIES AND SHAREHOLDERS EQUITY Dec. 31, 2003 Dec. 31, 2004 A -Shareholders Equity Share capital 385, ,279 Reserves 426, ,978 Net profit (loss) 62, ,579 B - Provisions for risks and charges 5,226 9,896 C - Employee termination indemnity 1,348 1,362 D - Debt 66, ,031 E - Accrued liabilities and deferred income TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 948,190 1,342,947 ( 000) A - Revenues 6,129 7,736 B - Operating costs 16,103 16,113 C - Financial income (expense) 144,739 40,553 D - Adjustments to the value of financial assets (53,344) 119,133 E - Extraordinary items 8,918 (6,423) Income taxes (27,500) 4,693 NET PROFIT (LOSS) 62, ,579

174 Gruppo Editoriale L Espresso SpA Transition to IFRS

175

176 Parent Company - Transition to IFRS 175 Transition to IFRS Foreword The Financial Statements of Gruppo Editoriale L Espresso S.p.A. at December 31, 2005 is the first financial statements prepared under IFRS. The Company adopted IFRS from January 1, 2005 while the transition date is January 1, The Company has therefore prepared an opening balance sheet at the transition date applying all mandatory exceptions and some of the exemptions to the retroactive application of IFRS allowed under IFRS 1. Until December 31, 2004, the Financial Statements of Gruppo Editoriale L Espresso S.p.A. were prepared in accordance with Italian Law, as interpreted and integrated by the Italian Accounting Profession Board and by documents and remarks issue by the Italian Accounting Organization (referred to jointly as Italian GAAP ). For certain aspects such principles differ from IFRS. To conform to IFRS, the Company modified some accounting methods and valuation principles used in the preparation of consolidated financial statements for previous years. The notes that follow describe the choices made by Gruppo Editoriale L Espresso S.p.A. in the transition to the new accounting principles, adopted also by all of its subsidiaries, with regard to exemptions to the retroactive application of IFRS allowed under IFRS 1, in addition to the reconciliation and description of effects of the transition from Italian GAAP to IFRS required by Consob. The following reconciliation schedules and related notes were prepared with such end: 1 Shareholders Equity Reconciliation of the Shareholders Equity at the following dates: date of transition to IFRS (January 1, 2004); closing date of the last financial statements prepared under Italian GAAP (December 31, 2004); date from which IAS 32 and IAS 39 have been adopted (January 1, 2005). 2. Net Profit Reconciliation of net profit for the following periods: last financial year for which the financial statements were prepared under Italian GAAP (2004 financial year). Gruppo Editoriale L Espresso S.p.A. appointed independent auditors PricewaterhouseCoopers SpA, that also audited the financial statements at December 31, 2004, to carry out a full audit of the preliminary IFRS reconciliation schedules at January 1, 2004, December 31, 2004 and January 1, Adjustments were made in accordance with IFRS in force at the date of approval of the present financial statements. IFRS reconciliation schedules are prepared exclusively for the purposes of the transition in the context of the preparation of the first full financial statements under IFRS approved by the European Commission and lack therefore comparative data and the necessary notes that would be required to provide a full representation of the consolidated operating, financial and income performance of the Company under IFRS.

177 176 Parent Company - Transition to IFRS Opening balance sheet As required under IFRS 1, a balance sheet was prepared at the date of transition to IFRS (January 1, 2004) in which: all assets and liabilities whose recording is required under IFRS, including those not required under Italian GAAP, were recorded; all assets and liabilities whose recording is not allowed under IFRS were excluded; assets and liabilities were recorded at the value that would have applied in case IFRS had been applied retrospectively; items previously reported in the financial statements in a manner different from that provided under IFRS were reclassified. The effect of the adjustment to IFRS of beginning balances of assets and liabilities was recorded in the Shareholders Equity in the Reserve for the conversion to IFRS, net of the related tax effect. In the preparation of the opening Balance Sheet at January 1, 2004, the Company decided to take advantage of the following exceptions to the retroactive application of IFRS: 1. business combinations, acquisition of investments in affiliates and joint control: the retroactive application of IFRS 3 ( Business combinations ) requires the review of the recording of all aggregations of companies (mergers, acquisitions, contributions, spin-offs, etc.) carried out in the past from the initial incorporation of the company. IFRS 1 allows the choice not to apply IFRS 3 retroactively, or to apply the same from a date set by the company. The exemption applies also to all past acquisitions of shares in associates and joint ventures. Gruppo Editoriale L Espresso S.p.A. decided to take advantage of the exemption to the retroactive application of IFRS 3 for the acquisition of shares in associates and joint ventures occurred before January 1, 2004; 2. value at which property, plant and equipment and intangible assets are recorded: the retroactive application of IAS 16 ( Property, plant and equipment ) and IAS 38 ( Intangible assets ) requires for those tangible and intangible assets are recorded at cost the restatement of the historical cost and the accumulated depreciation and write-downs. Gruppo Editoriale L Espresso S.p.A. decided to apply the estimated cost with reference to part of land and buildings on the basis of expert valuations prepared by independent surveyors. There lacking an active market for intangible assets, Gruppo Editoriale L Espresso S.p.A. could not benefit from the application of the estimated cost in the valuation of the same; 3. employee benefits (Employee termination indemnity and other retirement benefits): in the recording of defined benefit plans (which include also the Employee termination indemnity) IAS 19 allows the suspension of actuarial gains and losses that do not exceed a certain limit ( corridor approach ). The retroactive application of IAS 19 requires the quantification of actuarial gains and losses arising over time from the initial incorporation of the company for all personnel employed at the date of the transaction with the aim of determining the ones to be recorded and those to be suspended. IFRS 1 allows the use of the corridor approach. Gruppo Editoriale L Espresso S.p.A. opted for the application of the corridor approach. Actuarial gains and losses at the date of the transition are recorded in full, with a parallel recording under Shareholders Equity;

178 Parent Company - Transition to IFRS financial instruments (recognition and measurement): IAS 39 requires the designation of a financial instrument to a specific category to be carried out at the time of its first recording. As permitted under IAS 39, IFRS 1 allows the designation to be carried out at the transition date. Gruppo Editoriale L Espresso S.p.A. decided to apply IAS 32 and 39 starting from January 1, 2005 and opted for the exemption to the restating of the related comparative data. The designation of financial instruments was therefore carried out at the date of adoption of IAS 32 and IAS 39; 5. stock options: the exemptions to stock options allows to wave the application of IFRS 2 for stock options granted before November 7, 2002 (date of publication of the principle) and for stock options granted after November 7, 2002 and maturing before January 1, The early application of the principle is however allowed only when the company has disclosed the fair value of stock options granted. Gruppo Editoriale L Espresso S.p.A. opted for the exemption to the application of IFRS 2 for stock option plans issued before November 7, 2002 and for stock options granted after such date and expiring before January 1, 2005.

179 178 Parent Company - Transition to IFRS Effects of the adoption of IFRS on the Balance Sheet at January 1, 2004 ASSETS Italian Reclassifications IAS/IFRS IAS/IFRS ( 000) GAAP adjustments Jan. 1, 2004 Intangible assets with an indefinite useful life 150,361-70, ,661 Other intangible assets 3,385 (192) - 3,193 Total intangible assets 153,746 (192) 70, ,854 Property, plant and equipment 67, ,327 70,976 Investments value at equity 234,626 - (66) 234,560 Long-term securities 8, ,663 Non-current receivables 1,890 (30) - 1,860 Deferred tax assets - 14, ,531 NON-CURRENT ASSETS 466,382 14,306 73, ,444 Inventories 26, ,350 Trade receivables 101, ,209 Marketable securities 20, ,528 Current financial receivables 47, ,330 Tax receivables 36,852 (14,336) - 22,516 Other receivables 3, ,732 Cash and cash equivalents 58, ,463 CURRENT ASSETS 294,434 (14,306) - 280,128 TOTAL ASSETS 760,816-73, ,572 LIABILITIES AND SHAREHOLDERS EQUITY Italian Reclassifications IAS/IFRS IAS/IFRS ( 000) GAAP adjustments Jan, Share capital 64, ,769 Reserves 116,724 (348) 49, ,826 Retained earnings (loss carry-forwards) (348) - Net profit (loss ) 57, ,725 SHAREHOLDERS EQUITY 239,218-49, ,320 Financial debt 212, ,330 Provisions for risks and charges - 10,561 (817) 9,744 Employee termination indemnity and other personnel benefits 42,464 - (2,918) 39,546 Deferred tax payables ,389 28,389 NON-CURRENT LIABILITIES 254,794 10,561 24, ,009 Financial debt 95, ,908 Provisions for risks and charges 13,279 (10,561) - 2,718 Trade payables 120, ,492 Taxes payable 6, ,308 Other payables 30, ,817 CURRENT LIABILITIES 266,804 (10,561) - 256,243 TOTAL LIABILITIES 521,598-24, ,252 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 760,816-73, ,572

180 Parent Company - Transition to IFRS 179 Main reclassifications regard leasehold improvements from intangible assets to property, plant and equipment, and the breakdown of provisions for risks and charges between current and non-current. Finally, a new caption was introduced: Deferred tax assets, whose amount is indicated separately from Tax receivables. The table that follows and the related notes summarize main impacts on the Shareholders Equity of Gruppo Editoriale L Espresso S.p.A. at January 1, 2004: ( 000) Shareholders Equity under Italian GAAP 239, Intangible assets 70, Property, plant and equipment Leased assets 2, Employee benefits 2, Provisions for risks and charges Other adjustments (66) Tax effects (28,194) Total IFRS adjustments 49,102 Shareholders Equity under IFRS 288,320 Notes 1. Intangible assets (IAS 38) Under IAS 38 intangible assets with an indefinite useful life are not amortized but are subject annually, or any time there is an indication that the asset has experienced a loss in value, to an impairment test to identify possible reductions in value. At the transition date, publications were classified as intangible assets with an indefinite useful life. The retroactive application of IAS 38 required the re-recording of the historical cost of these assets (totaling 70,300 thousand) with the subsequent elimination of accrued amortization. The impairment test carried out on these assets did not detect losses in value. The above adjustments resulted in an increase in the Shareholders Equity equal to 44,113 thousand, net of the related 26,187 thousand tax effect. Such effect includes taxes calculated on the restoration of the historical cost of publications. 2. Property, plant and equipment (IAS 16) Under IAS 16, individual components of a complex fixed asset, characterized by a different useful life, are recorded separately and depreciated over their respective useful life. In particular, under IAS 16, it is necessary to identify and to record separately the value of land (amounting to 1,064 thousand) no longer depreciated, from the value of buildings that insist on the same and, consequently, to depreciate only the buildings. Leasehold improvement costs (amounting to 192 thousand) were reclassified under Property, plant and equipment and the requisites for their capitalization were verified. The above adjustments resulted in the elimination of the provision for reinvested capital gains, accrued pursuant to Article 54, Presidential Decree no. 597/73, determining an increase in the Shareholders Equity equal to 586 thousand, net of deferred taxes equal to 348 thousand.

181 180 Parent Company - Transition to IFRS In addition to the above described gross effect ( 934 thousand), adjustments to item Property, plant and equipment includes the effect of the application of IAS 17 ( 2,393 thousand) described in the note below. 3. Leased assets (IAS 17) Under IAS 17, all assets held under a financial lease are accounted for by recording interest payments and depreciation charges in the income statement, and the asset and the residual portion of debt in the balance sheet. In the transition to IFRS, the Company recorded in the balance sheet leased assets amounting to 2,393 thousand (relating to leased assets redeemed). The adjustment resulted in an increase in the Shareholders Equity of 1,502 thousand, net of 891 thousand of the related tax effect. 4. Employee benefits (IAS 19) Under IAS 19, liabilities relating to the Employee termination indemnity and the Fixed indemnity for managers of newspapers were restated under the actuarial method. This adjustment resulted in an increase in the Shareholders Equity of 1,955 thousand, net of 963 thousand of the related tax effect. 5. Provisions for risks and charges (IAS 37) Under IAS 37, accruals to the provisions for risks and charges are represented by the present value of expected payments to extinguish the obligation. This adjustment resulted in an increase in the Shareholders Equity of 536 thousand, net of 281 thousand of the related tax effect. 6. Other adjustments Overall, other adjustments have a negative impact on the Shareholders Equity equal to 66 thousand, net of the tax effect, and are represented by individually not significant adjustments.

182 Parent Company - Transition to IFRS Income Statement Italian GAAP Reclassifications IAS/IFRS IAS/IFRS ( 000) adjustments 2004 Revenues 656, ,416 Change in inventories (331) - - (331) Other operating income 7, ,548 Purchases (118,006) - - (118,006) Services received (317,283) - - (317,283) Other operating charges (7,999) (7,548) Personnel costs (103,711) - (71) (103,782) Depreciation, amortization and write-downs (21,170) - 4,604 (16,566) Operating income 95,408-5, ,448 Dividends 27, ,230 Financial income (expense) (18,063) (2,197) (20,260) Pre-tax profit 104,575-2, ,418 Income taxes (34,152) - (916) (35,068) NET PROFIT 70,423-1,927 72,350 The table that follows and the related notes show the effect on the 2004 Net Profit of Gruppo Editoriale L Espresso SpA. ( 000) Italian GAAP Net Profit 70, Intangible assets 5, Property, plant and equipment (587) 3. Leased assets (82) 4. Stock options (2,465) 5. Employee benefits Provisions for risks and charges (277) 7. Other adjustments 56 Tax effect (916) Total IFRS adjustments 1,927 IFRS Net Profit 72,350 Notes 1. Intangible assets (IAS 38) The application of IAS 38 resulted in a 5,534 thousand decline in the amortization expense of publications and a 87 thousand in the amortization of other intangible assets. The overall impact on the Net Profit was positive by 3,527 thousand, net of 2,094 thousand of deferred taxes. 2. Property, plant and equipment (IAS 16) Adjustments to depreciation ( 935 thousand increase, gross of the related tax effect), resulted

183 182 Parent Company - Transition to IFRS in a negative effect to Net Profit of 587 thousand, net of 698 thousand of deferred tax assets. The last effect includes 348 thousand relating to the impact of the elimination of the provision for reinvested capital gains accrued pursuant to Article 54, Presidential Decree no. 597/73, as previously mentioned. 3. Leased assets (IAS 17) The adoption of a new accounting treatment of leasing contracts resulted in a 82 thousand increase in depreciation and amortization, having a negative effect on Net Profit of 51 thousand, net of the related 31 thousand positive tax effect. 4. Stock options (IFRS 2) The fair value recording of stock options determined a 2,465 thousand increase in personnel costs, with a negative impact on Net Profit of 1,651 thousand, net of a positive 814 thousand tax effect. 5. Employee benefits (IAS 19) The restatement in accordance with the actuarial method of liabilities relating to the Employee termination indemnity and the Fixed indemnity due to managers of companies publishing newspapers resulted in a 2,384 thousand reduction in the personnel costs and a 1,807 thousand increase in financial charges, with a positive impact on Net Profit of 471 thousand, net of 106 thousand for deferred taxes. 6. Provisions for risks and charges (IAS 37) The net effect of the discounting back of provisions for risks and charges determined a 390 thousand increase in financial charges. The overall impact on Net Profit was negative by 186 thousand, net of the 91 thousand positive tax effect. 7. Other adjustments Overall, other adjustments have a positive impact on Net Profit of 54 thousand and are represented by adjustments individually not significant.

184 Parent Company - Transition to IFRS 183 Balance Sheet at December 31, 2004 ASSETS Italian Reclassifications IAS/IFRS IAS/IFRS ( 000) GAAP adjustments Dec. 31, 2004 Intangible assets with an indefinite useful life 144,827-75, ,661 Other intangible assets 9,604 (6,744) 87 2,947 Total intangible assets 154,431 (6,744) 75, ,608 Property, plant and equipment 69,878 6,744 1,376 77,998 Investments valued at equity 256,086 - (66) 256,020 Long-term securities 13, ,192 Non-current receivables 1,511 (64) - 1,447 Deferred tax assets 15,380-1,711 17,091 NON-CURRENT ASSETS 510,478 (64) 78, ,356 Inventories 25, ,791 Trade receivables 107,608 (4,360) - 103,248 Marketable securities 20, ,346 Current financial receivables 33, ,259 Tax receivables 29,684 4,360-34,044 Other receivables 14, ,434 Cash and cash equivalents 373, ,764 CURRENT ASSETS 604, ,886 TOTAL ASSETS 1,115,300-78,942 1,194,242 LIABILITIES AND SHAREHOLDERS EQUITY Italian Reclassifications IAS/IFRS IAS/IFRS ( 000) GAAP adjustments Dec. 31, 2004 Share capital 64, ,896 Reserves 130,775 (10,857) 50, ,899 Retained earnings (loss carry-forwards) - 10,857 (348) 10,509 Net profit (loss ) 70,423-1,927 72,350 SHAREHOLDERS EQUITY 266,094-52, ,654 Financial debt 309, ,966 Provisions for risks and charges - 7,865 (540) 7,325 Employee termination indemnity and other retirement benefits 45,275 - (3,495) 41,780 Deferred tax liabilities ,473 30,800 NON-CURRENT LIABILITIES 355,568 7,865 26, ,871 Financial debt 286, ,161 Provisions for risks and charges 12,407 (7,865) - 4,542 Trade payables 150, ,606 Tax payables 8, ,203 Other payables 36,261 - (56) 36,205 CURRENT LIABILITIES 493,638 (7,865) (56) 485,717 TOTAL LIABILITIES 849,206-26, ,588 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,115,300-78,942 1,194,242

185 184 Parent Company - Transition to IFRS The table below provides a summary of changes in the Shareholders Equity of Gruppo Editoriale L Espresso S.p.A. at December 31, Such adjustments are not commented as they result from the opening balance sheet described above. ( 000) Shareholders Equity under Italian GAAP 266, Intangible assets 75, Property, plant and equipment (936) 3. Leased assets 2, Employee benefits 3, Provisions for risks and charges Other adjustments (9) Tax effect (28,762) Total IFRS adjustments 52,560 Shareholder s Equity under IFRS 318,654

186 Parent Company - Transition to IFRS 185 IAS 32 and 39: Balance Sheet reconciliation at January 1, 2005 As allowed under IFRS 1, Gruppo Editoriale L Espresso S.p.A. decided to apply IAS 32 and 39 from January 1, The reconciliation that follows summarizes the effect of such application on the Company s Balance Sheet at January 1, ASSETS IAS/IFRS IAS IAS IAS/IFRS ( 000) Dec. 31, 2004 reclassifications adjustments Jan. 1, 2005 Intangible assets with an indefinite useful life 220, ,661 Other intangible assets 2, ,947 Total intangible assets 223, ,608 Property, plant and equipment 77, ,998 Investments valued at equity 256, ,020 Long-term securities 13,192 (13,192) - - Non-current receivables 1,447-5,435 6,882 Deferred tax assets 17,091-2,897 19,988 NON-CURRENT ASSETS 589,356 (13,192) 8, ,496 Inventories 25, ,791 Trade receivables 103, ,248 Marketable securities 20, ,346 Current financial receivables 33,259 - (2,738) 30,521 Tax receivables 34, ,044 Other receivables 14,434 - (2,142) 12,292 Cash and cash equivalents 373, ,764 CURRENT ASSETS 604,886 - (4,880) 600,006 TOTAL ASSETS 1,194,242 (13,192) 3,452 1,184,502 LIABILITIES AND SHAREHOLDERS EQUITY IAS/IFRS IAS IAS IAS/IFRS ( 000) Dec. 31, 2004 reclassifications adjustments Jan. 1, 2005 Share capital 64, ,896 Reserves 170,899 (14,012) (560) 156,327 Retained earnings (loss carry-forwards) 10, ,388 Net profit (loss ) 72, ,350 SHAREHOLDERS EQUITY 318,654 (13,192) (501) 304,961 Financial debt 309,966-3, ,406 Provisions for risks and charges 7, ,325 Employee termination indemnity and other retirement benefits 41, ,780 Deferred tax liabilities 30,800-1,793 32,593 NON-CURRENT LIABILITIES 389,871-5, ,104 Financial debt 286,161 - (1,280) 284,881 Provisions for risks and charges 4, ,542 Trade payables 150, ,606 Tax payables 8, ,203 Other payables 36, ,205 CURRENT LIABILITIES 485,717 - (1,280) 484,437 TOTAL LIABILITIES 875,588-3, ,541 TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 1,194,242 (13,192) 3,452 1,184,502

187 186 Parent Company - Transition to IFRS Reclassifications relate to Treasury stocks and are recorded as a reduction of the Shareholders Equity. The table and the related notes that follow provide a summary of changes in the Shareholders Equity of Gruppo Editoriale L Espresso S.p.A. at January 1, 2005, net of the related tax effect, resulting from the application of IAS 32 and 39. ( 000) Shareholders Equity at January 1, , Treasury stocks (13,192) 2. Fair value reserve (2,240) 3. Application of amortized cost to bond issues 1,739 Total adjustments due to adoption of IAS 32 and 39 (13,693) Shareholders Equity at January 1, 2005 under IFRS 304,961 Notes: 1. Treasury stocks (IAS 32) Treasury stocks were recorded under Italian GAAP among fixed assets and valued at cost, net of permanent losses in value. An equivalent amount was recorded in a specific Shareholders Equity reserve. The effect of transactions involving treasury stocks were recorded in the Income Statement. As a result of the adoption of IAS 32, the book value of treasury stocks was reclassified in a specific Shareholders Equity reserve, while the reserve for treasury stocks was reclassified in the reserve used for its recording and their original cost was restored. Such adjustment reduced the Shareholders Equity of the Company by 13,192 thousand, representing the net effect of the 14,012 thousand reclassification of the book value of the shares, and the elimination of write-downs carried out in the past, amounting to 820 thousand. 2. Fair value reserve (IAS 39) At January 1, 2005 a paper swap contract through which the Company fixed the price of part of its paper needs until September 2005 had not expired. Under Italian GAAP, price differentials on the paper swap contract were recorded in the income statement under the accrual method. As a result of the adoption of IAS 39, the fair value of the contract, amounting to 2,240 thousand, net of the related tax effect, was recorded also in a specific Shareholders Equity reserve. 3. Application of amortized cost to bond issues (IAS 39) As a result of the application of IAS 39, at January 1, 2005, the original cost of bond issues was re-determined keeping into account issue costs and discounts, in addition to the current portion (calculated on the basis of the residual life of the issue) of the positive spread between the original cost of the bond issue and its fair value recorded at the time of the reversal of fixed/floating interest rate swap contracts originally entered into to hedge the 300 million bond. The adjustment resulted in a 1,739 thousand increase in the Shareholders Equity.

188 Report of the Indipendent Auditors

189

190 Report of the Indipendent Auditors Gruppo Editoriale L Espresso 189

191 190 Report of the Indipendent Auditors

192 Report of the Board of Statutory Auditors

193

194 Report of the Board of Statutory Auditors Gruppo Editoriale L Espresso 193 To our Shareholders: in the financial year concluded December 31, 2005 we carried out monitoring activities provided by the Law, in application of principles adopted by the Italian Accounting Profession Board and Regulations issued by Consob. With regards to its activity, the Board of Statutory Auditors: attended all Board of Directors Meetings held in the year in which, pursuant to Legislative Decree no. 58/98 and the provisions of article 19 of the Bylaw, receiving from Directors periodical information on corporate activity and on main operations of economic and financial relevance carried out by the Company and its subsidiaries, verifying compliance with the Law and the Bylaw. Such operations are detailed by the Board of Directors in the Report on Operations. The Board of Statutory Auditors also obtained information in an informal way and ensured that operations resolved and/or carried out were not imprudent, did not involve an excessive mount of risk, were not in contrast with resolutions taken or in potential conflict of interest and, on the contrary, were in line with correct management principles; acquired information, as relevant and appropriate, and monitored the adequacy of the organizational structure of the Company, its appropriateness in relation to the size of the same and the activity carried out, and the respect of correct management principles through direct observation, gathering of information and meetings with the independent auditors involving exchange of data and relevant information; evaluated the adequacy of the internal auditing system and of the administrative and accounting system, in addition to the reliability of the latter in providing a fair representation of the Company s operations, by obtaining information on an ongoing basis from persons responsible for each sector, also reviewing results of work carried out by independent auditors. In particular, it monitored the effectiveness of the control system of subsidiaries and affiliates and the adequacy of instructions imparted, also pursuant to article 114, comma 2 of Legislative Decree no. 58/98, which were found to be adequate to the structure and size of the Group. No corrective action was deemed necessary; attests that the Board of Directors and the officers of the Company complied with all Law requirements, with particular reference to Consob regulations; acknowledged the activity carried out by the independent auditors, aimed at verifying the regular upkeep of the Company s accounts and the correct recording of operating transactions so as to allow the preparation of the financial statements as provided by Law. More specifically, it requested and obtained extensive information from the independent auditors regarding work carried out in the context of the preparation of the financial statements considered here. In meetings held, there did not emerge aspects of relevance; verified compliance with laws on the preparation and format of the financial statements and the Report of Operations through direct verifications and, as mentioned, using information obtained from the independent auditors at meetings held pursuant to article 150 of Legislative Decree no. 58/98. The content of the financial statements was reviewed and the adoption of correct accounting principles was verified. With reference to the guidelines provided by Consob, within the scope of our task, we can attest that: information supplied by the Board of Directors on operations is to be deemed complete. We acknowledge the full information provided by the same pursuant to Consob Regulation no.

195 194 Gruppo Editoriale L Espresso Report of the Board of Statutory Auditors on stock option plans for employees of the Company and of its subsidiaries; the Balance Sheet at December 31, 2005 and the 2005 Income Statement were prepared in compliance with international accounting principles (IAS/IFRS). Figures for the previous year were restated under the same principles to allow a meaningful comparison. The restatement resulted in a 51,029 thousand increase in the Shareholders Equity at December 31, 2004, and a 1,927 thousand increase in the 2004 net profit. the Board of Statutory Auditors was constantly kept informed on pertinent matters pursuant to Legislative Decree no 58/98; periodical verifications and checks that we performed on the Company did not uncover any atypical and/or unusual operation carried out with third parties, related parties or Group companies; in the Report on Operations and the notes to the accounts of Gruppo Editoriale L Espresso SpA, to which we make express reference, the Board of Directors provided adequate information with regards to ordinary transactions carried out with other Group companies and other related parties, acknowledging that such transactions were carried out at standard market conditions and in the interest of the Company and the Group. The Board of Statutory Auditors agrees with such position; the provisional report issued on February 21, 2006 by independent auditor Pricewaterhouse- Coopers S.p.A. attests, on the basis of controls carried out up to such date, that the Financial Statements and the Consolidated Financial Statements at December 31, 2005 truly and fairly represent the patrimonial and financial position and the profit of the Company and the consolidated financial statements and consolidated profit of the Group. We therefore expect that the final auditing report will not contain exceptions; in 2005 we attended all Board of Directors meetings (6) and none of those of the Executive Committee, which did not meet in The Board of Statutory Auditors held 5 meetings, of which 2 with the independent auditors and 1 with the Internal Audit Committee; the Board of Statutory Auditors did not receive any report pursuant to article 2408 of the Italian Civil Code or has any knowledge of any other denunciation pursuant to the same received by others; in the year the Company appointed independent auditors PricewaterhouseCoopers to audit IFRS reconciliations for a consideration, excluding expenses and VAT, of 172,000; in the year, the Board of Statutory Auditors did not issue opinions pursuant to the Law; the Company adopted in the past corporate governance rules in line with the recommendations contained in the Code of Conduct issued by the Committee for Corporate Governance of listed companies promoted by the Italian Stock Market (Borsa Italiana SpA). Corporate governance rules are updated anually or any time adjustments are resolved. In implementing new regulations introduced by Law 262 of December 28, 2005 ( Law on savings ) and Consob regulations on market abuse, the Company: - amended the Bylaw, reducing from 5% to 2.5% of the share capital the minimum share required for the presentation of lists of candidates for the Board of Statutory Auditors, providing for the assignment of the chairmanship to the auditor appointed by minority share holders; - updated its internal dealing code with regard to the communication to Consob and the public of transactions carried out by relevant persons on the shares and other financial instruments issued by the Company; - created a Register of persons that have access to privileged information.

196 Report of the Board of Statutory Auditors Gruppo Editoriale L Espresso 195 In pronouncing an overall positive opinion on the monitoring activities carried out on the preparation of the financial statements, and having no further proposals to make pursuant to article 153, paragraph 2, of Legislative Decree no. 58/98, after verifying the compliance with law provisions regulating the preparation and format of the financial statements for the year, we believe the Financial Statements for the 2005 financial year and the proposed allocation of the 2005 Net profit, as formulated by the Board of Directors in the Report on Operations, to be worthy of your approval.

197

198 Summary reclassified financial data of subsidiaries

199

200 Gruppo Editoriale L Espresso Summary reclassified financial data of subsidiaries ( 000) Shareholders Net financial Net capital Revenues Gross Operating Net Equity position employed operating income profit income Finegil Editoriale SpA 68,881 (9,655) 78, ,418 33,594 25,670 22,765 Editoriale La Nuova Sardegna SpA 19,681 1,798 17,883 34,279 10,395 7,851 4,358 E A G SpA 9,128 8, ,522 3,875 3,276 1,644 S.E.T.A. SpA 4,715 4, ,652 1, Edizioni Nuova Europa SpA 1,160 1,248 (88) 2, Editoriale La Città SpA ,090 (308) (348) (338) Editoriale FVG SpA 114,869 26,926 87,943 51,960 12,369 10,207 5,281 Edigraf Srl , Editoriale Metropoli SpA 1,253 1,515 (262) 54 (190) (253) (39) Elemedia SpA 121,905 35,068 86,837 87,818 37,414 33,725 47,532 Rete A SpA 8,035 (24,438) 32,473 13,650 1, (331) All Music SpA 6,517 5, , A. Manzoni & C. SpA 19,222 (16,340) 35, ,341 2,787 2,404 2,186 Rotosud SpA 13,416 (8,990) 22,406 29,587 10,151 3,411 2,232 C.P.S. SpA 2,024 2,431 (407) 3,848 1,359 1, Rotocolor SpA 24,869 1,558 23,311 19,155 4,789 2,008 1,854 Selpi SpA 4,359 3, ,160 1,529 1, Somedia SpA 592 1,426 (834) 6, Kataweb News Srl Ksolutions SpA (1,249) (4,430) 3,181 6,257 (3,657) (4,076) (4,445)

201

202 Report on Corporate Governance

203

204 Report on Corporate Governance 203 Report on Corporate Governance Foreword The report illustrates the current Corporate Governance system. In the next months, however, such system will undergo substantial changes. The Shareholders Meeting of April 26, 2006 will appoint the Board of Directors and Board of Statutory Auditors for a term of three years, while by the end of 2006 the provisions of the new law on savings will have to be embodied in the Company s Bylaw through amendments to be made in the year. As soon as these changes come into effect, the Company will publish an update of the present report, to inform in a timely manner all stakeholders of changes in corporate governance rules. Introduction Gruppo Editoriale L Espresso S.p.A. (hereinafter the Company or GELE ) adopted a corporate governance model in line with the recommendations contained in the Code of Conduct prepared by the Corporate Governance Committee of companies listed on the Italian Stock Exchange and promoted by Borsa Italiana S.p.A. (hereinafter also the Code ). GELE makes available information relating to the corporate governance model adopted and other documents of interest to the market both on its institutional site in a section dedicated to corporate governance, and to the Italian Stock Exchange. Information is also available in English. Summary of the Company s Corporate Governance structure Board of Directors The Company operates in accordance with the provisions of the Italian Civil Code regarding joint-stock companies and special regulations relating to companies with shares listed in regulated markets. The Bylaw provides for the Board of Directors (hereinafter also the Board ) to be invested with ordinary and extraordinary management powers, with the exclusion of those specifically reserved to the Shareholders Meeting by law. The Board normally remains in office for three years, though the Shareholder Meeting may establish a shorter term, and all its members may be reelected. The Board formed an Executive Committee, an Internal Audit Committee, made up by the sole independent directors, and a Remuneration Committee. These committees report periodically to the Board on activities carried out. The Board of Directors moreover delegated the Chairman and Managing Directors powers to conduct ordinary business on the use of which it is periodically informed. Board of Statutory Auditors The Board of Statutory Auditors is made up by three members and three substitute members, and is appointed on the basis of the lists submitted by Shareholders that hold at least 2.5% of the share capital. Where more than one list exists, an auditor and a substitute auditor are reserved to minority Shareholders. At its meeting of February 22, 2006, the Board of Directors of Gele SpA amended the Bylaw, introducing a clause providing for the Chairman of the Board of Statutory Auditors to be appointed among a member of the same board chosen by minority shareholders. Auditors may be reelected. To be eligible, auditors must attest the absence of causes for ineli-

205 204 Report on Corporate Governance gibility pursuant to current regulations and must possess the requisites of honorability, professionalism and independence, as provided by the new formulation of the Italian Civil Code. The Board of Statutory Auditors operates in accordance with the Unified Tax Code and meets in the course of the year with independent auditors to exchange information. All companies of the Espresso Group have appointed independent auditors for the auditing of their accounts. Procedures for the application of main corporate governance rules The Company adopted regulations for the management of Shareholders Meetings, setting in place a procedure for the treatment of confidential information and one that regulates conduct to be kept in case of transactions with related parties, on which more detailed information will be provided in the second part of this report. Coordination and control pursuant to art bis of the Italian Civil Code The Company is subject to the management and coordination of its parent company Cir S.p.A. Companies controlled directly or indirectly by Gruppo Editoriale L Espresso S.p.A. indicated the same as the subject that exercises the management and coordination over the same. Organizational Model pursuant to Legislative Decree 231/2001 In 2004, the Board of Directors approved the Organizational model pursuant to Legislative Decree 231/2001 and subsequent amendments and modifications, which includes (i) a map of sensitive areas; (ii) the Code of Conduct (already approved by the Board in 2003); (iii) conduct guidelines; (iv) general principles of internal audit, and (v) audit protocols. The Organizational Model aims at preventing actions contrary to the law for which the company may be held responsible under criminal or civil law. A Monitoring Body made up by independent directors that are already members of the Internal Audit Committee and the Director of Internal Auditing of CIR, oversees the application of the Organizational model. In 2005, all group companies adopted an internal audit model pursuant to legislative Decree 231/2001 and supervisory boards met to exchange information on the internal audit system. The Monitoring Body of the parent company carried out its task with frequent meetings with the Company, of which it has kept the Board regularly informed. No censurable fact has emerged. Market Abuse / Internal dealing The Company also adopted an Internal Dealing Code to regulate flows of information of transactions involving financial instruments issued by the company through relevant persons. Following the approval of new norms on market abuse, at its meeting of February 22, 2006, the Board of Directors amended corporate rules to bring them into line with new law provisions and created a Register of persons that have access to privileged information, giving mandate to the Managing Director and the General Manager of the Group to draw-up a list of persons affected by the new regulations and to manage the disclosure of information to the public.

206 Report on Corporate Governance 205 Information on the implementation of the Code of Conduct Composition and role of the Board of Directors (Art.1-5) The Bylaw provides for the Board of Directors to be invested with ordinary and extraordinary management powers, and to be empowered to carry out any action it deems necessary towards the achievement of the corporate goal, with the exclusion of those specifically reserved to the Shareholders Meeting by law. The Board of Directors reserved to its own judgment any decision relating to transactions with related parties having a particular characteristic, as described more in detail further on in this report (transactions with related parties). The Bylaw of the Company provides for the Board of Directors to be normally called quarterly by its Chairman or any time the Company s business so requires, also upon request of at least two Directors or the Board of Statutory Auditors or at least two Auditors, after notice is given to the Chairman of the Board. In accordance with the Bylaw, the Board of Directors is called by its Chairman or the person acting in his capacity, by certified letter with return receipt, telegram, fax, or equivalent means, at least five days prior to the date of the meeting. In case of urgency, the term for the notice will be reduced to two days. Board of Directors meetings are chaired by its Chairman or, in case he is absent, by one of the Vice-Chairmen, if appointed, or, in case neither of them is available, by the Company s Managing Director. Board meetings may be held by audio or video conference. The Chairman is also required to deliver to the Directors, according to the terms and manner established in agreement with the Managing Director and in good time before the meeting with the exception of those cases in which the nature, confidentiality and urgency of the resolutions to be taken at the meeting otherwise requires all documents and information necessary to allow the Board of Directors to take fully informed resolutions on matters submitted to its examination and approval. Directors of Gruppo Editoriale L Espresso SpA are aware of the tasks and responsibilities inherent to their office and the Managing Director is responsible for reporting to the Board of Directors on any legislative and regulatory change relating to the Company and its corporate bodies. The Board of Directors regulated the flow of information from the Chairman, Managing Director and Executive Committee to the Board, providing for the same to report periodically on the exercise of the functions for which they hold proxies, with a frequency set in relation to the activity carried out, which should at least be quarterly. The Bylaw contains provisions regulating the flow of information to the Board of Statutory Auditors. Directors are required in fact to report without delay, and in any case at least quarterly, to the Board of Statutory Auditors on the most important economic and financial activities of the Company, and in particular on operations that may result in a potential conflict of interest. Information may be supplied directly, either in writing or verbally, also by telephone, whenever it is preferable to do so due to urgency. Directors are required to communicate to other directors and to the Board of Statutory Auditors of any interest, either direct or on behalf of third parties, they may hold in any particular operation. In 2005 the Board of Directors met six times, registering an average attendance, either physical or in audio-conference, of about 92% of Directors. Two of these meetings were held to implement the mandate given by the Shareholders Meeting to increase the Company s capital in compliance with stock option plans. At all meetings, the Chairman and Managing Director

207 206 Report on Corporate Governance informed the Board of activities carried out pursuant to mandates given, bringing Directors up to date on major company issues, measures taken and transactions concluded, including those carried out with related parties or for which a potential conflict of interest could arise. In accordance with the Bylaw, the Board of Directors is made up by between seven and nineteen members. The current Board of Directors is made up by seventeen members. Its three-year term will expire with the approval of the financial statements for the 2005 finanacial year. The Board of Directors currently in office is made up by: Carlo Caracciolo (Chairman), Marco Benedetto (Managing Director), Oliviero Maria Brega (non-executive), Cristina Busi (independent); Giulia Maria Crespi Mozzoni (independent); Carlo De Benedetti (non-executive); Rodolfo De Benedetti (non-executive); Francesco Dini (non-executive, co-opted by the Board on April 21, 2004); Pierluigi Ferrero (non-executive); Milvia Fiorani (independent); Franco Girard (non-executive); Paolo Mancinelli (independent); Gianluigi Melega (non-executive); Alberto Milla (independent); Piero Ottone (non-executive); Alberto Piaser (non-executive); Vittorio Ripa di Meana (non-executive). Some directors act also as directors in the boards of other companies listed on a regulated market, of finance companies, insurance companies, banks and unlisted companies of a relevant size. A list of such positions is included in the table attached to the present report. In accordance with the provisions of the Bylaw, the Board of Directors appointed among its members Carlo Caracciolo as Chairman and Marco Benedetto as Managing Director. The Board appointed also an Executive Committee made up by the Chairman, Managing Director and non-executive directors Oliviero Maria Brega, Rodolfo De Benedetti and Alberto Piaser. The Executive Committee was attributed powers to conduct both ordinary and extraordinary business, with the exception of the acquisition of property worth over 2.5 million, the hiring and removal of the heads of publications and/or general managers, in addition to operations with related parties. The Executive Committee reports to the Board of Directors on its resolutions at the first available occasion. In 2005, the Executive Committee did not meet. The Board of Directors delegated the Chairman and Managing Directors powers to conduct ordinary business, establishing nature and limit of spending powers, both individual and joint. Handling of confidential information (art.6) The Company adopted an internal regulation for communicating information and delivering documents outside the Company, with particular reference to price sensitive information. The Managing Director is in charge of handling confidential information. In this capacity, the Managing Director makes use of the External Relations office for press releases, and of the Investor Relations office for communications with institutional investors. All directors, who are bound to confidentiality by current regulations, are required to keep confidential the documents and information acquired in carrying out their office and to abide to internal procedures regarding confidentiality. In compliance with new norms on market abuse, the Company amended procedures for the

208 Report on Corporate Governance 207 communication of information relating to transactions carried out by relevant persons on financial instruments issued by Gruppo Editoriale l Espresso SpA and its subsidiaries. Relevant persons, pursuant to the Testo Unico financial law and Consob regulation, were identified: 1) among members of the corporate boards of the listed parent company and those of subsidiaries the book value of which represents more than 50% of the assets of the parent company; 2) among managers, both of the parent company and of its subsidiaries, that hold management positions and hold powers that may influence the future performance and outlook of the company. The purchase, sale, underwriting or exchange of shares or connected financial instruments whose amount is equal to or over 5,000 (five thousand) must be reported by the end of the year. Over such threshold, transactions must be reported in the manner described below. Relevant persons must report transactions carried out to Consob within five stock market trading days of their conclusion. The Company publishes such information within one day of receiving them. The Company may also replace relevant persons in making the above communications, also in compliance with the terms described above. Any other person holding a stake equal to at least 10% of the Company s share capital, represented by shares having voting rights, or any other subject controlling the same, must in turn report transactions made within the fifteenth day subsequent to the date of the transaction. In this case also, the Company may replace, provided there exists a specific agreement to this end, the person involved in making the related communication. The person identified by the Company to receive, manage and publish this information is the General Manager of the Group, Fabio Tacciaria.The Company created and made operational a Register of persons having access to privileged information (the Register ), in which are recorded persons that, in the context of their working and professional activity or due to their function in the Company, have access to privileged information. The Register, kept in a manner that allows easy access and readily available data, contains the identity of the subject (either a person or an entity) that may have access on a regular or occasional basis to privileged information, the reason for which the subject has been recorded in the Register and the date of each update of information regarding the subject. The Company complied with the criteria adopted for the keeping of the Register and the manner in which the data in it is managed and retrieved. Appointment of Directors (art. 7) The appointment of Directors takes place according to the Law, based on proposals made by Shareholders. The Board of Directors has not deemed it necessary to establish an internal committee to review proposals for the appointment of Directors, as the proposal of candidates to the Shareholders Meeting is normally made by the majority shareholder. It is customary to deposit curricula of candidates to the post of Director in good time before the Company s Shareholders Meeting so that the company can make the information available to Shareholders before the meeting. The Board of Directors resolves directly in full session on proposals for the co-opting of new directors that take the place of resigning or terminating ones. Director compensation (art. 8) In accordance with the Bylaw, compensation due to members of the Board of Directors are determined by the Shareholders Meeting. Expenses incurred by Directors in the context of their office are reimbursed.

209 208 Report on Corporate Governance Pursuant to the Bylaw and in accordance with article 2389, 2nd paragraph, of the Italian Civil Code, compensation of administrators holding specific positions provided for by the Company s Incorporation Deed, is determined by the Board of Directors in agreement with the Board of Statutory Auditors. The Board of Directors created an internal Compensation Committee made up by the Chairman, Carlo Caracciolo, the Managing Director, Marco Benedetto, non-executive Directors Rodolfo De Benedetti, Franco Girard and Pierluigi Ferrero, determining its responsibilities pursuant to article 8 of the Code. Whenever the Committee discusses arguments regarding directly the Chairman and/or Managing Director, these leave the meeting, and the related resolutions are taken by the remaining members of the committee. In the year, the Compensation Committee met three times to determine, among other things, the emolument to be paid to the Chairman of the Board for 2005, submitting to the approval of the Board of Directors a stock option plan in favor of employees of the Company and its subsidiaries, parent companies and affiliated companies, in addition to a stock option plan for the Managing Director, described in the related section of the Annual Report. The Comitee also reviewed policies for the retribution of top management that include incentives linked to the achievement of specific targets. Internal audit (art. 9-10) The responsibility for internal audit falls on the Board of Directors that sets its guidelines and verifies its adequacy and proper functioning. To help it carry out its task in this field, the Board of Directors established an Internal Audit Committee made up by independent directors Cristina Busi, Milvia Fiorani, Paolo Mancinelli and Alberto Milla, assigning it its responsibilities pursuant to article 10 of the Code. Independent auditors that make up the Internal Audit Committee, were appointed also to the Audit Committee created pursuant to Legislative Decree 231/2001, due to the strong identification between the two functions. To provide a better coordination of supervisory and control activities, some members of GELE s audit committee, in their capacity of members of the parent company s audit committee, are also part of the respective audit committees of main Group companies. The Company implemented an internal audit system enabling it to verify that internal operating and administrative procedures are followed. Such system is also at the root of the procedures indicated in the Organizational model mentioned in the present Report. The audit system reflects the Group s structure, organized into business areas made up by companies and operating divisions having own administrative and separate control departments. The Company, moreover, elaborated a reporting and management control system allowing to manage procedures and information flows, providing management with managerial and financial reporting at least monthly. The Managing Director appointed Mr. Fabio Tacciaria, General Manager of the Group, who, in his capacity as the person responsible for Corporate business and the coordination of Group s activities, is thus hierarchically independent from the heads of operating divisions. The Internal Audit Committee met four times in 2005, verifying through periodical meetings with department heads, the Board of Statutory Auditors and the Independent Auditors, the efficacy and effectiveness of management procedures, the reliability of financial information and the respect of applicable norms. No issue worth of note emerged from such verifications.

210 Report on Corporate Governance 209 Transactions with related parties (art. 11) The Board of Directors approves in advance all transactions involving related parties, as defined by CONSOB in its related communication, including transactions within the Group, with the exception of typical or customary transactions and those carried out at standard conditions. Typical or customary transactions are those carried out in the normal course of business of the Company and those that do not pose, in consideration of their characteristics, risk or critical factors. Transactions carried out at standard conditions are those concluded at the same conditions applied by the Company to any other party. In operations with related parties that are subject to the approval of the Board of Directors, the Board of Directors receives adequate information on the nature of the correlation, terms of the execution, conditions, also economic, for the conclusion and evaluating process adopted for all transactions subject to its approval. Where the nature, amount or characteristics of the operation so require, the Board of Directors seeks the aid of independent experts. In operations with related parties that are subject to the approval of the Board of Directors, directors finding themselves in a potential conflict of interest inform in good time and in full the Board with regards to the existence of the same and the related circumstances. After the discussion, the said director leaves the meeting in view of voting or, in case the majority of directors present so requires, remains in the room but abstains from voting. For transactions with related parties, including those involving other Group companies, that are not subject to the approval of the Board of Directors as either typical, customary or carried out at standard conditions, executive Directors will ensure that adequate information, also relating to specific types or group of operations, regarding their nature, terms and conditions, including economic, of execution is kept on record. Relations with institutional investors and shareholders in general (art. 12) The person responsible for relations with shareholders in general and, in particular, with institutional investors, is Alessandro Alachevich, Director of Investor Relations, who, together with the Company s Managing Director and top management, entertained in the year ongoing relationships with institutional investors. In 2005 the activity was carried out through international road shows in all main international financial centers, in addition to frequent conference calls and individual meetings. Shareholders Meetings (art. 13) The Company adopted a set of Rules, that is not part of the Bylaw, regulating the orderly and functional holding of Shareholders Meetings, both ordinary and extraordinary, of the Company. The Rules uphold the right of any Shareholder to intervene in the discussion relating to the business in agenda. Auditors (art. 14) The Company s Bylaw, amended by the Board of Directors on February 22, 2006 at its extraordinary meeting held with a notary public to introduce a mandatory law provision already in force, introduced by the Law on Savings, provides for the Board of Statutory Auditors to be made up by three Auditors and three Substitute Auditors, appointed for a term of three years. Auditors may be re-appointed. Minority shareholders are entitled to the appointment of one Auditor, that will act as the chairman, and one Substitute Auditor.

211 210 Report on Corporate Governance The appointment of the Board of Directors takes place from lists submitted by shareholders in which candidates are indicated next to a numeral. Only shareholders who, either individually or in groups represent at least 2.5% of the voting shares are entitled to submit a list of candidates. Lists submitted by shareholders must be deposited together with related curricula and documents proving that they possess the requirements to be submitted, at the Company s Registered Office at least five days prior to the date set for the Shareholders Meeting on first call, so that the notice of the meeting shall include mention of such lists being submitted. Together with each list, within the same term, candidates submit declarations with which candidates accept the candidacy and attesting, under their own responsibility, that there does not exist any reason preventing the appointment or any conflict relating to the same, in addition to the existence of the requisites for the appointment to the respective offices provided either in the Bylaw or other regulations. Lists that do not possess the above requisites will be considered as not submitted.

212 Report on Corporate Governance 211 Table 1: Composition of the Board of Directors and Commitees Board of Directors Internal Audit Remuneration Optional Appointments Optional Executive Committee Committee Committee Committee Post Directors executive non- indipendent *** Number of other ** *** ** *** ** *** ** *** executive posts* Chairman Carlo Caracciolo X 100% 1 X 100% X Managing Director Marco Benedetto X 100% - X 100% X Director Oliviero Brega X 100% 1 X Director Cristina Busi X 83% - X 75% Director Giulia Maria Crespi X 33% - Director Carlo De Benedetti X 100% 8 Director Rodolfo De Benedetti X 100% 6 X 100% X Director Francesco Dini (1) X 100% 1 Director Pierluigi Ferrero X 100% 3 X 100% Director Milvia Fiorani X 100% - X 100% Director Franco Girard X 83% 4 X 100% Director Paolo Mancinelli X 100% 1 X 100% Director Gianluigi Melega X 100% - Director Alberto Milla X 100% 6 X 100% Director Pierleone Mignanego X 100% - Director Alberto Piaser X 100% 3 X Director Vittorio Ripa di Meana X 67% 6 Number of meetings in the year BoD: 6 International Audit Committee: 4 Remuneration Committee: 3 Executive Committee: 0 NOTES * This column shows the number of Director or Auditor posts held by the related person in the other companies listed in regulated markets either domestic or international, in finance companies, banks, insurance companies or other companies of relevant size. In the Corporate Governance Report, posts are indicated in full. ** The simbol X in this column indicated that the Director is a member of the related Committee. *** The culumn indicates the percentage attendance of Directors respectively to Board and Committee meetings. (1) Appointed by Shareholders Meeting of April 20, 2005.

213 212 Report on Corporate Governance Table 2: Board of Statutory Auditors Post Member Percentage attendance to Board Number of other posts** meetings Chairman Vittorio Bennani 100% 2 Auditor * Claudio Berliri 100% - Auditor Federico Gamna 100% 1 Alternate Auditor * Alessandro Bandiera - - Alternate Auditor Giancarlo Benedetti - - Alternate Auditor Riccardo Zingales - - Number of meetings held in the year: 5 Quorum required for the presentation of lists by minority shareholders for the appointment of one or more member of the Board of Statutory Auditors (pursuant to art. 148 of the Unified Tax Code): 2.5% NOTES * The asterisk indicates that the Auditor was designated throught lists submitted by minority shareholders. ** This column shows the member of Director or auditor posts held by the related in other companies listed in domestic regulated markets.

214 Report on Corporate Governance 213 Table 3: Other provisions contained in the Code of Conduct YES NO Reason for possible discrepancy from recommendations of the Code Proxies and related parties Has the BoD given proxies defining their: a) limit X b) exercise X c) and reporting frequency? X Has the BoD reserved to itself the review and approval of having a particular economic and financial relevance (including those with related parties)? X Did the BoD define guidelines and criteria for the identification of significant transaction? X Are the above guidelines and criteria described in the Report? X Has the BoD defined appropriate procedures for the review and approval of transaction with related parties? X Are procedures for the approval of transactions with related parties described in the Report? X Procedures for the most recent appointment of Directors and Statutory Auditors Has the deposit of names of candidates for the position of Director taken place at least ten days prior to the voting? X Were names of candidates to the position of Directors accompanied by adeguate information? X Were names of candidates to the position of Director accompanied by the indication of the qualifications necessary for the candidate to qualify as indipendent? X Has the deposit of names of candidates for the position of Auditor taken place at least ten days prior to the voting? X Were names of candidates to the position of Auditor accompanied by adeguate information? X Meetings Has the company approved a set of Meeting Regulations? Are Meeting Regulations attached to the Report (or is there an indication of where they are available/downloadable)? Internal Audit Has the company appointed internal auditors? Are internal auditors hierarchically indipendent of opening departments? Organizational unit in charge of internal control (as per art. 9.3 of the Code): Parent Company s General Director s Office Investor relations Has the company appointed a head of investor relations? Organizational unit and references of the Investors Relations Head: Investor Relations Director s office X X X X X X X

215 214 Report on Corporate Governance List of positions held by directors of Gruppo Editoriale L Espresso SpA in other companies listed in a regulated market, finance companies, banks and unlisted companies of a relevant importance Members Carlo Caracciolo Oliviero Brega Carlo De Benedetti Rodolfo De Benedetti Francesco Dini Pierluigi Ferrero Franco Girard Paolo Mancinelli Alberto Milla Alberto Piaser Vittorio Ripa di Meana Other positions Director of Cofide SpA Director of Sogefi SpA Chairman of Cofide SpA, CIR SpA and Cdb Web Tech SpA Honorary Chairman and Director of Sogefi SpA Director of Banca Intermobiliare, Pirelli SpA and Valeo S.A. Chairman of the Auditing Board of M&C Management & Capitali SpA Chairman of Energia SpA and Sogefi SpA Managing Director of Cofide SpA and CIR SpA Director of RAS SpA and Altin S.A. Director of Energia SpA Director of Cofide SpA, CIR SpA and Sogefi SpA Vice Chairman of Cdb Web Tech SpA Director of Cofide SpA, CIR SpA and Sogefi SpA Director of CIR SpA Chairman of Euromobiliare S.I.M. SpA Vice Chairman of Banca Euromobiliare SpA Director of Credito Emiliano SpA, Euromobiliare Asset Management S.G.R. SpA, Banca Euromobiliare (Suisse) S.A. and Argus Fund Sicav Director of Sogefi SpA, Energia SpA and Società Finanza Attiva SpA Chairman of Fingold SpA and of IPSE 2000 Spa Director of Generali SpA, Sigma Tau Finanziaria SpA, Sir Rocco Forte Roma and Firenze Spa, Agenzia Ansa

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