Annual Report D ECEMBER 31, 2004 This Is an English Traslation of the Italian Annual Report, Which Is the Sole Authoritative Version 4 Annual General Meeting

Annual Report D ECEMBER 31, 2004 This is an English traslation of the italian annual report, which is the sole authoritative version 4 Annual general meeting

The ordinary shareholders are called in ordinary and extraordinary general meeting at 11.00 on April 29, 2005 in first call, at Assolombarda, Via Pantano 9, Milan, and if necessary, at 11.00 on May 4, 2005 in second call, at Meliorbanca S.p.A., Via Borromei 5, Milan, to vote on the following:

AGENDA

Ordinary Part

1. Financial statements at December 31, 2004; Directors' report on operations; Report by the Board of Statutory Auditors. Allocation of net income for the year. Bonus grant of treasury shares to shareholders. Related resolutions.

2. Appointment of directors, after possible redetermination of size of Board of Directors.

3. Proposed authorization for buyback and disposal of treasury shares; consequent revocation, of the part not used, of the shareholders' resolution dated April 29, 2004 relating to the buyback of treasury shares.

Extraordinary Part

1. Grant of authority to the Board of Directors, pursuant to article 2443 of the Italian Civil Code, to increase share capital for payment, in one or more allotments, in a divisible manner for a period of up to five years and for a maximum amount of ¤25,740,704 at par, by issuing up to 25,740,704 ordinary shares to be offered in subscription, pursuant to article 2441.8 of Decree 58/1998 and art. 134.2 of Decree 58/1998, to employees of the company and of its subsidiaries; consequent amendment of article 5 of the company's by-laws. Related resolutions.

2. Proposed amendment of article 8 of the company's by-laws. Related resolutions.

Ordinary shareholders are entitled to take part in the Annual General Meeting provided they are in possession of the prescribed certificate, and provided the communication issued by their respective intermediaries in relation to their shareholdings has reached the company's registered office at least two days before the date set for the meeting. The documentation relating to the matters on the agenda and required by prevailing law will be filed within the prescribed deadlines at the company's registered office and at Borsa Italiana, for viewing by the shareholders and the general public. Shareholders are entitled to obtain a copy of all this documentation.

on behalf of the Board of Directors Chairman Guido Roberto Vitale

5 Corporate Officers

Cesare Romiti Honorary Chairman

Board of Directors Guido Roberto Vitale (*) Chairman Vittorio Colao (*) (°) Chief Executive Officer Raffaele Agrusti Director Roberto Bertazzoni Director Carlo Buora (*) Director Diego Della Valle Director Cesare Geronzi Director Franzo Grande Stevens (*) Director Natalino Irti Director Jonella Ligresti Director Giuseppe Lucchini Director Giangiacomo Nardozzi Tonielli Director Renato Pagliaro (*) Director Corrado Passera Director Alessandro Pedersoli Director Carlo Pesenti (*) Director Umberto Quadrino (*) Director Paolo Savona (*) Director (*) Member of the Executive Committee - (°) Also holds the office of Chief Operating Officer

Powers delegated by the Board of Directors The Board of Directors has set up the Executive Committee to which it has delegated powers of ordinary and extraordinary administration except for those relating to defining the group's strategies, the purchase and sale of majority equity investments, plus those reserved in law for the Board itself. The Board has also granted its Chairman all the powers of ordinary and extraordinary administration, except those reserved in law for the Board. It was granted the Chief Executive Officer and Chief Operating Officer wide powers for the conduct of the company's management with limits on the size of financial commitments and/or risks that may be taken on for certain types of transaction. For additional information, reference should be made to the section of this report on “Corporate governance”.

Board of Statutory Auditors Gianrenzo Cova Chairman Flavio Arcidiacono Acting auditor Clemente Rebecchini Acting auditor Maurizio Bozzato Alternate auditor Cesare Gerla Alternate auditor Agostino Giorgi Alternate auditor 6 The Annual General Meeting held on April 15, 2003 confirmed the Board of Statutory Auditors in office for the three-year term 2003/2005.

Independent auditors

RECONTA ERNST & YOUNG S.p.A.

The Annual General Meeting held on April 15, 2003 confirmed the appointment of Reconta Ernst & Young for the three-year term 2003/2005.

Contents

Group structure of RCS MediaGroup page 12 Information for shareholders 13 Financial highlights 15 Directors' report on group operations by RCS MediaGroup 16 Report on operations by: RCS MediaGroup S.p.A. 24 Newspapers 30 Magazines 36 Radio broadcasting and press services 40 Advertising 44 Books 48 Other subsidiaries 52 Significant events during the year 54 Significant subsequent events 55 Business outlook 56 Transactions with related parties and other group companies 57 Equity investments held by directors and statutory auditors 58 Treasury shares 59 Application of new international accounting standards 59 Corporate governance 63 Proposed resolutions 75 Consolidated financial statements and explanatory notes 79 Balance sheet 80 Income statement 84 Statement of cash flows 82 Explanatory notes 86 Parent company financial statements and explanatory notes: 125 Balance sheet 126 Income statement 129 Statement of cash flows 130 Explanatory notes 131 Tables attached to RCS MediaGroup's consolidated financial statements: 167 List of equity investments – scope of consolidation 168 Exchange rates for converting financial statements in foreign currency 172 Pro-forma financial statements at December 31, 2003 175 Tables attached to RCS MediaGroup SpA's financial statements: 183 Portfolio of equity investments at December 31, 2004 and their movements 184 List of “other equity investments” and “other securities” not recorded as fixed assets and their movements 189 Income statement (reclassified format for industrial holding companies pursuant to Decree 127/91) 190 Independent auditors' report on the consolidated financial statements 193 Independent auditors' report on the statutory financial statements 197 Report by the Board of Statutory Auditors 201 9

Group structure of RCS MediaGroup

12 Information for shareholders

No. ordinary shares 732,669,457 No. savings shares 29,349,593 2004 2003 Capitalization (in ¤/millions) (at December 31) 3,215.4 2066.3

Change in prices and volumes (ordinary shares)

2004 2003 Max price (¤) 4.25 3.20 Dec-30 Dec-1 Min price (¤) 2.61 1.67 mar-22 Feb-10 December average price (¤) 4.07 2.87 Average volumes (million) 1.96 1.33 Max volumes (million) 9.51 8.98 Jun-24 Dec-1 Min volumes (million) 0.23 0.18 Aug-16 Feb-21

Shareholder composition

Free float 31,838%

Shareholder syndicate Major 57,476% shareholders* 7,031%

Treasury shares 3,655%

*Interests of more than 2% 13 Stock performance

After a shaky start, conditioned by international events - terrorist attack in Spain in March and continued tension in Iraq and the Middle East - and the macroeconomic situation - increasingly weak dollar, steadily rising raw material prices -, world stock markets ended the year on a positive note, confirming the upward trend seen in 2003. Italy's Mibtel equities index was one of the best performing in Europe, closing almost 20% higher than the year before; the S&PMib index added 15% over the year. In this context, the RCS MediaGroup stock rose by over 50%, compared with around +10% for Italian and European media stocks as a whole (DJ Stoxx Media index).

RCS MediaGroup performance versus principal indexes (rebasing January 2, 2004)

RCS saving

Source: Bloomberg

Min. price (March 22): e2.61 Max. price (December 30): e4.25 December average price: e4.07

Trading in RCS MediaGroup stock

Source: Bloomberg

Min. volume (August 16): 0.23 million Max. volume (June 24): 9.51 million Average volume: 1.96 million 14 Financial highlights

Financial highlights of the group and RCS MediaGroup S.p.A. (in ¤/million)

RCS MEDIAGROUP - GROUP 2004 2003 2003 Income statement pro-forma (1) Net revenues 2,150.5 1,945.0 2,168.8 Publishing revenues 1,370.5 1,199.5 1,289.6 Advertising revenues 688.5 666.7 805.0 Sundry publishing revenues 91.5 78.8 74.2 EBITDA 211.1 143.8 157.3 Amortization, depreciation and fixed asset writedowns (75.8) (66.4) (71.2) EBIT 135.3 77.4 86.1 Net financial income (charges) (4.9) (8.7) (8.5) Income (charges) from equity investments and adjustments to value of financial assets 9.3 52.9 52.1 Net extraordinary income (charges) (34.7) (47.7) (53.0) Earnings before tax and minority interests 105.0 73.9) 76.7 Net income for the year 77.4 46.7) 46.1 Balance sheet 12-31-2004 12-31-2004 12-31-2003 pro-forma (1) Net capital employed (2) 1,239.3 1,277.2 1,248.1 Net debt 167.8 220.8 191.7 Shareholders' equity 1,071.5 1,056.4 1,056.4 Shareholders' equity pertaining to RCS MediaGroup 1,029.3 1,006.9 1,006.9 Employees (average number) 4.902 5.059 5.580 RCS MEDIAGROUP S.P.A. Income statement 2004 2003 Dividends (3) 58.0 61.5 Net financial income (charges) 3.2 10.4 Adjustments to value of financial assets (14.3) 30.8 Net extraordinary income (charges) (6.4) (27.4) Net income for the year 58.2 51.5 Balance sheet 12-31-2004 12-31-2003 Shareholders' equity 1,128.8 1,125.7 Net cash (115.2) (145.4) RCS MEDIAGROUP S.P.A. (in e) 2004 Stock price (December average) – Ordinary shares 4.07 – Savings shares 3.19 Dividend per share – Ordinary shares – Savings shares RCS MEDIAGROUP S.P.A. (*) (in e) 2004 Earnings per share 0.10

(1) Pro-forma figures for 2003 have also been provided for comparison with 2004. These have been prepared on the basis of valuing joint ventures at net equity (like in 2004). (2) Net capital employed is stated after deducting the reserve for employee termination indemnities which at December 31, 2003 was included among sources of financing but has now been reclassified under net capital employed. (3) The dividends in 2003 included the related tax credits.

(*) Subject to AGM approval 15 Directors' report on group operations by RCS MediaGroup Directors' report on group operations by RCS MediaGroup

After three years of standstill the Italian economy reported a slight recovery in 2004, with gross domestic product rising just over one percentage point, still below the European average. Although consumer spending grew (+1%), consumer confidence continued to be weak and so provided little encouragement. At 2.2% inflation showed signs of slowing and was slightly below the euro-zone average. In this context, advertising expenditure grew by 7.3% in 2004, driven by television (+10.4%) and radio (+21.7%). Press advertising closed slightly higher than the year before (+1.6%) while losing further market share, down by around two percentage points. The growth in revenues at RCS Pubblicità outpaced the market as a whole (+3.7%) thanks to positive performance by the group’s newspapers, especially Gazzetta dello Sport. As far as magazines were concerned, the group embarked on a strategy of capitalizing on the leadership of its titles, focusing on price increases rather than advertising volumes. The Italian newspaper market continued to report a slight drop in circulation numbers while overall spending by the public increased thanks to consumer interest in the wide range of add-on products (books, encyclopedias, DVDs, etc.) sold together with newspapers. Corriere della Sera maintained its market leadership in terms of the number of copies sold and significantly boosted revenues thanks to the series of publications sold (Encyclopedia, History, Art, Cooking, etc.). El Mundo strengthened its position as Spain’s number two daily newspaper, increasing its sales in a sagging market; the title also benefited from the success of add-on products (amongst which La Grande Enciclopedia Universal (Great Universal Encyclopedia) and La Historia de Espana (History of Spain)) and the launch of a new supplement entitled La Luna de Metropoli. The increase in circulation was accompanied by a significant rise in advertising revenues, well above the market average thanks to more space and higher prices. Despite the market crisis and aggressive competition (new launches and massive promotional campaigns), the group’s magazines defended and maintained their positions and in some cases increased their lead on direct competitors. The group policy also focused on a recovery in profitability by the different titles, which was not only behind the measures to streamline distribution channels but also the increase in average advertising rates. The books sector reported a year of growth both in terms of volumes and value. The group was involved in a number of major launches, such as two books by Oriana Fallaci, La Forza della Ragione (The Force of Reason) which sold almost 800,000 copies and Oriana Fallaci intervista Oriana Fallaci (Oriana Fallaci interviews Oriana Fallaci) and the latest book by Umberto Eco La misteriosa fiamma della regina Loana (Queen Loana’s Mysterious Flame), which sold over 300,000 copies. Other successful books included Life by Paulo Coelho and Giro di vento (Gust of Wind) by Andrea De Carlo. The group’s broadcasting division reported an excellent set of results on the advertising front, which were among the best on the market.

Despite the failure of press advertising to make an appreciable comeback, the RCS group’s publishing successes mentioned earlier, combined with greater efficiency, allowed it to achieve significantly higher earnings than in the prior year.

In fact, net income pertaining to the group came to ¤77.4 million at December 31, 2004, over ¤31.3 million higher than the prior year figure (+67%). This improvement was explained by the major increase in both EBITDA and EBIT, which reached ¤211.1 million and ¤135.3 million respectively. It should also be noted that the prior year comparison is affected by the adoption in 2004 of the net equity method for consolidating investments in joint ventures, which were previously con- 16 Directors' report on group operations by RCS MediaGroup solidated using the proportional method. This means that, on a like-for-like basis, the group’s performance was even more impressive, with EBIT rising by ¤57.9 million and EBITDA by ¤67.3 million.

As a result of changing this accounting policy, the company has prepared pro-forma consolidated financial statements for 2003 using the method of consolidating joint ventures adopted in 2004.

The reclassified consolidated income statement for 2004 is reported below, together with both official and pro-forma figures for 2003. All comparisons in the following commentary will be made with reference to the 2003 pro-forma results.

Reclassified consolidated income statement

(in ¤/millions)) 2004 % 2003 % 2003 % pro-forma (1) Net revenues (2) 2,150.5 100.0 1,945.0 100.0 2,168.8 100.0 Operating costs (1,531.8) 71.2 (1,407.0) 72.3 (1,582.0) 72.9 Payroll costs (385.8) 17.9 (370.4) 19.0 (402.9) 18.6 Writedowns of current receivables and cash and banks (12.5) 0.6 (14.0) 0.7 (15.9) 0.7 Provisions to reserves for risks (9.3) 0.4 (9.8) 0.5 (10.7) 0.5 B. EBITDA 211.1 9.8 143.8 7.4 157.3 7.3 Amortization of intangible fixed assets (53.6) 2.5 (42.8) 2.2 (44.9) 2.1 Depreciation of tangible fixed assets (22.2) 1.0 (23.6) 1.2 (26.3) 1.2 Other writedowns of fixed assets C. EBIT 135.3 6.3 77.4 4.0 86.1 4.0 Net financial income (charges) (4.9) 0.2 (8.7) 0.4 (8.5) 0.4 Income (charges) from equity investments and adjustments to value of financial assets 9.3 0.4 52.9 2.7 52.1 2.4 D. Earnings before tax and extraordinary items 139.7 6.5 121.6 6.3 129.7 6.0 Net extraordinary income (charges) (34.7) 1.6 (47.7) 2.5 (53.0) 2.4 E. Earnings before tax and minority interests 105.0 4.9 73.9 3.8 76.7 3.5 Income taxes for the year (21.9) 1.0 (19.5) 1.0 (22.3) 1.0 F. Net income before minority interests 83.1 3.9 54.4 2.8 54.4 2.5 Net (income) loss pertaining to minority interests (5.7) 0.3 (8.3) 0.4 (8.3) 0.4 G. Net income pertaining to the group 77.4 3.6 46.1 2.4 46.1 2.1

(1) The pro-forma figures value companies jointly controlled with other shareholders using the net equity method for the purposes of consistent comparison with 2004. (2) Revenues solely refer to those from sales and services.

17 Directors' report on group operations by RCS MediaGroup

Consolidated net revenues amounted to ¤2,150.5 million, an increase of ¤205.5 million on the year before, largely due to the following factors: > the success of add-on products sold in conjunction with newspapers in Italy and Spain, boosting revenues by ¤125.5 million; > the growth of ¤21.8 million in overall advertising sales (¤28.2 million excluding from the 2003 figure the German magazines now sold), particularly thanks to strong performance by the El Mundo and Gazzetta dello Sport newspapers, the broadcasting division and foreign media sales (Blei); > the increase of ¤39.2 million in sales of partworks, due to the larger number of new releases in Italy and Great Britain and the popularity of follow-on products in Italy; > the increase of ¤12.7 million in sundry publishing revenues, mostly referring to the sale of copyrights by the books division.

The following table shows net revenues by sector and region:

Italy Spain France Other Countries Total 2004 2003) 2004 2003 2004 2003 2004 2003 2004 2003) Newspapers 716.5 627.2 311.4 257.5 1,027.9 884.7 Books 364.9 313.0 245.6 239.4 93.9 78.9 704.4 631.3 Magazines 258.8 271.2 11.0 9.3 2.8 3.7 272.6 284.2 Broadcasting 26.4 23.4 26.4 23.4 Advertising 548.8 518.0 548.8 518.0 RCS MediaGroup 9.5 10.3 9.5 10.3 Eliminations/ Adjustments/Other (439.1) (415.7) 8.8 (439.1) (406.9) Group total 1,485.8 1,347.4 322.4 266.8 245.6 239.4 96.7 91.4 2,150.5 1,945.0

The 2003 figures are based on pro-forma ones, in which joint ventures have been valued at net equity rather than consolidated using the proportional method (as in the 2003 official financial statements).

EBITDA was ¤211.1 million, up from ¤143.8 million in 2003, representing an increase of ¤67.3 million to which all areas of the business contributed.

A particular mention should go to the excellent performance of add-on products sold with newspapers in Italy and Spain, the success of the large number of new releases in the partworks sector and of the fiction and non-fiction segment in Italy and France, the reduction in paper prices and savings in operating costs (which were 1.1% lower as a percentage of revenues than in the prior year). However, payroll costs were ¤15.4 million higher: this was not a structural increase but reflected reorganization costs particularly at RCS Quotidiani. Average headcount was 157 lower.

EBIT amounted to ¤135.3 million, having improved by ¤57.9 million since 2003. This reflects not only the factors outlined above but also ¤10.8 million in additional amortization charges for the consolidation differences recorded in the year following the acquisition of 40% of RCS Periodici.

18 Directors' report on group operations by RCS MediaGroup The following table presents the key results by area of business.

2004 2003 pro-forma (in ¤/millions) Revenues Ebitda % of Ebit % of Revenues Ebitda % of Ebit % of revenues revenues revenues revenues Newspapers Italy 716.5 100.8 14.1% 95.2 13.3% 627.2 81.6 13.0% 75.9 12.1% Newspapers Spain 311.4 51.5 16.5% 40.2 12.9% 257.5 24.8 9.6% 13.3 5.2% Total newspapers 1,027.9 152.3 14.8% 135.4 13.2% 884.7 106.4 12.0% 89.2 10.1% Magazines 272.6 25.9 9.5% 15.6 5.7% 284.2 23.8 8.4% 14.3 5.0% Broadcasting 26.4 1.2 4.5% (1.4) (5.3)% 23.4 1.3 5.6% (1.3) (5.6)% Advertising 548.8 6.8 1.2% 0.0 0.0% 518.0 4.3 0.8% (2.5) (0.5)% Books 704.4 51.5 7.3% 36.8 5.2% 631.3 47.6 7.5% 30.6 4.8% RCS MediaGroup 9.5 (15.8) n.a. (18.2) n.a. 10.3 (20.1) n.a. (20.5) n.a. Eliminations/Adjust- ments/Other (1) (439.1) (10.8) 2.5% (32.9) 7.5% (406.9) (19.5) 4.8% (32.4) 8.0% Consolidated RCS MediaGroup 2,150.5 211.1 9.8% 135.3 6.3% 1,945.0 143.8 7.4% 77.4 4.0%

(1) The 2003 pro-forma figures include ¤8.8 million in revenues, ¤-2 million in EBITDA and ¤-2.2 million in EBIT relating to the subsidiaries Max Verlag Gmbh &Co.Kg and Verlagsgruppe Milchstrasse GmbH, in which 75% interests were held at December 31, 2003 and which were deconsolidated in 2004 after being put up for sale. These figures also include the results of services provided by RCS Quotidiani as follows: ¤45.8 million in revenues (¤41.2 million in 2003), ¤-9.9 million in EBITDA (¤-13.7 million in 2003) and ¤-16.6 million in EBIT (¤-20.5 million in 2003).

The changes are described in the report on operations by the parent company and its subsidiaries.

Net financial charges came to ¤4.9 million compared with ¤8.7 million in 2003. This decrease partly reflected the steady reduction in long-term debt and partly the low level of interest rates. Exchange differences also made their contribution, improving from a net loss of ¤2 million in 2003 to a net gain of ¤1.6 million this year. The change was mostly due to changes in the currency exposure to the US dollar. Income from equity investments and adjustments to financial assets totaled a positive figure of ¤9.3 million (¤52.9 million in 2003) and included ¤16.8 million in dividends from equity investments, ¤24.0 million in writedowns and ¤16.5 million in writebacks. The figure for 2003 included ¤45.4 million for partially reinstating the carrying value of the equity investment in Banca Intesa. The adoption of the net equity method for consolidating all the investments previously consolidated using the proportional method had a net positive impact of ¤5.0 million on adjustments to the value of financial assets (¤+3.2 million in the 2003 pro-forma income statement). Net extraordinary charges amounted to ¤34.7 million (¤47.7 million the year before), most of which referred to: > ¤29.2 million in costs for changes in the top management structure at the parent company and the newspaper division; > ¤9.1 million in extraordinary charges relating to the Unedisa group in Spain. In detail, ¤3 million relates to extraordinary writedowns of presses due to the forthcoming closure of the Spanish printworks of the Fabripress Spanish subsidiary, ¤2.2 million refers to charges for staff redundancies as a result of reorganizing certain members of the Spanish group, ¤1.8 million to writedowns of capitalized costs associated with the start of digital radio activities, ¤1.5 million to costs of winding up subsidiary companies or selling fixed assets and ¤0.6 million to sundry other amounts; 19 Directors' report on group operations by RCS MediaGroup > ¤12.5 million in extraordinary writedowns of consolidation differences. The writedowns relate to consolidation differences for advertising sector subsidiaries and arose as a result of impairment testing; > ¤6.8 million in extraordinary charges incurred for an out-of-court settlement with the purchaser of the operating activities of RCS Investimenti (formerly Fila Holding) against any current and future claims, along with the associated legal and other professional costs incurred by the group; > ¤31.9 million in gains on the disposal of equity investments, made up as follows: ¤14 million on the disposal of BVO, ¤4.8 million on the disposal of Tomorrow Focus, ¤11.1 million on the disposal of part of the shares and warrants held in Pirelli, ¤1.1 million on the disposal of Burda RCS International Holding and ¤0.9 million on the partial disposal of the shares held in Joyce; > ¤9.0 million in other net extraordinary charges generated from provisions to reserves, out-of- period expenses and sundry charges, mostly associated with reorganizing the corporate structure of the foreign books division (Flammarion and Rizzoli International Publications).

Income taxes amounted to ¤21.9 million (¤19.5 million in 2003) and included ¤17.6 million in IRAP (Italian regional business tax), ¤17.5 million in foreign direct taxes and ¤13.2 million in credits for recognizing net deferred tax assets. In the case of the companies making the group tax election permitted from January 1, 2004, the above amounts reflect the related income arising on the recognition of deferred tax assets for tax losses that have been and may be offset against taxable income.

Breakdown of average number of employees by geographical area in 2004

The average number of employees at December 31, 2004 was 4,902, down from 5,059 in the pri- or year. The decrease of 157 is mostly attributable to the books and newspapers divisions, and only in part to the magazines division.

The breakdown of average number of employees by geographical area is as follows:

Italy Spain France Other countriesTotal 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Newspapers 1,756 1,798 873 900 2,629 2,698 Magazines 561 573 54 52 45 68 660 693 Broadcasting 74 65 74 65 Advertising 277 273 277 273 Books 387 433 705 721 61 68 1,153 1,222 Parent company 106 105 106 105 Others 3 3 3 3 Total 3,164 3,250 705 721 927 952 106 136 4,902 5,059

The 2003 figures are based on pro-forma ones, in which joint ventures have been valued at net equity rather than consolidated using the proportional method (like in the official 2003 financial statements).

The group started to implement its reorganization plan during the year but only for the part ob- taining ministerial authorization in March. 20 Directors' report on group operations by RCS MediaGroup Highlights from the balance sheet are summarized in the following table: Reclassified consolidated balance sheet

(¤/millions) 12-31-2004 % 12-31-2003 % 12-31-2003 % pro-forma (1) Intangible fixed assets 416.1 337.6 341.4 Tangible fixed assets 245.8 176.9 185.0 Financial fixed assets 472.1 612.8 578.6 A. Net fixed assets 1,134.0 91.5 1,127.3 88.3 1,105.0 88.5 Inventories 160.1 147.8 151,5 Trade receivables 642.4 648.4 710.4 Trade payables (609.1) (514.3) (573.9) Other assets/liabilities 154.9 159.5 159.2 B. Net capital employed 348.3 28.1 441.4 34.6 447.2 35.8 Reserves for risks and charges (140.2) (11.3) (187.0) (14.6) (194.7) (15.6) Reserve for employee termination indemnities (102.8) (8.3) (104.5) (8.2) (109.4) (8.8) C. Net capital employed 1,239.3 100.0 1,277.2 100.0 1,248.1 100.0 Shareholders' equity 1,071.5 86.5 1,056.4 82.7 1,056.4 84.6 Medium/long-term financial payables 168.9 197.0 197.0 Short-term financial payables 146.7 173.7 159.4 Liquid funds and short-term financial receivables (147.8) (149.9) (164.7) D. Net debt (liquidity) 167.8 13.5 220.8 17.3 191.7 15.4 E. Total sources of financing 1,239.3 100.0 1,277.2 100.0 1,248.1 100.0

(1) The pro-forma figures value companies jointly controlled with other shareholders using the net equity method.

The principal changes in the group's balance sheet since December 31, 2003 will now be discussed. Like in the case of the income statement, all comparisons refer to the 2003 pro-forma results.

Intangible fixed assets amounted to ¤416.1 million at the end of 2004 (¤337.6 million at December 31, 2003). This change reflects ¤151.6 million in investments, ¤53.6 million in amortization charges, ¤16.1 million in writedowns and ¤3.4 million in other minor movements, including the deconsolidation of Calprint, a member of the Unedisa group, following a reduction in the related interest. The new investments include the consolidation difference arising on the purchase of 40% of RCS Periodici (¤107.7 million), the increase in the consolidation difference for Sfera (¤7.8 million), following payment of the additional purchase price, and the consolidation difference of ¤11.1 million arising on the purchase of a further 5.9% interest in Unedisa. The remaining investments (¤25 million) were mostly made by the newspaper division for purchasing user licenses for new software and refurbishing leasehold property due to house new color-printing machinery as part of the “Full Color” project. The writedowns to the consolidation differences recognized on the acquisition of Blei and RCS Advertising were made on the basis of impairment tests. Smaller writedowns were also made against assets associated with the closure of the US bookstores, while ¤1.8 million was written off the value of investments in digital radio frequencies made by the Unedisa group. 21 Directors' report on group operations by RCS MediaGroup Tangible fixed assets increased from ¤176.9 million to ¤245.8 million. The change of ¤68.9 million includes ¤96.3 million in investments, ¤22.2 million in depreciation charges, ¤2.9 million in extraordinary writedowns for the future closure of the Fabripress printworks in Spain and ¤2.3 million in disposals, including the effect of deconsolidating Calprint, following a reduction in the related interest. The investments mostly refer to the newspaper division, where the “Full Color” printing project for Corriere della Sera continued to move ahead, and to further work on renovating the premises in Via Solferino.

Financial fixed assets decreased by ¤140.7 million. The change mostly reflects the sale of part of the shares held in Pirelli (¤64.5 million) and of the equity investments in Burda RCS International Holding (¤13.6 million) and Tomorrow Focus (¤1.5 million), plus the refund of the share premium by GFT USA following the sale of its Joseph Abboud business (¤56.4 million). The valuation of joint ventures using the net equity method and writedowns to smaller investments generated a net decrease of just ¤4.7 million.

As a result of the changes described above, net fixed assets, increased by ¤6.7 million on the pri- or year to ¤1,134 million.

Net working capital came down by ¤93.1 million on a like-for-like basis. This was attributable to the following factors: > the large increase in trade payables (¤94.8 million). This was due to higher purchases for the production of add-on products, and to expenditure incurred for the “Full Color” project; > the increase of ¤12.3 million in inventories, particularly attributable to the larger number of partworks launched and their higher average cost due to the greater proportion of gadgets relative to publishing products, particularly in the books division; > the decrease of ¤6 million in trade receivables; this decrease took place despite the rise in sales and was attributable to improved credit management.

Reserves for risks and charges amounted to ¤140.2 million, down from ¤187 million the year before. The decrease of ¤46.8 million reflects: > ¤51.2 million in utilizations, of which: ¤17.9 million associated with the reorganization process, particularly at the parent company and in the newspaper division, partly as a result of changes in their top management; ¤5.5 million for the final out-of-court settlement of the claim brought by the purchasers of the operating activities of RCS Investimenti (formerly Fila Holding); ¤2.4 million in releasing the full amount of the reserve against bad debts; ¤2.8 million for partially releasing the reserves provided in GFT Net against its current winding up process, which were no longer needed after some of the claims brought were abandoned; ¤2.8 million for the final cancellation of the gain realized under condition precedent upon confer- ring the illustrated publishing business to the joint venture with the Skirà group, provided to a specific reserve at the time of the conferral; ¤1.6 million upon collecting withholdings on foreign dividends, against which provisions had been made because thought unlikely to be recovered. The remaining utilizations of ¤18.2 million refer partly to ordinary decreases for releases associated with costs mostly incurred in the normal course of business and partly to small amounts spread across several of the consolidated companies; > ¤30 million in decreases for reclassifications, mostly due to reserves against equity investments and receivables, which have now been deducted directly from the assets to which they refer; 22 Directors' report on group operations by RCS MediaGroup > ¤34.5 million in provisions, of which ¤19.7 million in charges for staff departures under the reorganization, ¤1.6 million for risks involving equity investments whose carrying value is higher than the group's share of net equity, ¤4.6 million for legal disputes and ¤8.6 million in other amounts spread across all the companies included in the consolidation.

Net debt at December 31, 2004 was ¤53 million lower than a year earlier. The positive cash flow generated by operating activities, together with the proceeds from selling GFT Net's US businesses, Burda Verlag Osteuropa, Burda RCS International Holding and part of the holding of Pirelli shares and warrants, more than outweighed the outlays for the dividends paid and investments made in the year, during which a number of important acquisitions were made, including 40% of RCS Periodici and 5.9% of Unedisa, plus settlement of the additional purchase price agreed at the time of purchasing Sfera. On top of these outlays there was also the expenditure on the full-col- or printing project at Corriere della Sera, which is in the process of being implemented. These investments were mostly funded with lease finance.

The sources and applications of funds are shown in the following table:

STATEMENT OF CASH FLOWS 2004 2003 2003 (according to IAS format) pro-forma A) Net cash and cash equivalents generated by operations (A) 178.0 (50.2) 58.3 B) Net cash and cash equivalents absorbed by investment activities (B) (57.1) (76.8) (144.8) Free cash flow (A+B) (120.9) (127.0) (86.5) C) Net cash and cash equivalents absorbed by financial transactions (C) (143.2) (109.2) (80.8) Net increase (decrease) in cash and cash equivalents (A+B+C) (22.3) (17.8) (5.7) Opening cash and cash equivalents (50.6) (68.4) (68.4) Closing cash and cash equivalents (28.3) (50.6) (62.7)

INCREASE (DECREASE) FOR THE YEAR (22.3) (17.8) (5.7)

23 Directors' report on group operations by RCS MediaGroup RCS MediaGroup SpA (parent company)

Report on operations

AGR - Agenzia Giornalistica Radiotelevisiva S.r.l, CNR Channel News Radio S.r.l, RCS Radio e TV S.p.A, Immobiliare Solferino 28 S.r.l. and RCS Internal Auditing S.r.l were absorbed by RCS MediaGroup S.p.A. on June 23, 2004, effective from June 30, 2004. The effects of this merger ran from January 1, 2004 for accounting and tax purposes. This operation formed part of the ongoing process of reorganizing and simplifying the group's organizational structure, with the goal of saving administrative costs and overheads. The year closed with net income of ¤58.2 million, compared with ¤51.5 million in 2003. The improvement in the result is mostly the product of making a group tax election, which generated ¤36 million in income, of which ¤8.9 million as a result of recognizing deferred tax assets.

The company's reclassified income statement, together with prior year comparatives, is presented below:

INCOME STATEMENT HIGHLIGHTS (¤/millions) 2004 2003 Change Dividends (1) 58.0 61.5 (3.5) Net financial income 3.1 10.4 (7.3) Revenues from sales and services 9.5 10.3 (0.8) Other income 18.2 11.6 6.6 Amortization, depreciation and writedowns (2.5) (0.4) (2.1) Operating costs (41.0) (40.6) (0.4) Other overheads (2.4) (1.4) (1.0) Adjustments to value of financial assets (14.3) 30.8) (45.1) Earnings before tax and extraordinary items 28.6 82.2 (53.6) Net extraordinary income (charges) (6.4) (27.4) 21.0 Earnings before tax 22.2 54.8 (32.6) Income taxes 36.0 (3.3) 39.3

NET INCOME (LOSS) 58.2 51.5 6.7

(1) Dividends in 2003 included the related tax credits.

Dividends amounted to ¤58.0 million compared with ¤61.5 million in 2003 which included tax credits. They mainly referred to dividends distributed by the subsidiaries RCS Quotidiani (¤13.6 million), RCS International Magazines BV (¤12.0 million), RCS Libri (¤11.4 million) and RCS Periodici (¤3.6 million), and other investments such as Banca Intesa (¤10.0 million) and Pirelli (¤4.5 million). The decrease of ¤3.5 million was basically due to the elimination of dividend tax credits under new tax laws; these credits amounted to ¤19.6 million in 2003; dividends themselves increased by ¤16.1 million from ¤41.9 million in 2003 to ¤58.0 million this year, including the dividends in kind declared by Banca Intesa.

Net financial income decreased by ¤7.3 million, from ¤10.4 million in 2003 to ¤3.1 million this year; the main reason was the smaller amount of liquidity invested in interest-bearing assets (¤150.5 million versus ¤261.0 million at December 31, 2003); 24 Directors' report on group operations by RCS MediaGroup Revenues from sales and other services climbed from ¤10.3 million to ¤9.5 million. These refer to services provided to subsidiaries and the recharge of costs incurred on behalf of subsidiaries and costs of staff on secondment. Other income of ¤18.2 million was ¤6.6 million higher than the prior year figure of ¤11.6 million. The increase was mostly due to income received from RCS Quotidiani for the rental of the premises in Via Solferino, that became the parent company's property following the merger of Immobiliare Solferino 28 into RCS MediaGroup. This rental income was recorded by Immobiliare Solferino 28 in 2003.

Amortization and depreciation increased from ¤0.4 million to ¤2.5 million, mostly as a result of booking depreciation on the property in Via Solferino.

Operating costs (¤41.0 million) and other overheads (¤2.4 million) increased by an overall amount of ¤1.4 million on the prior year. The increase is mostly due to higher corporate communication costs for an advertising campaign, as well as higher professional and legal fees; these increases were partly offset by lower payroll costs due to changes in the composition of the company's workforce.

Adjustments to value of financial assets were a negative ¤14.3 million compared with a positive ¤30.8 million in 2003. Last year's figures included the effect of partially reinstating the carrying value of Banca Intesa shares by ¤45.4 million. Apart from ¤0.4 million for writing down the SMI securities and ¤4.3 million for writing off the investment in Eurofly S.p.A., the most significant other changes related to the writedowns of the investments in RCS Investimenti S.p.A. (¤3.7 million), Istituto Europeo di Oncologia S.r.l. (¤2.2 million), Alice Lab Netherlands NV (¤1.2 million) and HdP BV (¤0.8 million) in order to adjust their carrying value to the related share of their net equity. The writedown of RCS Investimenti was due to the charges also incurred by the subsidiary for the out-of-court settlement reached with the purchasers of the operating activities of RCS Investimenti (formerly Fila Holding) against any current and future claims, along with the associated legal and other professional costs.

Net extraordinary charges came to ¤6.4 million (¤27.4 million in 2003). These mostly referred to costs for changes in top management (¤18.4 million), partly offset by realized gains, of which the largest were on the sale of part of the shares and warrants held in Pirelli (¤11.1 million) and on the disposal of the investment in Burda RCS International Holding (¤1.1 million).

Earnings before tax were therefore a positive ¤22.2 million compared with a similarly positive figure of ¤54.8 million the previous year. Net income for the year came to ¤58.2 million, having benefited from income arising on the recognition of deferred tax assets on tax losses that can now be offset under the recently permitted group election for income tax purposes.

25 Directors' report on group operations by RCS MediaGroup Highlights from the balance sheet are summarized in the following table:

BALANCE SHEET HIGHLIGHTS 12-31-2004 12-31-2003 Changes (¤/millions) Fixed assets 938.9 934.7 4.2 Net working capital 96.2 94.2 2.0 Reserves for risks and charges (19.1) (44.7) (25.6) Reserve for employee termination indemnities (2.4) (4.0) 1.6 Net capital employed (1) 1,013.6 980.2 33.4 Funded by: Shareholders' equity 1.128.8 1.125.6 3.2 Net cash and banks (115.2) (145.4) 30.2 Total sources of financing 1,013.6 980.2 33.4

(1) Net capital employed is stated after deducting the reserve for employee termination indemnities, which at December 31, 2003 was included among sources of financing but has now been reclassified under net capital employed

Fixed assets amounted to ¤938.9 million compared with ¤934.7 million at the end of 2003. Financial fixed assets were ¤86.2 million lower due to a number of different factors, the most of important of which were: > the reduction of ¤78.5 million in financial receivables due from subsidiaries following the repayment of loans by GFT Net (¤53.5 million) and RCS Quotidiani (¤25.0 million); > the decrease of ¤30.6 million in equity investments upon RCS MediaGroup's absorption of Immobiliare Solferino 28 S.r.l., RCS Internal Auditing S.r.l., AGR- Agenzia Giornalistica Radiotelevisiva S.r.l., CNR Channel News Radio S.r.l. and RCS Radio e TV S.p.A.; > the reduction of ¤15.4 million in equity investments in other companies after reclassifying part of the reserve for risks, booked in prior years, against minority shareholdings; > the disposal of ¤64.5 million in shares and warrants held in Pirelli & C.; > the disposal of 50% of Burda RCS International Holding (BRIH) for ¤13.6 million; > the disposal of part of the shares held in Joyce Boutique for ¤0.3 million; > the buyback of 40% of RCS Periodici for ¤107.0 million; > the purchase of 20.25% of the shares in M-Dis S.p.A for ¤6.4 million, taking the total interest in M-Dis to 45%; > the increase of ¤1.3 million after subscribing to the capital increase by Eurogravure S.p.A.; > the purchase of 100% of the shares in RCS Produzioni S.p.A. (formerly RCS Servizi e Partecipazioni S.p.A.) previously held by the subsidiary GFT Net S.p.A. for ¤1.1 million.

Tangible fixed assets increased to ¤91.2 million, from ¤0.9 million at December 31, 2003, basically after RCS MediaGroup gained possession of the property at Via Solferino 28.

Net working capital amounted to ¤96.2 million, down from ¤94.2 million at the end of 2003.

The reserves for risks and charges went down from ¤44.7 million to ¤19.1 million. This decrease was mostly due to the utilization of the reserve for risks for reorganization costs incurred in the year, part of which for the changes in top management (¤4.8 million), and to the cost of the out- of-court settlement reached with the purchasers of the operating activities of RCS Investimenti 26 Directors' report on group operations by RCS MediaGroup S.p.A (formerly Fila Holding) (¤5.5 million). The reclassification of ¤15.4 million in reserves against the value of minority equity investments also contributed to this reduction.

Net cash and banks decreased from ¤145.4 million at December 31, 2003 to ¤115.2 million following an increase of ¤42.6 million in bank debt after taking over the loan previously in the name of Immobiliare Solferino 28, now merged into the parent company. The liquidity generated from the repayment of the loans owed by GFT Net (¤53.5 million) and RCS Quotidiani (¤25.0 million) and from the refund of the receivable deriving from the subscription to the joint venture with Nuovo Istituto Italiano Arti Grafiche S.p.A. (¤5.1 million) not only financed net investments in the period and the payment of the ¤55.0 million dividend, it was also used to fund subsidiary and associated companies through their intercompany current accounts and also made it possible to pay off ¤32.4 million against the ten-year loan of ¤68.3 million taken out to purchase the property in Via Solferino.

Shareholders' equity went from ¤1,125.6 at the end of 2003 to ¤1,128.8 million after paying out ¤55.0 million in dividends and booking the result for the year (¤58.2 million).

Directors' report on group operations by RCS MediaGroup Newspapers

Sector profile

RCS Quotidiani runs the group's newspaper publishing activities in Italy and Spain (represented by the titles Corriere della Sera, La Gazzetta dello Sport, City and El Mundo del Siglo XXI), as well as the group's internet and sporting activities. The RCS Quotidiani group also runs certain services on its own account and for other RCS group companies.

Financial highlights

(¤/millions) 2004 % 2003 % % change pro-forma Circulation revenues (1) – Newspapers Italy 438.8 42.7 360.5 40.7 21.7 – Newspapers Spain 202.2 19.7 157.0 17.7 28.8 Advertising revenues – Newspapers Italy 277.7 27.0 266.7 30.1 4.1 – Newspapers Spain 109.2 10.6 100.5 11.5 8.7 Total revenues from sales and services 1,027.9 100.0 884.7 100.0 16.2 (1) Of which add-on product sales by: – Corriere and Gazzetta 199.0 110.8 79.6 – El Mundo 87.8 50.5 73.9

(¤/millions) 2004 2003 % change pro-forma Newspapers Italy 100.8 81.6 23.5 Newspapers Spain 51.5 24.8 > 100 EBITDA 152.3 106.4 43,1

Newspapers - Italy

Market trend

Overall circulation figures for the newspaper market were generally lower, continuing the trend of the past three years; the national newspaper segment managed to keep its circulation more or less stable thanks to promotional activities by publishers. However, the value of the market has increased significantly over the past three years thanks to the boom in add-on product sales, which started in 2002, gained momentum in 2003 and pro- gressed still further in 2004. The free press market saw the three existing operators consolidate their positions and respective networks, with no new entrants. Newspaper advertising increased by 2.4% thanks to national commercial advertising. The cost of paper also came down by around 4.5% compared with the year before. 30 Directors' report on group operations by RCS MediaGroup Operating performance

In line with the stable market, our titles maintained their positions in their respective sectors, with circulation figures largely the same as the year before. Corriere della Sera reported average daily circulation of 678,000 copies (679,000 in 2003), while Gazzetta dello Sport sold an average of 425,000 copies each day (424,000 in 2003). Circulation revenues increased by 21.7% mostly thanks to add-on sales, which continued to prove very popular thanks to the high quality of the products offered by RCS. In addition to follow-ons of series started in 2003 (Classici dell’Arte (Art Classics) and Storia d’Italia (History of Italy)) and the new releases in the early part of the year (Enciclopedia (Encyclopedia) and Arte del ‘900 (20th Century Art)), the initiatives of the summer (particularly the book by Oriana Fallaci), and Storia Universale (Universal History) debuting at the end of August and La Grande Cucina (Cookery Greats) in October proved highly successful. Both the history and cookery series were expanded with new volumes commencing from January 2005. Advertising revenues grew by 4.1% as a whole, outpacing the market in general thanks to the excellent results reported by Gazzetta dello Sport. Corriere della Sera was more affected by the slowdown in advertising expenditure in the second half of the year, although its results were nonetheless in line with the market. The local editions of Corriere della Sera did well, both in terms of copies sold and advertising revenues.

At ¤100.8 million, EBITDA was significantly better than the figure of ¤81.6 million reported the year before. This was mostly thanks to the important contribution of add-on products, savings in the cost of paper, higher advertising revenues and measures to rationalize and make the internet and free press activities more efficient, producing a major reduction in costs. EBITDA was also affected by the booking of reorganization costs.

Corriere della Sera embarked on the “Full Color” project which will make it possible to print up to 96 pages in full color starting from next summer. This project is expected to raise advertising revenues and their importance.

31 Directors' report on group operations by RCS MediaGroup Newspapers - Spain

Market trend

The Spanish economy continued to perform better than Europe's principal other countries. The advertising market enjoyed a significant increase in investment, which grew by 10.7% aug- menting the recovery started in 2003. All forms of media performed well; television did the best, eroding the market share of other media. Press advertising revenues increased by 5.9%. Spanish newspaper circulation has been stable for several years at around 4 million copies on average per day and is increasingly having trouble with sales through the newsstand channel, which have been shored up by growing promotional expenditure. The practice of offering add-on products continued in 2004, with all the publishers undertaking some very aggressive campaigns. Competition between local editions was also very concentrated, not to mention fierce. Lastly, the free press sector increased its market share at the expense of traditional newspapers.

Operating performance

Group revenues increased by over 20% to ¤311.4 million thanks to the excellent results achieved in all areas of the business. Circulation figures at El Mundo reached an average of 308,000 copies per day, 21,000 more than in 2003, mostly through the newsstand channel. This result was un- doubtedly helped by add-on sales, which continued to make an important contribution to revenues and earnings; of particular note were the two series entitled La Grande Enciclopedia Universal (Great Universal Encyclopedia) and La Historia de Espana (History of Spain). A new supplement called La Luna de Metropoli was launched during the year to replace the old one. The paper's constant attention to the quality of content was confirmed in its readership figures (12.4% higher at 1.3 million readers). This was also reflected in the brilliant results of the paper's website, el mundo.es, the leading information website in Europe and the top Spanish language site in the world. These results, coinciding with El Mundo's 15th anniversary, demonstrate how it has been one of the most successful recent publishing ventures in the international press sector. The group's advertising revenues outperformed the market, rising by 8.7% thanks to the increase in sales volumes and rates at El Mundo, as a product of our paper's acknowledged market leadership. The massive improvement in EBITDA, from ¤24.8 million to ¤51.5 million, was the result of higher sales and the cost-saving and reorganization plans undertaken in the past and completed in the year just ended.

32 Directors' report on group operations by RCS MediaGroup

Directors' report on group operations by RCS MediaGroup Magazines

Sector profile

The magazines division comprises over twenty weekly and monthly titles in Italy, published by RCS Periodici and Sfera Editore. This division also manages the DARP joint venture with De Agostini. The group completed its withdrawal from the foreign magazines sector after reaching an agreement with BRV at the end of December 2004, effective from 2005; as a result, these businesses have been consolidated at net equity

Financial highlights

(¤/millions) 2004 % 2003 % % change pro-forma Circulation revenues 116.5 42.7 122.0 42.9 (4.5) Advertising revenues 140.8 51.7 146.9 51.7 (4.2) Sundry publishing revenues 15.3 5.6 15.3 5.4 Total revenues from sales and services 272.6 100.0 284.2 100.0 (4.1)

(¤/millions) 2004 2003 % change EBITDA 25.9 23.8 8,8

Market trend

The magazines market reported a 2.4% growth in circulation, supported by the launch of new titles in the popular weeklies and monthly magazines segments. Ignoring the new titles, circulation actually contracted by 1.9%. Circulation of weekly women's magazines fell sharply (over 10%), both in the general and fashion segments; conversely, the circulation of women's magazines sold as newspaper supplements was higher than the prior year. The family magazines segment also made progress, unaffected by the entry of new titles in the sub-sector of popular magazines. Lastly, there was another big drop in the news magazines sector, confirming the negative trend of recent years. In the area of monthly magazines, the segments of home furnishings and women's fashion were both in retreat; in fact, publishers consolidated their positions in the fashion segment following the launch of new titles in the past two years. The range of add-on products sold with magazines was further extended, producing absolute growth of 11% mainly thanks to the larger number of initiatives undertaken. Advertising revenues were basically the same as the prior year (+0.3%).

36 Directors' report on group operations by RCS MediaGroup Operating performance

Taken as a whole, the titles in the RCS portfolio replicated their circulation figures of 2003. The group, whose results went against the general market trend, adopted a policy of curtailing circulation in less profitable channels and boosting it on more lucrative ones.

The women's segment was confirmed as the top one in the RCS portfolio. All the titles maintained their respective leadership positions: the weekly magazine Anna, which changed its look in the spring, and the Corriere della Sera women's supplement of IO Donna both increased their market share, widening the gap on their direct competitors in terms of copies sold. In the women's monthlies sector, Amica, two years on from its launch, continued to lead the field, with circulation well ahead of its competitors.

In the family and popular segment, RCS adjusted the price of Visto over the summer to match that of the sector's new entrants; this produced a significant increase in sales in the second half of the year, thereby benefiting the bottom line. Oggi strengthened its leadership in the family magazines segment, widening the circulation gap on its rivals, while the weekly Novella 2000 maintained circulation at a satisfactory level in line with the year before.

The titles in the home furnishings segment, Brava Casa and Casa Amica, maintained their position in this important market both in terms of copies sold and advertising revenue.

RCS continued to increase its share of the childcare segment. The group was also confirmed as the publisher of reference for all firms in the sector because of the breadth of its publications and effective methods of communication. Work also continued on developing the new activity of direct marketing, both through RCS Direct (formerly Claritas Italia), specializing in list broking, and through the increase in direct sales of publications on childcare and motherhood.

Among the men's monthlies, Max was restyled during 2004, with a positive impact on sales, which reached the level of its competitors.

Il Mondo was confirmed as the top business weekly.

Magazine division revenues were over 4% lower as a whole, both as a result of lower circulation and advertising. The contraction not only reflected the difficult state of the market in general but also the company's deliberate policy of focusing on "value" rather than "volume". The goal of boosting profitability applied to both advertising revenues and magazine sales. In terms of advertising revenues, the emphasis was on enhancing the image of the titles, as well as increasing ad rates per page. As far as magazine sales were concerned, distribution to less profitable channels was rationalized, helping make print runs more efficient with a consequent saving in costs. These commercial policies helped boost magazine division EBITDA by 8.8%.

Directors' report on group operations by RCS MediaGroup Radio broadcasting and press services

Sector profile

RCS Broadcast operates in the radio broadcasting sector and since January 1, 2004 all the group's activities in this sector have been concentrated under its umbrella, namely RIN (Radio Italy Network), the news agency AGR and the syndication CNRPlus.

Financial highlights

(¤/millions) 2004 % 2003 % % change pro-forma Advertising revenues 22.7 86.0 20.0 85.5 13.5) Press services (AGR) 2.9 11.0 2.1 9.0 38.1) Sundry publishing revenues 0.8 3.0 1.3 5.5 (38.5) Total revenues from sales and services 26.4 100.0 23.4 100.0 12.8

(¤/millions) 2004 2003 % change pro-forma EBITDA 1.2 1.3 (7,7)

Market trend

The average number of listeners increased from 35.4 million in 2003 to 36.6 million in 2004. This growth was driven by the more established commercial radio stations, while the public ones lost a large number of listeners in the second half of the year (over a million listeners for the 3 national networks as a whole). Radio was the media that performed best in terms of advertising revenues, enjoying an increase of 21.7%, mostly attributable to the commercial stations (+26.4%), which increased both space sold and average prices.

40 Directors' report on group operations by RCS MediaGroup Operating performance

Revenues climbed by 12.8% to ¤26.4 million, up from ¤23.4 million in 2003. Advertising revenues were 23.1% higher (ignoring the revenues generated by One o One sales in 2003, which were placed under the management of RCS Pubblicità in 2004). This reflected the excellent performance by local radio stations, accounting for 71.9% of the total, thanks to sales by the CNRPlus circuit (+19.5%) and by RIN (+13.1%). Revenues from press services were also much higher (+38.1%), while income from royalties, events and sponsorships was lower. EBITDA was broadly in line with last year at ¤1.2 million, reflecting higher editorial and production costs for developing the services offered by AGR. The national broadcaster RIN - Radio Italia Network –, which is focusing on ever more generalist types of program, has changed its programming since September. The extension and enhancement of AGR's services (whose new services include “info-traffic” and weather forecasts for local television stations) has made it possible to develop new press services for a constantly expanding multimedia audience. This translated into a 38.1% increase in revenues.

Directors' report on group operations by RCS MediaGroup Advertising

Sector profile

RCS Pubblicità is responsible for all the group's advertising activities. It manages advertising space for the group's publications and controls Blei (an advertising broker for foreign media) and RCS Dada Advertising (an Internet advertising broker). The advertising division also manages the interest in the IGPDecaux group, leader in the outdoor advertising sector, which has been consolidated at net equity since it is jointly controlled with other shareholders.

Financial highlights

(¤/millions) 2004 % 2003 % % change pro-forma RCS Pubblicità 507.8 92.5 489.6 94.5 3.7 Blei 36.3 6.6 26.9 5.2 34.9 RCS Dada Advertising 4.7 0.9 1.5 0.3 >100 Total revenues from sales and services 548.8 100.0 518.0 100.0 5.9

Market trend

The advertising market grew by 7.3% on 2003, with a slowdown towards the end of the year affecting all the media, especially the press and billboard sectors. Television advertising increased by 10.4%, both in terms of price and volume. Commercial radio stations performed particularly well, enjoying growth of 26.4% that took the sector as a whole to +21.7%. Press was the media that most suffered from the decline in advertising spending over the summer, with its situation remaining stable in the last four months of the year; magazine advertising expenditure actually declined over this period, closing the year at the same level as the year before. Newspapers performed a bit better, increasing their advertising revenues by +2.4%. Billboard advertising experi- enced several ups and downs, with periods of double-digit growth alternating with periods of contraction to close the year 2.7% higher. The increase in expenditure was seen across almost all sectors, especially the motoring and telecommunications ones, which nonetheless preferred television media. The distribution, finance and media/publishing sectors all increased their expenditure on press advertising.

44 Directors' report on group operations by RCS MediaGroup Operating performance

Group revenues rose by 5.9% to ¤548.8 million. Our advertising broker boosted its sales by 3.7% thanks to the healthy performance by the group’s newspapers (particularly Gazzetta dello Sport). Corriere della Sera achieved good results in terms of national commercial and financial advertising and advertising in its local editions. The broadcasting sector made a major contribution to the division's overall growth, with an increase of over 25%, mostly by CNR and the local radio stations. The group was able to raise the ad rates for its magazines, thanks to the acknowledged leadership of its titles. Despite closing its Padua edition in April, City increased its advertising revenue on the prior year.

Blei posted twelve months of sustained growth, reaching +34.9% at year end, thanks to renewed demand for advertising in foreign newspapers and magazines and higher expenditure on television advertising.

Advertising sales by RCS Dada Advertising continued to be excellent, especially on the websites of our newspapers. In fact, the company's last-quarter sales were 12.9% up on the fourth quarter of 2003, remembering that it only started business in October 2003.

Directors' report on group operations by RCS MediaGroup Books

Sector profile

RCS Libri is in charge of the RCS group's activities in the book publishing sector in Italy (Rizzoli, Fabbri, Bompiani, BUR, Sonzogno, Marsilio, Coccinella, Adelphi of which it owns 48%, R.L., in joint venture with the Longanesi group in the "cut price" segment), in France (Flammarion group including Edition Flammarion, J'ai lu, Casterman) and the United States (Rizzoli and Universe); in the textbook and professional publishing sector (Fabbri, Etas, La Nuova Italia, Sansoni, Tramontana, Oxford, Calderini, Edagricola, Markes, Educazione & Scuola, Edizioni del Quadrifoglio, Garamond); in the legal, university and professional publishing sector (La Tribuna); in the reference sector (Rizzoli-Larousse joint venture); and in the partworks sector (in Italy and abroad, mainly via Fabbri).

Financial highlights

(¤/millions) 2004 % 2003 % % change pro-forma Fiction and non fiction - Italy 123.1 17.5 108.3 17.0 13.7 Fiction and non fiction - France 229.9 32.6 226.1 35.4 1.7 Partworks 228.9 32.5 189.7 29.8 20.7 Education (Schoolbooks/Professional) 94.1 13.4 92.3 14.5 2.0 Sundry publishing revenues (*) 28.4 4.0 14.9 3.3 90.6 Total revenues from sales and services 704.4 100.0 631.3 100.0 11.6 (*) includes the revenues of Rizzoli International Publications

(¤/millions) 2004 2003 % change pro-forma EBITDA 51.5 47.6 8,2

Total revenues came to ¤704.4 million for the year, an increase of ¤67.1 million on the year before, mostly thanks to the results posted by the fiction and non-fiction sector in Italy and by partworks. EBITDA also made good progress, up 8.2% (or ¤3.9 million) to ¤51.5 million. This particularly reflected the growing contribution of the initiatives developed in conjunction with Corriere della Sera, the success of new book launches on the Italian and French markets, improved performance in the education sector and continued improvements in operating efficiency in every area of the business.

48 Directors' report on group operations by RCS MediaGroup Fiction and non fiction - Italy

Market trend Sales through the bookstore market increased by 5.5% in value and 2.0% in volume on the prior year, while the mass retail sector reported 8% growth in value (+3% as a result of opening new stores). With regard to the type of books sold, there was greater demand for both Italian fiction and essays.

Operating performance Revenues were 13.7% higher than in 2003, up ¤14.3 million to ¤123.1 million. This result reflected not only higher sales by the group's publishing houses but also a bigger contribution from the initiatives developed in conjunction with Corriere della Sera. The growth in revenues at the publishing houses was also due to the large increase in the number of bestsellers published in the year: 24 titles were among the top 100 selling books compared with 14 in 2003. Among the most successful publications were: La forza della ragione (The force of reason) and Oriana Fallaci intervista Oriana Fallaci (Oriana Fallaci interviews Oriana Fallaci) both by Oriana Fallaci (775,000 and 210,000 copies respectively), La misteriosa fiamma della regina Loana (Queen Loana's mysterious flame) by Umberto Eco (311,000 copies), Life by Paulo Coelho (203,000 copies), Giro di vento (Gust of wind) by Andrea De Carlo (143,000 copies) and Eragon by Christopher Paolini (121,000 copies).

Fiction and non fiction - France

Market trend The French fiction and non fiction market grew by 3% in value (with prices rising by an average of around 1%). The books reporting the biggest increases were manuals, comic books and books for adolescents.

Operating performance Sales in France increased by 1.7% on 2003 to ¤229.9 million; assuming the same scope of consolidation (Caramel and Beaux-Arts were not consolidated this year since they are up for sale), the growth would have been 7.8%. This increase was explained not only by the popularity of new releases published by the group but also greater demand for books published by Actes and Le Dilettante but distributed by the group. Among the most successful titles in 2004 were: Soeur Emmanuelle (Sister Emmanuelle) (180,000 copies), Savoir Manger (Know how to eat) (170,000 copies), the collection Docs de choc (Shock papers) and the new releases Je voudrais que quelq’un m’attende de quelque part (I wish someone was waiting for me somewhere) by A. Gavalda (164,000 copies), TinTin et l’Alph’Art (Tin Tin and Alph'Art) (290,000 copies), as well as the new TV-related series by Jungle (159,000 copies). Organizational changes continued to be made at Flammarion for the purposes of integrating it into the RCS group. It is planned to concentrate all the staff and activities of 8 companies in the Flammarion group into a single office by July 2005. 49 Directors' report on group operations by RCS MediaGroup Partworks

Market trend

The Italian partworks market grew by a modest 2% in 2004, reflecting higher average prices and a different mix of products sold; the market continued to contract in terms of numbers sold (- 3%). There was a decline in the overall number of buyers, a large drop in demand in the principal segments and growing costs for identifying new products. With regard to product mix, collector's series continued to be popular, while the “women's hob- by“ segment picked up and the emerging segment of dynamic modeling made strong advances. Demand was considerably stronger on the French and British markets thanks to the larger number of launches, particularly those involving DVDs.

Operating performance

Partworks boosted their revenues in Italy by 20.3% to ¤143.7 million, thanks to higher sales of both follow-ons and new series and the larger number of new releases. Among the year's most popular new releases were the "Cutting out kit", "Women's watches" and "Alberto Sordi DVDs and videos". Sales on the foreign market were higher than the year before at ¤85.2 million, mostly as a result of the larger number of new releases by GE FABBRI in Great Britain.

Education

Market trend

In 2004 the market for schoolbooks was affected by uncertainties over the reform of the syllabus at primary and middle schools, the stable size of the school population, the introduction of ceil- ings for the amount spent by families on textbooks, and a general drop in consumer spending, including on schoolbooks. The group's brands in the schoolbooks sector raised their market share from 19.4% to 20% by value. The university and professional books segment continued to expand, growing by 5% in value.

Operating performance

The schoolbooks division posted a 2.5% increase in revenues to ¤87.6 million. The year just ended confirmed the absolute leadership of the primary and middle school books published by Fabbri- Bompiani, the preeminent position of Oxford University Press on its specific market and the leadership of the Tramontana brand in the economics and law segment. All the publishing houses expanded their range of high school books, especially those for technical and professional subjects, with a number of really excellent products also in the areas of the humanities and science. As regards the professional segment, the publishing houses of Etas and La Tribuna both increased their revenues despite overhauling their publishing programs which limited the quantity of new releases distributed. 50 Directors' report on group operations by RCS MediaGroup

51 Directors' report on group operations by RCS MediaGroup Other subsidiaries

RCS Investimenti (formerly Fila Holding) This subsidiary, which is consolidated line-by-line, manages its own liquidity on behalf of other group companies, mostly in the form of intercompany funding; its net financial position at December 31, 2004 reported over ¤32 million in liquidity. The company's net capital employed of ¤6.9 million mostly consists of receivables due from the tax authorities for Italian income tax relating to prior years. The result for the year was principally affected by booking the effects of the out-of-court settlement with Sport Brands International Ltd (SBI), the purchaser of the operating companies of RCS Investimenti (formerly Fila Holding) sold in June 2003, along with the professional fees paid to consultants and experts engaged to assist in the dispute. The settlement, reached in December 2004, involved awarding the sum of US$10 million to SBI and waiving ¤2.3 million owed by SBI, through its subsidiary Fila Nederland BV. .

GFT NET Over the course of the year the RCS group completed the sale of all its businesses in the fashion sector. The remaining business consists of an Italian company, which owns a building in Turin, purchased definitively in September by paying the sum of around ¤115,000, and a few foreign companies in the process of being wound up. After paying the building's lease costs, other costs associated with its maintenance and other operating costs, EBIT came to ¤0.5 million for the year. Net income benefited from gains arising on currency hedging transactions. The proceeds from the sale of Joseph Abboud's US activities during the year made it possible to reduce the company's debts with RCS MediaGroup, with its net financial position going from ¤60.3 million to ¤5.6 million.

Principal joint-ventures

The group's principal investments in joint ventures, which are consolidated using the net equity method, are described below:

m-dis Distribuzione Media m-dis Distribuzione Media S.p.A handles distribution of the group's publications to the newsstand channel. After absorbing the subsidiary DeADis S.r.l., the company now represents Italy's principal operator by turnover on this market: its portfolio not only includes the products of its shareholders (RCS, De Agostini, Hachette-Rusconi) but also those of numerous third-party publishers and other types of non-publishing product. The company relies on the subsidiary Milano Press S.r.l. for distribution in Milan and its hinterland.

Revenues came to ¤183 million (¤101.8 million in the prior year pro-forma), while net income amounted to ¤9.7 million, of which RCS's share was ¤4.4 million. 52 Directors' report on group operations by RCS MediaGroup The major increase in revenues was driven by the good performance of add-on products and strong growth in sales by the non-publishing sector thanks to the distribution of prepaid phone cards produced by all the different telecommunication operators (Tim, Vodafone, Wind, H3g). The improvement in operating results reflected not only higher revenues but also the consider- able expansion of the commercial and logistical services offered to publishers, including on-line management of backdated add-on products.

IGP-Decaux The IGPDecaux group is leader in the billboard, street furniture and transport advertising market. It was created from the partnership between RCS and the JCDecaux group of France. The revenues of the IGPDecaux group came to ¤169.1 million, an increase of ¤15 million on the prior year, mostly thanks to the street furniture sector, particularly in the city of Naples. Net income for the year was ¤4.7 million, of which the share pertaining to RCS was ¤1.5 million.

DARP De Agostini Rizzoli Magazines is a joint venture between RCS MediaGroup and the De Agostini group, which produces a series of monthly publications in certain niche markets (classical music, archaeology, history, yachting) as well as in the travel and leisure sector. Revenues came to ¤21.9 million (¤25.8 million in the prior year) while the company's bottom line (a loss of ¤-3.6 million) reflected the contraction in its specific sector. The loss pertaining to RCS was ¤-1.8 million.

Other minor ventures

Editoriale del Mezzogiorno This company, the publisher of the regional editions of Corriere della Sera in Campania and Puglia, reported revenues of ¤8.9 million for the year (¤8.8 million in 2003). Circulation figures improved in both Campania and Puglia partly thanks to local promotions by Corriere della Sera. Advertising revenues did well in Puglia, but were stable in Campania. The company closed the year at breakeven.

Rizzoli-Larousse The Rizzoli-Larousse joint venture, formed in 2002 in the textbook market, continued to expand its catalogue, releasing 13 new titles. Revenues jumped from ¤1.3 million in 2003 to ¤3.6 million, while the loss for the year amounted to ¤0.1 million, of which 50% pertained to RCS.

RL Libri The Rizzoli-Longanesi joint venture, which publishes the Superpocket collection of books, reported revenues of ¤4.6 million, an increase of 14.2% on the prior year. Net income for the year was ¤0.4 million, of which RCS's share was ¤0.2 million.

RBA Fabbri France This company, which publishes partworks in France under the Rba-Fabbri name, posted revenues from sales and services of ¤12.6 million, an increase of 35.4% on the prior year thanks to the good performance of new releases. Net income for the year came to ¤0.7 million of which 50% pertained to RCS. 53 Directors' report on group operations by RCS MediaGroup Significant events during the year

The project for the corporate reorganization of the group's activities in the radio broadcasting sector was brought to fruition on January 1, 2004. It involved concentrating all these activities under Finwork (now called RCS Broadcast) by transferring it the operations of AGR (press and news agency), CNR (management of radio syndication) and part of the former parent company RCS Radio e TV (management, administration and co-ordination activities of subsidiary company and ownership of the trade names). AGR, CNR, RCS Radio e TV, together with Immobiliare Solferino 28 S.r.l. and RCS Internal Auditing S.r.l. were then merged into RCS MediaGroup on June 23, 2004, backdated to the start of the year for tax and accounting purposes.

The interest in Unedisa was raised from 89.1% to 95% during the first quarter of 2004. The shareholders' meeting of January 23, 2004 approved the changes to the Spanish subsidiary's by- laws and the appointment of a new board of directors. The new agreements, which will last for seven years, cancel and replace the existing shareholder agreements, which were due to expire in 2005, and give the founding shareholders certain rights of veto over the conduct of the business.

On July 8, RCS MediaGroup sold 84,060,667 ordinary shares in Pirelli & C. corresponding to 2.5% of the company's ordinary share capital, and 63,045,500 warrants, generating proceeds of ¤75.6 million and a capital gain of ¤11.1 million. RCS MediaGroup nonetheless remained in the shareholder syndicate.

On July 14, RCS International Magazines BV sold its shares in Tomorrow Focus, realizing a capital gain of ¤4.8 million.

On July 26, 2004 an agreement was signed between RCS MediaGroup and Hubert Burda Media under which RCS MediaGroup purchased the 40% of RCS Periodici owned by the German publisher for the sum of ¤107 million and Hubert Burda Media bought back the interest in Burda Verlag Osteuropa, owned by RCS International Magazines BV, realizing a capital gain of ¤14 million, and the interest in the joint venture Burda RCS International Holding, owned by RCS MediaGroup, realizing a capital gain of ¤1.1 million.

In July, RCS Libri S.p.A. purchased 100% of Società Editoria Artistica S.p.A. (Seart) for ¤3.8 million. Seart had been formed in 2001 out of the Rizzoli Libri Illustrati and Bompiani Arte businesses (the latter spun off from RCS Libri). The purchase price was equal to the 2001 disposal value of these two businesses. On December 2, Società Editoria Artistica was merged into RCS Libri, backdated to the start of 2004 for tax and accounting purposes.

On July 28, Vittorio Colao was admitted to the Board of Directors. At the same time he was appointed as Chief Executive and Chief Operating Officer in the place of Maurizio Romiti, who re- linquished these offices with effect from September 15, 2004.

On October 15, the Board of Directors of RCS Quotidiani appointed Vittorio Colao as Chief Executive Officer following the resignation of Giovanni Vallardi.

In previous reports the group described how Sports Brands International Ltd, purchaser of the operating companies of RCS Investimenti (formerly Fila Holding), had brought a claim for indemnity against RCS Investimenti and RCS MediaGroup under the sale contract executed on June 10, 2003. A settlement was reached with the purchaser in December 2004 regarding any 54 Directors' report on group operations by RCS MediaGroup current and future claims. This agreement has allowed the group to settle this dispute and at the same time to override the usual warranties granted to a buyer, thereby eliminating the possibility of any future disputes and the inevitable related internal and external costs. SBI was awarded a sum of US$10 million, on top of which RCS Investimenti also waived a receivable of ¤2.3 million owed by the purchaser. Part of the settlement costs had already been provided in the previous year. These provisions covered the professional fees already incurred and a reasonable estimate of those for technical and legal assistance in the suit that SBI planned to bring before the US courts, which had jurisdiction under the contract. The total cost of ¤12 million and the costs of the settlement were split equally between RCS MediaGroup and RCS Investimenti.

On December 15, RCS Sport Events S.p.A. was merged into RCS Sport S.p.A., backdated to January 1, 2004 for tax and accounting purposes.

Significant subsequent events

The agreement made on December 29, 2004 between RCS International Magazines BV and Hubert Burda Media for the sale of the 50% interest in Burda Rizzoli Verlagsbeteiligungen (BRV) and the 100% interests in Max Verlag GmbH & Co. KG and Verwaltungsgesellschaft Max Verlag MbH was finalized in the early part of 2005. The total consideration was agreed at ¤28 million. The agreement established that the transfer would be effective from January 1, 2005. The agreement also included warranties, capped at ¤4 million, against the tax positions of the Milchstrasse group and BRV.

Having obtained clearance from the antitrust authorities, RCS Pubblicità purchased 49% of the shares in RCS Dada Advertising S.p.A. in February, thereby executing the general agreement signed on December 23, 2004.

Pursuant to article 4 of the 2004 Finance Act (dated December 23, 2003), in February 2005 the group presented the Department for Information and Publishing (part of the Prime Minister's office) with an application for the recognition of a tax credit, corresponding to 10% of the costs incurred in 2004 for buying the paper used to print its newspapers, magazines and books. The total cost of paper eligible for relief in 2004 amounts to ¤138.9 million, meaning that the tax credit requested is ¤13.9 million. If the applications by all the companies eligible to benefit from this relief exceed the limit of ¤95 million set for 2005, the tax credit awarded will be reduced proportionately for all those qualifying. It should be noted that this relief still requires authorization from the relevant European authorities.

RCS MediaGroup has exercised the option to convert 46,705,294 Pirelli & C 2003/2006 ordinary warrants into 11,676,323 Pirelli & C ordinary shares, in the ratio of 1 ordinary share for every 4 warrants held, at the price of ¤0.52 each, corresponding to par value. The new shares, subscribed effective January 14, 2005, join the 62,273,725 shares already held, taking the total investment to 73,950,048 shares, corresponding to 1.427% of ordinary share capital and 1.391% of total share capital.

On February 22, 2005, RCS MediaGroup sold 73,950,048 rights relating to Pirelli's capital increase for a figure of ¤8.5 million. 55 Directors' report on group operations by RCS MediaGroup Business outlook

RCS MediaGroup Group

The recovery in press advertising expenditure has continued to be sluggish in the early part of 2005; the group's advertising revenues are nonetheless higher than in the corresponding period of 2004 and newspapers have confirmed the positive trend witnessed in Christmas campaigns. The group's overall traditional circulation revenues are in line with expectations, while those of add-on products continue according to plan, despite the decidedly overcrowded market. The group is continuing its efforts to streamline the structure of its costs.

RCS MediaGroup SpA

Positive performance by the subsidiaries and the resulting dividends distributed to the parent company, together with the continued benefits of the group tax election, mean that we can ex- pect a positive net result for the year.

56 Directors' report on group operations by RCS MediaGroup Transactions with related parties and other group companies

Pursuant to article 2391-bis of the Italian Civil Code and in compliance with the CONSOB notifi- cations of February 20, 1997, February 27, 1998 and September 30, 2002, it is reported that there are no transactions with "related parties" that are atypical or unusual or fall outside the normal course of business or such that have a significant impact on the group's income statement, balance sheet and financial position.

Transactions with related parties fall within the normal course of business of each party concerned, and are conducted on an arm's length basis. The procedure for conducting transactions with related parties is described in the "Corporate governance" section of this report. Dealings of a commercial nature include: > The mandate to Creditech, a Mediobanca group company, to recover credit, involving fees of around ¤0.8 million. > Computing services worth ¤2.8 million from Global Value, a joint venture between IBM Italy and Business Solutions, the Fiat group business services company. > The professional services provided to the group by Giliberti & Associati, in which Enrico Giliberti - a director of RCS MediaGroup who resigned on July 21, 2004 - is a partner; the related fees came to around ¤0.5 million. > The purchase of services worth ¤0.2 million from Eurofly Service Spa, an associated company. > The sale of advertising space worth around ¤10.1 million to the Fiat group.

Among the dealings of a financial nature, there was a net receivable balance with the Mediobanca group of ¤67.8 million.

Intercompany transactions

More specifically, RCS MediaGroup provides services relating to communication, corporate affairs and planning and leases office space and working areas to its subsidiaries.

In the area of financial dealings, RCS MediaGroup runs a centralized treasury service for most of the Italian group companies.

As part of the group's tax management, the subsidiaries have opted for the group tax election introduced by Decree 344 dated December 12, 2003 in order to achieve a tax saving for the group through the immediate offsetting of tax credits and tax losses against taxes due, and to benefit from the wider opportunities offered in place of equity investment writedowns and dividend tax credits, which were both eliminated. Intercompany transactions deriving from the group tax election are based on the objectives of fairness and neutrality.

During the year the company continued to make use of existing tax rules allowing the filing of group VAT returns, which ended up with a net receivable balance of ¤6.5 million at year end. The company transferrednet payables totaling around ¤1.5 million to the group VAT position during 2004.

As part of measures to optimize financial resources, RCS MediaGroup once more took advantage of the option to transfer IRPEG (corporation tax) credits to other group companies. In fact, it transferred subsidiaries the sum of ¤18.8 million in tax credits, reported in its own income tax return. 57 Directors' report on group operations by RCS MediaGroup Equity investments held by directors and statutory auditors

(Art. 79 of CONSOB Resolution 11971 dated May 14, 1999)

Name Investment Number of Number of Number Number of held in shares held at shares of shares shares held at end of 2003 (1) purchased sold end of 2004 (1) Raffaele Agrusti ————— Roberto Bertazzoni RCS MediaGroup 10,946,950 ord. sh.(ii) — — 10,946,950 ord. sh.(ii) Carlo Buora ————— Vittorio Colao RCS MediaGroup — 288,000 ord. sh. — 288,000 ord. sh. Diego Della Valle RCS MediaGroup 14,443,500 ord. sh.(i) 7,556,500 ord. sh.(i) 22,000,000 ord. sh.(i) Cesare Geronzi ————— Franzo Grande Stevens ————— Natalino Irti Jonella Ligresti RCS MediaGroup 7,800 ord. sh.* — — 7,800 ord. sh.* Giuseppe Lucchini ————— Giangiacomo Nardozzi ————— Renato Pagliaro ————— Corrado Passera ————— Alessandro Pedersoli ————— Carlo Pesenti ————— Umberto Quadrino ————— Paolo Savona ————— Guido Roberto Vitale ————— Gianrenzo Cova ————— Flavio Arcidiacono ————— Clemente Rebecchini ————— Enrico Giliberti RCS MediaGroup 1400 ord. sh. 1400 ord. sh. RCS Libri 10 pref. sh. 10 pref. sh. Nicolò Nefri ————— Maurizio Romiti ————— Paolo Mieli —————

* held by spouse (1) or start/end of office if not coinciding with the periods of reference shown; (i) interest held via company under their control; (ii) interest partly held via companies under their control.

58 Directors' report on group operations by RCS MediaGroup Treasury shares

No treasury shares were purchased during the year. At December 31, 2004 the company owned 26,782,590 ordinary shares, worth ¤85.0 million, corresponding to an average carrying value of ¤3.175 each.

Other information

In compliance with the provisions of Decree 196/2003 “Code on protection of personal data”, it is reported that the required security plan is in the process of being prepared.

Application of new international accounting standards

In compliance with EU Regulation 1606 issued in July 2002, all companies with shares listed on organized markets within the European Union must prepare their consolidated financial statements in accordance with international accounting standards (IAS) from January 1, 2005. As recommended by the Committee of European Securities Regulators on December 30, 2003, we shall now review the status of the project planned and started in 2003 for achieving the transition to IFRS/IAS and complying with the obligation to prepare the consolidated financial statements in 2005 in accordance with the new standards. The first stage was a diagnostic one, designed to identify the most important differences between the accounting principles currently used for preparing the consolidated financial statements and the international accounting standards soon to be adopted. The principal areas of impact were identified at the end of this first stage. Furthermore, where the adoption of the new principles involved discretionary choices, the following information was defined: – RCS's own accounting policies, codified in a group manual; – the parameters for application in models for performing valuations and estimates (discounted cash flow), required by the new principles; such parameters, which are applicable to the valuations at January 1, 2004 (date of first application), must be periodically updated or reconfirmed; – the date from when accounting principles which are allowed to be introduced after January 1, 2004 shall first apply (IAS 39 and IFRS 5).

The group's cash-generating units were also identified, meaning the smallest possible identifiable group of like assets for the purposes of balance sheet valuation. We then defined the reporting structure for the purposes of “segment information”. This remained largely the same as the one currently used by the group. Following this first stage, we then established priorities for making changes to the operating systems and processes of the group's Italian and foreign companies. Once finished, the modifications currently in progress will make it possible to prepare outside of the main accounting system a balance sheet and income statement at the transition date, together with all the notes, along with a restatement of the prior period figures in accordance with IFRS for comparison with those in 59 Directors' report on group operations by RCS MediaGroup 2005. RCS will adopt IFRS/IAS for the first time in its half year report, by when it will have engaged its independent auditors to check the figures resulting from the transition. Based on the results of the work performed, the principal effects of using IFRS/IAS for preparing future consolidated balance sheets and income statements are discussed below.

Scope of consolidation

The relevant accounting standards are: IAS 27, IAS 28 and IAS 31. The group, which uses methods that comply with international accounting standards for consolidating subsidiary and associated companies, has decided to use the net equity method for consolidating its investments in joint ventures. This method of consolidation has already been adopted in the financial statements for 2004, under the option allowed by existing Italian accounting standards.

Intangible fixed assets

The relevant accounting standards are: IAS 38, IAS 36, IFRS 5 and SIC 32.

Consolidation differences and goodwill At January 1, 2004, 87.1% of the group's intangible fixed assets were represented by Concessions, licenses and similar rights and Consolidation differences, combining to make a significant overall total. Under the group's current accounting policies, if the cost of an equity investment is higher than the share of net equity acquired at the date of acquisition and first-time consolidation, then this difference is allocated to the assets of the company being consolidated, whose market values are then higher than the historical cost contained in its balance sheet. Any amounts not allocated to the company's assets are recorded as “Consolidation differences”. The adoption of this policy has involved allocating certain consolidation differences to publishing titles, concessions and licenses as well as trademarks. This method is also accepted under international accounting standards. The amounts booked under the Italian standards are amortized systematically over the period they are expected to benefit. With the introduction of international accounting standards, unallocated consolidation differences may no longer be amortized since they are treated as intangible assets with an indefinite life. However such differences must undergo regular "impairment tests". This involves valuing the net present value of the cash-generating unit to which the asset refers, also taking into account the investment's degree of risk. This method is also applied to the consolidation differences allocated to assets with an indefinite life and goodwill recognized in company balance sheets. The overall impact of the first-time application of international accounting standards on consolidated shareholders' equity and the associated performance of “impairment tests” on all the assets mentioned above, is expected to be immaterial. Furthermore, any impairment losses arising on balances at January 1, 2004, the transition date, have also been recorded in the 2004 financial statements prepared in accordance with Italian accounting standards.

Advertising costs Under the EU regulation referred to earlier, it is no longer allowed to capitalize advertising costs. The RCS group's consolidated financial statements prepared under Italian accounting standards systematically expense advertising costs to income. However, there is one exception in the books 60 Directors' report on group operations by RCS MediaGroup division where the release phase for partworks involves vital advertising investment for launch- ing specific series on the market. This investment is currently deferred over the life of the series, which is generally no longer than twelve months. The transition to IAS/IFRS will involve eliminating this deferral, which is currently recorded under current assets.

Start-up and expansion costs The EU regulation does not allow the capitalization of start-up and expansion costs. However, the application of this rule will have a limited impact since the balances in question now represent a small proportion of the group's overall assets.

Tangible fixed assets

The relevant accounting standards are: IAS 16 , IAS 17, IAS 36, IAS 23, IFRS 5, SIC 15 and SIC 28. With regard to the option allowed by the EU regulations to value tangible fixed assets at historical cost rather than at fair value, RCS has decided on the historical cost method, which is consistent with that currently in use. Furthermore, it has been decided to adopt, solely for the asset category of buildings, the "deemed cost" criterion for their historical cost valuation. This means that if the residual value of buildings is higher than their net book value, their cost before accumulated depreciation at January 1, 2004 (transition date) is treated as being equal to no more than that residual value. The deemed cost thus obtained then becomes the basis for reporting the assets in question. If the fair value used for estimating the future residual value is higher than deemed cost, these assets are not depreciated until such time as their residual value comes down to that of their carrying value (deemed cost). This decision has taken into account the particular characteristics of the buildings in the RCS portfolio. In fact, these assets mostly have a historical value. Amongst these the most important is the building in Via Solferino, the historic headquarters of Corriere della Sera, used for over a hundred years without its useful live coming to an end or being reduced. All the buildings in this class have been appraised by independent experts to support this valuation.

Post-employment benefits

Under IAS 19 the reserve for employee termination indemnities falls into the category of post-employment defined-benefit plans. As such it must be valued by projecting the future amount of the accrued obligation in order to estimate the amount payable upon termination of employment. The present value of this amount should be determined using a specific actuarial method (the Projected Unit Credit Method) to take account of the time that will pass before actual payment. RCS has appointed an independent actuary to recalculate the value of the group's reserve for employee termination indemnities using the new method.

Reserves for risks and charges

IAS 37 states that provisions for risks and charges should be made only when there is a present obligation as a result of a past event. Such obligations may be legal or contractual ones or implicit undertakings ie. those arising from the enterprise's statements or conduct such that it has created a valid expectation on the part of the other parties that it will discharge those responsibilities. 61 Directors' report on group operations by RCS MediaGroup The present value of long-term reserves should also be determined in order to reflect in the income statement, on a matching basis, the implicit financial component of the amount provided. The adoption of IAS 37 will nonetheless have a limited impact on RCS's shareholders' equity at the date of transition.

Extraordinary transactions

The termination of RCS's joint venture with the Burda group of Germany had a major impact on its scope of consolidation in 2004. The transaction involved RCS acquiring full control of RCS Periodici S.p.A., in which the interest previously held was 60%, and the disposal of all the minority interests held in foreign businesses in partnership with Burda. This transaction involved several legal entities and has generated consolidation differences on the interests purchased and gains on the interests sold, which are reported in the consolidated financial statements at December 31, 2004. Under IAS, the net values will be deducted against the group's shareholders' equity since the en- tire transaction is classified as an “equity transaction”, since the other party is a minority shareholder. Furthermore, for the purposes of preparing the opening balance sheet at January 1, 2004, RCS has taken advantage of the exemption allowed by IFRS 1, choosing not to apply IFRS 3 retro- spectively to business combinations completed before the transition date.

Available-for-sale non-current assets

The group has taken advantage of the option to apply IFRS 5 commencing from January 1, 2005. More specifically, this decision means that, starting from 2005, all available-for-sale assets will be stated using the discontinued operations method.

Financial instruments

IAS 39 governs the methods of classifying and valuing financial instruments, amongst which treasury shares. This standard is the one whose adoption will have the biggest impact on the RCS group's information systems and processes. As a result, it has been decided to apply this standard commencing from January 1, 2005. Computerized procedures are currently being introduced for aligning assets and liabilities to their net present value and for accounting for hedging derivatives.

62 Directors' report on group operations by RCS MediaGroup Corporate Governance*

An overview of the company's system of corporate governance will now be provided, taking as its point of reference the Code of Conduct drawn up by the Committee for the Corporate Governance of Listed Companies (subsequently referred to as the “Code of Conduct”). A number of tables summarizing its contents are attached to this report. .

Role of the Board of Directors The Board of Directors is responsible for the company's administration and its powers derive from regulations and the company's by-laws currently in force. It organizes itself and operates in such a way as to ensure that its duties are conducted both effectively and efficiently. The directors be- have and pass resolutions with full cognizance and autonomy, in pursuit of the goal of creating value for the shareholders. The Board of Directors meets regularly, usually at least six times a year (ten times in 2004): > to examine and approve the company's strategic, business and financial plans, and to review the plans of its direct subsidiaries; > to monitor and assess the company's performance and that of its subsidiaries, with particular attention to conflicts of interest, periodically comparing the results achieved with the budget, and to examine the principal matters pertaining to the business and any investments/ divest- ments; > to examine and approve: (i) in accordance with the specific Guidelines approved by the Board itself, both the transactions generally defined as significant in relation to their impact on the income statement, balance sheet and financial position, and those with related parties defined as significant, atypical, unusual or at non-standard conditions, except for smaller transactions and (ii) the acquisition and disposal of majority equity interests as well as the evaluation of investments, acquisitions and disposals by the company's direct subsidiaries; > to verify the adequacy of the company and group's organizational, administrative and accounting structure, with particular regard to the internal control system, whose guidelines it must establish; > to deal with the other matters specially reserved for the Board of Directors by current regulations and the company's by-laws, amongst which the grant and revocation of powers to directors and the Executive Committee.*

Executive Committee and Directors

For the sake of efficient, flexible business management, especially regarding the company's representation before third parties, the Board of Directors has granted Vittorio Colao, the Chief Executive Officer (CEO) and Chief Operating Officer with responsibility for the company's overall management and for coordinating and managing its subsidiaries, wide powers for the conduct of the company's management with limits on the size of financial commitments and/or risks that may be taken on for certain types of transaction. The Board has also granted its Chairman, Guido Roberto Vitale, whose role is that of generally supervising the group's strategies and endeavors, powers to carry out all acts of ordinary and extraordinary administration, except those reserved

* This information forms the contents of the directors' report pursuant to Section IA.2.14 of the Instructions accompanying the Regulations for markets organized and run by Borsa Italiana S.p.A. for presentation to the shareholders' meeting, called to approve the financial statements for 2004. 63 Directors' report on group operations by RCS MediaGroup for the Board by law. The Chairman has used these powers only in cases of extreme urgency and in agreement with the CEO. As indicated earlier and in keeping with established practice, the Board of Directors has adopted a set of internal Guidelines that require the following transactions to be previously examined and approved by the Board of Directors: (i) those generally defined as having a significant impact on the company's income statement, balance sheet and financial position, (ii) significant transactions with related parties, or (iii) related-party transactions that are atypical, unusual or at non- standard conditions, except for those of limited value.

The Chairman calls board meetings, decides their agenda and directs and coordinates their conduct. Together with the CEO he ensures that, barring urgency or particular confidentiality, board members usually receive in advance the documentation and necessary information to allow them to express an informed opinion on the matters submitted for their examination and in compliance with the related internal procedures in the case of significant transactions as defined above or those with related parties.

Again for the sake of efficient, flexible business management, the Board of Directors has also appointed an Executive Committee, on which it has bestowed all the powers of ordinary and extraordinary administration, except those relating to the purchase and sale of majority equity investments and the definition of the group's strategies, as well as those reserved for the Board itself. The Executive Committee met three times in 2004. During its meetings, it analyses matters pertaining to the business, as well as preparing certain issues for subsequent submission to the Board of Directors. Current members of this committee, who are the same as at the end of 2004, are the Chairman, the CEO, and the directors Franzo Grande Stevens, Renato Pagliaro, Paolo Savona and, since May 1, 2004, Carlo Buora, Umberto Quadrino and Carlo Pesenti. Up until May 1, 2004 the committee had just six members, including Nicolò Nefri, who ceased to be a member on this date, and Maurizio Romiti, who left the committee on September 15, 2004, having taken part in one in three and two in three of the meetings held respectively. The Executive Committee must refer decisions reserved for the Board of Directors to this body, in compliance with related internal procedures and established practice.

Reporting to the Board of Directors

Persons on whom powers have been bestowed usually report back on the exercise of these powers to the Board of Directors and Board of Statutory Auditors at every meeting. In accordance with the by-laws, the Board of Directors and Board of Statutory Auditors must nonetheless receive a report at least once every quarter on the company's general business performance and outlook and on the transactions, including those by its subsidiaries, that, although not subject to board approval, are nonetheless treated as significant, because of their importance, by size or characteristics, or those that are unusual or atypical or with related parties or in potential conflict of interest. The CEO sees that the Board of Directors is suitably informed about the most important latest laws and regulations affecting the company and its governing bodies.

Composition of the Board of Directors

Under the by-laws the Board of Directors can consist of between three and twenty-one members, who stay in office for three years (currently until the approval of the financial statements for the year ended December 31, 2005) and are eligible for re-election. Following the resolutions passed by the shareholders on April 15, 2003 and April 29, 2004, the Board of Directors currently con- 64 Directors' report on group operations by RCS MediaGroup sists of eighteen members. The present members, who are the same as at the end of 2004, are as follows: Guido Roberto Vitale, Vittorio Colao, Raffaele Agrusti, Roberto Bertazzoni, Carlo Buora, Cesare Geronzi, Diego Della Valle, Franzo Grande Stevens, Jonella Ligresti, Natalino Irti, Giuseppe Lucchini, Giangiacomo Nardozzi Tonielli, Umberto Quadrino, Corrado Passera, Renato Pagliaro, Alessandro Pedersoli, Carlo Pesenti and Paolo Savona. Vittorio Colao was co-opted to the board under a resolution passed on July 28, 2004 and accepted office on this same date, while Jonella Ligresti, Cesare Geronzi and Diego Della Valle were co-opted to the board under a resolution passed on October 14, 2004, accepting office on October 19, 20 and 21 respectively. Other members of the board for only a part of the year were as follows: Enrico Giliberti (up until July 21, 2004), who took part in all four meetings held until that date and who continues to be secretary to the board; Maurizio Romiti (up until September 15, 2004), who took part in all six meetings held until that date and who also held the office of CEO; Paolo Mieli, also Deputy Chairman, and Nicolò Nefri (both up until October 5, 2004), who took part in all six meetings held until that date. The executive directors are Guido Roberto Vitale, the board's Chairman, and Vittorio Colao, the CEO, who also holds the office of Chief Operating Officer (COO). The number and standing of the non-executive directors is such as to ensure that their opinions will carry significant weight in the board's decision-making process. The company believes that the Board of Directors should, in any case, contain a sufficient number of independent directors. The Board should regularly review their independence, usually once a year, on the basis of the information provided by such directors. The results of this review are subsequently disclosed to the market. The non-executive directors Natalino Irti, Alessandro Pedersoli and Giangiacomo Nardozzi Tonielli provided declarations at the time of their appointment that they satisfied the criteria for being classified as independent of the company, in accordance with the definition contained in the Code of Conduct. The Board of Directors has recently checked that these directors can still be classified as independent, on the basis of information provided by these directors themselves. Guido Roberto Vitale, the board's Chairman, who also declared upon his appointment as a director that he satisfied the criteria for being classified as independent, can no longer be considered as such under the Code of Conduct's definition, having become an executive director.

Appointment of Directors

Although we do not intend introducing a specific by-law on this matter, in the interests of main- taining greater flexibility, shareholders are invited to lodge at the company's registered office, at least ten days before the date scheduled for the shareholders' meeting in first call for the appointment of directors, their proposals for the appointment of directors, accompanied by comprehensive personal and professional information about the candidates, and any declarations of their independence from the company, bearing in mind the Code of Conduct's recommendations on this count. Particularly in view of the standing of all the candidates usually proposed, the Board of Directors has decided not to set up a Board Appointments Committee. The directors accept office in awareness of the duties and responsibilities required of this office and accepting that they are able to dedicate the necessary time for fulfilling these duties. For this purpose they must also take into account the offices of director or statutory auditor held in other listed companies, financial companies, banks, insurance or other large enterprises. The Board requires each director to provide information on such offices once a year, which it then reports to the market. At the date of approving this report, such appointments are as follows: 65 Directors' report on group operations by RCS MediaGroup > Guido Roberto Vitale: Director of RCS Quotidiani S.p.A., Chairman of Vitale e Associati S.p.A.;

> Vittorio Colao: Director of Riunione Adriatica di Sicurtà S.p.A., Chief Executive Officer of RCS Quotidiani S.p.A.;

> Raffaele Agrusti: Chairman of the Board of Statutory Auditors of Premuda S.p.A., Director of Carnica S.p.A., Director of Gemina S.p.A.;

> Roberto Bertazzoni: Chairman of the Board of Directors and Chief Executive Officer of SMEG S.p.A., Chairman of the Board of Directors of ERFIN – Eridano Finanziaria S.p.A., Director and Member of Executive Committee of Unicredito Italiano S.p.A., Director of Unicredit Banca S.p.A;

> Carlo Buora: Chief Executive Officer of Pirelli & C. S.p.A. and Telecom Italia S.p.A., Chairman of the Board of Directors of Telecom Italia Mobile S.p.A., Director of Olimpia S.p.A., Director of Pirelli & C. Real Estate S.p.A., Director and Member of Executive Committee of Mediobanca S.p.A., Director of RAS S.p.A., Deputy Chairman of FC Internazionale S.p.A.;

> Cesare Geronzi: Chairman of the Board of Directors and Member of Executive Committee of Capitalia S.p.A., Deputy Chairman and Member of Executive Committee of Mediobanca S.p.A.;

> Diego Della Valle: Chairman of the Board of Directors and Chief Executive Officer of Tod’s S.p.A., Unlimited Partner and Director of Diego Della Valle & C. S.a.p.a., Sole Director of DDV Partecipazioni S.r.l., Director of D.A.DV Family Holding S.a.r.l., Director of Le Monde Europe S.A., Director of Ferrari S.p.A., Director of Maserati S.p.A., Director of Compagnia Immobiliare Azionaria, Director of L.V.M.H. Moet Hennessy Louis Vuitton, Director of Banca Nazionale del Lavoro S.p.A., Director of Assicurazioni Generali S.p.A.;

> Franzo Grande Stevens: Director of IFI S.p.A., Director of IPI S.p.A. (formerly Attività Immobiliare S.p.A.), Director of IFIL S.p.A., Chairman of the Board of Directors of P. Ferrero & C. S.p.A., Director of Pininfarina S.p.A., Director of Pictet International Capital Management (Luxembourg), Director of Davide Campari Milano S.p.A., Director of Exor Group, Director of S.E.I. S.p.A., Chairman of the Board of Directors of Juventus F.C. S.p.A.;

> Natalino Irti: Director of Telecom Italia S.p.A.;

> Jonella Ligresti: Deputy Chairman of the Board of Directors of Atahotels S.p.A., Director of Capitalia S.p.A., Director of Finadin S.p.A., Chairman of the Board of Directors of Fondiaria-SAI S.p.A., Director of Gilli S.r.l., Chairman of the Board of Directors of Iena Presbourg S.A., Director of Mediobanca S.p.A., Director of Milano Assicurazioni S.p.A., Deputy Chairman of the Board of Directors of Premafin Finanziaria HP S.p.A., Chairman of the Board of Directors of SAI Holding Italy S.p.A., Chairman of the Board of Directors of SIM Defense S.A., Chairman of the Board of Directors of SIM Etoile S.A.;

> Giuseppe Lucchini: Director of Banca Lombarda e Piemontese S.p.A., Director of TIM Telecom Italia Mobile SpA, Director of GIM – Generale Industrie Metallurgiche S.p.A., Chairman of the Board of Directors of Lucchini S.p.A., Deputy Chairman of the Board of Directors of Hopa S.p.A. Holding di Partecipazioni Aziendali, Director of Beretta Holding S.r.l., Chairman and Member of the Supervisory Committee of Ascometal S.A.;

> Giangiacomo Nardozzi Tonielli: Director of Banca Intesa S.p.A. and Chairman of the Board of Directors of Banca Caboto S.p.A.;

66 Directors' report on group operations by RCS MediaGroup > Renato Pagliaro: Director of Telecom Italia S.p.A., Director and Member of Executive Committee of Compass S.p.A., Director of Selmabipiemme Leasing S.p.A., Director of Cartiere Burgo, Director of Cofactor S.p.A., Director of Ferrari S.p.A.;

> Corrado Passera: Chief Executive Officer of Banca Intesa S.p.A., Director of Crédit Agricole S.A, Director of Olimpia S.p.A.;

> Alessandro Pedersoli: Director of Banche Popolari Unite, Director of Librerie Feltrinelli S.p.A., Director of Assicurazioni Generali S.p.A., Chairman of the Board of Directors of Beiersdorf S.p.A., Chairman of the Board of Directors of Gruppo Coin S.p.A.;

> Carlo Pesenti: Director of Ciments Francais S.A., Director of Banche Popolari Unite, Chief Executive Officer and member of Executive Committee of Italcementi S.p.A., Director and Chief Operating Officer of Italmobiliare S.p.A., Member of Supervisory Committee of KM Europa Metal A.G., Director of Mediobanca S.p.A., Director and Member of Executive Committee of Unicredito Italiano S.p.A.;

> Umberto Quadrino: Chairman of the Board of Directors of Edison S.p.A.;

> Paolo Savona: Chairman of the Board of Directors of Gemina S.p.A., Chairman of the Board of Directors of Impregilo S.p.A., Director of Telecom Italia Mobile S.p.A., Deputy Chairman of the Board of Directors of Aeroporti di Roma S.p.A.

Directors' Remuneration and Group Compensation Committee

With the assistance of the Group Compensation Committee, and having conferred with the Board of Statutory Auditors, the Board of Directors determines not only the remuneration of the CEO and other directors invested with specific powers but also the division of the overall emoluments due to directors, if the shareholders have not already done so. Those concerned by the related board resolution must take their leave during its discussion and voting. When fixing the CEO's remuneration, the Board ensures that a part of it is linked to the company's performance and to specific objectives set by the Board itself. The Board of Directors has set up a Group Compensation Committee, which currently consists, like at the end of 2004, of five mostly non-executive directors, namely the Chairman of the Board of Directors, who also chairs this committee, and the directors Franzo Grande Stevens, Natalino Irti (from May 1, 2004), Renato Pagliaro and Paolo Savona. The CEO sits in on the committee's meeting by invitation. This committee had seven members until April 30, 2004. Members serving on the committee during the year also included Nicolò Nefri and Corrado Passera (until April 30, 2004) and Maurizio Romiti (until September 15, 2004). The committee, which met five times in 2004, has the following duties: > to present proposals to the Board for the remuneration of executive directors and those invested with particular duties; > to define the remuneration policy of subsidiary company managers, examining and defining guidelines for drawing up medium and long-term incentive plans; > to identify the specific characteristics of the sectors in which the group is present and ensure a consistent, standardized application of remuneration methods; > to decide the objectives with which to link incentives and verify the achievement of these targets.

67 Directors' report on group operations by RCS MediaGroup This committee may make use of outside consultants at the company's expense. It draws up recommendations and performs consultative and preparatory activities in relation to stock option plans and share grants, reserved for both directors and employees of the company and group companies, in compliance with plan regulations.

Management of confidential information

The Board of Directors has introduced specific procedures defining the roles, operating procedures and responsibilities regarding the communication and publication of information concerning the company and the group, with particular reference to "price sensitive" information, whose publication must be previously authorized by the company's CEO. Employees, directors and statutory auditors are required to maintain the confidentiality of the documents and information obtained in the course of their duties and to comply with the prescribed procedure for communicating these documents and information externally. As required by Italian Stock Exchange regulations, a related code of conduct has also been approved. This clearly identifies the compulsory reporting requirements for transactions in financial instruments issued by the company (or its affiliates) and black-out periods when such transactions may not be carried out by persons who, because of the office held in the company or its subsidiaries, have access to price-sensitive information about the company and the group.

Transactions with related parties

Transactions with related parties must respect substantial and procedural fairness.

The Board of Directors has adopted a set of internal Guidelines, under which, regardless of the powers of representation granted to CEOs and the Executive Committee, it is the Board alone that can make decisions regarding related-party transactions (related parties were identified using the guidelines recommended by CONSOB in its notification DEM/2064231 dated September 30, 2002), when such transactions are defined, in accordance with established principles, as significant or as atypical, unusual or executed under non-standard terms, except in the case of smaller amounts. In general, significant transactions include all those that are unusual in terms of their purpose, consideration, method and timing, such that they may affect the company's net worth or the completeness and accuracy of its accounting and other information.

In these cases: > if the nature, value or other characteristics of the transaction so require and for the purposes of ensuring that the transaction is conducted at conditions that would otherwise be agreed between unrelated parties, the Board of Directors calls in the assistance of independent experts to value the economic and/or technical and/or financial and/or legal terms of the transaction and its execution. These experts must be persons with recognized professional skills, acknowledged as independent and without conflicts of interest; > if any of these transactions are associated with one of the directors, or with a related party via a director, these directors must provide the Board with prompt, comprehensive information and abstain from voting on the related resolution. If it deems fit, the Board is also entitled to require the director to absent himself from the meeting at the time of voting on the resolution.

68 Directors' report on group operations by RCS MediaGroup Relations with institutional investors and other shareholders

These relations are handled by a special “Investor Relations” office, operating out of the company's registered office. It is established practice to organize regular meetings with members of the Italian and international financial community.

Internal control

The internal control system (subsequently referred to as the “System”) refers to the overall processes designed to monitor the efficiency of company operations, the reliability of financial information, the respect for the law and regulations and the protection of company assets. Under the structure of the System adopted by the company's Board of Directors, the latter is responsible for the System itself, fixing its guidelines and verifying that it is adequate and works effectively. The Board also ensures that the principal business risks are identified and suitably managed. The Board is assisted in these activities by the Internal Control Committee. This committee is formed from among the Board's own members and it acts in a consultative role, while also making recommendations. The CEO is responsible for identifying the principal business risks, as well as designing, managing and monitoring the System within the guidelines set by the Board. The CEO is supported in this task by the “Officer responsible for internal control system management” and the “Officer responsible for internal control system monitoring and control”, who are provided with suitable resources for performing their respective jobs. The "Officer responsible for internal control system management" must: > coordinate the process of evaluating the System and identifying risks; > document and update the System's management model and make recommendations for its improvement and development; > oordinate the planning of actions falling under management's responsibility; > agree the planning of inspection work with the Officer responsible for system control and monitoring; > carry out any other tasks associated with this role and those that may have been assigned by the CEO.

The “Officer responsible for internal control system monitoring and control” sees to controlling and monitoring the System by applying generally accepted auditing and professional standards to the conduct of internal audit work. In detail, this person must: > define and update the model for evaluating the System; > assist management in the evaluation process; > support the Officer responsible for system management when documenting the System's management model and validating it from a technical point of view; > identify and conduct the necessary controls and inspections and set the related priorities, based on a plan of control and monitoring, drawn up by this person himself; > periodically express a technical opinion on the System's adequacy; > carry out any other tasks associated with this role and those that may have been assigned by the CEO.

Both these Officers report to the CEO. They also report the results of their work to the Internal Control Committee and the Board of Statutory Auditors. 69 Directors' report on group operations by RCS MediaGroup The company has also promoted the adoption of a similar system of control at its subsidiaries, except for limited adaptations in specific circumstances.

Internal Control Committee

The Board of Directors has set up an Internal Control Committee to act in a consultative role and also provide recommendations. It currently consists, like at the end of 2004, of three non-executive directors, the majority of whom are independent. At the date of this report, like at the end of 2004, they are Alessandro Pedersoli, Giangiacomo Nardozzi Tonielli and Raffaele Agrusti, the committee's chairman since May 1, 2004. Carlo Buora sat on this committee as its chairman until April 30, 2004. The Internal Control Committee has the general task of assisting the Board in its responsibility for the internal control system. It also: > reports at least every six months to the Board of Directors on the adequacy of the group's system of internal control; > evaluates the work program approved by the CEO; > examines the periodic reports on the inspections and work carried out by the Officer responsible for internal control system control and monitoring; > assesses, together with the company's financial managers and the independent auditors, the adequacy of the accounting policies used and their consistent application throughout the group for consolidation purposes; > evaluates the audit engagement proposals made by the independent auditors, as well as the audit plan prepared for the independent audit, the results of this work and the independent auditor's management letter.

The Internal Control Committee met six times in 2004. Its meetings extend a permanent invitation to the Chairman of the Board of Statutory Auditors or other such statutory auditor appointed by him. The Chairman of the Board of Statutory Auditors was in fact present at all meetings. Both the Chairman of the Board of Directors and the CEO are invited to participate in committee meetings as well.

Shareholders' meetings

The Board of Directors is convinced that shareholders' meetings, being an opportunity for the Board to report on activities and operations undertaken, must be conducted in a spirit of general participation and strict respect for shareholder rights, but also in a spirit of mutual respect between shareholders involving a balanced tempering of their rights with their decision-making function. The Board does not consider it necessary, at least for the present and based on the conduct of previous shareholder meetings, to recommend the adoption of an associated set of regulations. Without prejudice to his powers under law and the company's by-laws, the meeting's chairman is responsible for ensuring respect for the above principles. The chairman also has the power to set rules that, in view of its nature and the number and breadth of the matters to be discussed, he intends to apply to a particular meeting in order to ensure that it is conducted in an orderly, calm and positive fashion.

70 Directors' report on group operations by RCS MediaGroup Statutory auditors

Proposals to the shareholders' meeting for the appointment of statutory auditors must be lodged at the company's registered office at least 10 days prior to the date fixed for the meeting. These proposals must be accompanied by comprehensive personal and professional information about the candidates. The company's by-laws currently require that lists of candidates for the office of statutory auditor may be presented by shareholders who, on their own or together with others, possess shares representing at least 3% of the share capital with voting rights at ordinary meetings. These lists must be lodged at the company's registered office at least ten days before the date fixed for the shareholders' meeting in first call. The by-laws also require that the lists may not contain candidates who already hold office as statutory auditors in five other listed companies, other than the company's parent and subsidiary companies. The Board of Statutory Auditors currently in office was appointed from April 15, 2003 until the shareholders' meeting called to approve the financial statements for the year ended December 31, 2005. It was appointed upon presentation of a single list and its members are: Gianrenzo Cova, Chairman, Flavio Arcidiacono and Clemente Rebecchini, as acting statutory auditors, and Cesare Gerla, Agostino Giorgi and Maurizio Bozzato, as alternate statutory auditors. All members of the Board of Statutory Auditors (in nearly every case) or some of its members attended all ten meetings of the Board of Directors and the three meetings of the Executive Committee held during the year. Gianrenzo Cova and Flavio Arcidiacono were each absent from one meeting, while Clemente Rebecchini failed to attend two meetings of the Board of Directors. All statutory auditors were present at the meetings of the Executive Committee. The statutory auditors currently in office do not act as statutory auditors to any other listed companies, while Clemente Rebecchini, an acting auditor, is a director of Gemina S.p.A.

The Board of Statutory Auditors met nine times during the year, with meetings attended by all its acting members, except for Clemente Rebecchini who was absent from two of them.

The statutory auditors are required to maintain the confidentiality of the documents and information obtained in the course of their duties and to comply with the prescribed procedure for communicating these documents and information externally.

* * * In the event of circumstances that would suggest changing and/or improving the current system of corporate governance, the Board of Directors reserves the right to update it accordingly. It will provide any related information on this count in the annual directors' report on operations and/or in the report prepared in accordance with Section IA.2.14 of the Instructions accompanying the Regulations for markets organized and run by Borsa Italiana S.p.A.

71 Directors' report on group operations by RCS MediaGroup Summary tables

Structure of the board of directors and committees (i)

Board of Directors Internal Group Board Executive Control Compensation Appointments Com- Committee Committee Committee(◊) mittee Non- Number Office Members Execut- Execut- Inde- **** of other *** **** *** **** *** **** ive ive pendent appointments ** Chairman Guido R. Vitale X 100 2 X 100 X 100 Chief Executive Colao Vittorio (1) (i) X 100 2 Officer Director Agrusti Raffaele (ii) X 50 3 X 66 Director Bertazzoni Roberto X 70 4 Director Buora Carlo (2) (iii) ()X608X33 X 0 Director Della Valle Diego (3) X 100 11 Director Geronzi Cesare (3) X 100 2 Director Grande Stevens Franzo X 40 10 X 60 X 66 Director Irti Natalino (iv) X X 50 – X 20 Director Ligresti Jonella (3) X 100 12 Director Lucchini Giuseppe X 80 7 Director Nardozzi Tonielli Giangiacomo X X 80 2 X 83 Director Pagliaro Renato X 100 6 X 100 X 100 Director Passera Corrado (v) X 60 3 X 40 Director Pedersoli Alessandro X X 70 5 X 100 Director Pesenti Carlo ()X507X66 Director Quadrino Umberto ()X701 X66 Director Savona Paolo X 50 4 X 80 X 100 Number of meetings held in year Board of Directors: 10 Internal Group Board Executive Control Compensation Appoint- Commit- Commit- Commit- ments Com- tee: 3 tee: 6 tee: 5 mittee: – (◊) Summary of reasons for any departures from the Code's recommendations: it was decided unnecessary to set up this committee in view of the standing of the candidates usually proposed for the office of director..

NOTE (I) Composition at December 31, 2004, and at March 18, 2005, the date of approving the Corporate Governance Report. * The asterisk indicates whether the director was nominated through lists presented by the minority. ** This column indicates the number of other appointments as a director (regardless of any special offices held or membership of the same company's executive committee) or statutory auditor held by this person in other listed companies in Italy or abroad and in finance companies, banks, insurance or other large companies. The Corporate Governance Report provides full details of these appointments. *** These columns indicate with an "X" the director's membership of the committee in question and sub-committees of the same. **** These columns indicate the director's attendance record in percentage terms at meetings of the Board and of each of the Committees. (1) Appointed as a director on July 28, 2004 (with acceptance of office on the same date). (2) In office as a member of the Executive Committee since May 1, 2004 . (3) Appointed as a director on October 14, 2004 (with acceptance of office on October 19 by Jonella Ligresti, October 20 by Cesare Geronzi and October 21 by Diego Della Valle). (i) In office as a member of the Executive Committee since October 14, 2004. No meetings of the committee have taken place since that date. (ii) In office as a member of the Internal Control Committee since May 1, 2004. Four meetings of the committee were held since that date. (iii) In office as a member of the Internal Control Committee until April 30, 2004. Two meetings of the committee were held since that date. (iv) In office as a member of the Group Compensation Committee since May 1, 2004. Three meetings of the committee were held since that date. (v) In office as a member of the Group Compensation Committee until April 30, 2004. Two meetings of the committee were held since that date. () In office as members of the Executive Committee since May 1, 2004. One meeting of the committee was held since that date. 72 Directors' report on group operations by RCS MediaGroup

Board of statutory auditors

Office Members Attendance at board meetings % Number of other appointments** Chairman Cova Gianrenzo 100 - Acting auditor Arcidiacono Flavio 100 - Acting auditor Rebecchini Clemente 77 1 Alternate auditor Bozzato Maurizio - - Alternate auditor Giorgi Agostino - - Alternate auditor Gerla Cesare - - Number of meetings held in year: 9 Indicate the quorum required for minorities to present lists for the election of one or more acting auditors (pursuant to art. 148 of the Consolidated Finance Act): 3%

NOTE ** This column indicates the number of other appointments as a director or statutory auditor held by this person in other listed companies in Italy. The Corporate Governance Report provides full details of these appointments.

73 Directors' report on group operations by RCS MediaGroup Other requirements of the code of conduct

YES NO Summary of reasons for any departure from the Code's recommendations System of granting powers and monitoring related-party transactions Has the Board of Directors granted powers, establishing their: a) limits X b) manner of exercise X c) and frequency of reporting? X Has the Board of Directors reserved for itself the examination and approval of transactions with a significant impact on the company's income statement, balance sheet and financial situation (including related-party transactions)? X Has the Board of Directors established guidelines and principles for identifying "significant" transactions? X Are the guidelines and principles referred to above described in the report? X Has the Board of Directors established specific procedures for examining and approving related-party transactions? X Are the procedures for approving related-party transactions described in the report? X Conduct of the most recent appointment of directors and statutory auditors Were the names of candidates for the office of director filed at least ten days in advance? X Were the nominations for the office of director accompanied by comprehensive information? X Were the nominations for the office of director accompanied by an indication of whether they met the requirements for qualifying as independent directors? X Were the name of candidates for the office of statutory auditor filed at least ten days in advance? X Were the nominations for the office of statutory auditor accompanied by comprehensive information? X Shareholders' meetings Has the company approved a set of Regulations X The Board does not consider it necessary, based on the for Shareholders' Meetings? conduct of previous shareholder meetings, to recommend the adoption of an associated set of regulations. Without prejudice to his powers under law and the company's by-laws, the meeting's chairman is responsible for ensuring that they are conducted in a spirit of general participation and strict respect for shareholder rights, but also in a spirit of mutual respect between shareholders involving a balanced tempering of their rights with their decision-making function. Are the Regulations annexed to the report (or is it stated where they may be obtained/downloaded)? X Internal control Has the company appointed the persons responsible for internal control? Are the persons appointed hierarchically not responsible to persons in charge of operational areas of the business? X Department in charge of internal control “Officer responsible for internal control system ” (pursuant to article 9.3 of the Code) management and “Officer responsible for internal control system monitoring and control” Investor relations Has the company appointed someone to be responsible for investor relations? X Department and references of person responsible Investor Relations Manager: Federica De Medici for investor relations (address/tel/fax/e-mail) Via Angelo Rizzoli, 2 – 20132 Milan telefono/fax/e-mail) del responsabile Tel. 02/2584.5508 – Fax 02/2584.5490 e-mail: [email protected] 74 Directors' report on group operations by RCS MediaGroup Proposed resolutions

Shareholders,

We submit for your approval the financial statements for the year ended December 31, 2004, comprising the balance sheet, income statement and the explanatory notes, together with related attachments, which close with net income of ¤58,150,666.00, and the accompanying report on operations, along with our proposal for allocating net income as follows:

> ¤29,996,450.26 in dividends, to be split - bearing in mind the 26,782,590 treasury shares held by the company, whose dividends are attributed proportionately to the other shares - as follows: • ¤0.06 to each of the 29,349,593 savings shares in circulation, for a total of ¤1,760,975.58; • ¤0.04 to each of the 705,886,867 ordinary shares in circulation, for a total of ¤28,235,474.68, payable, gross of any withholdings required by law, from May 26, 2005, with the shares going ex- div on May 23, 2005.

> ¤28,154,215.74 to retained earnings.

It is also proposed to grant shareholders a bonus of 7,352,365 treasury shares currently held by the company, with a corresponding reduction in the reserve for treasury shares. With regard to this last proposal, you are reminded that, as a result of authorization given in past years, the company has purchased and currently holds 26,782,590 ordinary shares, corresponding to 3.655% of voting capital, of which it is proposing to grant 7,352,365 to the shareholders. The grant will take place in the ratio of 1 share for every 100 ordinary and/or savings shares held, causing the reserve for treasury shares to decrease from the figure of ¤85,041,704.00, reported in the balance sheet at December 31, 2004, to ¤61,697,945.13, corresponding to a reduction of¤23,343,758.87 or ¤3.175 for every share granted, which equates to the average carrying cost of the shares themselves; the treasury shares granted will be made available to the shareholders once the shares have gone ex-div. The disposal of the 19,430,225 treasury shares remaining in the portfolio will continue to be gov- erned by the related authorization given by the shareholders on April 29, 2004. Regardless of the AGM's resolution and in accordance with the provisions of article 47.1 of the Income Tax Consolidation Act, dividends are presumed to be distributed first out net income for the year and reserves formed out of earnings. This means that, even if the company distributes a capital reserve (such as the reserve for treasury shares created from the share premium reserve), if there is net income for the year, the bonus shares will be treated like earnings in kind for tax purposes. In fact, shareholders will be taxed on the "normal" value of these shares, corresponding to the average official price of ordinary RCS MediaGroup shares on each day of trading on the Electronic Equities Market organized and run by Borsa Italiana S.p.A. in the month running up to the date of granting the treasury shares (ex-div date).

Given the above, you are invited to pass the following resolution:

"The shareholders' meeting of RCS MediaGroup S.p.A. > has examined the directors' report on operations; 75 Directors' report on group operations by RCS MediaGroup > acknowledges the reports of the Board of Statutory Auditors and the independent auditors Reconta Ernst & Young S.p.A.; > has examined the financial statements for the year ended December 31, 2004 which close with net income of ¤58,150,666.00;

and hereby resolves

I. to approve: a) the directors' report on operations; b) the financial statements presented by the Board of Directors for the year ended December 31, 2004, which close with net income of ¤58,150,666.00, as a whole and in their individual parts, together with the proposed provisions and allocations; c) the allocation of net income for the year of ¤58,150,666.00 as follows: > ¤29,996,450.26 in dividends, to be split - bearing in mind the 26,782,590 treasury shares held by the company, whose dividends are attributed proportionately to the other shares - as follows: • ¤0.06 to each of the 29,349,593 savings shares in circulation, for a total of ¤1,760,975.58; • ¤0.04 to each of the 705,886,867 ordinary shares in circulation, for a total of ¤28,235,474.68, payable, gross of any withholdings required by law, from May 26, 2005, with the shares going ex-div on May 23, 2005. > ¤28,154,215.74 to retained earnings;

II. to approve the grant of a bonus to shareholders of 7,352,365 ordinary shares in RCS MediaGroup S.p.A. held by the latter, in the ratio of 1 ordinary share, with dividend rights from January 1, 2005, for every 100 ordinary and/or savings shares held, by reducing the reserve for treasury shares from ¤85,041,704.00 to ¤61,697,945.13, equating to a decrease of ¤23,343,758.87 or ¤3.175 for every share granted and making these shares available to shareholders once they have gone ex-div”.

Milan, March 18, 2005

on behalf of the Board of Directors

Chairman Guido Roberto Vitale

Chief Executive Officer Vittorio Colao

76 77

Consolidated financial statements and explanatory notes

79 Consolidated financial statements and explanatory notes Consolidated balance sheet

ASSETS (Millions of euros) 12/31/2004 12/31/2003 A) SUBSCRIBED CAPITAL UNPAID B) FIXED ASSETS I INTANGIBLE FIXED ASSETS 1 Start-up and expansion costs 0.9 5.3 2 Research, development and advertising costs 3 Industrial patents and intellectual property rights 2.2 0.8 4 Concessions, licenses, trademarks and similar rights 126.4 125.0 5 Goodwill 14.4 18.0 6 Assets under development and advances 13.0 0.4 7 Other 11.2 19.4 8 Consolidation difference 248.0 172.5 Total 416.1 341.4 II FINANCIAL FIXED ASSETS 1 Land and buildings 97.7 89.5 2 Plant and machinery 37.2 48.6 3 Industrial and commercial equipment 0.5 3.3 4 Other assets 27.2 29.8 5 Assets under construction and advances 83.2 13.8 Total 245.8 185.0 III FINANCIAL FIXED ASSETS 1 Equity investments 365.3 468.5 2 Receivables 21.8 25.1 3 Other securities 4Treasury shares 85.0 85.0 Total 472.1 578.6 Total fixed assets (B) 1,134.0 1,105.0 C) CURRENT ASSETS IINVENTORIES 1 Raw and ancillary materials and consumables 36.8 32.0 2Work in progress and semi-finished products 7.1 10.2 3Work in progress to order 4 Finished products and goods 116.2 109.3 5 Advances Total 160.1 151.5 II RECEIVABLES 1Trade receivables 575.4 662.9 2 Due from non-consolidated subsidiaries 0.6 0.3 3 Due from non-consolidated associated companies 57.9 40.0 4 Due from parent companies 4bis Tax credits 150.4 168.7 4ter Deferred tax assets 55.6 45.4 5 Other receivables 106.4 106.3 Total 946.3 1.023.6

80 Consolidated financial statements and explanatory notes

ASSETS (Millions of euros) 12/31/2004 12/31/2003 III CURRENT FINANCIAL ASSETS 1 Equity investments in non-consolidated subsidiaries 2 Equity investments in non-consolidated associated companies 3 Equity investments in parent companies 4 Other equity investments 6.9 8.6 5Treasury shares 6 Other securities 89.7 85.2 7 Financial receivables 22.9 8.2 Total 119.5 102.0 IV CASH AND BANKS 1 Bank and postal deposits 25.1 60.8 2 Checks 1.2 0.4 3 Cash and valuables on hand 2.0 1.5 Total 28.3 62.7 Total current assets (C) 1,254.2 1,339.8 D) ACCRUED INCOME AND PREPAYMENTS 45.5 41.7 TOTAL ASSETS 2,433.7 2,486.5

81 Consolidated financial statements and explanatory notes Consolidated balance sheet

LIABILITIES (Millions of euros) 12/31/2004 12/31/2003 A) SHAREHOLDERS' EQUITY Group's portion I Share capital 762.0 762.0 II Share premium reserve 71.2 153.6 III Revaluation reserve IV Legal reserve 152.4 152.1 V Statutory reserves VI Reserve for treasury shares 85.0 85.0 VII Other reserves Translation reserve 3.3 3.3 VIII Income (losses) carried forward (122.0) (195.2) IX Net income (loss) for the year 77.4 46.1 Total 1,029.3 1,006.9 Minority interests in share capital and reserves 42.2 49.5 Total Shareholders’ equity (A) 1,071.5 1,056.4 B) PROVISIONS FOR RISKS AND CHARGES 1 For retirement benefits and similar obligations 4.1 4.2 2 For taxes (current and deferred) 8.0 4.0 3 Other 128.1 186.5 Total Provisions for risks and charges (B) 140.2 194.7 C) PROVISION FOR EMPLOYEE TERMINATION INDEMNITIES 102.8 109.4 D) PAYABLES 1 Bonds 2 Convertible bonds 3 Due to shareholders for loans 4 Due to banks 198.4 313.7 5 Due to other sources of finance 56.8 14.7 6 Advances received 15.2 21.6 7Trade payables 556.7 509.6 8 Credit instruments issued 9 Due to non-consolidated subsidiaries 13.7 6.7 10 Due to non-consolidated associated companies 79.9 53.7 11 Due to parent companies 12 Taxes payable 42.1 70.7 13 Due to social security institutions 18.3 19.3 14 Other payables 103.3 88.3 Total Payables (D) 1,084.4 1,098.3 E) ACCRUED LIABILITIES AND DEFERRED INCOME 34.8 27.7 TOTAL LIABILITIES 2,433.7 2,486.5

82 Consolidated financial statements and explanatory notes Memorandum accounts

(Millions of euros) 12/31/2004 12/31/2003 1 GUARANTEES GIVEN I Sureties 27.3 187.3 II Endorsements 15.4 21.0 III Other unsecured guarantees 139.7 135.7 Total guarantees given 182.4 344.0 2 COMMITMENTS Securities to be purchased/sold 0.1 1.0 Other commitments 23.8 70.7 Total commitments 23.9 71.7 3 ASSETS HELD ON DEPOSIT 447.2 362.0 TOTAL MEMORANDUM ACCOUNTS 653.5 777.7

83 Consolidated financial statements and explanatory notes Consolidated income statement

(Millions of euros) 2004 2003 A) PRODUCTION VALUE 1 Revenues from sales and services 2.150.5 2.168.8 2 Change in inventories of work in progress, 5.8 10.1 semi-finished and finished products 3 Change in work in progress to order 0.5 (0.3) 4 Increase in assets built internally 5 Other revenues and income 44.2 68.1 Total Production value (A) 2,201.0 2,246.7 B) PRODUCTION COSTS 6 Raw and ancillary materials, consumables and goods 557.0 554.7 7 Services 849.2 878.3 8 Rentals and leasing 139.3 177.6 9Payroll costs a) Wages and salaries 266.0 285.5 b) Social security charges 80.7 86.0 c) Employee termination indemnities 16.2 19.6 d) Retirement benefits and similar 3.7 5.7 e) Other costs 19.2 6.1 10 Amortization, depreciation and writedowns a) Amortization of intangible fixed assets 53.6 44.9 b) Depreciation of tangible fixed assets 22.2 26.3 c) Other writedowns of fixed assets d) Writedowns of receivables held as current assets 12.5 15.9 and cash and banks 11 Change in inventories of raw and ancillary, materials, (4.3) 4.6 consumables and goods 12 Provisions for risks 9.3 10.3 13 Other provisions 0.1 0.4 14 Other operating expenses 41.0 44.7 Total Production costs (B) 2,065.7 2,160.6 DIFFERENCE BETWEEN VALUE AND COST OF PRODUCTION (A-B) 135.3 86.1 C) FINANCIAL INCOME AND CHARGES 15 Income (charges) from equity investments 16.8 10.0 16 Other financial income 8.4 15.8 17 Interest and other financial charges (14.9) (22.3) 17bis Exchange gains (losses) 1.6 (2.0) Total (C) 11.9 1.5 D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 18 Revaluations 16.5 48.9 19 Writedowns (24.0) (6.8) Total (D) (7.5) 42.1 E) EXTRAORDINARY INCOME AND CHARGES 20 Income 52.2 165.6 21 Charges (86.9) (218.6) Total (E) (34.7) (53.0) INCOME (LOSS) BEFORE TAXES (A-B+C+D+E) 105.0 76.7 22 Taxes (including deferred tax assets and liabilities) (21.9) (22.3) 23 Net income (loss) for the year 83.1 54.4 Minority interests in net (income) loss for the year (5.7) (8.3) GROUP'S SHARE OF NET INCOME (LOSS) FOR THE YEAR 77.4 46.1 84 Consolidated financial statements and explanatory notes

Statement of cash flows (according to IAS format)

(Millions of euros) 2004 2003 A. CASH FLOW FROM OPERATIONS Net income (loss) for the year 77.4 46.1 Minority interests in net income (loss) for the year 5.7 8.3 Adjustments: Amortization and depreciation 75.7 70.3 Income from equity investments (16.8) (7.7) Writedowns (revaluations) of fixed assets 19.0 (Gains) losses on disposal of fixed assets (32.7) (14.3) Increase (decrease) in reserves for risks and charges (54.5) (12.5) Increase (decrease) in reserve for employee termination indemnities (6.6) (2.0) Increase (decrease) in deferred taxes 11.0 5.2 (Profits) losses from investments carried at net equity 4.7 (13.7) Operating income (loss) before changes in working capital 82.9 79.7 (Increase) decrease in inventories (8.5) 16.2 (Increase) decrease in trade receivables 68.0 (53.5) Increase (decrease) in trade payables 35.1 34.3 (Increase) decrease in other assets/liabilities 4.2 (13.1) (Increase) decrease in net tax receivables (27.4) (5.3) Change in working capital 71.4 (21.4) Net cash and cash equivalents generated by operations (A) 154.3 58.3 B. CASH FLOW FROM INVESTMENT ACTIVITIES Acquisitions, capital increases and coverage of losses of equity investments (11.5) (70.7) Acquisitions/disposals of other financial fixed assets 2.9 (9.5) Purchase of tangible and intangible fixed assets (247.9) (130.3) Proceeds or redemption value from the sale of equity investments 172.8 16.3 Proceeds from the sale of tangible and intangible fixed assets 0.3 6.5 Dividends received 16.8 7.7 Other changes (1.4) 35.2 Net cash and cash equivalents absorbed by investment activities (B) (68.0) (144.8) Free cash flow (A+B) 86.3 (86.5) C. CASH FLOW FROM FINANCIAL TRANSACTIONS Net change in medium/long-term debt (28.1) (80.1) Net change in short-term debt (12.7) 41.4 Net change in current financial assets (17.5) 141.6 Dividends paid (55.0) Capital increase 3.9 Change in minority interests in shareholders' equity (7.4) (11.6) Change in translation reserve (14.4) Net cash and cash equivalents absorbed by financial transactions (C) (120.7) 80.8 Net increase (decrease) in cash and cash equivalents (A+B+C) (34.4) (5.7) Opening cash and cash equivalents 62.7 68.4 Closing cash and cash equivalents 28.3 62.7 Increase (decrease) for the period (34.4) (5.7)

Breakdown of net debt (167.8) (191.6) Cash and current financial receivablese 147.8 164.7 Medium/long-term debt (168.9) (197.0) Short-term debt (146.7) (159.3) 85 Notes to the consolidated financial statements at december 31, 2004 Notes to the consolidated financial statements at december 31, 2004

Form and content

The consolidated financial statements at December 31, 2004 have been drawn up in accordance with Legislative Decree 127/91 (as amended) and with the regulations issued by CONSOB. They have been audited by Reconta Ernst & Young S.p.A.

Scope of consolidation

The consolidated financial statements include the financial statements of RCS MediaGroup S.p.A. (the parent company) and of the subsidiaries of which it directly or indirectly owns more than 50% or that are under its de facto control.

Changes in the scope of consolidation and figures provided for comparison

Below is a summary of the more important changes in the scope of consolidation with respect to year-end 2003.

Starting in 2004, including with a view to the imminent application of IAS/IFRS, joint ventures have been valued at net equity as this method is believed to represent more faithfully the economic realities of the agreements underlying the ventures. Use of the net equity method, as op- posed to the proportional method, does not change shareholders' equity or the net result for the year. For ease of comparison, pro-forma 2003 financial statements prepared according to the consolidation method used for joint ventures in 2004 are attached to this report.

The following companies were consolidated proportionally in the past and are now carried at net equity: – m-dis Distribuzione Media S.p.A. – Arlaban Inversiones S.l. – Broad Media S.a. – Ediciones Periodisticas Leonesas (Propelesa) S.a. – Editoriale Del Mezzogiorno S.r.l. – Incal Informacion S.l. – Reunitel S.l. – RCS IHT S.r.l. – R.L. Libri S.r.l. – RBA Fabbri France – Rizzoli Larousse S.p.A. – De Agostini Rizzoli Periodici S.r.l. 86 Notes to the consolidated financial statements at december 31, 2004 – ADR Advertising SpA – IGPDecaux S.p.a. – Ser.com S.p.a. – Milano Press S.r.l. – RCS International Communications N.V.

The following companies, previously consolidated on a line-by-line basis or proportionally, have left the scope of consolidation as they have been wound up or are up for sale: – Burda Rizzoli Verlagsbeteiligungen GmbH up for sale – Amica Verlag & Co.KG GmbH up for sale – Amica Verlag Verwaltungs mbH up for sale – TV Spiefilm Verlag GmbH up for sale – Fit For Fun Verlag GmbH up for sale – Cinema Verlag Holding GmbH up for sale – Verlagsgruppe Milchstrasse GmbH up for sale – PWE Verlag MbH up for sale – Max Verlag Gmbh &Co.Kg up for sale – Verwaltungsgesellschaft Max Verlag mbH up for sale – Edition Caramel S.a. up for sale – Beaux Arts S.a.s. up for sale – Partedit S.a. up for sale – Euskalprint SL wound up – Rizzoli International Pubblications Inc. wound up – Rizzoli Journal of Art wound up – Unedisa Sport SA wound up – Canal Mundo Radio Cantabria SL wound up – Sfera International Americas Sl wound up – Comunedisa SA (proportional) wound up The most significant changes concern the Milchstrasse Group, Burda Rizzoli Verlagsbeteiligungen Gmbh (previously consolidated using the proportional method), Max Verlag Gmbh & Co.Kg and Verwaltungsgesellschaft Max Verlag Mbh (previously consolidated on a line-by-line basis). These were sold under a contract dated December 29, 2004, with effect from January 1, 2005.

Due to partial sale of the interest held, Calprint S.L., a member of the Unedisa Group previously owned at 99% and consolidated on a line-by-line basis, is now carried at net equity.

The following companies, formerly valued at net equity, have left the scope of consolidation after being sold or wound up: – JA Apparel Corp. sold – Edera Inc. sold – Nashawena Mills Corp. sold – Riverside Manufacturing Corp. sold – GFT France SA wound up – GFT Iberica SA wound up – GFT Australia Pty.Ltd wound up – Netdish Italia S.p.A. sold – Burda Verlag Osteuropa sold – Burda RCS International Holding sold In July, RCS MediaGroup sold to Hubert Burda Media the interest in Burda Verlag Osteuropa (held by RCS International Magazines BV), and its share of the joint venture Burda RCS International 87 Notes to the consolidated financial statements at december 31, 2004 Holding. As part of that agreement, RCS MediaGroup S.p.A. acquired the 40% of RCS Periodici S.p.A. held by the German publisher. The companies sold had been carried at net equity the previous year.

The following companies were merged during the period: – RCS MediaGroup S.p.A. absorbed Immobiliare Solferino 28 S.r.l., RCS Internal Auditing S.r.l., RCS Radio e TV S.p.A., AGR Agenzia Giornalistica Radiotelevisiva S.r.l. and CNR Channel News Radio S.r.l.; – Sahzà S.p.A. absorbed New Lab Europe S.p.A., then changed its name to RCS Servizi e Partecipazioni S.p.A. Subsequently, this company was sold in full by GFT Net to RCS MediaGroup S.p.A. and its name was changed to RCS Produzioni; – RCS Libri S.p.A. absorbed Società Editoria Artistica S.p.A., following its acquisition in July; – RCS Sport S.p.A. absorbed RCS Sport Events S.pA.; – RCS Corporation New York Corp. absorbed Rizzoli International Publications Inc., then took over the merged company's name; – GFT USA Corp absorbed Calvin Klein Apparel Corp, Emanuel Apparel Corp, GFT America Fashion CO.LLC. and GFT Apparel Corp, then resolved to enter liquidation; – IGPDecaux S.p.A. absorbed IGPDecaux Affissioni S.p.A; – m-dis Distribuzione Media S.p.A. absorbed DeADis S.r.l.

These companies are now consolidated on a line-by-line basis: – Feria Bebe Sl (increase in percent held—formerly valued at net equity); – Ge Fabbri Editions (newly incorporated); – Dane Publishing (newly incorporated).

Consolidation principles

The principles followed by the group comply with Legislative Decree 127/91, as interpreted and supplemented by the principles recommended by the Italian Accounting Profession, which are also endorsed by CONSOB.

Subsidiaries have been consolidated on a line-by-line basis; joint ventures and associated companies are consolidated at net equity. However, equity investments whose disposal has already been determined, companies being wound up, and those whose figures are negligible in relation to the consolidated financial statements have not been consolidated.

The line-by-line method of consolidation can be summarized as follows: a) assets, liabilities, costs and revenues are taken into account in full, eliminating the carrying value of the equity investment against the corresponding share of net equity at the date of in- clusion in the consolidation. When negative, the part of the difference arising from this elimination that cannot be allocated to specific balance sheet items is booked to the “consolidation reserve” under shareholders' equity, or to a liability provision when due to projected ad- verse income statement performance. When positive, it is recorded as a consolidation differ- 88 Notes to the consolidated financial statements at december 31, 2004 ence under intangible fixed assets and amortized on a straight-line basis. At year-end, the conditions allowing these items to be capitalized were verified, and they were written down in the case of any long-term impairment in value. b) profits and losses arising from intercompany transactions that have not yet been realized outside the group are eliminated, as are receivables, payables, costs and revenues between consolidated companies when the amounts concerned are significant; c) dividends paid by consolidated companies are eliminated from the income statement and added to prior year retained earnings if, and to the extent which, they have been drawn from the latter; d) minority interests in shareholders' equity and in net income (loss) for the year are booked separately in the balance sheet and the income statement.

The consolidation is built on the statutory financial statements of the directly held Italian companies, approved by each company's Board of Directors, and on the consolidated financial statements of the directly and indirectly held foreign companies. For certain members of the group (foreign sub-holding companies) whose financial statements are not drawn up in concomitance with the closure of accounts in Italy, audited financial statements prepared in accordance with group accounting policies have been used for the consolidation.

As for financial statements expressed in foreign currencies, balance sheet figures are converted into euros at the year-end exchange rates and income statement figures at the average exchange rates for the year. The increase or decrease in shareholders' equity due to the difference between the initial and year-end exchange rates used for translation into euros is added to or subtracted from the translation reserve. The exchange rates used are reported in the attached tables.

Accounting policies

The accounting policies are the same as those used to prepare the consolidated financial statements at December 31, 2003.

The more important are described below.

Balance sheet

Intangible fixed assets

Intangible fixed assets are recorded at purchase cost and amortized on a straight-line basis over their residual useful life.

Goodwill is capitalized only if acquired against consideration, up to the limit of that expense, and consists of the amounts paid for goodwill in connection with acquisitions or other corporate dealings. It is amortized over a period not exceeding its useful life.

The following amortization periods generally apply to intangible fixed assets in relation to their long-term utility: 89 Notes to the consolidated financial statements at december 31, 2004 > start-up and expansion costs: five years; > patents and intellectual property rights: three to five years; > concessions, licenses and similar rights: three years in the case of software licenses; otherwise five years; > trademarks: three to twenty years; > goodwill and consolidation differences: five to twenty years. The 20-year period is used excep- tionally for goodwill paid on major groups that have been well-established in the market for many years; > leasehold improvements: over the duration of the lease or rental contract.

Intangible fixed assets whose year-end value has fallen below cost on a long-term basis are written down to that figure.

In accordance with the prudence principle, most research, development and advertising costs are booked to the income statement in the year incurred.

Tangible fixed assets

Tangible fixed assets are shown at purchase cost plus any revaluations permitted or required by national laws. Depreciation is calculated systematically on a straight-line basis using rates considered to reflect the estimated useful lives of the assets; for assets acquired during the year, the rates are applied pro-rata to reflect the actual period of use. Leasehold improvements are stated as an increase in the assets concerned only when they produce an actual increase in value.

Ordinary maintenance costs are charged to the income statement in the year in which they are incurred, while extraordinary maintenance costs, if they significantly increase productivity or useful life, are added to the value of the assets concerned and depreciated over the latter's residual useful life.

The effects of leased assets on the balance sheet, cash flow statement and income statement are recorded in compliance with IFRS 17. As such, leased items are booked among assets at cost and depreciated on the same basis as other tangible fixed assets. The principal due for outstanding lease installments is recorded on the liabilities side as a payable, while interest on installments for the year is booked to the income statement as a financial charge.

Financial fixed assets

These consist of equity investments, non-current receivables, other securities and treasury shares.

Equity investments Non-consolidated subsidiaries and associated companies as defined by Art. 2359 of the Italian Civil Code are valued using the equity method, i.e. at the corresponding portion of net equity stated in the companies' latest available financial statements, taking account of the difference between the purchase price and shareholders’ equity at the date of purchase and after adjustments made to comply with group accounting policies. The portion of income or loss deriving from this method is booked to the income statement under “adjustments to the value of financial assets.”

90 Notes to the consolidated financial statements at december 31, 2004 Equity investments in other companies are valued at purchase or subscription cost, and written down if necessary to reflect long-term impairment in value. For listed companies, account is taken of any significant decline in the share price which appears to be a long-term condition due to the absence of signs suggesting the likelihood of a recovery in the near future. The original value is re- stored in subsequent years if the reasons for the writedown cease to apply.

If an investee company's liabilities exceed its net equity, the group's share of that difference is charged as a provision against equity investment risks.

Other securities These are recorded at the lower of cost and estimated realizable value.

Treasury shares These are booked at cost, less any long-term impairment in value. Pursuant to Art. 2357-ter of the Italian Civil Code, an unavailable reserve of the same amount is booked under consolidated shareholders' equity.

Inventories

Inventories are valued at the lower of purchase or construction cost and their estimated market value as deduced from market trends. The purchase cost of raw materials is determined using the average weighted cost method, while the FIFO method is used for finished products. Inventories are written down to their net realizable value in consideration of market prices, selling prices in the course of normal operations, and technical and commercial obsolescence by means of specific reserves.

Receivables and payables

Receivables are recorded at face value and written down to their estimated realizable value by means of the reserve for doubtful accounts. The realizable value of receivables is also determined on the basis of the projected returns, in subsequent periods, of products distributed during the year. Payables are booked at face value.

Receivables and payables expressed in foreign currencies are translated at year-end exchange rates, and the gains or losses from their conversion are charged to the income statement as financial income or charges.

Current financial assets

Securities listed on official markets are booked at the lower of purchase cost and the average price over the last month of the period. Other current financial assets are recorded at the lower of cost and estimated realizable value.

Cash and banks

These are stated at face value.

91 Notes to the consolidated financial statements at december 31, 2004 Accruals and deferrals

These items are portions of costs and income that pertain to two or more fiscal years; they are booked on an accruals basis.

Provisions for risks and charges

These are made to cover certain or probable expenses whose amount or timing was unknown at the close of the year.

Provision for employee termination indemnities

This covers the full amount accrued to employees at year end. It is adjusted each year in accordance with laws and employment contracts in force.

Memorandum accounts

The memorandum accounts are shown separately from assets and liabilities. In accordance with the Italian Accounting Profession's standard no. 22, they do not include events already reported in the balance sheet or income statement.

Derivative trading

Derivatives consist of domestic currency swaps (DCS), caps and interest rate swaps used for hedging purposes.

For foreign currency items hedged by domestic currency swaps maturing at year end, the net premium or discount associated with the hedging agreement is charged to the income statement on a pro-rata basis. Exchange gains and losses accrued at year end on the reference amount of DCS are stated as financial income and charges, counterbalancing the exchange differences accrued on the items being hedged. If DCS are taken out to hedge foreign currency commitments to suppliers, the difference between the opening and the forward exchange rate is not booked until the purchase takes place, and serves to adjust the cost estimated at the date of the commitment.

Premiums on caps and interest differentials on interest rate swaps are charged to the income statement on an accruals basis. Any transactions that do not perfectly correlate with the underlying financial position are valued on the basis of market conditions.

92 Notes to the consolidated financial statements at december 31, 2004 Income statement

Revenues

Revenues and income are considered to be earned when the sums concerned are definitively due. Specifically: > revenues from the sale of goods are recognized when ownership changes hands, convention- ally considered to be on shipment for both newspapers and publications sold through bookstores, net of a reasonable estimate of returns; > revenues from the sale of advertising space and magazines are booked according to the issue date of the publications concerned, with magazines shown net of a reasonable estimate of returns; > revenues from partworks are recognized according to the date of product recall from newsagents; > revenues from services are considered earned when the services are rendered; > royalties are booked upon accrual, as defined in the respective contracts; > operating grants are booked upon collection.

Costs

Costs are considered to be incurred when the conditions giving rise to the expense or loss take place, according to the principles of accrual, matching and prudence.

Income taxes

Income taxes are calculated on the basis of laws in effect in the countries where group companies operate. In detail, the calculation takes account of the more significant tax adjustments and, in the case of companies subject to group income tax in Italy, the credit arising on tax losses that have been offset and may be offset against taxable income.

Deferred tax assets and liabilities are booked in relation to timing differences between the asset and liability figures used in the consolidation and the corresponding figures in the companies' statutory financial statements that are applicable for tax purposes. Deferred tax assets are recorded only if they are reasonably certain to be recovered; likewise, deferred tax liabilities are not booked if the payable is unlikely to arise.

93 Notes to the consolidated financial statements at december 31, 2004 Information on the balance sheet

Unless otherwise specified, all amounts are in millions of euros.

Assets

B) FIXED ASSETS B I – Intangible fixed assets (¤416.1 million) Changes during the year were as follows:

Start-up Industrial Concessions, Goodwill Assets Other Consolid- Total and patents and licenses, under intangible ation expansion intellectual trademarks develop- assets difference costs property and similar ment and rights rights advances Historical cost at 12/31/03 10.9 13.4 216.4 32.6 0.4 41.6 229.5 544.8 Additions 19.3 0.3 12.8 2.5 116.7 151.6 Decreases Writedowns (1.9) (0.1) (1.6) (12.5) (16.1) Other movements (3.9) 2.4 (15.8) (3.0) (0.2) (14.8) (2.0) (37.3) Historical cost at 12/31/04 5.1 15.8 219.8 29.9 13.0 27.7 331.7 643.0 Accum. Amort. at 12/31/03 (5.6) (12.6) (91.4) (14.6) (22.2) (57.0) (203.4) Amortization for the period (0.5) (1.0) (16.4) (2.8) (3.8) (29.1) (53.6) Decreases Other movements 1.9 14.4 1.9 9.5 2.4 30.1 Accum. Amort. at 12/31/04 (4.2) (13.6) (93.4) (15.5) (16.5) (83.7) (226.9) Net balance at 12/31/03 5.3 0.8 125.0 18.0 0.4 19.4 172.5 341.4 Additions 19.3 0.3 12.8 2.5 116.7 151.6 Decreases Amortization for the year (0.5) (1.0) (16.4) (2.8) (3.8) (29.1) (53.6) Writedowns (1.9) (1.6) (12.5) (16.1) Other movements (2.0) 2.4 (1.4) (1.1) (0.2) (5.3) 0.4 (7.2) Net balance at 12/31/04 0.9 2.2 126.4 14.4 13.0 11.2 248.0 416.1

Start-up and expansion costs

The balance amounts to ¤0.9 million and includes capital increase costs0 plant start-up costs and any capitalized expansion costs, incurred mainly by companies in the Unedisa Group.

94 Notes to the consolidated financial statements at december 31, 2004 Writedowns have been charged on the Unedisa Group's investments in digital radio frequencies. Other movements show a decrease of ¤2.0 million, mainly due to the reclassification as “rights” of the costs incurred by the Unedisa Group for the start-up and production of audiovisual works and films.

Patents and intellectual property rights

These amount to ¤2.2 million and consist of the Unedisa Group's costs for the production of audiovisual works and films (now completed).

Concessions, licenses, trademarks and similar rights

Totaling ¤126.4 million, these consist mainly of the net value of the Casterman trademark (¤6.1 million), RCS Broadcast's rights to use radio frequencies (¤32.6 million), goodwill attributed to the daily newspaper El Mundo published by the Unedisa Group in Spain (¤20 million, amortized over 20 years), and software licenses.

Of the total, ¤101.9 million refers to consolidation differences that arose upon these groups' first-time consolidation with RCS (in the case of Casterman and RCS Broadcast) or from the increased percentage held (in the case of Unedisa), which are attributed where possible to intangible assets.

Of the increase during the year, ¤11.1 million consists of the consolidation difference on Unedisa that arose when the group acquired an additional 5.9% interest in early 2004. The remaining ¤8.2 million refers chiefly to software licenses purchased by RCS Quotidiani S.p.A., the Unedisa Group and the Flammarion Group.

Most of the other movements stem from the consolidation at net equity of Rizzoli Larousse (¤0.6 million) and Beaux Arts (¤0.5 million), members of the French group Flammarion.

Goodwill

Goodwill amounts to a net ¤14.4 million, of which ¤7.7 million pertains to Casa Editrice La Tribuna and ¤6.7 million to the acquisition of the businesses complexes of Tramontana and Markes and the textbook division of Calderini-Edagricole.

Other movements primarily concern the change in consolidation method, from proportional to net equity, of IGP-Decaux S.p.A.

Assets under development and advances

These total ¤13.0 million. Of the increase, ¤8.7 million pertains to the “Full Color” project of RCS Quotidiani S.p.A. for unfinished construction work at its leased production sites, ¤3.2 million to implementation costs for new software programs, and ¤0.9 million to the Unedisa Group's costs for the start-up and production of audiovisual works and films. Until the films or other works are completed, the related costs are suspended and recorded as “Assets under development and advances.”

95 Notes to the consolidated financial statements at december 31, 2004 Other intangible fixed assets

These show a net balance of ¤11.2 million and consist mainly of leasehold improvements for extraordinary maintenance work on buildings leased by the RCS Group, and deferred charges primarily for the implementation of the Book Division's integrated system.

Writedowns refer in particular to the improvements made by Rizzoli International Publications when it began to operate a rented bookstore in San Francisco, a business that was subsequently closed.

Other movements stem mostly from the consolidation at net equity of m-dis Distribuzione Media S.p.A (¤1.7 million), IGP-Decaux S.p.A (¤0.9 million), the Milchstrasse Group (¤0,8 million), Calprint (¤0.7 million) and D.A.R.P. S.r.l. (¤0.2 million), and from the reclassification to “Land and buildings” of the improvements made to the Via Solferino property (¤1.0 million). The reclassification was effected upon consolidation to attribute the improvement costs incurred by the subsidiary RCS Quotidiani to the property owned by RCS MediaGroup.

Consolidation differences

These amount to ¤248.0 million and refer primarily to RCS Periodici (¤96.9 million), Flammarion (¤86.0 million), the Sfera Group (¤30.6 million), RCS Advertising (¤17.0 million), Blei (¤11.7 million) and RCS Broadcast (¤4.0 million).

The increase relates chiefly to the consolidation difference charged for the purchase of 40% of RCS Periodici S.p.A. (¤107.7 million), and to the higher consolidation difference on the Sfera Group (¤7.8 million) due to the adjustment of the original purchase price.

The consolidation difference arising from the purchase of 40% of RCS Periodici represents the price paid for the company's publications, which were recorded in the financial statements at cost but whose market value is much higher, as confirmed by independent appraisal.

The consolidation differences attributed to Blei S.p.A. (¤9.8 million) and RCS Advertising BV (¤2.6 million) were written down on the basis of impairment tests.

96 Notes to the consolidated financial statements at december 31, 2004 B II - Tangible fixed assets (¤245.8 million)

Changes during the year were as follows:

Land and Plant Equipment Other assets Under con- Total buildings struction Costs 116.1 190.8 12.4 126.3 13.8 459.4 Revaluations 24.8 1.7 0.1 26.6 Writedowns (0.7) (1.1) (1.3) (0.1) (3.2) Historical cost at 12/31/03 140.2 191.4 11.1 126.3 13.8 482.8 Additions 13.1 3.4 0.3 8.1 71.4 96.3 Revaluations Writedowns (2.7) (0.2) (2.9) Disposals (0.8) (0.3) (3.4) (4.5) Other movements (1.1) (34.5) (5.6) (8.0) (2.0) (51.2) Historical cost at 12/31/04 151.4 157.6 5.5 122.8 83.2 520.5 Accum. Dep. at 12/31/03 (50.7) (142.8) (7.8) (96.5) (297.8) Depreciation for the year (4.5) (8.3) (0.2) (9.2) (22.2) Disposals 0.1 0.3 3.0 3.4 Other movements 1.4 30.7 2.7 7.1 41.9 Accum. Dep. at 12/31/04 (53.7) (120.4) (5.0) (95.6) (274.7) Net balance at 12/31/03 89.5 48.6 3.3 29.8 13.8 185.0 Additions 13.1 3.4 0.3 8.1 71.4 96.3 Revaluations Writedowns (2.7) (0.2) (2.9) Disposals (0.7) (0.4) (1.1) Depreciation for the year (4.5) (8.3) (0.2) (9.2) (22.2) Other movements 0.3 (3.8) (2.9) (0.9) (2.0) (9.3) Net balance at 12/31/04 97.7 37.2 0.5 27.2 83.2 245.8

Tangible fixed assets are depreciated at the following annual rates, which reflect their estimated useful lives: civil and industrial buildings, maximum 10%; plant and machinery, industrial and commercial equipment, and other assets, maximum 25%.

No financial expenses have been capitalized.

Land and buildings

These are valued at ¤97.7 million and consist mainly of industrial properties and the Via Solferino building in Milan, as well as premises owned by companies belonging to the Unedisa Group, the Flammarion Group and GFT.net S.p.A.

The increase stems from the renovation of the Via Solferino building. Disposals refer to the sale of the property owned by RCS Radio e TV S.p.A. to HdP Sviluppo Immobiliare S.r.l., which was sold to third parties in July 2004. 97 Notes to the consolidated financial statements at december 31, 2004 Other movements pertain mostly to the valuation at net equity of Calprint (-¤0.6 million)—a member of the Spanish group Unedisa—of which the majority is no longer held.

The item “Land and buildings” includes ¤6.8 million in leased properties that are booked according to IAS/IFRS. During the year, GFT.net S.p.A. redeemed the leased industrial building in Turin, valued at ¤10 million in the consolidated financial statements.

The Via Solferino building is mortgaged to secure a loan from Banca Popolare di Milano originally amounting to ¤71.3 million.

Plant and machinery

These total ¤37.2 million; additions refer mainly to investments by RCS Quotidiani (¤1.5 million) for additional rotary press parts, by the Unedisa Group (¤0.9 million) and by RCS Broadcast S.p.A. for radio transmission systems (¤0.4 million).

This item includes extraordinary writedowns of ¤2.7 million charged by the Unedisa Group to reflect the reduced market value of its rotary presses, which will no longer be used once group in- vests in a color-printing system for the Spanish daily.

Other movements pertain mostly to the consolidation at net equity of IGP-Decaux S.p.A. and Calprint, a member of the Unedisa Group.

The item includes ¤14.0 million in leased plant booked in accordance with IAS/IFRS, mainly rotary presses used by RCS Quotidiani S.p.A. and the Unedisa Group.

Industrial and commercial equipment

These total ¤0.5 million. Other movements, showing a decrease of ¤2.9 million, primarily refect the consolidation at net equity of IGP-Decaux S.p.A.

Other tangible assets

These amount to ¤27.2 million and consist mainly of servers supporting the publishing and management systems, plus hardware, PCs, miscellaneous electronic equipment, furniture, fittings and motor vehicles. Most of the additions took place at RCS Quotidiani S.p.A., the Unedisa Group and the Flammarion Group, which purchased servers, electronic equipment and office machines.

This item includes extraordinary writedowns of ¤0.2 million charged by the Unedisa Group in connection with its future disposal of the Fabripress production site.

The other movements concern the consolidation at net equity of the Milchstrasse Group and of IGP-Decaux S.p.A.

Assets under construction and advances

These come to ¤83.2 million. Most of the investments took place at RCS Quotidiani S.p.A. in connection with the “Full Color” project for Corriere della Sera, which requires the leasing of new rotary presses (¤68.6 million) and the purchase of other machinery (¤1.5 million) as well as the in- stallation of a new telephone exchange (¤1.3 million). 98 Notes to the consolidated financial statements at december 31, 2004 B III – Financial fixed assets (¤472.1 million)

Equity investments (¤365.3 million)

The list of equity investments and related information required by Art. 38, par. 2 of Legislative Decree 127/91 is provided as Attachment A to the explanatory notes.

Movements during the year were as follows:

Subsidiaries Associated Other Total companies companies Gross balance at 12/31/03 88.5 74.5 392.9 555.9 – provisions for writedowns (23.9) (26.0) (37.5) (87.4) Balance at 12/31/03 64.6 48.5 355.4 468.5 Increases 0.8 10.0 0.7 11.5 Sales/premium redemptions (57.3) (14.6) (67.5) (139.4) Writedowns (6.8) (10.0) (4.4) (21.2) Revaluations 6.7 8.7 1.1 16.5 Other movements 5.3 36.3 (12.2) 29.4 Changes for the year (51.3) 30.4 (82.3) (103.2) Balance at 12/31/04 13.3 78.9 273.1 365.3 + provision for writedowns 9.5 14.7 55.6 79.8 Gross balance at 12/31/04 22.8 93.6 328.7 445.1

Subsidiaries

Subsidiaries are worth a total of ¤13.3 million. The most important changes during the period were the decrease caused by the reimbursement of the share premium by GFT USA to GFT.net (¤56.4 million), as a result of the disposal of Joseph Abboud in March, and the sale of HDP Sviluppo Immobiliare S.r.l. (¤0.8 million).

Writedowns refer chiefly to minor companies in the Flammarion Group (¤4.1 million) and to the investments in GFT International BV (¤1.9 million) and HDP BV (¤0.8 million).

Revaluations refer to GFT USA, whose value has increased due to the sale of the Joseph Abboud businesses.

Other movements refect the different consolidation method used for minor companies in the Flammarion Group (because they are up for sale), and the reclassification to the reserve for equity investment risks of writedowns exceeding net equity.

The increase refers to a capital grant received by HDP Sviluppo Immobiliare S.r.l. (later sold), for the purchase of a building from RCS Radio e TV S.p.A.

Associated companies

The increases refer to Eurofly Service S.p.A. for subscription to an increase in capital (¤1.3 million; this company was later written off in full), and to capital increases at Eurogravure S.p.A. (¤1.3 million), Max Verlag GmbH & Co. Kg (¤3 million), De Agostini Rizzoli Periodici S.r.l. (¤0.8 99 Notes to the consolidated financial statements at december 31, 2004 million), Garamond S.r.l. (¤0.3 million), Netdish Italia S.p.A. (¤0.3 million, later sold) and minor companies in the Unedisa Group (¤3 million).

Disposals pertain mainly to Burda RCS International Holding for ¤13.6 million and Netdish Italia S.p.A. for ¤1 million. Writedowns and revaluations of equity investments consist of the corresponding portion of the net loss or profit of companies valued under the net equity method, of which the main revaluations refer to GFT USA (¤6.6 million) and the main writedowns to Eurofly (¤5.8 million), and other minor companies (see the section “Information on the income statement” for further details).

Other movements reflect the use of the net equity method for joint ventures, which were previously consolidated proportionally: IGPDecaux S.p.A. (¤24.2 million), m-dis Distribuzione Media S.p.A. (¤3.4 million), RCS International Communication NV (¤1.9 million), Broad Media (¤1.2 million), ADR Advertising (¤0.9 million), and Editoriale del Mezzogiorno (¤0.7 million). They also include the deconsolidation of Max Verlag (-¤1.1 million), which is up for sale.

Other companies

Disposals concern a portion of Pirelli shares (¤64.5 million), the investment in Tomorrow Focus AG (¤1.5 million), a portion of Joyce Boutique Holding Ltd. (¤0.4 million) and other minor holdings of the Unedisa Group.

Writedowns pertain mostly to Istituto Europeo di Oncologia S.r.l. (¤2.2 million) and Alice Lab Netherlands NV (¤1.2 million), which have been written down to their net equity value, and to minor companies in the Unedisa and Flammarion Groups.

Other movements refer to the free allocation of 2,643,334 shares of Banca Intesa S.p.A. (¤7.3 million) pursuant to the decision to give out shares as a “dividend in kind,” at the rate of two ordinary shares with rights from January 1, 2004 for every 41 ordinary and/or savings shares owned, valued at the Stock Exchange price of April 22, 2004 of ¤2.75 per share. That amount was also booked to the income statement as “income from equity investments.” Other movements also include the reclassification of prior-year writedowns charged on H3G Italia S.p.A. (¤15 million) and Allaxia S.p.A. (¤0.4 million). Formerly booked to risk reserves on the liabilities side of the balance sheet, these are now deducted directly from the book value of equity investments.

Receivables (¤21.8 million)

The main receivables are “due from others” and consist of mandatory payments for advance employee termination indemnities, security deposits, and the amount paid by the parent company (¤6.1 million) for exercise of the option to convert 46,705,294 warrants for ordinary Pirelli shares (“2003-2006 program”) into 11,676,323 ordinary Pirelli shares with effect from January 14, 2005, at the ratio of one ordinary share for every four warrants owned at the price of ¤0.52 each.

During the year, the receivable arising from the partnership agreement with Bergamo's Nuovo Istituto Italiano Arti Grafiche S.p.A. was received in full.

Treasury shares (¤85.0 million)

No treasury shares were purchased during the year. 100 Notes to the consolidated financial statements at december 31, 2004 At December 31, 2004 we owned 26,782,590 ordinary shares, carried at ¤85.0 million, for an average carrying price of ¤3.175 per share. They amounted to 3.66% of ordinary share capital and 3.51% of total share capital. The market value of treasury shares was ¤113.9 million at the close of the year.

The subsidiaries do not own shares of RCS MediaGroup S.p.A.

C) CURRENT ASSETS C I – Inventories (¤160.1 million)

The following table shows inventories by type and the provisions made for their writedown to market value:

Gross balance Reserve for Net balance Gross balance Reserve for Net balance Change at 12/31/04 writedowns at 12/31/04 at 12/31/2003 writedowns at 12/31/2003 Raw and ancillary 39.1 2.3 36.8 34.3 2.3 32.0 4.8 materials and consumable Semi-finished products 7.8 0.7 7.1 11.0 0.8 10.2 (3.1) Finished products and 157.4 41.2 116.2 148.4 39.1 109.3 6.9 goods Total 204.3 44.2 160.1 193.7 42.2 151.5 8.6

The increase, mainly in “Finished products and goods,” reflects the greater number of partworks launched during the year by the book division, and the higher unit value of giveaways packaged with publications.

Inventory writedowns amounted to ¤42.2 million at the close of the year and pertained chiefly to finished products in the book division.

The breakdown by business sector is as follows:

Raw and ancillary Work in progress Finished Inventories materials and and semi-finished products at 12/31/2004 consumables products Newspapers 20.1 1 1.2 22.3 Books 7.6 4.9 114.6 127.1 Magazines 9.1 1.2 0.4 10.7 Total 36.8 7.1 116.2 160.1

101 Notes to the consolidated financial statements at december 31, 2004 C II – Receivables (¤946.3 million)

Receivables are broken down below by type and due date:

Balance at 12/31/04 Balance at 12/31/03 Change Within Beyond Total Within Beyond Total 12 months 12 months 12 months 12 months Trade receivables 683.9 0.5 684.4 830.3 0.3 830.6 (146.2) Reserve for doubtful accounts and returns (109.0) (109.0) (167.7) (167.7) 58.7 Trade receivables. net 574.9 0.5 575.4 662.6 0.3 662.9 (87.5) Due from subsidiaries 0.6 0.6 0.3 0.3 0.3 Due from associated companies 57.9 57.9 40.0 40.0 17.9 Tax credits 107.3 43.1 150.4 117.7 51.0 168.7 (18.3) Deferred tax assets 20.7 34.9 55.6 21.4 24.0 45.4 10.2 Other receivables 106.4 106.4 106.3 106.3 0.1 Current receivables 867.8 78.5 946.3 948.3 75.3 1.023.6 (77.3)

Trade receivables are shown net of ¤109 million in provisions (¤167.7 million the previous year) covering bad and doubtful accounts as well as the return of newspapers, magazines and partworks.

The decrease of ¤88.5 million was caused by the valuation at net equity of IGPDecaux S.p.A. (¤40.2 million), m-dis Distribuzione Media S.p.A. (¤32.9 million), Periodici Estero (¤6.4 million), D.A.R.P. S.r..l. (¤3.4 million), ADR Advertising S.p.A. (¤3.0 million), and Milano Press S.r.l. (¤2.6 million).

Trade receivables, net of the effect of valuing joint ventures under the net equity method, were essentially stable despite the increase in sales, thanks to an improvement in management and average collection time for these accounts.

Receivables due from non-consolidated subsidiaries and from associated companies derive from transactions conducted under arm's-length conditions. The increase in receivables from associated companies stems mainly from the different consolidation method used for m-dis Distribuzione Media S.p.A.

Tax credits, consisting mainly of IRAP and IRES credits carried forward, IRPEG credits awaiting reimbursement and VAT credits, refer to the parent company for ¤87.7 million, the RCS Quotidiani Group for ¤25.1 million and the RCS Libri Group for ¤18.7 million.

Deferred tax assets (¤55.6 million) pertain chiefly to RCS Quotidiani S.p.A., RCS Libri S.p.A. and RCS Pubblicità S.p.A., as well as to the parent company, where this item increased as a result of the group tax election. Movements during the year are shown in the table in the section on income taxes.

Of the heading “Other,” the most significant components are advances paid to agents, contributors and authors (¤59.7 million), primarily in the book and advertising divisions, and advance payments to suppliers (¤9 million); the remainder is made up of miscellaneous receivables.

No significant receivables falling due beyond five years have been recorded. 102 Notes to the consolidated financial statements at december 31, 2004 Current receivables are broken down below by business sector:

RECEIVABLES Trade Inter- Due from group Tax Deferred Advances Other Receivables receivables company companies credits tax assets receiv- at receivables for group ables 12/31/2004 tax election and fiscal transparency Newspaper 79.8 186.4 9.8 25.1 16.4 5.3 7.4 330.2 Books 163.3 26.0 6.6 18.7 13.7 50.2 18.6 297.1 Magazines 20.1 52.7 4.9 3.3 3.5 0.3 1.1 85.9 Advertising 244.3 2.7 0.5 0.9 6.0 12.4 0.3 267.1 Broadcasting 2.2 5.1 0.3 0.4 0.2 0.1 8.3 RCS Factor 65.0 0.2 65.2 Parent company 0.3 10.6 36.1 87.7 14.7 0.3 0.5 150.2 Other and eliminations 0.4 (216.6) (57.9) 14.3 1.3 0.8 (257.7) Total 575.4 66.9 0.5 150.4 55.6 68.7 28.8 946.3

C III – Current financial assets (¤119.5 million)

Other equity investments (¤6.9 million)

This item refers to investments held by the parent company (SMI for ¤1 million and Recoletos Compania for ¤5.2 million), and to the investments in the Milchstrasse Group and Max Verlag (¤0.7 million) which, due to the sale agreement reached on December 29, 2004 with Burda Holding International GmbH, have been recorded under current assets. Under the terms of the contract, the transfer became effective on January 1, 2005.

Other securities (¤89.7 million)

The balance of ¤89.7 million (¤85.2 million at December 31, 2003) includes ¤73.2 million in mutual fund units held by the parent company as short-term investments, as detailed in the notes to the parent company's financial statements. The remaining ¤16.5 million consists mainly of short-term investments by the Unedisa Group.

We also report that “other equity investments” and “other securities” are held for custody at Mediobanca and other banks for a gross book value of ¤79.9 million.

Financial receivables (¤22.9 million)

This item consists mainly of short-term investments by the Flammarion Group (¤5.6 million) as well as loans granted by the parent company and by Flammarion to non-consolidated subsidiaries and associated companies, namely Milano Press S.r.l. (¤5.8 million), Beaux Arts (¤3.1 million), D.A.R.P. S.r.l. (¤2.1 million), Socadis (¤1.5 million), Partedit (¤0.6 million) and Rizzoli Larousse S.p.A. (¤0.4 million).

Most of the increase pertains to the Flammarion Group. 103 Notes to the consolidated financial statements at december 31, 2004 C IV – Cash and banks (¤28.3 million)

These consist mainly of checking account deposits due on demand, and pertain to the RCS Libri Group for ¤18.3 million. The decrease stems from the valuation at net equity of joint ventures (- ¤12.2 million), the greater use of cash by the book division relative to bank deposits (-¤13.8 million), and the use of cash by RCS MediaGroup S.p.A. for the partial reimbursement of bank positions.

D) ACCRUED INCOME AND PREPAYMENTS (¤45.5 million)

These amount to ¤45.5 million, including ¤12.7 million in advertising expenses for the launch of partworks. The remainder consists mostly of contributors' fees, services, and rent.

Accrued Prepayments Total at Total at Change income 12/31/2004 12/31/2003 Newspapers 4.0 4.2 8.2 6.9 1.3 Books 2.5 29.4 31.9 22.4 9.5 Magazines 0.2 4.2 4.4 4.5 (0.1) Advertising 0.3 0.3 4.1 (3.8) Parent company 0.7 0.7 1.0 (0.3) Other and eliminations 2.8 (2.8) Total 6.7 38.8 45.5 41.7 3.8

104 Notes to the consolidated financial statements at december 31, 2004 Liabilities

A) SHAREHOLDERS' EQUITY (¤1,029.3 million) The composition of and movements in consolidated shareholders' equity are shown in the table below

Description Share Share Legal Reserve Trans- Other Income Net Group's capital premium reserve for lation reserve (losses) profit portion reserve treasury reserve carried (loss) of con- shares forward for thesolidated year shareholders' equity Balance at 12/31/03 762.0 153.6 152.1 85.0 3.3 (195.2) 46.1 1,006.9 Shareholders' meeting of April 29. 2004 of RCS MediaGroup S.p.A.: Coverage of loss carried forward at 12/31/03 through: – use of share premium reserve (82.4) 82.4 Allocation of 2003 net income as follows: – legal reserve 0.3 (0.3) – dividends (9.2) (45.8) (55.0) Change in translation reserve Net income (loss) for the year 77.4 77.4 Balance at 12/31/04 762.0 71.2 152.4 85.0 3.3 (122.0) 77.4 1,029.3

Consolidated shareholders’ equity decreased due to the parent company's dividend payment of ¤55.0 million, as resolved by the shareholders' meeting of April 29, 2004. The share capital amounts to ¤762,019,050, made up of 732,669,457 ordinary shares and 29,349,593 savings shares with a par value of ¤1.00 each. The share premium reserve decreased by ¤82.4 million for the coverage of prior-year losses. Pursuant to Art. 2426, point 5, par. 1 of the Italian Civil Code, we specify that the amount of available reserves exceeds the start-up and expansion costs that have not yet been amortized. The reconciliation between the parent company's net income (loss) and shareholders’ equity and the figures in the consolidated financial statements is shown below:

Balance at 12/31/04 Balance at 12/31/03 Shareholders' Net profit (loss) Shareholders' Net profit (loss) equity for the year equity for the year Shareholders' equity and net profit (loss) for the year, as shown in the financial statements of the parent company net of dividends paid 1,128.8 58.2 1,125.7 51.5 Elimination of adjustments and provisions made exclusively for tax purposes 22.3 (0.1) 16.9 0.2 Elimination of carrying value of consolidated equity investments 12.9 12.7 12.4 (34.8) Elimination of intercompany transactions (134.7) 6.6 (148.1) 29.2 Group's portion of shareholders' equity and net profit (loss) 1,029.3 77.4 1,006.9 46,1 105 Notes to the consolidated financial statements at december 31, 2004 B) PROVISIONS FOR RISKS AND CHARGES (¤140.2 million)

Movements during the year were as follows:

Description Balance at Provisions Withdrawals Other Balance at 12/31/03 movements 12/31/2004 Retirement benefit reserves 4.2 0.4 (0.3) (0.1) 4.2 Tax provisions (current and deferred) 4.0 1.2 2.8 8.0 Other provisions for risks and charges 186.5 32.9 (50.9) (40.5) 128.0 Total provisions for risks and charges 194.7 34.5 (51.2) (37.8) 140.2

The tax provisions include deferred taxes.

The item “Other provisions for risks and charges” (¤128.0 million) covers certain or probable liabilities, as follows: > ¤47.1 million for staff leaving expenses and the termination of employee contracts; > ¤32.2 million for legal and fiscal risks and litigation involving mainly the newspaper division (¤21.5 million) and to a lesser extent magazines (¤3.7 million), books (¤3.2 million), RCS MediaGroup S.p.A. (¤3.2 million) and other minor businesses; > ¤14.2 million for future risks arising from the sale of buildings or business divisions, provided for in prior years; > ¤9.9 million for corporate reorganization and head office transfer, mainly by the book division; > ¤5.3 million for risks of impairment in the value of non-consolidated investments requiring writedowns in excess of their book value; > ¤4.2 million for tax risks; > ¤15.1 million for other risks.

Most of the withdrawal of ¤50.9 million from the “Other provisions for risks and charges” is explained as follows: > ¤17.9 million for staff departures and the termination of employee contracts, primarily in the newspaper division and to a lesser degree at the parent company, including in relation to the turnover of top management; > ¤5.5 million for the definitive, out-of-court settlement of the claim filed by the buyers of the operating activities of RCS Investimenti S.p.A. (formerly Fila Holding); > ¤2.8 million for the partial reversal of restructuring provisions made by GFT.net once the in- terested parties dropped some of their claims; > ¤2.8 million for the definitive cancellation of the conditional capital gain realized from the transfer of the illustrated books business to the joint venture with the Skirà Group; > ¤2.4 million for reversal of the provision made against Cairo Pubblicità's claim for losses on receivables as a result of a settlement between the parties; > ¤1.6 million for collection of withholding tax on foreign dividends, which had been provided for as collection was thought to be doubtful; > ¤17.9 million for standard amounts withdrawn in connection with costs incurred primarily in the course of ordinary business, as well as withdrawals from the provisions for legal risks. 106 Notes to the consolidated financial statements at december 31, 2004 The “Other provisions for risks and charges,” at ¤32.9 million, are broken down below: > ¤16.7 million referring to the Italian newspaper division, the parent company and the Flammarion Group, essentially for corporate restructuring expenses; > ¤4.6 million for legal risks and litigation; > ¤2.2 million for tax risks in relation to foreign subsidiaries; > ¤2.0 million relating to the advertising and book divisions for reorganization costs and agents' indemnities; > ¤1.7 million relating to the Flammarion Group for restructuring costs and head office transfer; > ¤1.6 million for the potential impairment in value of non-consolidated investments; > ¤4.1 million for other potential liabilities in relation to various consolidated companies.

Other movements concern the valuation of joint ventures at net equity (¤7.3 million) and the direct deduction from the pertinent asset items of losses on equity investments and receivables (¤33.2 million). More specifically, the risk reserves pertaining to H3G Italia S.p.A. (¤15 million) and Allaxia S.p.A. (¤0.4 million) have now been deducted from the value of those holdings, and RCS Libri S.p.A.'s reserve for losses on installment payments (¤11.7 million) has now been deducted from the relevant receivables.

The status of the main legal disputes involving the group is described below. > The group has already reported the notice with which Sports Brands International (SBI) Ltd., the buyer of the operating companies of RCS Investimenti (formerly Fila Holding), claimed an entitlement to indemnities from RCS Investimenti and RCS MediaGroup in connection with the sale contract finalized on June 10, 2003. In December 2004, a settlement was reached with the buyer covering all present and future claims. As a result of the settlement, the court case has been dropped, and the standard contractual guarantees recognized to the buyer no longer apply, so there is no possibility for future litigation and no risk of incurring the consequent internal and external costs. SBI will receive 10 million dollars under the settlement, plus RCS Investimenti's waiver of the ¤2.3 million receivable still claimed from the buyer. The cost of the settlement was provided for in part in the 2003 financial statements, to cover the professional fees incurred and reasonably foreseeable for legal and technical assistance in the lawsuit SBI was planning to file in the United States (the place of jurisdiction, according to the terms of the contract). The award of ¤12 million and the costs for reaching the settlement have been divided equally between the parent company and the subsidiary RCS Investimenti. > Unifin has appealed the Court of Milan's rejection of its claim for over ¤3 million in damages for pre-contractual and other liabilities, in relation to the failed negotiations for a minority investment by RCS MediaGroup in the Radio Montecarlo Group. We believe that we have sound arguments for refuting all such claims. > RCS Editori (now RCS Quotidiani), which took over the cinema production companies, has received an injunction from Indian movie producer Chitra Jindal in relation to the film I misteri della giungla nera that was co-produced in 1988-89 by RCS Produzioni TV. Mr. Jindal is trying to have a New Delhi court ruling, which recognized him as co-producer of the film, recognized in Italy and has claimed rights of over ¤2 million plus interest. Counterclaims have been filed with the courts of Milan and Rome. The company has also petitioned the New Delhi court to revise its ruling, partly on grounds that a formal complaint was never served. The case is still pending in the courts. 107 Notes to the consolidated financial statements at december 31, 2004 > In July 2003, a suit was filed with the New York State Supreme Court against RCS and RCS Investimenti (formerly Fila Holding) and directors of the latter company; the suit was amended on August 7, 2003 to include Bank of New York, which acted as RCS's tender agent in its bid for the American Depositary Shares representing Fila Holding stock. The plaintiff aims to have the bid cancelled or the tenders rescinded, or else to be awarded damages. This is a class action suit in the name of all owners of Fila Holding American Depositary Shares, based partly on al- leged violations of minority shareholders' rights by RCS, Fila Holding and the latter's directors, but it was not properly served to the Italian defendants and is therefore held to be invalid. On February 28, 2005 the suit was officially dropped and can no longer be reopened.

C) PROVISION FOR EMPLOYEE TERMINATION INDEMNITIES (¤102.8 million)

Movements during the year were as follows:

Balance at 12/31/03 109.4 Provision for the year 14.4 Amounts paid or transferred (15.4) Other changes (5.6) Balance at 12/31/04 102.8

The balance covers the amounts accrued to employees in accordance with laws and individual employment contracts. Other changes reflect the use of the net equity method for the consolidation of joint ventures, which were consolidated under the proportional method in 2003.

108 Notes to the consolidated financial statements at december 31, 2004 D) PAYABLES (¤1,084.4 million)

Payables are broken down below by type and due date:

Balance at 12/31/04 Balance at 12/31/03 Within Beyond Total Within Beyond Total Change 12 months 12 months 12 months 12 months Bonds – – – – – – – Due to shareholders for loans – – – – – – – Due to banks 83.1 115.3 198.4 130.3 183.4 313.7 (115.3) Due to other sources of finance 3.2 53.6 56.8 4.3 10.4 14.7 42.1 Advances received 15.2 15.2 21.6 – 21.6 (6.4) Trade payables 556.7 556.7 509.6 – 509.6 47.1 Credit instruments issued – – – – – – – Due to non-consolidated subsidiaries 13.7 – 13.7 6.7 – 6.7 7.0 Due to associated companies 79.9 – 79.9 50.6 3.1 53.7 26.2 Taxes payable 42.1 – 42.1 69.4 1.3 70.7 (28.6) Due to social security institutions 18.3 – 18.3 19.3 – 19.3 (1.0) Other payables (*) 78.8 24.5 103.3 70.0 18.3 88.3 15.0 Payables 891.0 193.4 1.084.4 881.8 216.5 1,098.3 (13.9)

(*) The figures as at 12/31/2003 related to the current fiscal year and beyond were reclassified in order to guarantee a situation more in line with the balance.

The group has ¤35.8 million in bank debt that will mature beyond five years.

Payables due to banks consist of current account overdrafts (¤23.4 million), short-term financing (¤59.7 million) and long-term loans (¤115.3 million). The item decreased due to the reduction in short-term debt by the parent company, the newspaper division, the book division and RCS Factor S.p.A.

The decrease in long-term debt includes the advance reimbursement of ¤32.4 million out of the 10-year mortgage loan granted by Banca Popolare di Milano for the purchase of the Via Solferino building, RCS Quotidiani S.p.A.'s partial repayment of the loan from Mediobanca (¤2.3 million), and the reclassification of RCS Pubblicità's debt with Banca Nazionale del Lavoro to short-term payables (¤20.7 million).

Payables due to other sources of finance include leasing contracts held by RCS Quotidiani S.p.A., the Unedisa Group and the Flammarion Group, and relate chiefly to production plants and buildings. The increase with respect to year-end 2003 concerns amounts due to leasing companies in connection with the progress of RCS Quotidiani S.p.A.'s “full color” investment project. GFT.net S.p.A. has redeemed the leased industrial building in Turin and has thus cancelled its financial debt.

The item “Advances received” consists of advances from customers and subscribers. The decrease pertains mostly to the Flammarion Group and to the fact that the Milchstrasse Group and Max Verlag are now consolidated under the net equity method.

Trade payables are due to suppliers, agents, sales representatives and contributors. Most of the increase pertains to the newspaper division (+¤71.9 million), in relation to the higher amount 109 Notes to the consolidated financial statements at december 31, 2004 spent for add-ons and the investments in the “Full Color” project. The increase was partially offset by a decrease of ¤41 million caused by the consolidation at net equity of m-dis Distribuzione Media S.p.A., D.A.R.P. S.r.l., IGP-Decaux S.p.A., ADR Advertising S.p.A., the Milchstrasse Group and Max Verlag.

Payables to non-consolidated subsidiaries increased, mainly as a result of financial transactions (+¤7.7 million). The balance at year end includes ¤12.2 million in financial transactions conducted under arm's-length conditions, including ¤5.5 million owed by Rizzoli International Publications to GFT USA Corp. and another ¤5.5 million owed by RCS International Books BV to GFT International BV.

The increase in payables to associated companies refers mainly to the parent company, for loans granted to the associated Distribuzione Media S.p.A., which was previously consolidated proportionally and is now carried at equity. In 2003 those debts were reversed in proportion to the amount held. The item includes ¤48.1 million in financial payables contracted under arm's- length conditions; the rest consists of ordinary trade payables.

“Taxes payable” refer essentially to IRAP, IRPEF withholdings to be paid in, and VAT due at year end. These payables decreased for two reasons: the change in consolidation method used for m- dis Distribuzione Media S.p.A., IGP-Decaux S.p.A. and the Milchstrasse Group, and the fact that RCS has taken the group tax election, which has eliminated any IRES (corporate income tax) balance due for the companies taking part.

The most significant “Other payables” concern personnel and contributors for pay in lieu of holiday, standard contractual bonuses and the consequent social security charges (¤75.9 million), which increased by ¤4.8 million to be paid beyond one year in connection with top management turnover at the parent company. An additional ¤7.6 million concerns the settlement due to the buyer of the operating companies of RCS Investimenti (formerly Fila Holding) in exchange for its renouncement of all present and future claims.

Employees are owed ¤19 million for pay in lieu of holiday maturing within one to five years.

Payables are broken down below by business sector:

PAYABLES Financial Advances Due to group Trade payables Taxes Other Payables payables companies and payables at for group Group Third- social 12/31/04 tax election com- party security and fiscal panies suppliers charges transparency due Newspapers 104.9 4.7 28.9 234.4 20.3 36.7 51.3 481.2 Books 238.4 2.0 0.8 224.2 20.7 10.5 16.2 512.8 Magazines 9.7 7.9 5.3 46.2 12.5 9.1 6.4 97.1 Advertising 23.4 0.5 1.0 34.2 190.1 2.0 5.7 256.9 Broadcasting 4.0 – – 8.1 0.1 0.5 1.3 14.0 RCS Factor 57.7 – 0.3 0.1 0.0 0.3 – 58.4 Parent company 173.9 0.1 24.7 8.2 2.5 1.2 17.2 227.8 Other and eliminations (296.4) – (60.3) 1.2 (208.7) 0.1 0.3 (563.8) Total 315.6 15.2 0.7 556.6 37.5 60.4 98.4 1,084.4

110 Notes to the consolidated financial statements at december 31, 2004 E) ACCRUED LIABILITIES AND DEFERRED INCOME (¤34.8 million)

Accrued liabilities amount to ¤8.0 million and are mostly financial in nature.

Deferred income, at ¤26.8 million, consists chiefly of revenues not pertaining to the year (magazines, other periodicals, and partworks billed before year end); the rest consists of miscellaneous items attributable to the various industrial sectors. Most of the increase on the previous year concerns RCS Quotidiani S.p.A. for the booking of income pertaining to future periods: namely, the next five years' worth of the 3% tax credit matured on investments for the “full color” project carried out at December 31, 2004 (¤7.9 million), in accordance with Law 62/2001 for the publishing industry, and the residual 3% tax credit for investments made in 2001, 2002 and 2003, also granted by Law 62/2001 (Art. 8).

Of the total increase, ¤10.5 million was offset by the consolidation at net equity of IGP-Decaux, ADR Advertising and m-dis Distribuzione Media.

Accrued liabilities Deferred income Total at 12/31/04 Total at 12/31/03 Newspapers 1.3 14.1 15.4 1.7 Books 4.4 6.0 10.4 7.8 Magazines 0.6 6.3 6.9 5.7 Advertising 0.1 0.1 0.2 7.8 Broadcasting 0.1 0.1 0.3 Parent company 0.8 0.1 0.9 0.3 Other and eliminations 0.7 0.2 0.9 4.1 Total 8.0 26.8 34.8 27.7

111 Notes to the consolidated financial statements at december 31, 2004 Memorandum accounts

1) GUARANTEES GIVEN (¤182.4 million)

I. Sureties (¤27.3 million)

Most of the these are sureties given to advertising brokers, the Revenue Office (mainly for con- tests), and Librerie Feltrinelli to cover potential liabilities and/or non-existence of assets, as well as guarantees issued in connection with the sale of real estate in 2000. They also include sureties given for rental agreements and loans.

II. Endorsements (¤15.4 million)

These consist chiefly of endorsements given to third parties by the Unedisa Group for investments in the new media.

III. Other unsecured guarantees (¤139.7 million)

These refer mainly to the parent companies' guarantees to the tax authorities on behalf of subsidiaries, in relation to VAT credits offset in the context of group-wide VAT settlement for 2000, 2001, 2002 and 2003.

2) COMMITMENTS (¤23.9 million)

Securities to be purchased/sold (¤0.1 million)

These refer to the parent company's commitments to purchase company shares.

Other commitments (¤23.8 million)

These mainly concern the parent company and RCS Quotidiani S.p.A., as follows: ¤1.5 million for outstanding commitments with Gemina, pursuant to Art. 2504 decies of the Italian Civil Code (last paragraph), arising from the Gemina spin-off; ¤12 million for other contractual commitments with personnel; and ¤1.5 million for the commitment to purchase shares of MB Venture Capitale Fund.

They also include commitments under which GFT USA, on the basis of the agreement for the sale of equity investments and jointly with RCS MediaGroup, may be asked to pay a maximum of ¤11.7 million for breach of contract.

In addition, the settlement reached in December 2004 with buyer of the operating companies of RCS Investimenti (formerly Fila Holding) invalidated all present and future claims, and rendered inapplicable any guarantees pertaining to that sale.

112 Notes to the consolidated financial statements at december 31, 2004 3) ASSETS HELD ON DEPOSIT (¤447.2 million)

Of the total, ¤421.1 million refers to RCS MediaGroup S.p.A. shares under pooled management at the parent company, which has in turn lodged them with the central Italian securities depositary (Monte Titoli), and ¤26.1 million to other publishers' books held on deposit by companies in the book division. These items are covered by suitable insurance policies against fire and theft.

RISKS

RCS MediaGroup has commitments for off-balance sheet financial instruments with the following notional values:

CAP 161.1 Interests Rate Swaps (IRS) 53.9 Domestic Currensy (DCS) 31.7 Total 246.7

The caps and interest rate swaps in effect at December 31, 2004 amount to ¤205 million and hedge the risk of interest rate fluctuation, mainly with reference to loans and leasing agreements.

The domestic currency swaps in effect at December 31, 2004 hedge exchange rate risks associated with commitments and payables.

113 Notes to the consolidated financial statements at december 31, 2004 Information on the income statement

A) PRODUCTION VALUE (¤2,201.0 million)

Revenues by business sector

Revenues Change in fin- Other 2004 2003 Change from sales ished product revenues and services inventories & work in progress Newspapers 1,071.2 (0.5) 21.7 1,092.4 943.2 149.2 Book 704.4 8.5 17.1 730.0 666.5 63.5 Magazines 272.6 (1.7) 8.3 279.2 302.9 (23.7) Advertising 548.8 4.8 553.6 621.2 (67.6) Broadcasting 26.4 1.2 27.6 26.7 0.9 Parent company 9.5 18.2 27.7 21.9 5.8 Other and eliminations (482.4) (27.1) (509.5) (335.7) (173.8) Total 2,150.5 6.3 44.2 2,201.0 2,246.7 (45.7)

Revenues from sales and services (¤2,150.5 million)

Revenues were ¤18.3 million lower than in 2003. The decrease is due exclusively to the deconsolidation of joint ventures, valued for the first time at net equity. On a like-for-like consolidation basis, revenues rose by ¤205.5 million thanks to a significant increase in publishing revenues (¤171 million), owing to the successful sale of newspaper add-ons in Italy and Spain and to the rise in sales of partworks. Again on a like-for-like basis, advertising revenues were also on the rise, growing by ¤21.8 million by virtue of brisk newspaper sales (especially El Mundo and Gazzetta dello Sport). The ¤12.7 million increase in other publishing revenues refers to the sale of rights by the book division.

Changes in inventories of work in progress, semi-finished and finished products (¤5.8 million)

Most of the increase in this item pertains to finished partworks in the book division.

Other revenues and income (¤44.2 million)

These fell by ¤23.9 million and include revenues from the sale of miscellaneous materials, cost recovery, and other minor items, as well as out-of-period income relating to ordinary operations.

114 Notes to the consolidated financial statements at december 31, 2004 B) PRODUCTION COSTS (¤2,065.7 million)

Raw and ancillary materials, consumables and goods (¤557.0 million)

These amounted to ¤557 million and increased by ¤2.3 million with respect to 2003. On a like- for-like basis the increase comes to ¤53.8 million, due primarily to the greater purchase volumes of paper, finished products and other materials reflecting the higher sales of add-on products and partworks.

These costs amounted to 25.9% of revenues from sales and services (25.0% in the pro-forma 2003 financial statements).

Services (¤849.2 million)

2004 2003 Change Subcontracted work 261.2 264.4 (3.2) Advertising, promotions and merchandising 143.7 127.0 16.7 Legal, professional and consulting services 146.0 149.6 (3.6) Transport costs, freight and commissions 85.0 101.1 (16.1) Other services 72.4 75.7 (3.3) Commission expense 51.1 63.2 (12.1) Post, telephone and telegraph 33.5 37.4 (3.9) Travel and accommodation 25.4 25.0 0.4 Maintenance and refurbishing 14.7 14.8 (0.1) Energy and power 5.3 6.6 (1.3) Directors' and statutory auditors' fees 6.1 8.3 (2.2) Insurance 4.8 5.2 (0.4) Total services 849.2 878.3 (29.1)

Service costs totaled ¤849.2 million, a decrease of ¤29.1 million, or an increase of ¤58.3 million on a like-for-like consolidation basis. Most of the increase is due to the higher cost of subcontracted work in connection with add-on products and partworks. The rise in advertising costs was incurred mainly by the newspaper division, for the promotion of add-ons, and by the book division to aid the sale of partworks. On the other hand, advertising costs went down for magazines (-¤3.9 million), due chiefly to the investments made in 2003 to support the launch of new titles.

Service costs amounted to 39.5% of revenues (40.0% in 2003 on a like-for-like basis).

Rentals and leasing (¤139.3 million)

This item essentially consists of royalties paid for text and photo reproduction, as well as rental and leasing costs for buildings, office machines and vehicles. These costs amounted to 6% of revenues from sales and services, with no change on the previous year assuming an identical scope of consolidation.

115 Notes to the consolidated financial statements at december 31, 2004 They are broken down below by business sector:

Raw and Service Rentals 2004 2003 Change ancillary costs and materials leasing and goods Newspapers 236.6 397.6 53.6 687.8 611.8 76.0 Books 217.7 294.2 83.1 595.0 528.6 66.4 Magazines 62.0 117.9 19.6 199.5 223.1 (23.6) Advertising 459.3 58.3 2.0 519.6 572.8 (53.2) Broadcasting 0.2 20.4 1.5 22.1 21.2 0.9 Parent company 0.4 17.9 9.1 27.4 24.3 3.1 Other and eliminations (419.2) (57.1) (29.6) (505.9) (371.1) (134.8) Total 557.0 849.2 139.3 1,545.5 1,610.7 (65.2)

Payroll costs (¤385.8 million)

Payroll costs came in at ¤385.8 million, decreasing by ¤17.1 million on the previous year, and showing a ¤15.4 million increase on a like-for-like basis. The increase was caused mainly by the additional expenses incurred by RCS Quotidiani S.p.A. in connection with its corporate reorganization plan, and by the renewal of the national employment contract for journalists and print workers. It was partially offset by the decrease resulting from the sale of the operating companies of the GFT USA Group (-¤1.2 million) and of RCS Investimenti S.p.A. (formerly Fila Holding S.p.A.) (-¤1.6 million).

The breakdown is shown below:

2004 2003 Change a. wages and salaries 266.0 285.5 (19.5) b. social security charges 80.7 86.0 (5.3) c. employee termination indemnities 16.2 19.6 (3.4) d. retirement benefits and similar 3.7 5.7 (2.0) e. other costs 19.2 6.1 13.1 Payroll costs 385.8 402.9 (17.1)

Payroll costs amounted to 17.9% of revenues (19.0% in the pro-forma 2003 accounts). The average workforce during the year is broken down below by category and region: Category 2004 2003 Change Executives/White collar 3.153 3.544 (391) Journalists/Reporters 1.229 1.425 (196) Blue collar 520 611 (91) Total 4.902 5.580 (678)

116 Notes to the consolidated financial statements at december 31, 2004 Region Italy France Spain Other countries 2004 2003 Newspapers 1.756 873 2.629 2.725 Books 387 705 61 1.153 1.236 Magazines 561 54 45 660 693 Advertising 277 277 444 Broadcasting 74 74 65 Parent company 106 106 105 Other 3 3 312 Total 3.164 705 927 106 4.902 5.580

Amortization, depreciation and writedowns (¤88.3 million)

These came to ¤88.3 million (¤87.1 million in 2003). On a like-for-like consolidation basis they increased by ¤7.9 million, due mainly to amortization of the consolidation difference arising upon the acquisition of 40% of RCS Periodici S.p.A., which was partially offset by lower writedowns of current receivables in the newspaper, magazine and advertising divisions.

Other operating expenses (¤41.0 million)

At ¤41 million (¤44.7 million in 2003), other operating expenses increased by ¤2.3 million with respect to the pro-forma 2003 accounts, due primarily to the rise in taxes.

In detail:

Description 2004 2003 Change Taxes 22.4 19.8 2.6 Miscellaneous operating expenses 11.4 13.0 (1.6) Out-of-period expenses 4.5 7.7 (3.2) Contest prizes 2.0 2.1 (0.1) Losses on receivables and fixed assets 0.7 2.1 (1.4) Other operating expenses 41.0 44.7 (3.7)

Taxes consist mainly of VAT paid by the publisher and of local property tax (ICI).

C) NET FINANCIAL INCOME (CHARGES) (¤11.9 million)

Income from equity investments (¤16.8 million)

Totaling ¤16.8 million, this consists primarily of dividends from holdings in other companies, no- tably Pirelli and Banca Intesa. In 2003, income from equity investments came to ¤10 million and included ¤2.3 million in tax credits on dividends received from non-subsidiaries; these are no longer recognized as a result of the tax reform.

117 Notes to the consolidated financial statements at december 31, 2004 Other financial income (¤8.4 million)

This item decreased by ¤7.4 million with respect to the previous year. The drop was caused mainly by reduced income at RCS Investimenti S.p.A., and by a decline in financial income earned by the parent company, as a result of smaller average investments in interest-bearing assets.

Interest and other financial charges (¤14.9 million)

These decreased by ¤7.4 million with respect to 2003. The reduction was caused partly by a grad- ual decline in average debt and partly by the favorable interest rate trend.

This item is made up of financial charges and fees paid to banks (¤9.1 million), charges on derivatives (¤2.5 million) and miscellaneous financial charges.

Exchange gains (losses) (¤1.6 million)

The net figure is the result of ¤5.1 million in exchange gains and ¤3.5 million in losses. The improvement from net exchange losses of ¤2 million in 2003 stems from the different exposure to the U.S. dollar area.

D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS (-¤7.5 million) Revaluations (¤16.5 million)

These represent the group's share of the earnings of companies valued under the net equity method. Specifically, ¤7.8 million pertains to joint ventures (consolidated proportionally in 2003), including m-dis Distribuzione Media S.p.A. for ¤4.2 million and IGP-Decaux S.p.A. for ¤2.4 million. Last year this item included ¤45.4 million for the partial writeback of Banca Intesa shares.

Writedowns (¤24 million)

Writedowns came to ¤24 million, compared with ¤6.8 million in 2003. Of the total, ¤10.5 million pertains to the parent company's holdings (Eurofly Service S.p.A. ¤5.8 million, Istituto Europeo di Oncologia S.r.l. ¤2.2 million, Alice Lab Netherlands NV ¤1.2 million, HDP BV ¤0.8 million, and other minor investments), ¤4.9 million to companies in the Flammarion Group, ¤1.1 million to members of the Unedisa Group, and the rest to minor holdings. The use of the net equity method to consolidate joint ventures (consolidated proportionally in 2003) generated writedowns of ¤2.8 million, mostly in reference to D.A.R.P. S.r.l. (¤1.8 million) and Rizzoli Larousse.

118 Notes to the consolidated financial statements at december 31, 2004 E) EXTRAORDINARY ITEMS (-¤34.7 million) Extraordinary income (¤52.2 million)

Extraordinary income came to ¤52.2 million (¤165.6 million the previous year) and consisted of: > ¤31.9 million in capital gains from the sale of equity investments, as follows: ¤14.0 million for BVO, ¤11.1 million for the partial sale of Pirelli shares and warrants, ¤4.8 million for Tomorrow Focus, ¤1.1 million for Burda RCS International Holding, and ¤0.9 million for shares of Joyce Boutique; > ¤2.4 million in price supplementals for the 2003 sale of 10% of RCS Periodici S.p.A., 55% of m-dis Distribuzione Media S.p.A. and Milano Press S.r.l.; > ¤2.6 million in income from the recalculation of the deferred taxes of the Flammarion Group; > ¤7.7 million for the release and utilization of reserves, including ¤3.5 million pertaining to RCS Factor S.p.A. for disinquinamento fiscale (tax adjustments) as provided for by the new Italian Civil Code regulations; > miscellaneous extraordinary income, out-of-period income and other gains.

Extraordinary charges (¤86.9 million)

These came to ¤86.9 million (¤218.6 million the previous year) and consisted of: > costs for the turnover of top management in the newspaper division and at the parent company (¤29.2 million); > extraordinary charges in the Italian and foreign book division totaling ¤17.2 million, consisting of ¤2.7 million deriving from the market impact of the “Moratti Law” (the school system reform introduced in 2004); ¤2.3 million for the closure of the bookstore operated by Rizzoli International Publications in San Francisco; ¤5.5 million for restructuring costs and head office transfer costs incurred by Flammarion; and miscellaneous extraordinary charges; > extraordinary charges of ¤9.1 million at the Unedisa Group for implementation of its business plan and costs associated with the “full-color” project, including those for the transfer and renovation of the Fabripress printworks; > the writedown of goodwill on Blei S.p.A. (¤9.9 million) and RCS International Advertising BV (¤2.6 million) as a result of impairment test results; > extraordinary charges of ¤6.8 million for the definitive, out-of-court settlement of the claim filed by the buyers of the operating activities of RCS Investimenti S.p.A., including the cost of legal and related advice; > consulting fees of ¤2.1 million, mostly in connection with the sale of the operating activities of the GFT.net Group; > out-of-period expenses, prior-year taxes and other miscellaneous charges.

22) INCOME TAXES FOR THE YEAR; DEFERRED TAX ASSETS AND LIABILITIES (-¤21.9 million)

Income taxes amounted to ¤21.9 million (¤22.3 million in 2003) and consist of ¤17.6 million in IRAP (Italian regional business tax) and ¤17.5 million in assimilated foreign taxes (¤17.5 million), offset by ¤13.2 million in net deferred tax assets. For the companies participating in the group 119 Notes to the consolidated financial statements at december 31, 2004 tax election allowable as from January 1, 2004, those figures take account of the credit arising on tax losses that have been offset and may be offset against taxable income. Deferred tax assets on certain timing differences have not been recorded, as they are not reasonably certain to be recovered.

Below is the breakdown of income taxes for the year:

INCOME STATEMENT 2004 2003 Current taxes: 35.1 18.4 -Foreign taxes 17.5 (0.3) -IRAP 17.6 17.4 Deferred tax assets/liabilities: (13.2) 5.2 - Assets: (14.4) 9.0 – · provisions (29.9) (1.4) · utilizations 15.5 7.6 - Liabilities: 1.2 (3.8) – · utilizations (5.3) · provisions 1.2 1.5 Total taxes 21.9 22.3

The following table shows the relevant balance sheet figures as they relate to deferred tax assets and liabilities:

BALANCE SHEET Deferred tax assets Deferred tax liabilities Balance at 12/31/03 45.4 (3.9) + provisions 29.9 (1.2) – utilizations (15.5) Other movements (4.2) (2.9) Balance at 12/31/04 55.6 (8.0)

Reckoning of deferred tax assets and liabilities (OIC1) (Millions of euros) 12/31/2004 12/31/2003 IRES (corporate income tax) Amount Rate Tax Amount Rate Tax of timing effect of timing effect differences differences Deferred tax liabilities for: Leasing 6.1 33-35% 2.1 2.1 33-35% 0.7 Tangible and intangible fixed assets 12.7 33-35% 4.3 8.7 33-35% 2.9 Receivables (writedowns) 2.2 33-35% 0.8 33-35% Other movements (*) 0.8 3.2 Total deferred tax liabilities 21.0 8.0 10.8 6.8

(*) For 2003 includes e2.9 million in reclassifications for equity purposes. 120 Notes to the consolidated financial statements at december 31, 2004 12/31/2004 12/31/2003 continued IRES Amount Rate Tax Amount Rate Tax of timing effect of timing effect differences differences Deferred tax assets for: Reserves adjusting asset balances: Tangible and intangible fixed assets – – – – – – Financial fixed assets 6.7 33-35% 2.2 10.2 33-35% 3.4 Inventories 1.7 33-35% 0.6 1.0 33-35% 0.3 Receivables (writedowns) 20.1 33-35% 6.7 17.9 33-35% 5.9

Reserves for risks and charges: Reserve for litigation 9.2 33-35% 3.0 6.2 33-35% 2.0 Reserve for specific risks 50.3 33-35% 16.9 62.0 33-35% 20.7

Deferred-deductible costs: Entertainment, certification, membership fees, etc. 21.0 33-35% 7.1 24.0 33-35% 8.2 Other movements (**) (5.8) (6.5) Deferred taxation from fiscal transparency system 3.9 33-35% 1.3 0.1 33-35% 0.1 Deferred taxation due to group tax election (RCS MediaGroup) 34.4 11.3 Total deferred tax assets 147.3 43.3 121.4 34.1 Deferred tax assets for tax losses carried forward 34.4 11.3 17.0 5.6 Total net deferred tax assets 160.7 46.6 127.6 32.9 Timing differences excluded from determination of deferred tax liabilities: – Other 2.0 Total 2.0 Timing differences excluded from determination of deferred tax assets: Reserves adjusting asset balances: Tangible and intangible fixed assets 203.7 1.6 Financial fixed assets 9.5 289.8 Inventories 9.1 6.1 Receivables (writedowns) 75.6 98.7

Reserves for risks and charges: Reserve for litigation 22.4 23.1 Reserve for specific risks 53.0 105.5

Deferred-deductible costs: Other costs pertaining to future years 7.4 6.6 Total 380.7 531.4 Tax losses to be carried forward excluded from determination of deferred tax assets 513.4 589.1

(**) For 2003 net of e4.2 million in reclassifications for equity purposes. 121 Notes to the consolidated financial statements at december 31, 2004 Reckoning of deferred tax assets and liabilities (OIC1) (Millions of euros) 12/31/2004 12/31/2003 IRAP (regional business tax) Amount Rate Tax Amount Rate Tax of timing effect of timing effect differences differences Deferred taxes liabilities for: Leasing 1.5 4.25-5.25% Tangible and intangible fixed assets 1.1 4.25-5.25% Total deferred tax liabilities 1.5 1.1 Deferred tax assets for: Reserves adjusting asset balances: Inventories 1.5 4.25-5.25% 0.7 4.25-5.25% Receivables (writedowns) 0.4 4.25-5.25%

Reserves for risks and charges: Reserve for litigation 6.8 4.25-5.25% 0.3 5.9 4.25-5.25% 0.3 Reserve for specific risks 8.2 4.25-5.25% 0.4 19.0 4.25-5.25% 0.9

Deferred-deductible costs: Entertainment, certification, membership fees, etc. 3.6 4.25-5.25% 0.2 4.6 4.25-5.25% 0.2 Total deferred tax assets 20.1 0.9 30.6 1.4 Total net deferred tax assets 18.6 0.9 29.5 1.4 Timing differences excluded from determination of deferred tax liabilities: – Other Total Timing differences excluded from determination of deferred tax assets: Reserves adjusting asset balances: Tangible and intangible fixed assets 1.7 1.6 Inventories 9.2 6.0 Incoming returns 13.4 14.2

Reserves for risks and charges: Reserve for litigation 24.4 23.1 Reserve for specific risks 64.3 83.4

Deferred-deductible costs: Other costs pertaining to future years 6.8 5.7 Total 119.8 134.0

122 Notes to the consolidated financial statements at december 31, 2004 Other information

1. Directors' and statutory auditors' fees

Pursuant to Art. 38 of Legislative Decree 127/91, we report the total compensation due to the directors and statutory auditors of RCS MediaGroup S.p.A. for their services at the parent company and the other companies in the consolidation:

(in thousands of euros 2004 2003 Directors 2,024 2,760 Statutory auditors 145 145 Total fees 2,169 2,905

The above figures do not include other compensation, bonuses and other incentives paid by the parent company during the year.

Milan, March 18, 2005

for the Board of Directors:

Guido Roberto Vitale Chairman

Vittorio Colao Chief Executive Officer

123 124 RCS MediaGroup S.p.A.: Financial statements and explanatory notes

125 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Balance sheet

ASSETS (in euros) 12/31/2004 12/31/2003 A) Subscribed capital unpaid – – B) Fixed assets I) Intangible fixed assets 84,702 21,189 1) start-up and expansion costs – – 4) concessions, licenses, trademarks & similar rights – 21,189 7) other 84,702 – II) Tangible fixed assets 91,190,661 893,545 1) land and buildings 90,247,889 – 2) plant and machinery 294,539 190,748 4) other 631,877 702,797 4) assets under construction and advances 16,356 – III) Financial fixed assets 847,602,073 933,755,331 1) equity investments 741,460,976 750,075,129 a) subsidiaries 455,424,306 378,744,226 b) associated companies 24,113,006 30,703,541 d) other companies 261,923,664 340,627,362 2) receivables 21,099,393 98,638,498 a) due from subsidiaries (*) 15,000,000 93,550,000 b) due from associated companies (**) – – d) due from others (***) 6,099,393 5,088,498 4) treasury shares 85,041,704 85,041,704 Total fixed assets (B) 938,877,436 934,670,065 C) Current assets I) Inventories – – II) Receivables 150,239,944 108,160,229 1) trade receivables 329,922 3,112,397 2) due from subsidiaries 46,449,759 13,602,817 3) due from associated companies 285,577 423,366 4-bis) tax credits (****) 87,652,822 84,220,838 4-ter) deferred tax assets (*****) 14,761,965 5,902,185 5) others receivables 759,899 898,625 III) Current financial assets 288,748,362 271,931,078 4) other equity investments 6,214,910 6,645,721 6) other securities 73,149,999 65,550,000 7) financial receivables 209,383,453 199,735,357 IV) Cash and banks 427,344 7,697,635 1) bank and postal deposits 405,584 7,672,091 3) cash and valuables on hand 21,760 25,544 Total current assets (C) 439,415,650 387,788,942 D) Accrued income and prepayments 738,237 970,815 1) accrued income 186,142 778,817 2) prepayments 552,095 191,998 Total assets 1,379,031,323 1,323,429,822

****(*) of which: due beyond 12 months 15,000,000 40,000,000 ***(**) of which: due beyond 12 months – – **(***) of which: due beyond 12 months – 5,055,818 *(****) of which: due beyond 12 months 43,066,050 42,071,869 (*****) of which: due beyond 12 months 13,164,936 2,700,000 126 RCS MediaGroup S.p.A.: Financial statements and explanatory notes

LIABILITIES (in euros) 12/31/2004 12/31/2003 A) Shareholders’ equity I) Share capital 762,019,050 762,019,050 II) Share premium reserve 71,236,536 153,587,769 III) Revaluation reserve – IV) Legal reserve 152,403,810 152,111,959 V) Statutory reserves – – VI) Reserve for treasury shares 85,041,704 85,041,704 VII) Other reserves – 115,800,000 – Spin-off surplus reserve – 115,800,000 VIII) Income (losses) carried forward – (194,409,268) IX) Net income (loss) for the year 58,150,666 51,538,390 Total shareholders’ equity 1,128,851,766 1,125,689,604 B) Provisions for risks and charges 19,123,174 44,707,675 1) for retirement benefits and similar obligations 373,878 366,768 2) for taxes (current and deferred) – – 3) other 18,749,296 44,340,907 C) Provision for employee termination indemnities 2,376,699 3,995,533 D) Payables 227,786,750 148,765,900 4) due to banks 59,202,247 16,552,147 7) trade payables 7,947,295 4,295,836 9) due to subsidiaries 94,496,711 77,734,558 10) due to associated companies 49,070,668 42,744,498 12) taxes payable 765,058 4,384,031 13) due to social security institutions 430,178 629,057 14) other payables 15,874,593 2,425,773 E) Accrued liabilities and deferred income 892,934 271,110 1) accrued liabilities 833,268 212,280 2) deferred income 59,666 58,830 Total liabilities 1,379,031,323 1,323,429,822

127 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Memorandum accounts

(in euros) 12/31/2004 12/31/2003 1. Guarantees given I) Sureties given on behalf of: 2,119,668 2,126,770 – other companies 2,119,668 2,126,770 III Other unsecured guarantees given on behalf of: 205,998,844 208,830,617 – subsidiaries 205,922,691 208,754,464 – associated companies – 76,153 – other companies 76,153 – Total guarantees given 208,118,512 210,957,387 3. Commitments – bonds to be purchased/sold – – – equities to be purchased/sold 138,949 991,708 – other commitments 4,613,433 16,028,747 Total commitments 4,752,382 17,020,455 4. Assets held on deposit 421,111,801 328,186,430 Total memorandum accounts 633,982,695 556,164,272

128 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Income statement

(in euros) 2004 2003 A) Production value 27,666,939 21,902,715 1) Revenues from sales and services 9,492,000 10,338,250 5) Other revenues and income 18,174,939 11,564,465 B) Production costs 45,889,708 42,441,324 6) Raw and ancillary materials, consumables and goods 402,988 358,813 7) Services 17,906,315 15,408,146 8) Rentals and leasing 9,089,154 8,484,359 9) Payroll costs: 13,437,912 15,395,104 a) Wages and salaries 9,787,038 10,802,769 b) Social security charges 3,113,691 3,676,434 c) Employee termination indemnities 961,499 1,256,559 d) Retirement benefits and similar 7,110 (7) e) Other costs (431,426) (340,651) 10) Amortization, depreciation and writedowns: 2,463,521 433,004 a) Amortization of intangible fixed assets 266,906 87,355 b) Depreciation of tangible fixed assets 2,196,615 345,649 12) Provisions for risks 26,244 607,569 13) Other provisions 197,187 375,000 14) Other operating expenses 2,366,387 1,379,329 Difference between value and cost of production (A-B) (18,222,769) (20,538,609) C) Financial income and charges 15) Income (charges) from equity investments 57,966,381 61,536,754 16) Other financial income 8,357,876 13,997,836 17) Interest and other financial charges 5,136,468 3,802,999 17bis) Exchange gains (losses) (85,337) 209,757 Total Financial income and charges (C) 61,102,452 71,941,348 D) Adjustments to the value of financial assets 18) Revaluations – 45,825,888 19) Writedowns 14,260,576 14,965,530 Total Adjustments to the value of financial assets (D) (14,260,576) 30,860,358 E) Extraordinary income and charges 20) Income 15,959,522 105,134,583 21) Charges 22,388,901 132,559,804 Total Extraordinary income and charges (E) (6,429,379) (27,425,221) Income (loss) before taxes (A-B+C+D+E) 22,189,728 54,837,876 22) Income taxes (including deferred tax assets and liabilities) 35,960,938 (3,299,486) Net income (loss) for the year 58,150,666 51,538,390

129 RCS MediaGroup S.p.A.: Financial statements and explanatory notes RCS MediaGroup: statement of cash flows (according to IAS format) (in milions of euros) 2004 2003 A. Cash flow from operations Net income (loss) for the year 58.2 51.5 Adjustments for: – Amortization & depreciation 2.5 0.4 – Income from equity investments (58.0) (41.9) Writedowns (revaluations) of fixed assets 13.9 (18.0) Writedowns (revaluations) of securities held as current assets 0.4 (0.2) (Gains) losses from disposal of fixed assets (14.6) (13.2) Increase (decrease) in reserves for risks and charges (8.7) 27.5 Increase (decrease) in reserve for employee termination indemnities (1.6) 0.9 (Increase) decrease in deferred taxes (8.9) (5.9) Operating income (loss) before changes in working capital (16.8) 1.1 (Increase) decrease in inventories - – (Increase) decrease in trade receivables 6.2 (8.5) Increase (decrease) in trade payables 4.2 (0.2) (Increase) decrease in other assets/liabilities (3.4) (5.6) Change in working capital 7.0 (14.3) Net cash and cash equivalents absorbed by operations (A) (9.8) (13.2) B. Cash flow from investment activities Additions, acquisitions, capital increases and coverage of losses of equity investments (126.2) (92.6) Acquisitions of other financial fixed assets (1.1) (9.5) Purchase of tangible and intangible fixed assets (0.4) (0.1) Net increase in equity investments from spin-off – (26.0) Proceeds from sale of equity investments 95.1 20.7 Proceeds from the sale of tangible and intangible fixed assets 0.1 0.0 Dividends received 58.0 41.9 Allocation of merger deficit (41.1) – Brought in by merger (89.5) – Elimination of investments in merged companies 62.6 – Net cash and cash equivalents absorbed by investment activities (B) (42.5) (65.6) Free cash flow (A+B) (52.3) (78.8) C. Cash flow from financial transactions Increase in bank debt 42.6 16.6 (Increase) decrease in current financial assets (7.6) 159.4 (Increase) in long-term financial receivables due from others (1.0) (5.1) (Decrease) increase in short/long-term financial payables due to subsidiaries and associated companies (3.5) 118.4 Increase (decrease) in shareholders’ equity – 4.0 Dividends paid (55.0) – (Increase) decrease in short-term financial receivables due from subsidiaries and associated companies (9.0) (198.0) Decrease (increase) in long-term financial receivables due from subsidiaries and associated companies 78.5 (21.2) Net cash and cash equivalents generated by financial transactions (C) 45.0 74.1 Net increase (decrease) in cash and cash equivalents (A+B+C) (7.3) (4.7) Opening cash and cash equivalents 7.7 12.4 Closing cash and cash equivalents 0.4 7.7 Increase (decrease) for the year (7.3) (4.7) Breakdown of net debt 115.2 145.4 Cash and current financial receivables 289.1 280.4 Medium/long-term debt (35.8) (3.1) Short-term debt (138.1) (131.9) 130 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Notes to the parent company's financial statements at december 31, 2004

Reporting standards and structure

These explanatory notes have been drawn up in accordance with Art. 2427 of the Italian Civil Code. The balance sheet and the income statement comply with the provisions indicated in Civil Code Arts. 2423-bis to 2425-bis. The financial statements also include the supplementary information recommended by CONSOB. More specifically: > accounts have been valued prudently and on a going-concern basis, taking account of the economic function of the assets and liabilities in question; > income and expenses are booked on an accruals basis; > in keeping with the prudence principle, risks and losses have been considered even if they became known after the close of the year; > profits are recognized only if realized by the year-end date, according to the accruals principle.

Accounting policies

The accounting policies used in the financial statements for the year ended December 31, 2004 are those required by Art. 2426 of the Italian Civil Code and are in line with those recommended by the National Accounting Profession, which are also endorsed by CONSOB. The more important are described below.

Intangible fixed assets These are shown at purchase, production or transfer cost and are amortized on a straight-line basis each year, in relation to their residual useful lives and in accordance with the paragraph 5) of Civil Code Art. 2426.

Tangible fixed assets Tangible fixed assets are booked at purchase or transfer cost and depreciated over their residual useful lives. Depreciation is calculated systematically on a straight-line basis using rates considered to reflect the estimated useful lives of the assets; for assets acquired during the year, the rates are applied pro-rata to reflect the actual period of use. Leasehold improvements are stated as an increase in the assets concerned only when they produce an actual increase in value. Ordinary maintenance costs are charged to the income statement in the year in which they are incurred, while extraordinary maintenance costs, if they significantly increase productivity or useful life, are added to the value of the assets concerned and depreciated over the latter's residual useful life. 131 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Financial fixed assets

Equity investments Equity investments are rights in a company's capital, whether represented by securities or not, that are held as long-term investments. They are valued at purchase or transfer cost and are written down in the event of long-term impairment in value. For listed companies, account is taken of any significant decline in the share price which appears to be a long-term condition due to the absence of signs suggesting the likelihood of a recovery in the near future. The original value is written back in subsequent years if the reasons for the writedown cease to apply.

Other securities These are recorded at the lower of cost and estimated realizable value.

Treasury shares Treasury shares are recorded at cost and valued on the same basis as equity investments. Pursuant to Art. 2357-ter of the Italian Civil Code, an unavailable reserve of the same amount is booked under consolidated shareholders' equity.

Receivables and payables Receivables are recorded at face value and written down to their estimated realizable value by means of the reserve for doubtful accounts. Payables are booked at face value. Receivables and payables expressed in foreign currencies are translated at year-end exchange rates, and the unrealized gains or losses from their conversion are charged to the income statement as financial income or charges. Starting this year, in accordance with Art. 2426 of the Italian Civil Code, if net exchange differences are positive they are booked to the “reserve for net unrealized exchange gains” under shareholders' equity.

Current financial assets Securities listed on official markets are recorded at the lower of purchase cost and average market price for the last month of the year. Other current financial assets are recorded at the lower of cost and estimated realizable value.

Cash and banks These are stated at face value.

Accruals and deferrals These items are portions of costs and income that pertain to two or more fiscal years; they are booked on an accruals basis.

Provisions for risks and charges These are made to cover certain or probable expenses whose amount or timing was unknown at the close of the year. 132 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Provision for employee termination indemnities This covers the full amount accrued to employees at year end. It is adjusted each year in accordance with laws and employment contracts in force.

Memorandum accounts The memorandum accounts are shown separately from assets and liabilities. In accordance with the Italian Accounting Profession's standard no. 22, they do not include events already reported in the financial statements. Personal guarantees, consisting of sureties, endorsements and other guarantees, are booked in the amount of the actual commitment. Third parties' securities held at the company for safe custody or administration are shown at their nominal amount.

Derivative trading Derivatives consist of domestic currency swaps (DCS) and caps used for hedging purposes. For foreign currency items hedged by domestic currency swaps maturing at year end, the net premium or discount associated with the hedging agreement is charged to the income statement on a pro-rata basis. Exchange gains and losses accrued at year end on the reference amount of DCS are stated as financial income and charges, counterbalancing the exchange differences accrued on the items being hedged. If DCS are taken out to hedge foreign currency commitments to suppliers, the difference between the opening and the forward exchange rate is not booked until the purchase takes place, and serves to adjust the cost estimated at the date of the commitment. Premiums and interest differentials on caps are booked to the income statement on an accruals basis. Any transactions that do not perfectly correlate with the underlying financial position are valued on the basis of market conditions. The notional values hedged by derivatives are reported in the memorandum accounts.

Dividends Dividends are charged to the year in which their distribution is resolved by the payer.

Income taxes The income tax charge or benefit is calculated on the basis of current laws. In the context of group-wide fiscal policy, RCS MediaGroup S.p.A., the consolidating company, has opted for the group tax election permitted by Legislative Decree 344 of December 12, 2003. This affords a consolidation benefit, as the direct remuneration of its own tax losses used to offset the taxable income transferred by the other companies taking part in the system. Note also that in conjunction with M-dis, the company opted for the fiscal transparency method of taxation as per Art. 115 of the Consolidated Finance Act. As a result, the taxable income received from M-dis by virtue of that option contributed to the calculation of IRES (corporate income tax) for the year. Deferred tax assets and liabilities are determined on the basis of timing differences between the amounts shown in the financial statements and the corresponding amounts that apply for tax purposes. Specifically, deferred tax assets are recorded only if they are reasonably certain to be recovered. Likewise, deferred tax liabilities are not booked if the payable is unlikely to arise. 133 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Information on the balance sheet

On June 23, 2004, with effect from June 30 and with accounting and tax effects retroactive to January 1, 2004, Immobiliare Solferino 28 S.r.l., RCS Internal Auditing S.r.l., Agenzia Giornalistica Radiotelevisiva S.r.l., CNR Channel News Radio S.r.l. and RCS Radio e TV S.p.A.—all wholly owned subsidiaries—were absorbed by RCS MediaGroup in accordance with the extraordinary shareholders' meeting resolution of April 29, 2004.

The merger of HdP Sviluppo Immobiliare S.r.l. was not carried out, as the company was sold to third parties in July.

Merger deficits have been recorded in the parent company's balance sheet, as follows: > ¤31,992,542 for the merger of AGR - Agenzia Giornalistica Radiotelevisiva S.r.l., CNR Channel News Radio S.r.l. and RCS Radio e TV S.p.A. When recorded in the financial statements that full amount was attributed to the investment in RCS Broadcast S.p.A.; > ¤9,062,834 for the merger of Immobiliare Solferino 28 S.r.l., attributed to the book value of the Via Solferino building.

The merger of RCS Internal Auditing S.r.l. produced a surplus of ¤1,778 that was booked in full to the income statement.

Comparison between the financial statements of RCS MediaGroup S.p.A. at December 31, 2004 and December 31, 2003 is affected by the merger operations. For the sake of clarity, the com- ments to the various items mention the contributions of the absorbed companies.

Unless otherwise specified, all amounts are in millions of euros.

134 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Assets

B) FIXED ASSETS B I – Intangible fixed assets (¤0.1 million)

Intangible fixed assets are amortized in relation to their residual useful life. Changes during the year were as follows:

Start-up and Concessions, Other Total expansion licenses, trade- costs marks and similar rights Historical cost at 12/31/03 0.9 0.2 0.1 1.2 From merger – – 0.4 0.4 Additions –––– Decreases – - – – Historical cost at 12/31/04 0.9 0.2 0.5 1.6 Accum. amort. at 12/31/03 (0.9) (0.2) (0.1) (1.2) From merger (0.1) (0.1) Amortization – – (0.2) (0.2) Decreases –––– Other movements –––– Accum. amort. at 12/31/04 (0.9) (0.2) (0.4) (1.5) Balance at 12/31/03 –––– From merger – – 0.3 0.3 Additions –––– Decreases –––– Amortization – – (0.2) (0.2) Balance at 12/31/04 – – 0.1 0.1

The balance consists solely of leasehold improvements for renovation of the Via Rizzoli building.

B II - Tangible fixed assets (¤91.2 million)

Tangible fixed assets are depreciated at the following annual rates, which reflect their estimated useful lives: land and buildings (Immobiliare Solferino), 2.0%; furniture and fittings, 12%; electronic office machines, 20%; hardware and personal computers, 33%; miscellaneous equipment, 15%; vehicles, 25%.

135 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Changes during the year were as follows:

Land and Plant and Other Under Total buildings machinery assets construction Historical cost at 12/31/03 – 0.2 2.0 2.2 From merger 89.0 – 0.2 89.2 Allocation of merger deficit 9.1 – – – 9.1 Additions – 0.1 0.2 0.1 0.4 Disposals – – (0.2) – (0.2) Historical cost at 12/31/04 98.1 0.3 2.2 0.1 100.7 Accum. dep. at 12/31/03 – – (1.3) – (1.3) From merger (6.0) – (0.1) – (6.1) Depreciation (1.9) – (0.3) – (2.2) Disposals – – 0.1 – 0.1 Accum. dep. at 12/31/04 (7.9) – (1.6) – (9.5) Balance at 12/31/03 – 0.2 0.7 – 0.9 From merger 83.0 – 0.1 – 83.1 Allocation of merger deficit 9.1 – – – 9.1 Additions – 0.1 0.2 0.1 0.4 Disposals – – (0.1) – (0.1) Depreciation (1.9) – (0.3) – (2.2) Balance at 12/31/04 90.2 0.3 0.6 0.1 91.2

The net balance of ¤91.2 million relates primarily to the value of the building at Via Solferino 28 in Milan, brought in by the merged company Immobiliare Solferino 28, and to the allocation to the building's value of the deficit produced by the merger of Immobiliare Solferino 28 into RCS MediaGroup (¤9.1 million).

The property, recorded at ¤98.1 million, is being rented to RCS Quotidiani for an annual charge of ¤6.7 million, which is adjusted annually on the basis of the national ISTAT index in accordance with standard practice. The 24-year lease is renewable for a further six years. RCS Quotidiani has been renovating and converting the building since December 2000, at its own effort and expense.

Depreciation is being charged at 2% per year to reflect the building's residual useful life. That rate takes account of the fact that the building is being renovated and converted.

The Via Solferino building is encumbered by a mortgage originally amounting to ¤71.3 million, taken out in February 2001. Under agreements with the bank, however, principal of ¤32.4 million was repaid in advance in November, reducing the year-end debt to ¤35.8 million.

136 RCS MediaGroup S.p.A.: Financial statements and explanatory notes B III – Financial fixed assets (¤847.6 million)

Equity investments (¤741.6 million)

The list of equity investments and related information required by Art. 2427, par. 5 of the Civil Code is provided as Attachment 1.

For equity investments whose year-end book value exceeded the corresponding portion of net equity, namely RCS Libri, RCS Periodici and RCS Broadcast, the conditions justifying the higher values have been verified. The higher values are attributable to the publications of RCS Periodici, whose current market value (confirmed by independent appraisal) is higher than the historical cost shown in the financial statements, and to RCS Broadcast's radio frequency utilization rights.

Changes in equity investments were as follows:

Subsidiaries Associated Other Total companies companies Gross balance at 12/31/03 1,082.2 57.6 372.0 1,511.8 – writedown reserve (703.5) (26.9) (31.4) (761.8) Balance at 12/31/03 378.7 30.7 340.6 750.0 Acquisitions 114.3 6.4 – 120.7 Allocation of merger deficit 32.0 – – 32.0 Subscriptions and capital increases 0.8 1.7 1.9 4.4 Cancellation due to merger (75.8) – – (75.8) Reversal of writedown of merged companies 13.2 – – 13.2 Disposals (0.8) (14.6) (64.8) (80.2) Writedowns (4.5) (4.3) (3.4) (12.2) Other movements (2.4) – 7.3 4.9 Reclassifications – 4.3 (19.7) (15.4) Change for the period 76.8 (6.5) (78.7) (8.4) Balance at 12/31/04 455.5 24.2 261.9 741.6 + writedown reserve 694.8 14.5 49.4 758.7 Gross balance at 12/31/04 1,150.3 38.7 311.3 1,500.3

The increases for the year were caused by: a) Acquisitions (¤120.7 million) Subsidiaries (¤114.3 million) In detail: – ¤107.0 million for RCS MediaGroup's buyback of 40.0% of RCS Periodici S.p.A., for a total holding of 100%; – ¤6.2 million for the purchase by RCS Radio e TV S.p.A. (later absorbed by RCS MediaGroup) of 98.99% of RCS Broadcast S.p.A. (formerly Finwork Finanziaria Italia S.p.A.); – ¤1.1 million for the purchase of 100% of RCS Produzioni S.p.A. (formerly RCS Servizi e Partecipazioni S.p.A.), previously held by the subsidiary GFT Net S.p.A.

137 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Associated companies (¤6.4 million) This refers to the acquisition of 20.25% of M-Dis S.p.A., which is now held at 45%.

b) Allocation of the merger deficit (¤32.0 million) Subsidiaries (¤32.0 million) The merger of AGR – Agenzia Giornalistica Radiotelevisiva S.r.l., CNR Channel News Radio S.r.l. and RCS Radio e TV S.p.A. into RCS MediaGroup produced a deficit of ¤32.0 million which, in the statutory financial statements, was charged in full to the investment in RCS Broadcast S.p.A.

c) Subscriptions and capital increases/reconstitutions (¤4.4 million) Subsidiaries (¤0.8 million) This refers to the capital increase at the subsidiary HdP Sviluppo Immobiliare S.r.l., subsequently sold to third parties. Associated companies (¤1.7 million) These refer to payments against future capital operations at the companies Netdish S.p.A. (¤0.4 million), later sold, and Eurogravure S.p.A. (¤1.3 million). Other companies (¤1.9 million) This amount can be broken down as follows: – ¤1.3 million for the capital increase at Eurofly S.p.A., now held at 24.55% (previously 16.33%); - ¤0.6 million for the capital increase at Alice Lab Netherlands NV.

The decrease for the year is the net result of the following operations:

d) Cancellation due to merger (¤75.8 million) Subsidiaries Equity investments in merged companies have been cancelled in the amount of ¤75.8 million. The resulting deficits total ¤41.1 million and refer to the cancellation of the investment in RCS Radio e TV S.p.A. (¤32.0 million) and in Immobiliare Solferino 28 S.r.l. (¤9.1 million) against their net equity balances.

e) Reversal of prior writedowns of merged companies (¤13.2 million) Subsidiaries (¤13.2 million) This refers to the reversal of the writedown of RCS Radio e TV S.p.A. as a result of the merger.

f) Disposals (¤80.2 million) Subsidiaries (¤0.8 million) The full amount pertains to the disposal of the investment in HdP Sviluppo Immobiliare S.r.l. Associated companies (¤14.6 million) Of the total, ¤13.6 million refers to the sale in July of Burda RCS International Holding GmbH to Burda Holding, which produced a capital gain of ¤1.1 million, and ¤1.0 million concerns the sale of the investment in Netdish S.p.A.

138 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Other companies (¤64.8 million) For ¤64.5 million this refers to the sale of 84,650,499 shares and 63,487,874 warrants of Pirelli & C. S.p.A., for a capital gain of ¤11.1 million. The group's stake in that company has gone from 4.25% to 1.80%. For ¤0.3 million it pertains to the sale of 31,232,000 shares of Joyce Boutique Holding, for a capital gain of ¤0.9 million. The percent held has been reduced from 9.73% to 7.78%. g) Writedowns (¤12.2 million) Subsidiaries (¤4.5 million) This amount concerns the investments in HdP BV (¤0.8 million) and RCS Investimenti (¤3.7 million), whose book values have been adjusted to the company's share of net equity. The writedown of RCS Investimenti relates to the costs incurred by the subsidiary for the December 2004 settlement with the buyers of the operating companies of RCS Investimenti (formerly Fila Holding) and for the related legal and other advice. Associated companies (¤4.3 million ) The book value of Eurofly S.p.A. was written down to zero, and an additional ¤1.5 million was provided to the risk reserves to cover restructuring costs. Other companies (¤3.4 million) This pertains to Alice Lab Netherlands NB (¤1.2 million) and Istituto Europeo di Oncologia S.r.l. (¤2.2 million), which were written down to the group's share of their net equity. h) Other movements (¤4.9 million) Subsidiaries (-¤2.4 million) This amount refers to RCS Periodici S.p.A.'s partial reimbursement of the share premium reserve, as resolved by that company's ordinary shareholders' meeting of April 27, 2004. Other companies (¤7.3 million) This concerns the free allocation of 2,643,334 Banca Intesa shares pursuant to the decision to give out shares as a “dividend in kind,” at the rate of two ordinary shares with rights from January 1, 2004 for every 41 ordinary and/or savings shares owned, valued at the Stock Exchange price of April 22, 2004 of ¤2.75 per share. That amount was also booked to the income statement as “income from equity investments.” Our interest in Banca Intesa has increased from 0.80% to 0.83%. i) Reclassifications (¤15.4 million) Associated companies (¤4.3 million) This refers to the investment in Eurofly Service S.p.A., which has become an associated company due to the subscription to the capital increase for ¤1.3 million, as described above. Other companies (-¤19.7 million) The amount refers to the reclassification of risk reserves on the investments in H3G (¤15.0 million) and Allaxia (¤0.4 million). Previously booked to liabilities, those amounts are now deducted from the assets' values.

We also report that some shares and units are being held in custody at Spafid, banks and other institutions for a gross book value of ¤440.8 million.

139 RCS MediaGroup S.p.A.: Financial statements and explanatory notes The following table shows the latent capital gains and losses calculated by comparing the book value of listed investments against their year-end market prices:

No. shares Book value Market value Gain Company held unit total unit total (loss) (Euros) (¤/million) (Euros) (¤/million) (¤/million) Banca Intesa at 12/31/03 54,188,351 2.91 157.7 3.526 191.1 33.4 Banca Intesa S.p.A. - shares assigned as dividend in kind 2,643,334 2.75 7.3 3.526 9.3 2.0 Banca Intesa S.p.A. - post shares assigned as dividend in kind 56,831,685 2.90 165.0 200.4 35.4 Pirelli & C. S.p.A. 62,273,725 0.76 47.4 0.989 61.6 14.2 Pirelli & C. warrants 46,705,294 0.0 0.0 0.109 5.1 5.1 Joyce Boutique Holding 124,768,000 0.01 1.5 0.038 4.7 3.2 Poligrafici Editoriale 13,199,900 1.57 20.7 1.710 22.6 1.9 Dada 2,417,957 4.66 11.3 5.507 13.3 2.0 Total 245.9 307.7 61.8

Concerning the valuation of Banca Intesa shares, as of December 31, 2003 they had been written back in the amount of ¤45.4 million. After the significant writeback carried out in 2003, further adjustments in 2004 were ruled out for the sake of prudence, including in consideration of the financial markets' cyclical performance.

Due from subsidiaries and associated companies (¤15.0 million)

These decreased by ¤78.5 million with respect to December 31, 2003 (¤93.5 million), due to loan repayments by GFT Net (¤53.5 million) and RCS Quotidiani (¤25.0 million), and consist of the loan granted to the subsidiary RCS Livres (due in a single installment on April 1, 2006).

Other receivables (¤6.1 million)

This amount consists solely of the cash payment made in December in connection with Pirelli & C. S.p.A.'s resolution to increase the share capital. RCS MediaGroup took part by exercising its option to convert 46,705,294 warrants for ordinary Pirelli & C. shares (2003-2006) into 11,676,323 ordinary Pirelli & C. shares, at the rate of one share for every four warrants owned at the price of ¤0.52 each (par value).

The new shares, owned with effect from January 14, 2005, combine with the 62,273,725 already held and bring our investment to 73,950,048 shares or 1.427% of ordinary share capital and 1.391% of total share capital.

During the year, the ¤5.1 million arising from the partnership agreement with Bergamo's Nuovo Istituto Italiano Arti Grafiche S.p.A. was received in full, through the transfer of the “Rotocalco Bergamo” business to Eurogravure S.p.A.

Treasury shares (¤85.0 million) No treasury shares were purchased during the year.

At December 31, 2004 we owned 26,782,590 ordinary shares with a par value of ¤1.0 each, booked at ¤85.0 million for an average carrying price of ¤3.175 per share. They amounted to 3.66% of ordinary share capital and 3.51% of total share capital. The ordinary shareholders' meet- 140 RCS MediaGroup S.p.A.: Financial statements and explanatory notes ing of April 29, 2004 resolved with regard to the authorization to purchase and dispose of treasury shares, revoking the previous resolution of April 15, 2003.

A comparison between the book value of treasury shares and their market value at December 31, 2004 shows a potential capital gain of ¤28.9 million (compared with a latent loss of ¤11.5 million at the end of 2003):

No. shares Book value Market value Gain held unit total unit total (loss) Euros ¤/million Euros ¤/million ¤/million 26,782,590 3.175 85.0 4.254 113.9 28.9

The subsidiaries do not own shares of RCS MediaGroup.

C) CURRENT ASSETS C II – Receivables (¤150.3 million)

These increased by ¤42.2 million and consist mainly of the following:

12/31/04 12/31/03 Within Beyond Total of Within Beyond Total Change 12 12 brought 12 12 months months of merge months months Trade receivables 0.3 - 0.3 0.2 3.1 - 3.1 (2.8) Due from subsidiaries 46.4 – 46.4 – 13.6 – 13.6 32.8 Due from associated companies 0.3 – 0.3 – 0.4 – 0.4 (0.1) Tax credits 44.6 43.1 87.7 0.5 42.1 42.1 84.2 3.5 Deferred tax assets 1.6 13.2 14.8 – 3.2 2.7 5.9 8.9 Due from others 0.8 – 0.8 0.2 0.9 – 0.9 (0.1) Receivables held as current assets 94.0 56.3 150.3 0.9 63.3 44.8 108.1 42.2

> trade receivables, which decreased by ¤2.8 million since the end of the previous year (¤3.1 million), due essentially to the receipt of the residual amount due for the sale of 500,000 shares of RCS Periodici to Burda in December 2003; > due from subsidiaries (¤46.4 million): ¤10.3 million for services rendered and cost reimbursement for seconded personnel, and ¤36.1 million charged to subsidiaries in relation to the IRES (corporate income tax) charge on the taxable income they transferred to the parent company as a result of the group tax election (Arts. 117 et seq. of the Consolidated Finance Act). Under the terms of the relevant contracts, that amount is due in full by the end of 2005; > due from associated companies (¤0.3 million), mostly for services rendered; > tax credits (¤87.7 million), of which ¤44.6 million is due within 12 months and ¤43.1 million beyond one year. Those due within 12 months consist primarily of IRPEG credits carried forward (¤20.2 million, up from ¤19.8 million the previous year). Following the introduction of group tax elections, for which RCS MediaGroup has opted, tax credits of ¤16.4 million (in the form of IRES advance payments and withholding tax) have been transferred to the parent company, while under the “fiscal transparency” system the participating companies have transferred tax credits of ¤0.5 million. During the year the parent company also transferred ¤18.8 141 RCS MediaGroup S.p.A.: Financial statements and explanatory notes million in IRPEG credits to group companies to offset their direct tax bills. Tax credits due beyond 12 months (¤43.1 million) refer to the IRPEG credit whose reimbursement was requested in the company's 1998 income tax return. The amount includes interest of ¤6.9 million, calculated at the rate specified by current law. Other receivables (¤7.5 million) include ¤6.3 million for the group-wide VAT advance paid in December and ¤0.9 million in advance IRAP (regional tax) payments made during the year.

Tax credits are shown in detail below:

12/31/04 12/31/03 Within Beyond Total of which: Within Beyond Total Change 12 12 from 12 12 months months merger months months Tax credits on dividends – – – – 19.6 – 19.6 (19.6) Corporate income tax (IRPEG) credits to be reimbursed – 43.1 43.1 – – 42.1 42.1 1.0 IRPEG credits carried forward 20.2 – 20.2 – 19.8 – 19.8 0.4 Credits tranferred for group tax election 16.4 – 16.4 – – – – 16.4 Credits transferred for fiscal transparency 0.5 – 0.5 – – – – 0.5 Other tax credits 7.5 – 7.5 0.5 2.7 – 2.7 4.8 Tax credits 44.6 43.1 87.7 0.5 42.1 42.1 84.2 3.5

> deferred tax assets in relation to IRES and IRAP, which reflect timing differences between the recorded profit and taxable income that will reverse in future years as well as tax losses from the group tax election; they amount to ¤14.8 million, an increase of 8.9 million on the previous year (¤5.9 million), of which ¤13.2 million is collectable beyond one year. That figure also includes ¤0.7 million in deferred tax assets for IRES, arising from timing differences transferred by M-dis S.p.A., which has opted for the fiscal transparency system as per Art. 115 of the Consolidated Finance Act; > other receivables of ¤0.8 million, including ¤0.3 million in advances paid to suppliers and ¤0.2 million in advance payments on insurance premiums against accident and business risk.

Receivables falling due beyond five years have not been recorded.

142 RCS MediaGroup S.p.A.: Financial statements and explanatory notes C III – Current financial assets (¤288.7 million)

In detail:

12/31/04 12/31/03 Change SMI 1.0 1.4 (0.4) Recoletos Compania 5.2 5.2 - Other equity investments 6.2 6.6 (0.4) Other shares, quotas and equities (listed): – DUEMME Fund 73.1 65.5 7.6 Other securities 73.1 65.5 7.6 Current account receivables from subsidiaries 183.4 121.9 61.5 Short-term financial receivables from subsidiaries: – RCS Libri S.p.A. – 68.0 (68.0) – RCS Livres 14.1 6.0 8.1 – Flammarion 3.6 – 3.6 Current account receivables from associated companies 8.3 3.0 5.3 Short-term financial receivables from associated companies: – Netdish S.p.A. – 0.9 (0.9) Financial receivables 209.4 199.8 9.6 Current financial assets 288.7 271.9 16.8

“Other equity investments” and “other securities” are detailed in Attachment 2, along with their movements for the year and market values.

The alignment of the book values of each security on the basis of average market price for the month of December led to a writedown of ¤0.4 million for SMI. In September, the group sold 111,000 shares of SMI.

“Other equity investments” and “other securities”, with a gross carrying value of ¤79.9 million, are held un custody at Mediobanca and other banks.

Ready cash of ¤73.1 million is invested in fund units, an increase of ¤7.6 million with respect to 2003 (¤65.5 million). These are units of funds managed by Duemme SGR, of which 60% goes into short-term financial instruments and 40% into hedge funds, which in turn invest in a basket of funds selected for their diversified investment strategies in order to limit market risk.

Duemme strives to preserve investors' capital while seeking, under any market conditions, a yield that exceeds the no-risk rate of return. The net yield on these assets in 2004 was about 2.8%, consistent- ly with RCS MediaGroup's goal of investing part of the group's cash in products whose medium-term yields are expected to match those of the bond markets but that are less volatile than bonds.

143 RCS MediaGroup S.p.A.: Financial statements and explanatory notes C IV – Cash and banks (¤0.4 million)

Cash and banks (¤7.7 million at the end of 2003) consist mainly of current account deposits due on demand.

12/31/04 12/31/03 Change Bank and postal deposits 0.4 7.7 (7.3) Cash and valuables on hand – – - Total 0.4 7.7 (7.3)

D) ACCRUED INCOME AND PREPAYMENTS (¤0.7 million)

As follows:

of which: 12/31/04 from merger 12/31/03 Change Interest on loans to subsidiaries 0.2 – 0.8 (0.6) Accrued income 0.2 - 0.8 (0.6) Prepayments 0.5 0.3 0.2 0.3 Accrued income and prepayments 0.7 0.3 1.0 (0.3)

Accrued income comes to ¤0.2 million, a net decrease of ¤0.6 million on 2003, and refers solely to interest on loans granted to subsidiaries; prepayments consist mainly of leasing installments and insurance premiums pertaining to the subsequent year.

All amounts are due within 12 months.

144 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Liabilities

A) SHAREHOLDERS' EQUITY (¤1,128.8 MILLION)

Movements in shareholders' equity were as follows:

Share Share Legal Reserve Other Income Income Share- capital soprap- reserve for reserves (losses) (loss) holders’ premium treasury carried for equity reserve shares forward the year Balance at 12/31/01 760.6 199.2 152.1 57.7 10.3 92.6 (123.7) 1.148.8 Shareholders’ meeting of May 2, 2002 Coverage of 2001 loss through: – use of unallocated income (92.6) 92.6 – – use of other reserves (10.3) 10.3 – – use of share premium reserve (20.8) 20.8 – Increase in reserve for treasury shares (17.8) 17.8 – 2002 income (loss) (194.4) (194.4) Balance at 12/31/02 760.6 160.6 152.1 75.5 – – (194.4) 954.4 Shareholders’ meeting of April 15, 2003 – losses carried forward (194.4) 194.4 – Capital increase to service stock option plan through: – increase in share capital 1.4 1.4 – increase in share premium reserve 2.5 2.5 Increase in reserve for treasury shares (9.5) 9.5 – Spin-off surplus reserve 115.8 115.8 2003 income (loss) 51.5 51.5 Balance at 12/31/03 762.0 153.6 152.1 85.0 115.8 (194.4) 51.5 1,125.6 Shareholders’ meeting of April 29, 2004 Coverage of losses carried forward at 12/31/03 through: – use of share premium reserve (82.4) 82.4 – – use of spin-off reserve (112.0) 112.0 – Allocation of 2003 net income of ¤ 51,538,390.00, as follows: – to the legal reserve 0.3 (0.3) – – dividend payment: (51.2) (51.2) • ¤ 0.16 per share to the 29.349.593 savings shares • ¤ 0.04 per share to the 705.886.867 ordinary shares Allocation to dividend of additional ¤ 3,741,964.36 taken from spin-off reserve, in the amount of: (3.8) – (3.8) • ¤ 0.03 per share to the 29,349,593 savings shares • ¤ 0.03 per share to the 705,886,867 ordinary shares 2004 income (loss) 58.2 58.2 Balance at 12/31/04 762.0 71.2 152.4 85.0 – – 58.2 1,128.8 145 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Shareholders’ equity increased by ¤3.2 million, from ¤1,125.6 million at December 31, 2003 to ¤1,128.8 million. The main factors behind that change were as follows: > a decrease deriving from the dividend payment of ¤55.0 million, following coverage of prior- year losses of ¤194.4 million through the use of ¤82.4 million from the share premium reserve and ¤112.0 million from the spin-off surplus reserve. The dividends were drawn from the 2003 profit (for ¤51.2 million) and from the spin-off surplus reserve (for ¤3.8 million); > an increase attributable to the net profit for the year (¤58.2 million).

The share capital amounts to ¤762,019,050, made up of 732,669,457 ordinary shares and 29,349,593 savings shares, all with a par value of ¤1.00 each.

The reserve for treasury shares amounts to ¤85.0 million and is unchanged with respect to the end of the previous year.

The share premium reserve is available for distribution to the shareholders in its full amount.

Details of share capital and reserves are provided in a supplementary table in the section “Other information.”

B) PROVISIONS FOR RISKS AND CHARGES (¤19.1 million)

Movements during the year were as follows:

Balance at Provisions With- Reclassif- Balance at 12/31/03 drawals ications 12/31/04 Reserve for retirement benefits: – Fixed indemnity fund for executives 0.4 – – – 0.4 Other reserves: – Reserve for reorganization, restructuring and other risks ristrutturazione e diversi 35.8 3.7 (9.5) (17.4) 12.6 – Reserve for legal risks 5.5 – (5.5) – – – Reserve for restructuring: publishing division 3.0 – – – 3.0 – Reserve for litigation – 1.1 – 2.0 3.1 Total reserves for risks and charges 44.7 4.8 (15.0) (15.4) 19.1

Total provisions to the reserves for risks and charges, amounting to ¤4.8 million, consist of ¤2.0 million for extraordinary payroll costs in connection with the corporate reorganization, to 1.6 million for further impairment in the value of equity investments that have already been written off in full (including ¤1.5 million for Eurofly and ¤0.1million for S.N. l'Europeen S.A.), and ¤1.1 million for litigation instituted during the year.

Withdrawals, totaling ¤15.0 million, include ¤4.8 million for reorganization expenses incurred during the year, partly in connection with top management turnover; and ¤5.5 million for the definitive, out-of-court settlement of the claim filed by Sports Brands International (SBI), the buyer of the operating activities of RCS Investimenti (formerly Fila Holding).

In addition, ¤15.4 million from the reserve for the writedown of equity investments was reclassified as a direct adjustment to the value of H3G Sp.A. (¤15.0 million) and Allaxia S.p.A. (¤0.4 million), for which the reserve was set up. 146 RCS MediaGroup S.p.A.: Financial statements and explanatory notes The main lawsuits involving the company are described below: > The group has already reported the notice with which Sports Brands International (SBI) Ltd., the buyer of the operating companies of RCS Investimenti (formerly Fila Holding), claimed an entitlement to indemnities from RCS Investimenti and RCS MediaGroup in connection with the sale contract finalized on June 10, 2003. In December 2004, a settlement was reached with the buyer covering all present and future claims. As a result of the settlement, the court case has been dropped, and the standard contractual guarantees recognized to the buyer no longer apply, so there is no possibility for future litigation and no risk of incurring the consequent internal and external costs. SBI will receive 10 million dollars under the settlement, plus RCS Investimenti's waiver of the ¤2.3 million receivable still claimed from the buyer. The cost of the settlement was provided for in part in the 2003 financial statements, to cover the professional fees incurred and reasonably foreseeable for legal and technical assistance in the lawsuit SBI was planning to file in the United States (the place of jurisdiction, according to the terms of the contract). The award of ¤12 million and the costs for reaching the settlement have been divided equally between the parent company and the subsidiary RCS Investimenti; > In July 2003, a suit was filed with the New York State Supreme Court against RCS and RCS Investimenti (formerly Fila Holding) and directors of the latter company; the suit was amended on August 7, 2003 to include Bank of New York, which acted as RCS's tender agent in its bid for the American Depositary Shares representing Fila Holding stock. The plaintiff aims to have the bid cancelled or the tenders rescinded, or else to be awarded damages. This is a class action suit in the name of all owners of Fila Holding American Depositary Shares, based partly on al- leged violations of minority shareholders' rights by RCS, Fila Holding and the latter's directors, but it was not properly served to the Italian defendants and is therefore held to be invalid. On February 28, 2005 the suit was officially dropped and can no longer be reopened.

C) PROVISION FOR EMPLOYEE TERMINATION INDEMNITIES (¤2.4 million)

The provision covers the full amount accrued to employees at year end in accordance with laws and individual employment contracts. Movements during the year were as follows:

Balance at 12/31/03 4.0 Provision 0.4 Payments (2.1) Transfers to other companies (0.2) Transfers from other companies 0.3 Balance at 12/31/04 2.4

147 RCS MediaGroup S.p.A.: Financial statements and explanatory notes D) PAYABLES (¤227.8 million)

These increased by ¤79.0 million and consist mainly of the following:

Balance at 12/31/04 Balance at 12/31/03 of which: from merger Within Beyond Total Within Beyond Within Beyond Total Change 12 12 12 12 12 12 months months months months months months Due to banks 23.4 35.8 59.2 – 35.8 16.6 – 16.6 42.6 Due to other sources of finance - -––––––– Trade payables 7.9 – 7.9 0.1 – 4.3 – 4.3 3.6 Advances received - -––––––– Due to subsidiaries 92.3 2.2 94.5 - – 77.7 – 77.7 16.8 Due to associated companies 49.1 – 49.1 – – 39.6 3.1 42.7 6.4 Taxes payable 0.8 – 0.8 0.3 – 4.4 - 4.4 (3.6) Due to social security institutions 0.4 - 0.4 – – 0.6 – 0.6 (0.2) Other payables 12.7 3.2 15.9 – - 2.5 – 2.5 13.4 Payables 186.6 41.2 227.8 0.4 35.8 145.7 3.1 148.8 79.0

Due to banks (¤59.2 million) These increased by ¤42.6 million with respect to December 31, 2003 and consist mainly of short- term bank loans from various institutions totaling ¤23.4 million and charging interest at the going market rate, as well as ¤35.8 million for a 10-year mortgage loan from Banca Popolare di Milano for the purchase of the Via Solferino building, which was recorded due to the merger of Immobiliare Solferino 28 S.r.l. The loan was paid back in the amount of ¤32.4 million in November 2004.

Trade payables (¤7.9 million) These increased by ¤3.6 million and refer to amounts due to contributors and correspondents as well as to suppliers of goods and services.

Due to subsidiaries (¤94.5 million) These increased by ¤16.8 million with respect to December 31, 2003 and include ¤39.6 million in intercompany current account balances, ¤27.0 million for a short-term loan received from the subsidiary RCS Investimenti (with interest charged at going market rates), and ¤25.4 million in amounts due to subsidiaries for the group tax election, of which ¤2.2 million will be payable in subsequent years when the parent company uses the residual fiscal losses transferred in. The remainder refers to ordinary commercial transactions.

Due to associated companies (¤49.1 million) These increased by ¤6.4 million and consist of ¤38.1 million in intercompany current account balances, ¤10.0 million for short-term loans received from the associated company M-dis (with interest charged at going market rates) and ¤0.5 million in amounts due in connection with M- Dis's participation in the fiscal transparency system, as well as ordinary commercial transactions. 148 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Taxes payable (¤0.8 million) Most of the amount due is for personal income tax (IRPEF) withholding on employee and employee-equivalent paychecks.

Other payables (¤15.9 million) These increased by ¤13.4 million and include the following: > ¤7.7 million in compensation accrued to personnel, including the consequent social security charges. There was an increase of ¤5.5 million, due essentially to payables not yet settled for the turnover of top management; > ¤7.6 million for settlement of the dispute with the buyers of the operating activities of RCS Investimenti (formerly Fila Holding), which is due in equal measure by RCS MediaGroup and RCS Investimenti but which is being advanced by RCS MediaGroup.

No payables falling due beyond five years have been recorded.

E) ACCRUED LIABILITIES AND DEFERRED INCOME (¤0.9 million)

These consist mainly of the interest accrued on the 10-year mortgage loan with Banca Popolare di Milano, taken out for the purchase of the Via Solferino building.

Memorandum accounts

1) GUARANTEES GIVEN (¤208.1 million) I – Sureties given to other companies (¤2.1 million)

Most of these are sureties for property rentals given in the interests of Iniziativa Immobiliare Due S.r.l. (formerly HdP Iniziative Immobiliari S.r.l.).

III - Other unsecured guarantees given (¤206.0 million)

Of the total, ¤137.6 million pertains to guarantees to the tax authorities on behalf of subsidiaries, in relation to VAT credits offset in the context of group-wide VAT settlement for 2000, 2001, 2002 and 2003; ¤66.3 million to guarantees given in favor of the subsidiaries RCS Libri S.p.A. (¤0.4 million) and RCS Livres S.a.s. (¤65.9 million) in connection with long-term borrowings; and ¤2.1 million to guarantees given to banks on behalf of the subsidiaries RCS Quotidiani and International Newspaper BV for the extension of credit

149 RCS MediaGroup S.p.A.: Financial statements and explanatory notes 3) COMMITMENTS (¤4.8 million)

As follows: > ¤0.2 million for the purchase of company shares; > other commitments totaling ¤4.6 million: ¤1.5 million for outstanding commitments with Gemina pursuant to Art. 2506 quater of the Italian Civil Code (last paragraph); ¤3.1 million for contractual commitments to employees.

RCS MediaGroup is also a co-guarantor for GFT Net's sale of the Joseph Abboud activities during the year.

The settlement reached in December 2004 with buyer of the operating companies of RCS Investimenti (formerly Fila Holding) invalidated all present and future claims, and rendered inapplicable any guarantees pertaining to that sale.

4) ASSETS HELD ON DEPOSIT (¤421.1 million)

These are pooled shares under the management of RCS MediaGroup. They have been lodged with the central Italian securities depositary (Monte Titoli).

RISKS

RCS MediaGroup has commitments for off-balance sheet financial instruments with the following notional values:

Caps 55.0 Domestic currency swaps (DCS 3.7 Total 58.7

The caps outstanding as of December 31, 2004 amounted to ¤55.0 million and were taken out to hedge interest rate risk; at the moment, only ¤30 million can be classified as hedging due to the ¤32.4 million advance loan repayment. In accordance with the accounting principles, the remainder has been booked at market value and the effect reported in the income statement.

The domestic currency swaps outstanding at year-end came to ¤3.7 million and were taken out to hedge exchange rate risk on payables expressed in dollars.

150 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Information on the income statement

A) PRODUCTION VALUE (¤27.7 million)

from 2004 merger 2003 Change

Services rendered to subsidiaries 9.5 – 10.1 (0.6) Rental and accessory costs charged to third parties – – 0.2 (0.2) Revenues from sales and services 9.5 – 10.3 (0.8) Charge-back of costs to subsidiaries 0.9 – 2.8 (1.9) Rental and accessory costs charged to subsidiaries 15.8 3.3 8.7 7.1 Miscellaneous income 1.5 0.2 0.1 1.4 Other revenues 18.2 3.5 11.6 6.6 Production value 27.7 3.5 21.9 5.8

All revenues are earned in Italy. They consist mainly of: > services rendered to subsidiaries (¤9.5 million), namely support and coordination for legal and corporate matters, financial transactions and investor relations; and assistance with organization and organization development issues; > costs charged to subsidiaries (¤0.9 million), namely seconded management staff and the recovery of costs incurred on their behalf; > rent and ancillary costs charged to subsidiaries (¤15.8 million), including ¤12.5 million in rent for the units located in the Via Rizzoli building in Milan, at Via Tomacelli, Via Rossini and Torrespaccata in Rome, in Pessano con Bornago, in Padua and in Scandicci in Firenze, and ¤6.7 million for rent charged to RCS Quotidiani for the Via Solferino building, brought in with the merger of Immobiliare Solferino 28 S.r.l. > miscellaneous income of ¤1.5 million, consisting of out-of-period income and capital gains from the sale of tangible fixed assets.

B) PRODUCTION COSTS (¤45.9 million) Raw and ancillary materials, consumables and goods (¤0.4 million)

This sum refers to office supplies, printed forms and fuel.

151 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Services (¤17.9 million)

2004 2003 Change Professional and advisory services 6.3 4.4 1.9 Contributors and correspondents 1.0 1.2 (0.2) Directors' fees 2.0 2.4 (0.4) Travel and accommodation 0.7 0.6 0.1 Advertising services and corporate communications 1.6 – 1.6 Securities management and related services - 0.5 (0.5) Insurance 0.3 0.2 0.1 Miscellaneous services 5.5 4.7 0.8 Maintenance 0.1 0.1 - Services rendered by Internal Auditing S.r.l. - 1.1 (1.1) Post, telephone and telegraph 0.2 0.1 0.1 Statutory auditors' fees 0.2 0.1 0.1 Total services 17.9 15.4 2.5

Service costs totaled ¤17.9 million, an increase of ¤2.5 million for the year. That trend was caused by a rise in advertising and corporate communication costs, in relation to the advertising campaign realized during the first half of the year, and to an increase in professional and legal fees.

Rentals and leasing (¤9.1 million)

This item increased by ¤0.6 million with respect to 2003 (¤8.5 million) and consists mainly of ¤8.6 million in rent on units located at Via Rizzoli in Milan, at Via Tomacelli, Via Rossini and Torrespaccata in Rome, in Pessano con Bornago, in Padua, and in Scandicci in Firenze, and ¤0.3 million in leasing installments for equipment, machinery and vehicles.

Payroll costs (¤13.4 million)

2004 2003 Change Wages and salaries 9.8 10.8 (1.0) Social security charges 3.1 3.7 (0.6) Employee termination indemnities 0.9 1.2 (0.3) Other costs (0.4) (0.3) (0.1) Payroll costs 13.4 15.4 (2.0)

The reduction of ¤2.0 million with respect to the previous year is due essentially to the change in staff mix.

The average headcount rose from 97 in 2003 to 106 in 2004.

152 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Amortization, depreciation and writedowns (¤2.5 million)

2004 of which: 2003 Change from merger Amortization of intangible fixed assets 0.3 – 0.1 0.2 Depreciation of tangible fixed assets 2.2 0.9 0.3 1.9 Amortization, depreciation and writedowns 2.5 0.9 0.4 2.1

This item increased by ¤2.1 million, mostly for depreciation of the Via Solferino building in Milan, which was brought in with the merger of Immobiliare Solferino 28.

Amortization and depreciation are charged at the rates specified in the notes to the balance sheet.

Other operating expenses (¤2.4 million)

2004 2003 Change Entertainment costs, gifts and donations 1.1 0.9 0.2 Other overheads 0.7 0.4 0.3 Membership fees and dues 0.5 0.1 0.4 Local property tax (ICI) 0.1 – 0.1 Other operating expenses 2.4 1.4 1.0

These refer chiefly to entertainment costs, corporate expenses and taxes.

153 RCS MediaGroup S.p.A.: Financial statements and explanatory notes C) NET FINANCIAL INCOME (CHARGES) (¤61.1 million)

Income from equity investments (¤58.0 million)

2004 2003 Change Dividends: from subsidiaries: – RCS Quotidiani S.p.A. 13.6 19.2 (5.6) - RCS International Magazines BV 12.0 – 12.0 – RCS Libri S.p.A. 11.4 – 11.4 – RCS Periodici S.p.A. 3.6 14.4 (10.8) – RCS Factor S.p.A. 0.2 1.4 (1.2) from associated companies – Inimm Due S.à.r.l. 0.8 – 0.8 – m-dis S.p.A. 0.5 – 0.5 from other companies: – Pirelli & C. S.p.A. 4.5 2.9 1.6 – Banca Intesa S.p.A. 2.7 0.8 1.9 – Poligrafici Editori S.p.A. 0.3 – 0.3 – Raisat S.p.A. 0.1 0.1 – – Smi S.p.A. – 0.1 (0.1) from other holdings listed as current assets: – Recoletos Compania Editorial 1.0 – 1.0 Total dividends 50.7 38.9 11.8 Tax credit on dividends – 19.6 (19.6) Other income from non-current holdings 7.3 3.0 4.3 Income from equity investments 58.0 61.5 (3.5)

Other income from non-current holdings refers to the free allocation of shares by Banca Intesa S.p.A. as a “dividend in kind,” as mentioned in the comment to “financial fixed assets.”

Starting with the fiscal period underway at January 1, 2004, in accordance with Art. 4 of Legislative Decree 344/03, the tax credit on dividends no longer applies.

Other financial income (¤8.3 million)

2004 2003 Change Interest on securities held as current assets – 1.2 (1.2) Interest on loans held as financial fixed assets - subsidiaries 0.5 3.2 (2.7) Interest on loans held as financial fixed assets - third parties 0.1 0.6 (0.5) Gains on securities – 0.4 (0.4) Interest on corporate income tax (IRPEG) credit due to be reimbursed 1.0 1.4 (0.4) Interest on cash and banks - subsidiaries 6.2 6.2 –) Interest on cash and banks - associated companies 0.1 0.2 (0.1) Miscellaneous financial income 0.1 0.1 –) Interest on cash and banks - third parties 0.3 0.7 (0.4) Other financial income 8.3 14.0 (5.7) 154 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Interest and other financial charges (¤5.1 million) 2004 of which: 2003 Change from merger Losses on securities – – 0.3 (0.3) Interest paid to third parties 0.1 – 0.1 – Miscellaneous financial expense 0.5 0.2 – 0.5 Bank charges 0.2 – 0.1 0.1 Interest on short-term bank loans 0.1 – 0.3 (0.2) Interest on long-term bank loans 2.0 0.3 – 2.0 Interest paid to subsidiaries 1.4 – 2.5 (1.1) Interest paid to associated companies 0.8 – 0.5 0.3 Interest and other financial charges 5.1 0.5 3.8 1.3

Exchange gains (losses) (-¤0.1 million) 2004 2003 Change Exchange gains – 2.0 (2.0) (Exchange losses) (0.1) (1.8) 1.7 Exchange gains (losses) (0.1) 0.2 (0.3)

The average amount of interest-generating financial assets, calculated on a quarterly basis, was ¤75.2 million. That figure includes non-current receivables from subsidiaries (item B.III.2a), other tax credits held as current financial assets (item C.III.7), cash and banks (item C.IV.4), and accrued financial income (item D.1), net of payables to banks (item D.4), financial payables to subsidiaries and associated companies (items D.9 and 10), and accrued financial liabilities (item E.1).

Net income from net financial assets came to ¤1.7 million, as follows:

2004 2003 Change Other financial income (item C.16) 8.3 14.0 (5.7) Including (less) from C.16: Interest on tax credits (1.0) (1.4) 0.4 Writedowns of securities held as current assets (D.19.c) (0.4) (0.1) (0.3) Revaluations of securities held as current assets (D.18.c) – 0.3 (0.3) Interest on loans held as financial fixed assets - third parties (0.1) (0.6) 0.5 Other net financial income 6.8 12.2 (5.4) Interest and other financial charges (item C.17) 5.2 3.6 1.6 Included in C17: Asset manager cost – 0.1 (0.1) Exchange gains – 2.0 (2.0) Exchange losses) (0.1) (1.8) 1.7 Interest and other net financial charges 5.1 3.9 1.2 Total net financial income (charges) 1.7 8.3 (6.6)

The annual average rate of return on interest-bearing loans was approximately 3.6% (3.2% in 2003). 155 RCS MediaGroup S.p.A.: Financial statements and explanatory notes D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS (¤14.3 million)

2004 2003 Change Revaluations: – of equity investments – – – – Banca Intesa S.p.A. – 45.4 (45.4) – of securities held as current assets that do not constitute equity investments – 0.3 (0.3) Total revaluations – 45.7 (45.7) Writedowns: of equity investments in: – Eurofly Service S.p.A. 5.8 0.4 5.4 – RCS Investimenti S.p.A. 3.7 – 3.7 – Istituto Europeo di Oncologia S.r.l. 2.2 – 2.2 – Alice Lab Netherlands NV 1.2 – 1.2 – HdP BV 0.8 – 0.8 – S.N. l’Europeen S.A. 0.1 – 0.1 – Mode et Finance Conseil 0.1 – 0.1 – RCS Broadcast S.p.A. – 6.3 (6.3) – Poligrafici Editoriali S.p.A. – 3.9 (3.9) – Dada S.p.A. – 3.0 (3.0) – Burda RCS International Holding GmbH – 1.2 (1.2) Total writedowns of equity investments 13.9 14.8 (0.9) – of securities held as current assets that do not constitute equity investments 0.4 0.1 0.3 Total writedowns 14.3 14.9 (0.6) Total adjustments to the value of financial assets (14.3) 30.8 (45.1)

For information on the writedown of equity investments, see the previous section on financial fixed assets.

156 RCS MediaGroup S.p.A.: Financial statements and explanatory notes E) EXTRAORDINARY ITEMS (-¤6.4 million)

2004 2003 Change Extraordinary income: Capital gain on the sale of subsidiaries: 2.1 12.9 – RCS Periodici S.p.A. 1.7 11.5 (9.8) – m-dis (formerly RCS Diffusione) 0.4 1.4 (1.0) Capital gain on the sale of associated companies (BRIH) 1.1 – 1.1 Capital gain on the sale of other equity investments: 12.0 0.3 – Pirelli & C. S.p.A. 11.1 – 11.1 – Joyce Boutique Holding Ltd 0.9 – 0.9 – Ansa S.r.l. – 0.3 (0.3) Recovery of risk reserves 0.7 3.9 (3.2) Other extraordinary income 0.1 0.2 (0.1) Total extraordinary income 16.0 17.3 (1.3) Extraordinary charges: Expenses for top management turnover 18.9 6.4 12.5 Extraordinary consulting fees for the sale of non-strategic assets 2.1 5.2 (3.1) Extraordinary charges for “Burda” transaction 0.8 – 0.8 Other extraordinary charges 0.3 2.2 (1.9) Capital losses on sale of equity investments (Netdish) 0.3 – 0.3 Writedowns of equity investments: – 92.3 – RCS Investimenti S.p.A. (formerly Fila Holding) – 61.5 – GFT NET S.p.A. – 30.8 Use of risk provisions – (79.7) Use of reserve for consulting fees on behalf of RCS Investimenti – (2.7) 2.7 Extraordinary income for recovery of 2003 charges: RCS Investimenti – (2.5) 2.5 Provision to reserve for legal risks (claims by buyers of activities of RCS Investimenti - formerly Fila Holding) – 5.5 (5.5) Provision for non-recurring charges on minority investments (H3G) – 15.0 (15.0) Provision to restructuring reserves - publishing division – 3.0 (3.0) Total extraordinary charges 22.4 44.7 (22.3) Net extraordinary income (charges) (6.4) (27.4) 21.0

Capital gains on the disposal of subsidiaries and associated companies are made up as follows: ¤1.7 million in price supplementals for the December 2003 sale to the Burda Group of 10% of RCS Periodici, which was bought back in full in July 2004; ¤1.1 million for the sale of 50% of the associated company Burda RCS International Holding GmbH to the Burda Group, as part of the afore-mentioned operation that also led to the repurchase of 40% of RCS Periodici; and ¤0.4 million for the price adjustment of the M-dis operation, carried out in 2003.

Capital gains on the disposal of equity investments in other companies (¤12.0 million) are made up of ¤11.1 million for the sale of Pirelli & C. shares and warrants and ¤0.9 million for the sale of Joyce Boutique Holding shares. 157 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Extraordinary charges include ¤18.9 million for the turnover of top management, and ¤2.1 million in consulting fees incurred on behalf of the subsidiaries RCS Investimenti S.p.A. (formerly Fila Holding) and GFT Net S.p.A. in connection with the disposal of the operating companies. Extraordinary charges for the Burda operation (¤0.8 million) can be broken down into ¤0.6 million for consulting fees relating to the sale and purchase of equity investments, and ¤0.2 million for the partial writedown of a receivable due from Burda pursuant to the sale of 10% of RCS Periodici in December 2003.

22) INCOME TAXES FOR THE YEAR; DEFERRED TAX ASSETS AND LIABILITIES (¤36.0 million)

Income taxes for 2004 came to ¤35,961 thousand (¤3,300 thousand in 2003) and can be broken down as follows: > ¤27,101 thousand in income for RCS Mediagroup S.p.A. as the direct remuneration of its own tax losses used to offset the taxable income transferred by consolidated companies; > ¤8,860 thousand in net deferred tax assets for IRES (corporate income tax) and IRAP (regional business tax).

Taxes for the year have been determined taking account of the group's share of the taxable income of M-Dis S.p.A., which has opted for the “fiscal transparency” system provided for by Art. 115 of the Consolidated Finance Act, as amended by Legislative Decree 344 of December 12, 2003.

Deferred tax assets and liabilities are booked to the income statement in order to disclose the tax charge pertaining to the year, in consideration of the effects of timing differences between taxable income and the result shown in the financial statements. They include deferred tax assets recorded against the transfer of fiscal losses by the companies that have opted for the group tax election (Arts. 117 et seq. of the Consolidated Finance Act), of which RCS MediaGroup S.p.A. acts as the consolidating company.

With regard to deferred tax assets, the main timing differences refer to taxed provisions for risks and charges, entertainment costs and other expenses that are deductible in future years. The transfer of deferred tax assets for timing differences relating to previous accounting periods consists essentially of deferred costs and withdrawals from taxed reserves set up in prior years.

Deferred tax assets on certain timing differences have not been recorded, as they are not reasonably certain to be recovered.

Deferred taxes are calculated at the tax rates that will apply when the timing differences that generated them are reversed.

In addition, deferred tax assets refect the timing differences relating to the deferred taxes of M-Dis S.p.A., which has opted for the fiscal transparency system pursuant to Art. 115 of the Consolidated Finance Act (as amended by Legislative Decree 344 of December 12, 2003).

The following tables detail the calculation of corporate income tax (IRES: both current and pertaining to the year), and reconcile the tax charge shown in the financial statements with the theoretical tax charge, as established by the relevant accounting principles.

158 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Determination of tax charge (income) for the year 2004

(in thousands of euros) 2004 2003 Current IRES/IRPEG on income for the year – – Charge (income) from group tax election for the year (27,101) – Deferred IRES assets for timing differences (10) (2,985) – Deferred IRES assets for group tax losses to be carried forward (11,350) - Deferred IRES assets for timing differences due to fiscal transparency (696) + Transfer of deferred IRES assets for timing differences relating to prior years 2,893 6,086 + Adjustment of deferred tax assets to new rates 67 Total deferred tax assets (9,163) 3,168 + Deferred IRES liabilities due to timing differences – Transfer of deferred IRES liabilities due to timing differences relating to prior years – Adjustment of deferred tax liabilities to new rates Total deferred tax liabilities – – = Tax charge (income) pertaining to the year (36,264) 3,168

Calculation of IRAP (regional business tax) pertaining to 2004

(in thousands of euros) 2004 2003 Current IRAP on income for the year – 386 – Deferred IRAP assets due to timing differences for the year (2) (239) – Adjustment of deferred tax assets to new rates (67) + Transfer of deferred IRAP assets due to timing differences relating to prior years 305 52 Total deferred tax assets 303 (254) + Transfer of deferred IRAP liabilities due to timing differences - Transfer of deferred IRAP liabilities due to timing differences relating to prior years Total deferred tax liabilities – – = IRAP pertaining to the year 303 132

159 RCS MediaGroup S.p.A.: Financial statements and explanatory notes IRES (corporate income tax) Reconciliation between the tax charge shown in the financial statements and the theoretical tax charge

(in thousands of euros) 2004 2003 Earnings before tax 22,190 Theoretical tax charge (at 33%) 7,323 Permanent differences (45,134) Pre-tax profit adjusted for permanent differences (22,944) Tax charge (income) on earnings for the year (7,572) Timing differences deductible in later years 6,494 Timing differences taxable in later years – Transfer of timing differences from prior years (100,068) Taxable income (116,518) Group tax losses to be carried forward 34,393 Net taxable income (82,125) Tax charge (income) for the year (27,101)

IRAP (regional business tax) Reconciliation between the tax charge shown in the financial statements and the theoretical tax charge in thousands of euros

(in thousands of euros) Difference between value and cost of production (18,223) Costs not relevant for IRAP purposes 14,439 Total (3,784) Theoretical tax charge: 5.25% (199) Timing differences deductible in later years 103 Timing differences taxable in later years – Transfer of timing differences from prior years (5,339) Permanent differences and reclassifications 8,145 Taxable income for IRAP purposes (875) Current IRAP on income for the year –

160 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Reckoning of deferred tax assets and liabilities (OIC1 )

(Thousands of euros) 12/31/2004 12/31/2003 IRES Amount Rate Tax Amount Rate Tax of timing effect of timing effect differences differences Deferred tax liabilities for: Total deferred tax liabilities – - Deferred tax assets for: – Reserves adjusting asset balances: - 33 – – 33 – Reserves for risks and charges : – Reserve for litigation 2,000 33 660 – 33 – – Reserve for specific risks 3,996 33 1,319 14,191 33 4,683 Deferred-deductible costs: – Entertainment, certification, membership fees, etc. 1,355 33 447 1,896 33 626 Deferred taxation from fiscal transparency system fiscale 2,11 33 697 – – – Deferred taxation from group tax election 34,393 33 11,350 – – – Total deferred tax assets 43,855 33 14,472 16,087 33 5,309 Deferred tax assets for tax losses carried forward ––– Total deferred tax assets, net of deferred tax liabilities 43,855 33 14,472 16,087 33 5,309 Timing differences excluded from determination of deferred tax liabilities: – Other 1,996 – Total 1,996 - Timing differences excluded from determination of deferred tax assets: Reserves adjusting asset balances: – Financial fixed assets 200,079 275,998 Reserves for risks and charges: – Reserve for litigation 1,150 – – Reserve for specific risks 11,603 30,150 Deferred-deductible costs: – Other costs pertaining to future years 634 1,230 Total 213,466 307,378 Tax losses to be carried forward excluded from determination of deferred tax assets 27,814 27,814

161 RCS MediaGroup S.p.A.: Financial statements and explanatory notes Reckoning of deferred tax assets and liabilities (OIC1 )

(thousands of euros) 12/31/2004 12/31/2003 IRES Amount Rate Tax Amount Rate Tax of timing effect of timing effect differences Deferred tax liabilities for: Total deferred tax liabilities – – Deferred tax assets for: Reserves adjusting asset balances: - 5.25% - – 5.25% - Reserves for risks and charges: – Reserve for specific risks 4,166 5.25% 219 9,405 5.25% 494 Deferred-deductible costs: – Entertainment, certification, membership fees, etc. 1,355 5.25% 71 1,896 5.25% 100 Total deferred tax assets 5,521 5.25% 290 11,301 5.25% 593 Total deferred tax assets, net of deferred tax liabilities 5,521 5.25% 290 11,301 5.25% 593 Timing differences excluded from determination of deferred tax liabilities: –– – Other – – Total -– Timing differences excluded from determination of deferred tax assets: Reserves adjusting asset balances: Reserves for risks and charges: Reserve for litigation 3,150 Reserve for specific risks 11,433 34,936 Deferred-deductible costs: Total 14,583 34,936

OTHER INFORMATION

1. Average workforce by category:

12/31/04 12/31/03 Category Average Year-end Average Year-end Executives 27 24 25 30 Middle management 27 29 24 23 White collar 51 51 47 48 Blue collar 0 0 0 1 Journalists/reporters 1 1 1 3 News directors 0 0 0 0 Total 106 105 97 105

162 RCS MediaGroup S.p.A.: Financial statements and explanatory notes 2. Annual compensation to directors, statutory auditors and the chief operating officer

Position held Compensation (in thousands of euros) Name Title Period in office End of Emoluments Bonuses Other from to term for said & other compens- office incentives ation Guido Roberto Vitale Chairman*^ 01-01-2004 12-31-2004 AGM approval of 750 2005 accounts Vittorio Colao Ceo and Coo* 07-28-2004 12-31-2004 AGM approval of 107 (1) 2,000 (1) 356 (1) 2004 accounts Alessandro Pedersoli Director** 01-01-2004 12-31-2004 AGM approval of 2005 accounts 30 Carlo Buora Director* 01-01-2004 12-31-2004 AGM approval of 35 (2) 2005 accounts Carlo Pesenti Director* 01-01-2004 12-31-2004 AGM approval of 30 2005 accounts Cesare Geronzi Director 10-20-2004 12-31-2004 AGM approval of 2 2004 accounts Corrado Passera Director 01-01-2004 12-31-2004 AGM approval of 20 (3) 2005 accounts Diego Della Valle Director 10-21-2004 12-31-2004 AGM approval of 2 2004 accounts Franzo Grande Stevens Director*^ 01-01-2004 12-31-2004 AGM approval of 45 2005 accounts Giangiacomo Nardozzi Director** 01-01-2004 12-31-2004 AGM approval of 30 Tonielli 2005 accounts Giuseppe Lucchini Director 01-01-2004 12-31-2004 AGM approval of 15 2005 accounts Jonella Ligresti Director 10-19-2004 12-31-2004 AGM approval of 2 2004 accounts Natalino Irti Director^ 01-01-2004 12-31-2004 AGM approval of 30 2005 accounts Paolo Savona Director*^ 01-01-2004 12-31-2004 AGM approval of 45 2005 accounts Raffaele Agrusti Consigliere** 01-01-2004 12-31-2004 AGM approval of 30 2005 accounts Renato Pagliaro Director*^ 01-01-2004 12-31-2004 Assemblea approva 45 2005 accounts Roberto Bertazzoni Director 01-01-2004 12-31-2004 AGM approval of 15 2005 accounts Umberto Quadrino Director* 01-01-2004 12-31-2004 AGM approval of 30 2005 accounts Enrico Giliberti Director 01-01-2004 07-21-2004 – 7 488 (6) Nicolò Nefri Director*^ 01-01-2004 10-5-2004 – 21 Paolo Mieli Vice Chairman*** 01-01-2004 10-5-2004 – 203 407 (4) Maurizio Romiti Ceo and Coo*^ 01-01-2004 09-15-2004 – 530 15,096 (5) 1,147 (5) Gianrenzo Cova Chair/Auditor 01-01-2004 12-31-2004 AGM approval of 62 2005 accounts Clemente Rebecchini Auditor 01-01-2004 12-31-2004 AGM approval of 41 2005 accounts Flavio Arcidiacono Auditor 01-01-2004 12-31-2004 AGM approval of 41 2005 accounts

* Member of the Executive Committee (8 members) ^ Member of the Comepnsation Committee (5 members) ** Member of the Internal Control Committee (3 members) *** For term of office (01/01/2004 to 10/05/2004) vice chairman of the Board of Directors (continued notes) > 163 RCS MediaGroup S.p.A.: Financial statements and explanatory notes

(continuation notes )

(1) On July 28, Vittorio Colao replaced outgoing member Enrico Giliberti on the Board of Directors. Mr. Coalo was was also nominated CEO and GM in substitution of Mr. Maurizio Romiti who resigned from the Group effective September 15, 2004 For his role as CEO he received a compensation of ¤107,000, that equals an annual compensation of ¤250,000. As GM he received compensation of ¤ 356,000 that equals an annual gross compensation of ¤750,000 in addition to an entry bonus of ¤ 2,000,000 net of tax charges wholly invested in RCS MediaGroup shares.; (2) As of May 1, 2004 Mr. Carlo Buora, was nominated member of the Executive Committee. In addition, through 30/4/2004 he was a member of the Internal (3) As of May 1, 2004 Mr. Corrado Passera resigned as a member of the Group Compensation Committee (4) Payment for tendering early resignation from the role and mandate assigned by RCS MediaGroup; (5) Of 7,200,000 as part of a non competition clause of ¤4,800 to be paid in different tranches over 2005-2006, 2007; ¤1,780,000 as part of pension plan and ¤1,816,000 as part of severance pay ¤4,300 as exit fee and ¤804,000 as compensation for fulfilling duties as GM from 01/01/2004 to 9/15/2004) ¤343,000 as variable bonus. (6) Compensation for professional services of Studio Giliberti e Associati (¤364,000 from RCS MediaGroup S.p.A., ¤77,000 from RCS Quotidiani S.p.A., ¤44,000 from RCS Periodici S.p.A., ¤3,000 from RCS Libri S.p.A.).

3. Amount of financial charges set against balance sheet assets, detailed by individual item (Art. 2427 no. 8 of the Italian Civil Code)

No financial charges were set against balance sheet assets during the year.

4. Taxation system to which share capital and reserves are subject if they are distributed or reimbursed (*)

Reserves that, Earnings Tax-suspended Tax-suspended Total if distributed, reserves reserves reserves do not go into that, if used, that, if used, allocated to the company's go into the go into the share capital or the share- company's company's that are taxed if holders' taxable income taxable income the share capital taxable income is reduced for assignment to shareholders Share premium reserve 71.2 – – – 71.2 Legal reserve 97.8 54.6 – – 152.4 Reserve for the purchase of treasury shares 85.0–––85.0 Other reserves ––––- Total 254,0 54,6 – – 308,6

* Unless otherwise specified in Art. 47 of the Consolidated Finance Act.

164 RCS MediaGroup S.p.A.: Financial statements and explanatory notes 5. Analysis of movements in shareholders' equity items (Art. 2427-bis of the Italian Civil Code)

(millions of euros) Amount Utilizable Amount Summary of withdrawals (1) available in 3 prior years (2) Loss Other coverage uses Share capital 762.0 Capital reserves: – Reserve for treasury shares 85.0 – – – Reserve for shares or quotas of parent company – – – – Share premium reserve 71.2 A, B, C 71.2 (3) (103.2) (24.8) – Bond conversion reserve – Earnings reserves: – Legal reserve 152.4 B – – Reserve for treasury shares – – Reserve for net exchange gains – – – Reserve for valuation of equity investments at net equity – – – Reserve as per par. 4, Art. 2423 (Other reserves) – A, B – (10.3) – Spin-off surplus reserve – – – (112.0) (3.8) Income carried forward - A, B, C - (92.6) Total 1,070.6 71.2 (318.1) (28.6) Unavailable portion (4) – Remaining available portion 71.2

Notes: (1) Unless otherwise restricted by statutory norms, to be specified where existing; (2) withdrawals provided since 2002, in the absence of figures required for prior years; (3) Pursuant to Art. 2431 of the Italian Civil Code, the full amount can be distributed only if the legal reserve has reached the minimum set by Civil Code Art. 2430; (4) portion unavailable due to: reserve for net exchange gains (xxx), reserve for valuation of equity investments at net equity (xxx), reserve as per par. 4, Art. 2423 (xxx) and the portion to be used for coverage of unamortized deferred expenses as per Art. 2426, n. 5 (xxx) Legend: A: for capital increase; B: for loss coverage; C: for distribution to shareholders

Milan, March 18, 2005

on behalf of the Board of Directors

Guido Roberto Vitale Chairman

Vittorio Colao Chief Executive Officer

165

Attachments to the consolidated financial statements

167 Attachments to the consolidated financial statements RCS MediaGroup List of equity investments at December 31, 2004

This list, provided pursuant to Arts. 38 and 39 of Legislative Decree 127/91and Art. 126 of CONSOB Resolution no. 11971/99, is presented in alphabetical order for consolidated companies, which are also subdivided on the basis of consolidation method and group. For all significant investments, whether consolidated or not, the percent held directly refers to the total share capital (which corresponds with voting and ordinary capital), unless otherwise noted. Investments of less than 0.1% and those recorded as current assets are not included.

Companies consolidated on a line-by-line basis

Name Head office Business Currency Share Group's Held by % held capital share directly

RCS MediaGroup S.p.A. Milan Holding Eur 762,019,050 RCS Investimenti S.p.A. Milan Finance Eur 96,511,312 98.20 RCS MediaGroup S.p.A. 98.20 GFN NET S.p.A. Milan Apparel Eur 900,000 100.00 RCS MediaGroup S.p.A. 100.00 RCS Broadcast S.p.A. Milan Radio Eur 5,346,000 98.99 RCS MediaGroup S.p.A. 98.99 RCS Editori S.p.A. Milan Services Eur 100,000 100.00 RCS MediaGroup S.p.A. 100.00 RCS Factor S.p.A. Milan Publishing Eur 2,000,000 90.00 RCS MediaGroup S.p.A. 90.00 RCS International Magazines B.v. Amsterdam Publishing Eur 2,300,000 100.00 RCS MediaGroup S.p.A. 100.00 RCS Libri S.p.A. Milan Publishing Eur 42,405,000 99.99 RCS MediaGroup S.p.A. (1) 99.99 RCS Periodici S.p.A. Milan Publishing Eur 5,000,000 100.00 RCS MediaGroup S.p.A. 100.00 RCS Pubblicità S.p.A. Milan Advertising Eur 40,000,000 100.00 RCS MediaGroup S.p.A. 100.00 RCS Quotidiani S.p.A. Milan Publishing Eur 40,000,000 100.00 RCS MediaGroup S.p.A. 100.00

Companies in the RCS QUOTIDIANI Group Arlanza Ediciones S.a. Madrid Publishing Eur 375,000 71.25 Unidad Editorial S.a. 75.00 Canal Mundo Ficcion S.I. Madrid Publishing Eur 3,060 95.00 Canal Mundo Producciones Audiovisuales S.a. 100.00 Canal Mundo Producciones Madrid Publishing Eur 80,270.68 71.25 Unidad Editorial S.a. 75.00 Audiovisuales S.a. Canal Mundo Radio Cataluna S.l. Madrid Publishing Eur 3,010 94.98 Unidad Editorial S.a. 99.98 Canal Mundo Radio Extremadura S.I. Madrid Publishing Eur 3,913 94.98 Unidad Editorial S.a. 99.98 City Italia S.p.A. Milan Publishing Eur 3,100,230 90.00 RCS Quotidiani S.p.A. 90.00 City Milano S.p.A. Milan Publishing Eur 100,000 81.00 City Italia S.p.A. 90.00 Ediservicios Madrid 2000 S.I. Madrid Publishing Eur 601,000 95.00 Unidad Editorial S.a. 100.00 Editora De Medios De Castilla Y Leon S.a. Valladolid Publishing Eur 1,668,300 75.14 Unidad Editorial S.a. 79.09 Editora De Medios De Valencia, Valencia Publishing Eur 1,322,200 53.10 Unidad Editorial S.a. 54.60 Alicante Y Castellon S.a. Fabripress S.a. 1.30 Editorial Del Pueblo Vasco S.a. Bilbao Publishing Eur 2,193,900 93.41 Unidad Editorial S.a. 98.33 Editoriale Veneto S.r.l. Padua Publishing Eur 3,000,000 51.00 RCS Quotidiani S.p.A. 51.00 Fabripress S.a. Madrid Publishing Eur 961,600 94.99 Unidad Editorial S.a. 100.00 Impresiones De Catalunya S.a. Barcelona Publishing Eur 3,000,000 94.95 Unidad Editorial S.a. 90.30 Fabripress S.a. 9.65 La Esfera De Los Libros S.I. Madrid Publishing Eur 48,000 71.25 Unidad Editorial S.a. 75.00 Logintegral 2000 S.a. Madrid Publishing Eur 500,000 95.00 Unidad Editorial S.a. 100.00 Mundinteractivos S.a. Madrid Publishing Eur 3,600,000 95.00 Unidad Editorial S.a. 100.00 Omni S.I. Palma di Maiorca Publishing Eur 156,260 63.30 Rey Sol S.a. 100.00 Rey Sol S.a. Palma di Maiorca Publishing Eur 1,376,040 63.34 Unidad Editorial S.a. 66.67 RCS International News.p.a.pers B.v. Amsterdam Publishing Eur 6,250,000 100.00 RCS Quotidiani S.p.A. 100.00 RCS Sport S.p.a. Milan Publishing Eur 100,000 100.00 RCS Quotidiani S.p.A. 100.00 Unedisa Comunicaciones S.I. Madrid Publishing Eur 410,000 95.00 Unidad Editorial S.a. 100.00 Unedisa Publicidad S.a. Madrid Advertising Eur 500,000 95.00 Unidad Editorial S.a. 100.00 Unedisa Telecomunicaciones S.I. Madrid Publishing Eur 600,000 95.00 Unidad Editorial S.a. 100.00 Unidad Editorial S.a. Madrid Publishing Eur 40,363,638 95.00 RCS International Newspapers B.v. 95.00

NOTES: (1) of ordinary capital: 100% 168 Attachments to the consolidated financial statements continued Companies consolidated on a line-by-line basis

Name Head office Business Currency Share Group's Held by % held capital share directly

Companies of the RCS LIBRI Group Casterman France S.a. Paris Publishing Eur 640,285.87 99.58 Editions Casterman S.a. 99.66 Caterpar S.a. Brussels Publishing Eur 22,540,000 99.99 Flammarion S.a. 99.99 Partedit S.a. 0.01 Dane Publishing Kiev Publishing Uah 51.09 Ge Fabbri Ltd. 100.00 Delagrave Edition S.a.s. Paris Publishing Eur 800,000 89.99 Flammarion S.a. 90.00 Editions Arthaud S.a. (In liquidazione) Paris Publishing Eur 270,000 99.49 Flammarion S.a. 99.50 Editions Audie S.a.s. Paris Publishing Eur 1,220,000 87.21 Flammarion S.a. 70.00 Editions J’ai Lu S.a. 30.00 Editions Casterman S.a. Brussels Publishing Eur 3,000,000 99.92 Casterpar S.a. 61.05 Flammarion S.a. 38.90 Editions Fabbri S.a.r.l. Paris Publishing Eur 576,000 99.99 RCS Livres S.a. 100.00 Editions Flammarion S.a.s. Paris Publishing Eur 2,150,660 99.99 Flammarion S.a. 100.00 Editions Flammarion Ltee (Canada) Montreal Publishing CAD 6,500 99.99 Flammarion S.a. 100.00 Editions J’ai Lu S.a. Paris Publishing Eur 420,000 57.41 Flammarion S.a. 57.42 Editoriale Firenze S.p.A. Scandicci (Fi) Publishing Eur 910,000 99.28 RCS Libri S.p.A. (1) 99.29 Fabbri Lapkiado’ Kft Budapest Publishing HUF 3,000,000 99.99 RCS International Books B.v. 99.67 RCS Libri S.p.A. 3.33 Fabbri Praha Spol.s. R.o. Prague Publishing CZK 100,000 99.99 RCS International Books B.v. 100.00 Fabbri Prima O.o.d. Corp. Sofia Publishing BGL 20,000 69.99 RCS International Books B.v. 70.00 Fabbri Publishing Ltd. London Publishing GBP 20,000 51.09 Ge Fabbri Limited 100.00 Fabbri Publishing (US) Inc. Delaware Wilmington Publishing USD 1,000 51.09 Fabbri Publishing Limited 100.00 Flammarion Centre S.a.r.l. Paris Publishing Eur 10,000 99.59 Flammarion S.a. 99.60 Flammarion Inc. New York Publishing USD 100 99.99 Flammarion S.a. 100.00 Flammarion S.a. Paris Publishing Eur 10,758,310 99.99 RCS Livre Sas 100.00 Ge Fabbri Ltd. London Publishing GBP 685,033 51.09 RCS International Books B.v. 51.10 Ge Fabbri Editions Mosca Publishing Rublo 10,000 51.09 Ge Fabbri Ltd. 100.00 Ge Fabbri Phoenix Sp. Z.o.o. Wroclaw Publishing PLN 10,000 34.23 Ge Fabbri Limited 67.00 La Coccinella S.r.l. Varese Publishing Eur 250,000 59.99 RCS Libri S.p.A. 60.00 La Hune S.a.r.l. Paris Publishing Eur 1,760,280 99.98 Flammarion S.a. 99.99 Les Editions Flammarion S.a. Geneva Publishing CHF 425,000 99.99 Flammarion S.a. 100.00 Librerie Rizzoli S.r.l. Milan Publishing Eur 500,000 99.99 RCS Libri S.p.A. 100.00 Magic Square S.a. Brussels Publishing Eur 100,000 99.88 Editions Casterman S.a. 99.96 Marsilio Editori S.p.A. Venice Publishing Eur 1,300,000 50.99 RCS Libri S.p.A. 51.00 Prima Ukraina Ltd. Kiev Publishing Uah 20,000 69.99 RCS International Books B.v. 70.00 Racine S.a.s. Paris Publishing Eur 37,000 99.99 Flammarion S.a. 100.00 RCS International Books B.v. Amsterdam Publishing Eur 2,500,000 99.99 RCS Libri S.p.A. 100.00 RCS Livres S.a.s. Paris Publishing Eur 72,500,000 99.99 RCS Libri S.p.A. 100.00 Rizzoli International Publications Inc. New York Publishing USD 26,900,000 99.99 RCS International Books B.v. 100.00 Rizzoli Bookstores Inc. New York Publishing USD 5,200,000 99.99 Rizzoli International Publications Inc. 100.00 S.c.i. Chevilly IV S.c.i. Paris Publishing Eur 2,772,000 99.99 Flammarion S.a. 99.96 Ud-union Distribution S.a. 0.04 S.c.i. La liberté S.c.i. Paris Publishing Eur 120,000 99.99 Flammarion S.a. 99.875 Editions Flammarion S.a.s. 0.125 S.c.i. Saint Germain S.c.i. Paris Publishing Eur 75,000 99.99 Flammarion S.a. 96.00 La Hune S.a.r.l. 4.00 Ud-Union Distribution S.a.s. Chevilly Publishing Eur 500,000 99.99 Flammarion S.a. 100.00

Companies in the RCS PERIODICI Group RCS Direct S.r.l. Milan Publishing Eur 200,000 100.00 Sfera Service S.r.l. 100.00 Ediprof S.r.l. Milan Publishing Eur 10,400 70.00 Sfera Editore S.p.A. 70.00 Feria Bebe S.I. Barcelona Publishing Eur 10,000 60.00 Sfera Editores Espana S.I. 60.00 Sfera Service S.r.l. Milan Publishing Eur 52,000 100.00 Sfera Editore S.p.A. 100.00 Sfera Editore S.p.A. Milan Publishing Eur 2,000,000 100.00 RCS Periodici S.p.A. 100.00 Sfera Editores Espana S.I. Barcelona Publishing Eur 174,000 100.00 Sfera Editore S.p.A. 100.00 Sfera Editores Mexico S.a. Granada Publishing MXN 6,401,600 100.00 Sfera Editore S.p.A. 100.00 Sfera Web S.r.l. Milan Publishing Eur 11,000 100.00 Sfera Editore S.p.A. 100.00 Trend Service S.a. Granada Publishing MXN 250,000 99.00 Sfera Editores Mexico S.a. 99.00

Società del Gruppo PUBBLICITA’ Blei S.p.A. Milan Publishing Eur 1,548,000 51.00 RCS Pubblicità S.p.A. 51.00 RCS International Advertising B.v. Amsterdam Advertising Eur 20,000,000 51.00 RCS Pubblicità S.p.A. 51.00 RCS Dada Advertising S.p.A. Milan Advertising Eur 600,000 51.00 RCS Pubblicità S.p.A. 51.00

NOTES: (1) of ordinary capital: 100% 169 Attachments to the consolidated financial statements Companies valued under the net equity method

Name Head Business Currency Share Held by % Carrying office capital held value directly (millions of euros) Eurogravure S.p.A. Bergamo Publishing Eur 11,334,932 RCS MediaGroup SpA 30.00 5.8 HdP BV Amsterdam Financial Eur 15,000,000 RCS MediaGroup S.p.A. 100.00 5.1 Inimm Due S.a.r.l. Lussemburgo Real Estate Eur 240,950 RCS MediaGroup S.p.A. 20.00 0.5 S.n. L’européen S.a. Paris Publishing Eur 610,000 RCS MediaGroup S.p.A. 35.00 0.0 Sepad S.p.A. Milan Publishing Eur 1,530,000 RCS MediaGroup S.p.A. 30.00 0.5 Serom S.p.A. Milan Publishing Eur 1,530,000 RCS MediaGroup S.p.A. 30.00 0.5 m-dis Distribuzione Media S.p.A. Milan Publishing Eur 6,392,727 RCS MediaGroup S.p.A. 45.00 7.6 RCS Servizi e Partecipazioni S.p.A. Milan Services Eur 1,000,000 RCS MediaGroup S.p.A. 100.00 1.1

Companies in the RCS QUOTIDIANI Group Arlaban Inversiones S.I. Madrid Publishing Eur 60,600 Munditeractivos S.a. 50.00 0.0 Broad Media S.a. Madrid Publishing Eur 3,000,000 Munditeractivos S.a. 50.00 0.9 Calprint S.I. Valladolid Publishing Eur 1,500,000 Unidad Editorial S.a. 49.00 1.7 Difernet S.I. Madrid Publishing Eur 4,320 Munditeractivos S.a. 33.00 0.0 Ediciones Periodisticas Leonesas (Propelesa) S.a. Leon Publishing Eur 691,150 Unidad Editorial S.a. 10.00 0.0 Editoriale del Mezzogiorno S.r.l. Naples Publishing Eur 866,360 RCS Quotidiani S.p.A. 48.92 0.8 Ediciones Reunitel S.I. Madrid Publishing Eur 548,700.01 Unidad Editorial S.a. 50.00 0.0 Edi. T.A.A. S.r.l. Trento Publishing Eur 1,200,000 RCS Quotidiani S.p.A. 50.00 0.3 Incal Informacion S.I. Valladolid Publishing Eur 6,000 Editora de Medios de Castilla y Leon S.a. (edical) 100.00 0.0 Omniprint S.I. Palma di Maiorca Publishing Eur 2,790,000 Rey Sol S.a. 45.00 1.1 Res - IHT S.r.l. (in liquid.) Milan Publishing Eur 600,000 RCS Quotidiani S.p.A. 50.00 0.1 Red de Distribuciones Editoriales S.I. Madrid Publishing Eur 176,829.78 Unidad Editorial S.a. 30.00 1.5

Companies in the RCS PERIODICI Group Actes Sud Participation S.a. Arles Publishing Eur 2,855,377.12 Editions J’ai Lu S.a. 13.84 Flammarion S.a. 13.84 2.9 Adelphi Edizioni S.p.A. Milan Publishing Eur 1,040,000 RCS Libri S.p.A. 48.00 1.1 Artificio S.r.l. Florence Publishing Eur 20,658 Skira Editore S.p.A. 50.00 0.0 Edition d’Art Albert Skira S.a. Geneve Publishing CHF 6,421,050 RCS International Books B.v. 24.00 4.2 Garamond S.r.l. Rome Publishing Eur 10,000 RCS Libri S.p.A. 50.00 0.9 Librairies Du Savoir S.a. Paris Publishing Eur 1,042,950 Flammarion S.a 23.50 4.0 Mach 2 Libri S.p.A. Milan Publishing Eur 646,250 RCS Libri S.p.A. 20.00 1.9 R.L. Libri S.r.l. Milan Publishing Eur 250,000 RCS Libri S.p.A. 50.00 0.7 Rca Fabbri France S.a.r.l. Paris Publishing Eur 50,000 Editions Fabbri S.a.r.l. 50.00 0.4 Rizzoli Larousse S.p.A. Milan Publishing Eur 1,600,000 RCS Libri S.p.A. 50.00 0.3 Skira Editore S.p.A. Milan Publishing Eur 3,000,000.12 Edition d’Art Albert Skira S.a. 100.00 0.0 Socadis Ltee St Laurent Publishing CAD 40,000 Editions Flammarion Ltee 50.00 0.2

Companies in the RCS PERIODICI Group De Agostini Rizzoli Periodici S.r.l. Milan Publishing Eur 500,000 RCS Periodici S.p.A. 50.00 0.0

Companies in the RCS PUBBLICITA' Group ADR Advertising S.p.A. Fiumicino Advertising Eur 1,000,000 IGP-Decaux S.p.A. 74.50 1.0 Allestimenti Speciali Pubblicità Esterna A.s.p.e. S.r.l. Rozzano Advertising Eur 13,00 IGP-Decaux S.p.A. 49.00 0.1 IGP-Decaux S.p.A. Milan Advertising Eur 7,390,522 RCS International Advertising B.v. 67.65 26.6 Media Alpi S.r.l. Trento Advertising Eur 10,000 RCS Pubblicità S.p.A. 50.00 0.0 Pubblirecord S.r.l. Napoli Advertising Eur 10,400 IGP-Decaux S.p.A. 49.00 0.0 Pubblisuccesso Lombardia S.r.l. (in liquidazione) Milan Advertising Eur 312,000 IGP-Decaux S.p.A. 100.00 0.0 Publitransport GTT S.r.l. Torino Advertising Eur 100,000 IGP-Decaux S.p.A. 49.00 0.0 Punto Città Gruppo Publinvest S.r.l. Naples Advertising Eur 10,500 IGP-Decaux S.p.A. 49.00 0.0 Ser.com S.p.A. Bagno a Ripoli Advertising Eur 150,000 IGP-Decaux S.p.A. 51.00 0.3 S.i.p.a. S.r.l. Naples Advertising Eur 155,000 IGP-Decaux S.p.A. 49.00 0.2

Companies in the RCS DIFFUSIONE Group Trento Press Service S.r.l. Trento Publishing Eur 260,000 m-dis Distribuzione Media S.p.A. 30.40 0.1 Milano Press S.r.l. Milan Publishing Eur 50,000 m-dis Distribuzione Media S.p.A. 100.00 0.4

Companies in the BV Group Hachette Rizzoli International Communications B.v. Amsterdam Publishing Eur 9,075,604 RCS International Magazines B.v. 50.00 0.8 Hachette Rizzoli Magazines Ltd. Atene Publishing Eur 3,462.949 Hachette Rizzoli International Communications B.v. 50.00 Rcs International Communications N.v. Amsterdam Publishing Eur 2,050,000 RCS International Magazines B.v. 50.00 1.5

Companies in the GFT NET Group GFT USA Corp (in liq.) Rutherford Apparel USD 850,000 GFT NET S.p.A. 94.98 0.0 GFT Germany GmbH (in liquidazione) Düsseldorf Apparel Eur 1,533,876 GFT International BV 100.00 0.0 GFT Great Britain Ltd. London Apparel GBP 10,500,000 GFT International BV 100.00 0.0 GFT Hong Kong Ltd. (in liquidazione) Hong Kong Apparel HKD 2,300,000 GFT International BV 100.00 0.0 GFT International BV Amsterdam Apparel Eur 34,250,668 GFT NET S.p.A. 100.00 5.8 TOTAL NET 80.9

NOTES: (1) of ordinary capital: 49% 170 Attachments to the consolidated financial statements Companies valued at cost

Name Head Business Currency Share Held by % Carrying office capital held value directly (millions of euros) Alice Lab Netherlands N.v. Amsterdam Financial Eur 128,850.95 RCS MediaGroup SpA 19.40 0.5 Allaxia SpA Milan Services Eur 10,000,000 RCS MediaGroup SpA 1.23 0.0 DAB Servizi SpA (in liquidazione) Milan Services Eur 1,040,000 RCS MediaGroup SpA 6.25 0.0 Dada S.p.A. Florence Multimedia Eur 2,664,101.28 RCS MediaGroup SpA 15.42 11.3 Emittenti Titoli SpA Milan Stock Exchange Eur 4,264,000 RCS MediaGroup SpA 1.22 0.1 Eurofly Service SpA Turin Transport Eur 4,275,000 RCS MediaGroup SpA 24.55 0.0 Hutchison 3G Italia SpA Trezzano sul Naviglio Telephone Eur 3,223,189,725 RCS MediaGroup SpA 1.02 18.0 Immobiliare Editori Giornali S.r.l. Rome Publishing Eur 830,463 RCS MediaGroup SpA 7.50 0.1 Banca Intesa SpA Milan Banking Eur 3,561,062,849 RCS MediaGroup SpA 0.83 165.0 (2) Istituto Europeo di Oncologia Srl Milan Medicine Eur 57,305,382 RCS MediaGroup SpA 5.16 3.0 Joyce Boutique Holdings Ltd Hong Kong Apparel HKD 160,380,000 RCS MediaGroup SpA 7.78 2.7 Mode et Finance Paris Apparel Eur 6,428,540 RCS MediaGroup SpA 9.49 0.5 Perseo S.r.l. Milan Transport Eur 20,000 RCS MediaGroup SpA 24.55 0.0 Pirelli & C. SpA Milan Financial Eur 1,800,383,318.24 RCS MediaGroup SpA 1.80 50.1 (1) Poligrafici Editoriale SpA Milan Publishing Eur 34,320,000 RCS MediaGroup SpA 9.99 20.7 Raisat S.p.a. Roma Television Channels Eur 2,585,000 RCS MediaGroup SpA 5.00 5.2

Companies in the RCS QUOTIDIANI Group Ansa S.r.l Roma Publishing Eur 11,424,000 RCS Quotidiani SpA. 3.13 0.2 Comercial de Prensa Siglo XXI S.a. Madrid Publishing Eur 601,000 Unidad Editorial S.a. 20.00 0.6 Consorzio Milano Marathon s.c.a.r.l. Milan Services Eur 20,000 RCS Sport Events S.p.a. 60.00 0.0 Consuledit S.r.l. Milan Publishing Eur 20,000 RCS Quotidiani SpA. 11.19 0.0 Gestora de Derechos de Prensa S.a. Madrid Publishing Eur 787,500 Unidad Editorial S.a. 17.78 0.0 Ibiza De Publicaciones S.a. Ibiza Publishing Eur 586,680 Rey Sol S.a. 7.96 0.0 Medios de Azahar Castellon Publishing Eur 392,500 Editora De Medios De Valencia, Alicante Y Castellon S.a. 8.03 0.0 Neo-Sky 2002 S.a. Madrid Publishing Eur 112,958,764 Unidad Editorial S.a. 0.95 0.7 Societè Anonyme Investissements Press S.a. (S.A.I.P.) Paris Publishing Eur 9,251,687 Unidad Editorial S.a. 2.00 0.0 Travel Systems A.g. Monaco Publishing Eur 339,344 Unidad Editorial S.a. 1.00 0.1 Unedisa Producciones Baleares sl Palma di Maiorca Publishing Eur 3,060 Canal Mundo Producciones Audiovisuales S.a. 100.00 0.0 Veo Television S.a. Madrid Publishing Eur 11,899,800.00 Unedisa Telecomuni- caciones S.l. 25.76 2.2 Suscribe S.l. Palma di Maiorca Publishing Eur 300,000 Logintegral 2000 S.a. 15.00 0.0

Companies in the RCS LIBRI Group Beaux Arts S.a.s. Paris Publishing Eur 1,500,000 Editions Audie S.a.s. 100.00 0.0 Data Base Factory France N.A. Publishing Eur 90,354 Ge Fabbri Ltd. 19.00 0.0 Data Base Factory Grait Britain N.A. Publishing GBP 1,000 Ge Fabbri Ltd. 20.00 0.3 Editions Caramel S.a. Grimbergen Publishing Eur 62,000 Partedit S.a 99.99 1.4 Fabbri Richina Ltd. (in liquidazione) Tortola Publishing USD 50,000 RCS International Books B.v. 50.00 0.1 Fédération Diffusion S.a.r.l. Paris Publishing Eur 7,623 Ud-Union Distribution S.a.s. 20.00 0.0 Meta Concept S.a. Paris Publishing Eur 741,817 Flammarion S.a. 19.23 0.0 Partedit S.a. Brussels Publishing Eur 1,983,148.20 Flammarion S.a 97.50 0.0 Presses Universitaires De France S.a. Paris Publishing Eur 288,510 Flammarion S.a 18.06 1.5

Companies in the RCS PERIODICI Group Consuledit S.r.l. Milan Publishing Eur 20,000 RCS Periodici S.p.a. 5.25 0.0 De Agostini Rizzoli Periodici S.r.l. 1.83 0.0

Companies in the RCS PUBBLICITA' Group Consorzio Arredo Urbano Spa Milan Advertising Eur 210,000 IGP-Decaux S.p.a. 12.50 0.0 I-Mago S.p.a. Florence Advertising Eur 510,000 IGP-Decaux S.p.a. 14.00 0.0 Inpe S.r.l. Milan Advertising Eur 10,920 IGP-Decaux S.p.a. 7.67 0.0

Companies in the RCS DIFFUSIONE Group Consorzio C.S.I.E.D. Milan Publishing Eur 103,291 m-dis Distribuzione Media SpA 10.00 0.0

Companies in the RCS BROADCAST Group Audiradio Srl Milan Services Eur 234,000 RCS Broadcast SpA 8.33 0.1

Companies in the GFT NET Group Consorzio T.A. 2000 Milan Apparel Eur 18,076 GFT NET SpA 14.30 0.0 per l’ind. Moda (in liq.) TOTAL NET 284.4

NOTES: (1) of ordinary capital: 1.86% (356.60); (2) of ordinary capital: 0.96% 171 Attachments to the consolidated financial statements Exchange rates against the Euro

The main exchange rates used to convert financial statements drawn up in currencies other than the euro are as follows:

Year-end Average Year-end Average rate rate rate rate 12/31/2004 2004 12/31/2003 2003

Canadian dollar CAD 1.64380 1.61699 1.62340 1.58223 U.S. dollar USD 1.36440 1.24386 1.26300 1.13097 Hong Kong dollar HKD 10.61000 9.68822 9.80490 8.80669 Hungarian forint HUF 246.19200 252.10735 262.50000 253.51204 Swiss franc CHF 1.54400 1.54384 1.55790 1.52073 Bulgarian lev BGL 1.97130 1.95732 1.95570 1.94904 British pound GBP 0.70850 0.67881 0.70480 0.69191 Mexican peso MXN 15.27170 14.06445 14.16130 12.20847 Czech koruna CZK 30.50530 31.95258 32.41000 31.84422 Polish zloty PLN 4.09140 4.53379 4.70190 4.39958 Ukraine hryvnia UAH 7.43190 6.80180 6.73431 6.02710

172 173

Pro-forma financial statements at December 31, 2003

175 Pro-forma financial statements at December 31, 2003 Consolidated balance sheet

ASSETS (Millions of euros) 12/31/2004 31/12-2003 12/31/2003 pro-forma A) SUBSCRIBED CAPITAL UNPAID B) FIXED ASSETS I INTANGIBLE FIXED ASSETS 1 Start-up and expansion costs 0.9 5.2 5.3 2 Research, development and advertising costs 3 Industrial patents and intellectual property rights 2.2 0.8 0.8 4 Concessions, licenses, trademarks and similar rights 126.4 124.1 125.0 5 Goodwill 14.4 16.9 18.0 6 Assets under development and advances 13.0 0.3 0.4 7 Other 11.2 15.8 19.4 8 Consolidation difference 248.0 174.5 172.5 Total 416.1 337.6 341.4 II TANGIBLE FIXED ASSETS 1 Land and buildings 97.7 89.5 89.5 2 Plant and machinery 37.2 46.4 48.6 3 Industrial and commercial equipment 0.5 0.4 3.3 4 Other assets 27.2 27.8 29.8 5 Assets under construction and advances 83.2 12.8 13.8 Total 245.8 176.9 185.0 III FINANCIAL FIXED ASSETS 1 Equity investments 365.3 503.2 468.5 2 Receivables 21.8 24.6 25.1 3 Other securities 4 Theasury shares 85.0 85.0 85.0 Total 472.1 612.8 57 Total Fixed assets (B) 1,134.0 1,127.3 1,105.0 C) CURRENT ASSETS IINVENTORIES 1 Raw and ancillary materials and consumables 36.8 31.2 32.0 2Work in progress and semi-finished products 7.1 9.5 10.2 3Work in progress to order 4 Finished products and goods 116.2 107.1 109.3 5 Advances Total 160.1 147.8 151.5 II RECEIVABLES 1Trade receivables 575.4 574.5 662.9 2 Due from non-consolidated subsidiaries 0.6 0.5 0.3 3 Due from non-consolidated associated companies 57.9 68.1 40.0 4 Due from parent companies 0.0 4bis Tax credits 150.4 157.1 168.6 4ter Deferred tax assets 55.6 43.8 45.4 5 Other receivables 106.4 103.0 106.4 Total 946.3 947.0 1,023.6

176 Pro-forma financial statements at December 31, 2003

ASSETS (Millions of euros) 12/31/2004 31/12-2003 12/31/2003 pro-forma III CURRENT FINANCIAL ASSETS 1 Equity investments in non-consolidated subsidiaries 2 Equity investments in non-consolidated associated companies 3 Equity investments in parent companies 4 Other equity investments 6.9 6.6 8.6 5Treasury shares 6 Other securities 89.7 84.8 85.2 7 Financial receivables 22.8 7.9 8.2 Total 119.4 99.3 102.0 IV CASH AND BANKS 1 Bank and postal deposits 25.1 48.7 60.8 2 Checks 1.2 0.5 0.4 3 Cash and valuables on hand 2.1 1.4 1.5 Total 28.4 50.6 62.7 Total Current assets (C) 1,254.2 1,244.7 1,339.8 D) ACCRUED INCOME AND PREPAYMENTS 45.5 33.6 41.7 TOTAL ASSETS 2,433.7 2,405.6 2,486.5

177 Pro-forma financial statements at December 31, 2003 Consolidated balance sheet

LIABILITIES (Millions of euros) 12/31/2004 12/31/2003 12/31/2003 pro-forma A) SHAREHOLDERS' EQUITY Group's portion I Share capital 762.0 762.0 762.0 II Share premium reserve 71.2 153.6 153.6 III Revaluation reserve IV Legal reserve 152.4 152.1 152.1 V Statutory reserves VI Reserve for treasury shares 85.0 85.0 85.0 VII Other reserves Translation reserve 3.3 3.3 3.3 VIII Income (losses) carried forward (122.0) (195.2) (195.2) IX Net income (loss) for the year 77.4 46.1 46.1 Total 1,029.3 1,006.9 1,006.9 Minority interests in share capital and reserves 42.2 49.5 49.5 Total Shareholders' equity (A) 1,071.5 1,056.4 1,056.4 B) PROVISIONS FOR RISKS AND CHARGES 1 For retirement benefits and similar obligations 4.1 4.1 4.2 2 For taxes (current and deferred) 8.0 4.0 4.0 3 Other 128.1 179.0 186.5 Total Provisions for risks and charges (B) 140.2 187.1 194.7 C) PROVISION FOR EMPLOYEE TERMINATION INDEMNITIES 102.8 104.5 109.4 D) PAYABLES 1 Bonds 2 Convertible bonds 3 Due to shareholders for loans 4 Due to banks 198.4 311.4 313.7 5 Due to other sources of finance 56.8 14.6 14.7 6 Advances received 15.2 17.6 21.6 7Trade payables 556.7 455.2 509.6 8 Credit instruments issued 9 Due to non-consolidated subsidiaries 13.7 8.2 6.7 10 Due to non-consolidated associated companies 79.9 77.4 53.7 11 Due to parent companies 12 Taxes payable 42.1 63.4 70.7 13 Due to social security institutions 18.3 18.1 19.3 14 Other payables 103.3 74.8 88.3 Total payables (B) 1,084.4 1,040.7 1,098.3 E) ACCRUED LIABILITIES AND DEFERRED INCOME 34.8 16.9 27.7 TOTAL LIABILITIES 2,433.7 2,405.6 2,486.5

178 Pro-forma financial statements at December 31, 2003 Memorandum accounts

12/31/2004 12/31/2003 12/31/2003 (Millions of euros) pro-forma 1. GUARANTEES GIVEN I Sureties 27.3 172.1 187.3 II Endorsements 15.4 21.0 21.0 III Other unsecured guarantees 139.7 135.7 135.7 Total guarantees given 182.4 328.8 344.0 2. COMMITMENTS Securities to be purchased/sold 0.1 1.0 1.0 Other commitments 23.8 70.7 70.7 Total commitments 23.9 71.7 71.7 3. ASSETS HELD ON DEPOSIT 447.2 362.0 362.0

TOTAL MEMORANDUM ACCOUNTS 653.5 762.5 777.7

179 Pro-forma financial statements at December 31, 2003 Consolidated Income statement

2004 2003 2003 (in millions of euros) pro-forma A) PRODUCTION VALUE 1) Revenues from sales and services 2,150.5 1,945.0 2,168.8 2) Change in inventories of work in progress, semi-finished and finished products 5.8 9.0 10.1 3) Change in work in progress to order 0.5 (0.3) (0.3) 4) Increase in assets built internally 5) Other revenues and income 44.2 44.3 68.1 Total Production value (A) 2,201.0 1,998.0 2,246.7 B) PRODUCTION COSTS 6) Raw and ancillary materials, consumables and goods 557.0 503.2 554.7 7) Services 849.2 790.9 878.3 8) Rentals and leasing 139.3 122.6 177.6 9) Payroll costs: a) Wages and salaries 266.0 261.3 285.5 b) Social security charges 80.7 79.9 86.0 c) Employee termination indemnities 16.2 18.6 19.6 d) Retirement benefits and similar 3.7 5.0 5.7 e) Other costs 19.2 5.6 6.1 10) Amortization, depreciation and writedowns: a) Amortization of intangible fixed assets 53.6 42.8 44.9 b) Depreciation of tangible fixed assets 22.2 23.6 26.3 c) Other writedowns of fixed assets d) Writedowns of receivables held as current assets 12.5 14.0 15.9 and cash and banks 11) Change in inventories of raw and ancillary materials. (4.3) 4.6 4.6 consumables and goods 12) Provisions for risks 9.3 9.4 10.3 13) Other provisions 0.1 0.4 0.4 14) Other operating expenses 41.0 38.7 44.7 Total Productions cost (B) 2,065.7 1,920.6 2,160.6 Difference between value and cost of production (A-B) 135.3 77.4 86.1 C) FINANCIAL INCOME AND CHARGES 15) Income (charges) from equity investments 16.8 9.8 10.0 16) Other financial income 8.4 15.4 15.8 17) Interest and other financial charges (14.9) (22.2) (22.3) 17-bis) Exchange gains (losses) 1.6 (2.0) (2.0) Net financial income (charges) (C) 11.9 1.0 1.5 D) ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 18) Revaluations 16.5 55.8 48.9 19) Writedowns (24.0) (12.6) (6.8) Net adjustments to the value of financial assets (D) (7.5) 43.2 42.1 E) EXTRAORDINARY INCOME AND CHARGES 20) Income 52.2 163.0 165.6 21) Charges (86.9) (210.7) (218.6) Net extraordinary income (charges) (E) (34.7) (47.7) (53.0) INCOME OR LOSS BEFORE TAXES (A-B+C+D+E) 105.0 73.9 76.7 22) Taxes (including deferred tax assets and liabilities) (21.9) (19.5) (22.3) Net income (loss) for the year 83.1 54.4 54.4 Minority interests in net (income) loss (5.7) (8.3) (8.3) GROUP'S SHARE OF NET INCOME (LOSS) FOR THE YEAR 77.4 46.1 46.1 180 Pro-forma financial statements at December 31, 2003

Statement of cash flows (according to IAS format)

2004 2003 2003 (in millions of euros) pro-forma A. CASH FLOW FROM OPERATIONS Net income (loss) for the year 77.4 46.1 46.1 Minority interests in net income (loss) for the year 5.7 8.3 8.3 Adjustments: Amortization and depreciation 75.7 66.4 70.3 Income from equity investments (16.8) (7.6) (7.7) Writedowns (revaluations) of fixed assets 19.0 Gains (losses) from disposal of fixed assets (32.7) (13.6) (14.3) Increase (decrease) in reserves for risks and charges (46.8) (78.0) (12.5) Increase (decrease) in reserve for employee termination indemnities (1.7) (6.9) (2.0) Increase (decrease) in deferred taxes 11.0 5.2 5.2 (Profits) losses from investments carried at net equity 4.7 (43.2) (13.7) Operating income (loss) before changes in working capital 95.5 (23.3) 79.7 (Increase) decrease in inventories (12.3) 20.0 16.2 (Increase) decrease in trade receivables 6.0 8.4 (53.5) Increase (decrease) in trade payables 94.6 (20.8) 34.3 (Increase) decrease in other assets/liabilities 27.4 (35.0) (13.1) (Increase) decrease in net tax receivables (33.2) 0.5 (5.3) Changes in working capital 82.5 (26.9) (21.4) Net cash and cash equivalents generated by operations (A) 178.0 (50.2) 58.3 B. CASH FLOW FROM INVESTMENT ACTIVITIES Acquisitions, capital increases and coverage of losses of equity investments (11.5) (76.5) (70.7) Acquisitions/disposals of other financial fixed assets 2.9 38.7 (9.5) Purchase of tangible and intangible fixed assets (247.9) (123.1) (130.3) Proceeds or redemption value from the sale of equity investments 172.8 21.8 16.3 Proceeds from the sale of tangible and intangible fixed assets 0.3 7.4 6.5 Dividends received 16.8 7.6 7.7 Other changes 9.5 47.3 35.2 Net cash and cash equivalents absorbed by investment activities (B) (57.1) (76.8) (144.8) Free cash flow (A+B) 120.9 (127.0) (86.5) C. CASH FLOW FROM FINANCIAL TRANSACTIONS Net change in medium/long-term debt (28.1) (70.3) (80.1) Net change in short-term debt (27.0) 45.9 41.4 Net change in current financial assets (20.1) 155.7 141.6 Dividends paid (55.0) Capital increase 3.9 3.9 Change in minority interests in shareholders' equity (13.0) (11.6) (11.6) Change in translation reserve (14.4) (14.4) Net cash and cash equivalents absorbed by financial transactions (C) (143.2) 109.2 80.8

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) (22.3) (17.8) (5.7) Opening cash and cash equivalents 50.6 68.4 68.4 Closing cash and cash equivalents 28.3 50.6 62.7 INCREASE (DECREASE) FOR THE YEAR (22.3) (17.8) (5.7) Breakdown of net debt (167.8) (220.8) (191.6) Cash and current financial receivables 147.8 149.9 164.7 Medium/long-term debt (168.9) (197.0) (197.0) Short-term debt (146.7) (173.7) (159.3) 181

Attachments to the financial statements RCS MediaGroup S.p.A.

183 Attachments to the financial statements RCS MediaGroup S.p.A. List of equity investments as per Art. 2427, no. 5 of the Italian Civil Code, with additional information recommended by CONSOB in circular of February 23, 1994, and subsequent

Name and head office Share Latest Share- % No. of Book capital income holders’ held shares/quotas value (millions of euros) (loss) equity

SUBSIDIARIES

RCS Libri S.p.A. - Milan At 12/31/03 42.4 3.0 106.6 99.99 706,664,884 154.9 At 12/31/04 42.4 14.1 109.3 99.99 (a) 706,664,884 154.9

RCS Radio e TV S.p.A. (ex RCS Broadcast S.p.A.) - Milan At 12/31/03 2.9 (8.5) 7.5 100.00 28,951,050 37.9 – cancelled due to merger (100.00) (28,951,050) (37.9) At 12/31/04 - - - - - 0.0

RCS Broadcast S.p.A. (ex Finwork S.p.A.) - Milan At 12/31/03 ------– acquisitions 98.99 19,599,327 6.2 – allocation of merger deficit 32.0 At 12/31/04 5.3 (1.4) 4.4 98.99 (a) 19,599,327 38.2

RCS Pubblicità S.p.A. - Milan At 12/31/03 40.0 (5.5) 84.7 100.00 40,000,000 40.1 At 12/31/04 40.0 (23.7) 61.1 100.00 (a) 40,000,000 40.1

RCS Quotidiani S.p.A. (ex RCS Editori S.p.A.) - Milan At 12/31/03 40.0 13.7 79.5 100.00 40,000,000 40.0 At 12/31/04 40.0 28.4 94.3 100.00 (a) 40,000,000 40.0

RCS Investimenti S.p.A. (ex Fila Holding S.p.A.) - Milan At 12/31/03 96.5 (77.8) 42.9 98.20 94,779,730 42.1 – svalutations (3.7) At 12/31/04 96.5 (3.8) 39.1 98.20 (a) 94,779,730 38.4

GFT NET S.p.A. - Turin At 12/31/03 21.4 (20.5) 0.9 100.00 21,400,000 0.0 – capital reduction (20,500,000) 0.0 At 12/31/04 0.9 0.1 1.0 100.00 (a) 900,000 0.0

RCS InternationAt Magazines BV - Amsterdam At 12/31/03 2.3 (3.2) 21.3 100.00 2,300 20.1 At 12/31/04 2.3 (5.6) 13.3 100.00 (e) 2,300 20.1

RCS Periodici S.p.A. - Milan At 12/31/03 5.0 6.0 24.4 60.00 3,000,000 11.0 – acquisitions 40.00 2,000,000 107.0 – sales (c) (2.4) At 12/31/04 5.0 12.8 27.3 100.00 (a) 5,000,000 115.6 184 Attachments to the financial statements RCS MediaGroup S.p.A. Name and head office Share Latest Share- % No. of Book capital income holders’ held shares/quotas value (millions of euros) (loss) equity

Immobiliare Solferino 28 S.r.l. - Milan At 12/31/03 0.5 (1.3) 15.6 100.00 2 24.7 – cancelled due to merger (2) (24.7) At 12/31/04 - - - - - 0.0

HdP BV - Amsterdam At 12/31/03 15.0 0.0 6.0 100.00 150,000 5.9 – writedowns (0.8) At 12/31/04 15.0 (0.0) 5.0 100.00 (i) 150,000 5.1

RCS Factor S.p.A. - Milan At 12/31/03 2.0 0.4 3.0 90.00 1,800,000 1.9 At 12/31/04 2.0 1.6 4.0 90.00 (a) 1,800,000 1.9

RCS Produzioni S.p.A. (ex RCS Servizi e Partecipazioni S.p.A.) - Milan At 12/31/03 ------– acquisitions 100.00 1,000,000 1.1 At 12/31/04 1.0 0.0 1.1 100.00 (a) 1,000,000 1.1

RCS InternAt Auditing S.r.l. (ex. HdP Internal Auditing S.r.l.) - Milan At 12/31/03 0.0 0.0 0.0 50.00 1 0.0 – acquisitions 50.00 1 0.0 – cancelled due to merger (100.00) (2) 0.0 At 12/31/04 - - - - - 0.0

HdP Sviluppo Immobiliare S.r.l. - Milan At 12/31/03 0.0 0.0 0.0 100.00 1 0.0 – capital increase 0.8 – sales (1) (0.8) At 12/31/04 - - - - - 0.0

RCS Editori S.p.A. (ex La Radio dello Sport S.r.l.) - Milan At 12/31/03 0.1 0.0 0.1 100.00 100,000 0.1 At 12/31/04 0.1 0.0 0.1 100.00 (a) 100,000 0.1

HdP Verwaltungs GmbH (in liquidation) - Stuttgart At 12/31/03 0.0 0.0 0.0 100.00 1 0.0 – sales (100.00) (1) 0.0 At 12/31/04 - - - - - 0.0 Net balance for subsidiaries at 12/31/04 455.5

ASSOCIATED COMPANIES

Burda RCS International Holding GmbH - Offenburg At 12/31/03 0.1 (3.3) 34.0 50.00 100.000 13.6 – sales (50.00) (100.000) (13.6) At 12/31/04 - - - - - 0.0 185 Attachments to the financial statements RCS MediaGroup S.p.A. Name and head office Share Latest Share- % No. of Book capital income holders’ held shares/quotas value (millions of euros) (loss) equity

Dada S.p.A. - Florence At 12/31/03 2.7 (25.0) 37.1 15.42 2,417,957 11.2 At 12/31/04 2.7 (6.7) 30.4 15.42 (i) 2,417,957 11.2

Eurogravure S.p.A. - Bergamo At 12/31/03 7.1 1.6 12.6 30.00 4,080,000 2.1 – capital increase 1.3 At 12/31/04 11.3 0.0 19.4 30.00 (i) 4,080,000 3.4

Eurofly Service S.p.A. - Turin At 12/31/03 4.3 (6.0) 3.7 16.33 1,342,783 2.9 – capital increase 4.0 (d) 2,564,102 1.3 – writedowns (4.2) At 12/31/04 8.3 (9.5) (1.8) 24.55 (a) 3,906,885 0.0

m-dis S.p.A. (ex RCS Diffussione S.p.A.) - Milan At 12/31/03 6.4 2.9 9.5 24.75 1,582,200 1.7 – acquisitions 20.25 1,294,527 6.4 At 12/31/04 6.4 9.4 17.9 45.00 (a) 2,876,727 8.1

Netdish Italia S.p.A. - Padua At 12/31/03 0.2 (2.4) (0.4) 43.16 64,742 0.7 – reconstitution of capital 0.3 – sales (64,742) (1.0) At 12/31/04 - - - - - 0.0

Sepad S.p.A. - Milan At 12/31/03 1.5 0.3 2.0 30.00 900,000 0.5 At 12/31/04 1.5 0.2 1.9 30.00 (e) 900,000 0.5

Serom S.p.A. - Milan At 12/31/03 1.5 (0.1) 1.5 30.00 900,000 0.5 At 12/31/04 1.5 0.0 1.4 30.00 (e) 900,000 0.5

Inimm Due S.à.r.l. - Luxembourg At 12/31/03 0.2 (0.8) 1.6 20.00 1,928 0.4 At 12/31/04 0.2 (0.8) 1.6 20.00 (g) 1,928 0.4

S.N. L’Européen S.A. - Paris At 12/31/03 0.6 n.d. n.d. 35.00 21,350 0.0 At 12/31/04 0.6 0.0 (0.4) 35.00 (a) 21,350 0.0

Perseo S.r.l. (ex Pegaso S.r.l.) - Milan At 12/31/03 ------– incorporation for partial spin-off Eurofly Service 24.55 4,910 0.0 At 12/31/04 0.0 0.0 0.0 24.55 4,910 0.0 Net balance of associated companies at 12/31/04 24.1 186 Attachments to the financial statements RCS MediaGroup S.p.A. Name and head office Share Latest Share- % No. of Book capital income holders’ held shares/quotas value (millions of euros) (loss) equity

OTHER COMPANIES

Banca Intesa S.p.A. - Milan At 12/31/03 3.561.1 1.359.0 14.745.0 0.80 54,188,351 157.7 - scrip increase 2,643,334 7.3 At 12/31/04 3.561.1 1.141.0 14.544.0 0.83 (i) 56,831,685 165.0

Pirelli & C. S.p.A. - Milan At 12/31/03 1.799.4 (43.9) 3.173.4 4.25 146,924,224 111.9 – sales (84,650,499) (64.5) At 12/31/04 1.800.0 (54.7) 3.192.4 1.80 (b) 62,273,725 47.4

Pirelli & C. S.p.A. - Milan - Warrants At 12/31/03 110,193,168 – sales (63,487,874) At 12/31/04 46,705,294

Hutchison 3G Italia S.p.A. (ex Andala Umts) - Trezzano sul Naviglio (Mi) At 12/31/03 3.223.2 (1.303.8) 1.600.9 1.02 6,594,480 33.0 – writedowns (h) (15.0) At 12/31/04 3.223.2 (1.303.8) 1.600.9 1.02 (e) 6,594,.480 18.0

Poligrafici Editoriale S.p.A. - Bologna At 12/31/03 34.3 (1.0) 81.6 9.99 13,199,000 20.7 At 12/31/04 34.3 3.5 86.7 9.99 (a) 13,199,000 20.7

Raisat S.p.A. - Roma At 12/31/03 2.6 1.9 5.4 5.00 25,000 5.2 At 12/31/04 2.6 2.0 5.7 5.00 (e) 25,000 5.2

Istituto Europeo di Oncologia S.r.l. - Milan At 12/31/03 106.5 (29.2) 57.4 5.20 1 5.2 – writedowns (2.2) At 12/31/04 57.3 0.8 58.1 5.16 (b) 1 3.0

Joyce Boutique Holding Ltd - Hong Kong At 12/31/03 20.6 (11.0) 50.2 9.73 156,000,000 1.9 – sales (31,232,000) (0.4) At 12/31/04 16.3 (7.1) 32.8 7.78 (f) 124,768,000 1.5

Alice Lab Netherlands NV - Amsterdam At 12/31/03 0.1 n.d. n.d. 19.40 50,000 1.0 – capital increase 0.6 – writedowns (1.2) At 12/31/04 0.1 (0.3) 1.8 19.40 (b) 50.000 0.4 187 Attachments to the financial statements RCS MediaGroup S.p.A. Name and head office Share Latest Share- % No. of Book capital income holders’ held shares/quotas value (millions of euros) (loss) equity

Mode et Finance - Paris At 12/31/03 6.4 1.2 6.0 9.49 60,980 0.6 – writedowns (0.1) At 12/31/04 6.4 (0.3) 5.6 9.49 (i) 60,980 0.5

Emittenti Titoli S.p.A. - Milan At 12/31/03 4.3 1.1 6.1 1.22 120,000 0.1 At 12/31/04 4.3 1.1 6.1 1.22 (e) 120,000 0.1

Allaxia S.p.A. - Milan At 12/31/03 10.0 n.d. n.d. 1.23 123,065 0.3 – writedowns (h) (0.3) At 12/31/04 10.0 n.d. n.d. 1.23 123,065 0.0

Immobiliare Editori Giornali S.r.l. - Rome At 12/31/03 0.8 n.d. n.d. 7.50 1 0.1 At 12/31/04 0.8 0.0 0.7 7.50 (e) 1 0.1

Dab Servizi S.p.A. (in liquidazione) - Milan At 12/31/03 ------– acquisitions 6.25 125,000 0.0 At 12/31/04 1.0 n.d. n.d. 6.25 125,000 0.0

Vital Stream Holding Inc - Irvine. CA. USA At 12/31/03 ------– acquisitions 0.03 8,998 0.0 At 12/31/04 n.d. n.d. n.d. 0.03 8,998 0.0

Cardio Now - Encinitas. CA. USA At 12/31/03 ------– acquisitions n.d. 436 0.0 At 12/31/04 n.d. n.d. n.d. n.d. 436 0.0 Net balance of other companies at 12/31/04 261.9 Net balance equity investments at 12/31/04 741.5

(a) from accounts at 12731/04 (b) from accounts at 6/30/04. (c) Partial reimbursement of share premium reserve. (d) Initially recorded under other companies. (e) from accounts at 12/31/03 (f) from accounts at 3/31/03 (g) from accounts at 12/31/01. (h) "Reclassification" of reserves for equity investment risks to deduction from investment value (i) from accounts at 12/3104, not yet approved by shareholders. 188 Attachments to the financial statements RCS MediaGroup S.p.A. List of “other equity investments” and “other securities” held as current assets, with movements during the year

Balance Increases Balance Implicit at 12/31/03 (Decreases) at 12/31/04 revaluation ISIN code Cur- Carry- Value in Writedown to Carrying Price in With respect rency ing thousands average price value in December to price in value in of euros December of euros 2004 December thous- 2004 in 2004 ands thousands of euros of euros

Other equity investments IT0001076733 Smi Euro 1,420 (72) (359) 989 0.47 ES0131532014 Recoletos Compania Editorial Euro 5,223 5,223 6.69 2.201 IT0001063210 Mediaset Euro 0.7 0.7 9.20 0.2 IT0001398541 Gruppo Editoriale L’Espresso Euro 0.3 0.3 4.28 0.1 IT0001276408 Classeditori cat.’A’ Euro 0.2 0.2 1.76 IT0001469383 Arnoldo Mondadori Ed. Ord. Euro 0.6 0.6 8.29 0.2 IT0003479638 Seat-Pagine Gialle Euro 0.1 0.1 0.31 IT0001389920 Telecom Italia Media Euro 0.1 0.1 0.30 IT0001472171 Caltagirone Editore SpA Euro 0.5 0.5 6.73 0.1 IT0003389522 Compagnia immobiliare azionaria S.p.A. Euro 0.14 Total “other equity investments” 6,645 (72) (359) 6,215 2.202

Other securities b) Other shares quotos and equities: Listed: LU0134649283 DUEMME EUR SHORT T-I Euro 43,700 43,700 107.13 705 IT0003246847 DUEMME LOW VOLAT POR Euro 18,000 18,000 532.62 346 IT0003535959 DUEMME PER II PORT Euro 3,850 2,600 6,450 510.80 IT0003246896 DUEMME PERFORMANCE POR Euro 5,000 5,000 540.83 Total listed 65,550 7,600 73,150 1.051 Total b) "Other shares, quotas and equities" 65.550 7.600 73,150 1.051 Total “other securities” 65.550 7.600 73,150 1.051

189 Attachments to the financial statements RCS MediaGroup S.p.A. Income statement (reclassified format for industrial holding companies pursuant to legislative decree 127/91 (CONSOB announcement 94001437 of Feb. 23,1994)

(millions of euros) 2004 2003

FINANCIAL INCOME AND CHARGES 1) Income from equity investments – subsidiaries 40.8 52.5 – associated companies 1.3 – – other companies 15.9 9.1 2) Other financial income a) from securities held as fixed assets: • subsidiaries 0.5 3.2 • associated companies – – • other companies 0.1 0.7 b) from securities held as fixed assets that do not constitute equity investments – – c) from securities held as current assets that do not constitute equity investments – 1.2 d) income other than the above: • subsidiaries 6.2 6.2 • associated companies 0.1 0.2 • other companies 1.5 2.6 3) Interest and other financial charges – subsidiaries (1.4) (2.4) – associated companies (0.8) (0.5) – other companies (3.0) (0.8) – exchange gains (losses) (0.1) 0.2) Net financial income (charges) 61.2 71.9

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 4) Revaluations a) of equity investments – 45.8 c) of securities held as current assets that do not constitute equity investments – – 5) Writedowns a) of equity investments (13.9) (14.8) c) of securities held as current assets that do not constitute equity investments (0.4) (0.2) Net adjustments in value (14.3) 30.8 6) Other operating income 27.7 21.9

OTHER OPERATING EXPENSES: 6) Raw and ancillary materials, consumables and goods (0.4) (0.3) 7) Non-financial services (17.9) (15.4) 8) Rentals and leasing (9.1) (8.5) 9) Payroll costs (13.5) (15.4) 10) Amortization, depreciation and writedowns (2.5) (0.4) 12) Provisions for risks (0.0) (0.6) 13) Other provisions (0.2) (0.4) 14) Other (2.4) (1.4) Total other operating expenses (46.0) (42.4) Income before extraordinary items 28.6 82.3

EXTRAORDINARY INCOME AND CHARGES 20) Income 16.0 105.1 21) Charges (22.4) (132.6) Net extraordinary income (charges) (6.4) (27.5) INCOME BEFORE TAXES 22.2 54.8 16) Income taxes (including deferred tax assets and liabilities) 36.0 (3.3)

NET INCOME FOR THE YEAR 58.2 51.5 190 191

Independent Auditors’ Report on the Statutory Financial Statements

193 194 Independent Auditors’ Report on theStatutory Financial Statements

INDEPENDENT AUDITORS’ REPORT pursuant to article 156 of Decree 58 dated February 24, 1998

To the shareholders of RCS MediaGroup SpA

1. We have audited the statutory financial statements of RCS MediaGroup SpA for the year ended December 31, 2004. The financial statements are the responsibility of the directors of RCS MediaGroup SpA. Our responsibility is to express an opinion on the financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards recommended by CONSOB. In accordance with these standards, we planned and performed the audit in order to obtain assurance as to whether the financial statements were free of material misstatement and generally reliable. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the adequacy and correctness of the accounting policies used and the reasonableness of the estimates made by management. We believe that our audit provides a reasonable basis for our opinion. For the opinion on the prior year statutory financial statements, which are presented for comparative purposes as required by law, reference should be made to our report issued on April 7, 2004.

3. In our opinion, the statutory financial statements of RCS MediaGroup SpA for the year ended December 31, 2004 comply with the regulations on their preparation; they have therefore been clearly prepared and represent the company’s balance sheet, income statement and financial position in a true and fair fashion.

Milan, April 8, 2005

Reconta Ernst & Young SpA

Pellegrino Libroia (Partner)

195 196 Independent Auditors’ Report

197 198 Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT pursuant to article 156 of Decree 58 dated February 24, 1998

To the shareholders of RCS MediaGroup SpA

1. We have audited the consolidated financial statements of RCS MediaGroup SpA for the year ended December 31, 2004. The consolidated financial statements are the responsibility of the directors of RCS MediaGroup SpA. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards recommended by CONSOB. In accordance with these standards, we planned and performed the audit in order to obtain assurance as to whether the consolidated financial statements were free of material misstatement and generally reliable. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the adequacy and correctness of the accounting policies used and the reasonableness of the estimates made by management. We believe that our audit provides a reasonable basis for our opinion. The financial statements of some of the subsidiaries, representing 11% of consolidated assets and 14% of consolidated revenues, are audited by other auditors. For the opinion on the prior year consolidated financial statements, which are presented for comparative purposes as required by law, reference should be made to our report issued on April 7, 2004.

3. In our opinion, the consolidated financial statements of RCS MediaGroup SpA for the year ended December 31, 2004 comply with the regulations on their preparation; they have therefore been clearly prepared and represent the company’s consolidated balance sheet, income statement and financial position in a true and fair fashion.

Milan, April 8, 2005

Reconta Ernst & Young SpA

Pellegrino Libroia (Partner)

199 200 Report by the Board of Statutory Auditors

201 202 Report by the Board of Statutory Auditors

REPORT BY THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’ MEETING CALLED TO APPROVE THE 2004 FINANCIAL STATEMENTS Pursuant to art. 2429.2 of the Italian Civil Code and art. 153 of Decree 58 dated February 24, 1998

Shareholders, We are reporting to you in accordance with the above-mentioned articles. With regard to the task of auditing the accounting records and financial statements, you are reminded that, in accordance with Decree 58/1998, this is the responsibility of Reconta Ernst & Young, the independent auditors, to whose report you should refer. We confirm that we conducted the supervisory activities required of us by law in compliance with the “Standards of conduct by the Board of Statutory Auditors” recommended by the Italian Accountancy Profession and with other instructions issued by CONSOB (the stockmarket regula- tor). With reference to the disclosures required by the CONSOB notice dated April 6, 2001, you are informed that, during 2004, we: • met 9 times; • took part in 10 meetings of the Board of Directors, 3 meetings of the Executive Committee and 6 meeting of the Internal Control Committee; • received from the directors, during their meetings, information concerning the activities of the company and its subsidiaries, and on those operations with a major impact on its balance sheet, income statement and financial position; • observed that there were no atypical or unusual transactions or any pre- senting conflicts of interest; • ascertained that there are no transactions with other group companies or related parties that went against the company’s interest or were ab- normal. The main intragroup transactions referred to financing and the provision of services to subsidiaries; • evaluated the adequacy of the internal control system, the accounting system and the organisational structure, which we consider suitable for

203 Report by the Board of Statutory Auditors

ensuring the proper conduct of business and for correctly representing the results of operations; we performed this task using the information obtained from the Officers responsible for internal control, and the regular reports issued by the Internal Audit function; information was also obtained as a result of our Chairman’s participation at Internal Control Committee meetings; lastly, we also met with the independent auditors, for a reciprocal exchange of data and information.

The Internal Audit function performed 17 inspections at group companies during 2004, involving both head offices and operating companies. As part of the Project for Self-Assessment of the Internal Control System, the group undertook a new round of risk measurement and evaluation: no critical areas were identified regarding the accuracy of information, compliance with the law, regulations and internal procedures, the protection of company processes, the efficient use of resources and the achievement of corporate targets. With reference to the process of compliance with Decree 231/01 and 61/02, all the necessary directives were issued during 2004, having mapped the sensitive processes. A project was started for informing the various levels of the organization about the Management and Control Model, identifying all the activities that carry out the various functions involved in the sensitive processes. The recent changes in European regulations have established that commencing from 2005 all companies in the EU that are listed on regulated markets must prepare their consolidated financial statements in accordance with International Financial Reporting Standards. RCS MediaGroup has engaged Reconta Ernst & Young to draw up detailed requirements for this transition and provide project management services for their implementation. We have monitored the progress of this project with particular regard to its impact on shareholders’ equity at the end of 2004.

RCS MediaGroup paid Reconta Ernst & Young a total fee of Euro 457,000 over the year for this and other smaller engagements on behalf of the parent company and its Italian and foreign subsidiaries.

With regard to the system of corporate governance adopted by the company, this is based on the Code of Conduct drawn up by the Committee

204 Report by the Board of Statutory Auditors

for the Corporate Governance of Listed Companies, whose recommendations have been largely implemented. Having assessed the relative benefits, the company has decided to make the group tax election allowed by Decree 344/2003. We have particularly monitored that dealings with the subsidiaries included in the group tax election are based on principles of neutrality and equality of treatment.

We have checked that the statutory and consolidated financial statements and the report on operations have been prepared in accordance with legal requirements through a process of direct review and information obtained from the independent auditors. You are informed that Reconta Ernst & Young, the independent auditors, have issued a clean audit opinion dated April 8, 2005 on both the statutory and consolidated financial statements for the year ended December 31, 2004. No significant facts that would require reporting to the supervisory authorities or mention in this report have emerged as a result of the monitoring activities described above. We agree with the proposal for the distribution of net income and the bonus grant of 7,352,365 shares held by RCS MediaGroup to its shareholders, as proposed by the Board of Directors.

Milan, April 12, 2005

The Board of Statutory Auditors

Gianrenzo Cova Flavio Arcidiacono Clemente Rebecchini

205

Printed by ERRESTAMPA (BG) This volume is printed on GARDAMATT ART paper, produced by Cartiere del Garda, a company that adheres to a policy of “sustainable development” Certified ISO 14001 - Registration EMAS: Spring 2005