ANNUAL REPORT AND ACCOUNTS to 31 December 2006

ANNUAL REPORT AND ACCOUNTS OF THE ASM GROUP AND ASM SPA to 31 December 2006

Report on Operations at 31 December 2006

THE CHAIRMAN’S MESSAGE

Dear shareholders, 2006 was a good year for ASM. Growth on the equity market continued, and against this favourable backdrop, ASM put in a strong performance: on 10 October, the stock reached an all-time high of EUR 4.25 per share, and in 2006 alone grew by 62.1%, outperforming the Mibtel index by 43 percentage points and more than doubling its value since listing (+125%).

The operating results for 2006 further consolidate growth initiated when the company was listed: all the main performance indicators registered an improvement, particularly net profit, which reached a record EUR 238 million. Over the year, ASM’s traditional sound financial structure was confirmed, and was reflected in the renewed A+ rating, the highest awarded to an Italian public utility, and in the issue in July of a 30-year bond – an exceptional maturity for the sector – which took the company into the select European group of 30-year borrowers.

In 2006 ASM also registered some important results from an industrial viewpoint: a growing specialisation and rapid adaptation to the new demands of a market now heading towards full liberalisation have enabled the group to offer innovative, high-quality services, using processes that guarantee maximum efficiency and effectiveness. For example, Cito - the project to install digital meters that has been rolled out for the entire electricity grid – won ASM the CIO Innovation Award 2006, the prize for Italian companies that use new technologies to modernise their products and services, and thereby increase their efficiency and flexibility. In October, the company was also honoured with the prestigious WTERT 2006 Industry Award, the prize given by New York’s Columbia University to the world’s best WTE plant. The Brescia WTE plant stood out among 19 competitors from all over the world, including plants in Amsterdam, London, Vienna and New York, coming in the top ten both in terms of energy efficiency and emissions, which were by far the lowest of all the plants listed.

The results achieved reflect ASM’s capacity to implement the strategy outlined in its business plans in the rapidly changing and highly competitive environment of the public utilities sector: this allowed the company to meet important financial targets and gain approval from the market, which took the value of the company on the stock market from almost EUR 2 billion at the end of 2005 to more than EUR 3 billion at the end of 2006. Confirming the strength of the strategies it has adopted and the results obtained, ASM recently received the Mediobanca prize for “Dynamic

Report on Operations at 31 December 2006

medium-sized companies”, an important recognition that rated ASM as Italy’s most dynamic company and that with the greatest potential to become a large company.

Last year’s results are the reward of our operational decisions and constant commitment to driving down costs: these include the operations to integrate the various companies of the group launched last year with a view to making better use of already existing internal synergies. The results also confirm and reflect the success of ASM’s strategic vision, and in particular, that the company’s external growth strategy is correct. The ongoing development of Endesa Italia and its consequent contributions to ASM’s net profit – EUR 116 million in the last year alone – are the fruits of the industrial partnership formed with Endesa in 2001 and the investments made in 2005 to increase ASM’s stake to 20%. It is against this backdrop that possible mergers with similar companies were considered during the year and negotiations were launched with AEM Milano. ASM’s aim is to play a leading role in the national energy market.

For 2007, the company is again committed to meeting the challenging objectives set out in the new 2007-2011 business plan: expanding our district heating business in Brescia, Bergamo and Novara, boosting power generation capacity, increasing waste disposal and treatment capacity, and promoting higher tariffs in the water sector – all of which provide ASM with excellent growth prospects for the future.

Furthermore, we have renewed our commitment to raising ASM’s profile on the main financial markets, through presentations of the company’s objectives, strategies and results: for 2007 alone, meetings are planned with major international investment funds in Milan, London, Paris, Frankfurt, New York and Boston.

I would like to conclude by again drawing your attention to the outstanding results that ASM recorded in 2006. As always, we would like you to share in this achievement, and propose a dividend of 15.5 euro cents per share, which represents an increase of 19% on last year.

Chairman, Renzo Capra

Report on Operations at 31 December 2006

Mission

Our mission is to produce, develop and sell services in the energy, integrated water and environmental sectors. We strive to adapt constantly to customer requirements and market trends, while at the same time remaining highly competitive and continuing to offer excellent value to shareholders and stakeholders.

ASM has always been highly aware of environmental issues. Our approach stems from close ties with our local region, which has always been an important part of the company’s history. We use the most advanced techniques available to minimise the environmental impact of our operations, and we are working on systems of company management that respect the environment and the community, as well as providing opportunities for staff development.

Report on Operations at 31 December 2006

CONTENTS The ASM group in figures Page 4 ASM shares Page 5 The ASM group in 2006 Page 8 Profile of the ASM group Page 10 Structure of the ASM group Page 12 Strategy Page 13 Corporate governance Page 15 Corporate social responsibility Page 19

The ASM group Summary profit and loss account Page 23 Summary balance sheet Page 25 Results by business area Page 33

ASM SpA ASM in figures Page 63 Summary profit and loss account Page 64 Summary balance sheet Page 66 ASM and renewable sources Page 71 Transactions with related parties Page 72

Other information Human resources Page 82 Research, development, quality and environment Page 83 Accounting and administrative separation (AEEG resolution 310/01) Page 85 Significant events since 31 December 2006 Page 87 Outlook Page 88 Recommendations proposed by the Board of Directors of ASM SpA to the ordinary Page 88 shareholders' meeting

ACCOUNTING STATEMENTS AND NOTES TO THE ACCOUNTS – ASM SPA Notes to the accounts Page 95 Report of the Board of Auditors Page 210 Report of the external auditors Page 213

ACCOUNTING STATEMENTS AND NOTES TO THE ACCOUNTS – ASM GROUP Notes to the accounts Page 215 Report of the Board of Auditors Page 313 Report of the external auditors Page 316

COMPANY CONTACTS AND FINANCIAL CALENDAR 2007 Page 318

Report on Operations at 31 December 2006

The ASM group in figures

Key data (EUR thousand)

2006 2005

Revenues 2,051,844 100% 1,672,368 100% [1] EBITDA 381,153 18.6% 338,737 20.3% EBIT [2] 244,253 11.9% 208,391 12.5% Net profit 238,282 11.6% 212,361 12.7%

[1] Revenues - operating costs - personnel costs [2] EBITDA - depreciation and amortisation/provisions/valuation of other assets at fair value

Key financial data (EUR thousand)

2006 2005 Shareholders' equity 1,534,508 1,408,452 Net debt [3] 801,921 702,440 Net invested capital [4] 2,336,429 2,110,892 Cash-flow [5] 375,182 342,707 Investments 243,768 128,378

[3] Financial payables + securities and cash [4] Non-current assets + working capital + other medium-/long-term assets and liabilities – staff severance fund – provisions for risks and future liabilities [5] Profit + depreciation and amortisation/provisions/valuation of other assets at fair value

Financial indicators

2006 2005 ROI [6] 10.5% 9.9% ROE [7] 15.5% 15.1% EBITDA/revenues 18.6% 20.3% ROS [8] 11.9% 12.5% Interest cover [9] 8.5 8.7 Net debt/rquity 52.3% 49.9% Net debt/EBITDA 2.10 2.07

[6] EBIT/net invested capital [7] Profit/equity [8] EBIT/revenues [9] EBITDA/financial charges

Report on Operations at 31 December 2006 4

EBITDA by business area (EUR million)

pow er generarion 16 8 electricity/gas sales 13 1 electricity/gas grids

district heating 65 67 52 46 44 40 integrated w ater 26 26 16 18 services 8 12 environmental services 2006 2005 other services

ASM shares

Average stock market capitalisation in 2006: 2,446,231,823

Stock market data

(EUR per share) Stock market data (EUR per share) IPO price (12 July 2002) 1.850 Average price 2002 1.703 Average price 2003 1.678 Average price 2004 2.119 Average price 2005 2.630 Average price 2006 3.159 Highest price in 2006 (10/10/06) 4.250 Lowest price in 2006 (13/01/06) 2.520

Report on Operations at 31 December 2006 5

Share data (EUR)

2006 2005 Number of shares (million) * 774.3 774.3 Earnings per share (EPS) 0.308 0.274 Cash-flow per share (CFPS) 0.485 0.443 Book value per share (BVPS) 1.982 1.819 Dividend per share 0.155 0.130 Total dividends (EUR thousand) 120,017 100,660 Pay-out ratio 50.37% 47.40%

Price/earnings per share (P/E) 10.27x 9.59x Price/cash flow (P/CF) 6.52x 5.94x Price/book value (P/BV) 1.59x 1.45x EV/EBITDA 8.5x 8x Dividend yield 4.91% 4.94% Note: multiples per share were calculated on the basis of the average annual price * as of 31 December On 2 October 2006, ASM returned to the Midex, the market index for mid-cap companies whose composition is reviewed twice a year. ASM had been included in the Midex basket in 2004 and was then excluded in March 2006 due to insufficient daily trading volumes. Values recorded since March 2006 have, however, confirmed expectations of a speedy return by ASM to the market index list.

Report on Operations at 31 December 2006 6

Performance of ASM shares and the Mibtel Index from 30/12/2005 to 28/02/2007

4.70 4.55 4.40 4.25 4.10 3.95 3.80 3.65 3.50 3.35 3.20 3.05 2.90 2.75 2.60 2.45 Jul-06 Jan-07 Oct-06 Jan-06 Apr-06 Jun-06 Dec-06 Feb-07 Sep-06 Dec-05 Feb-06 Mar-06 Nov-06 Aug-06 May-06 ASM Mibtel

Performance from 30/12/05 to 29/12/06 Performance from 02/01/07 to 28/02/07

ASM: +62.1% ASM: +6.5% Mibtel: +19.1% Mibtel: - 1.2% Rel. perf.: +36.1% Rel. perf.: +7.8% Delta: +43 p.p. Delta: +7.7 p.p.

Report on Operations at 31 December 2006 7

The ASM group in 2006

Significant events during the period In early January, ASM increased its stake in Abruzzoenergia, a company set up to build an 800 MW combined cycle plant in Gissi (province of Chieti) from 66.25% to 89%. It also negotiated an option to purchase a further 6% in the company, to be exercised within a year. ASM then intends to sell a minority stake in Abruzzoenergia to a partner that will help develop the initiative and launch new activities in the energy sector.

The ASM shareholders’ meeting held on 5 April 2006 authorised the Board of Directors to implement the share buy-back programme proposed and approved by the Board on 13 February 2006. Under the programme, ASM will buy back a maximum of 15 million ordinary shares, corresponding to 1.937% of the total capital. The buy-back is to be completed within 18 months of its approval by shareholders, and in any event, by the date on which the accounts to 31 December 2006 are approved by the Board of Directors. The shares may be sold on the stock market, or, as a priority, by way of payment for shareholdings or companies compatible with ASM’s external growth strategy. On 31 December 2006, ASM acquired 3,092,698 shares (0.40% of the capital) on the Italian stock market for EUR 9.4 million.

On 13 March, the rating agency Standard & Poor's updated its guidance on ASM, confirming its rating of A+ on long-term debt and A-1 on short-term debt; it also changed its outlook from stable to negative. ASM’s rating is the highest awarded to an Italian public utilities company, and one of the best ratings for the sector in Europe. The change in outlook reflects the merger and partnership opportunities that are a feature of the Italian local utilities sector and the increasingly competitive national and European energy markets.

On 1 August, a 30-year bond issue worth JPY 14 billion (yen rate: 3.2%) was created. The bond was then converted via a cross-currency swap into a euro loan with a nominal value of around EUR 98 million and an annual fixed-interest rate of 5.4% (twice-yearly coupon). The issue was wholly acquired by AFLAC, one of the largest US insurance groups, and no. 1 in Japan. Standard & Poor's gave the bond an A+ rating, the same as ASM SpA’s issuer rating.

The transaction is part of ASM’s strategy to extend the average term of its debt, which was successfully launched in 2004 when it issued a 10-year bond (fixed rate: 4.875%; nominal value: EUR 500 million against a backdrop of particularly favourable market conditions, with interest rates close to record lows, although rising slightly.

At its 31 July meeting, ASM's Board also approved the transfer of its gas distribution business to its wholly- owned subsidiary CIGE. In return for this business, which was valued by independent consultants at EUR 133 million, ASM subscribed to CIGE's capital increase to the tune of EUR 100 million. The remainder, as recognised by the independent valuation, will be allocated to a special reserve. The transfer came into effect on 1 October 2006. Further information about this operation is given in the section on the electricity and gas grids business under gas (Significant events during the period). In early September ASM increased its stake in Valgas from 74.1% to 99.5%, with minority Valgas shareholders (local authority bodies in the Valle Sabbia area) receiving ASM shares in return for their holdings. An independent expert put the value of Valgas at EUR 35.8 million; the shares to be purchased by ASM were therefore worth EUR 9.1 million.

Report on Operations at 31 December 2006 8

On 11 December 2006 the ASM Board approved the merger of Valgas into ASM, based on the financial situation of the companies at 30 September 2006. On that date ASM held a 99.53% stake in Valgas, while when the merger was completed, it held the entire share capital of the newly-incorporated company.

At the time of the merger, which took effect for tax and accounting purposes from 1 July 2007, Valgas operated solely in the integrated water services and heat management services sectors in Valle Sabbia. December 2006 saw the completion of the transfer to Aprica SpA of the environmental services division and the transfer of the gas distribution division to CIGE, both effective from 1 January 2007. The merger into ASM is due to be definitively completed by the end of March 2007..

On 5 September, a meeting was held between the Mayor of Milan and the Mayor of Brescia to identify possible forms of partnership and integration between AEM and ASM. A possible merger between the two companies was just one proposal that emerged, but the operational terms and conditions of such an operation were not established. As regards corporate governance, the importance of a balance between the core shareholders and the stability of the shareholder base was stressed, it being understood that the local authorities would retain majority ownership. On 18 December, the 2007-2011 business plan developed by ASM and AEM was presented to the ASM Board, with a view to a possible merger of the two companies’ activities that would create an energy player of national importance throughout the supply chain, with strong local roots in the regions in which the two companies already operate. The analysis of the industrial and strategic profiles of the proposed integration confirmed that the activities concerned were highly complementary, both in terms of the companies' current industrial assets and their respective development strategies. These complementary areas would result in significant vertical integration, with better services for the customers in the areas served and a greater availability of gas and electricity at competitive prices. In January and February 2007, further meetings took place between the Mayors of Milan and Brescia. For more details, see “Significant events since 31 December 2006”.

In December 2006 and January 2007, as part of the project to rationalise and reorganise the activities carried out by group companies, the following extraordinary operations were approved: merger of Sinergia SpA and Sobergas SpA (both wholly-owned by ASM and active in gas distribution) into CIGE SpA; transfer of part of the division that provides certain integrated water services in the province of Bergamo from ASM to BAS SII (a company owned 99.98%) effective from 1 January 2007. For further information on this operation, see the section on integrated water services (Significant events during the period).

In November, ASM and Società Cremasca Servizi (SCS) signed a memorandum of understanding to create an industrial partnership, with the objective of developing commercial agreements and launching other possible forms of co-operation to increase competitiveness and industrial efficiency. SCS is a public limited company that operates in the area around Cremona mainly in the water, gas, street lighting, parking and street cleaning businesses.

At the end of December 2006, ASMEA signed a preliminary agreement with Lumenergia (operating in electricity and gas trading in the municipality of Lumezzane) relating to both the provision of electricity from January 2007 and gas from the 2007-2008 thermal season, and ASMEA’s shareholding in Lumenergia. In mid-February 2007, the shareholders of Lumenergia were due to approve the increase of ASMEA’s shareholding to a third of the share capital. This operation must first gain approval from the competition regulator, expected by the end of June 2007.

This year, along with the accounts, we have again provided the Social and Environmental Report that provides information on technical, environmental and social matters.

Report on Operations at 31 December 2006 9

PROFILE OF THE ASM GROUP

The ASM group’s core business is energy, integrated water, environmental and other services. It operates through the divisions of ASM SpA and subsidiaries. Its areas of activity are: • Power generation • Electricity and gas sales • Electricity and gas grids • District heating • Integrated water services • Environmental services • IT services • Other services

POWER GENERATION ASM SpA carries out this activity chiefly through the power plants of Mincio and Cassano and its waste-to- energy (WTE) plant. There is also smaller-scale production from hydroelectric and landfill biogas plants. BAS Power Srl, a former subsidiary of BAS, is also active in this business through a plant that generates power using refuse-derived fuel (RDF). Power generated by cogeneration plants (Lamarmora) is not included under power generation, but comes under district heating. The power generation business also includes the direct sale of power to the GRTN (e.g. the CIP 6 contracts relating to the WTE and the BAS Power plants, and the sales contracts of the hydroelectric and biogas plants) and sales to the power exchange and the Sole Buyer.

ELECTRICITY AND GAS SALES This division includes: • sale of electricity to two categories of customer: - franchise customers: served by ASM Energia e Ambiente Srl (ASMEA) - eligible customers: served by ASMEA, ASM Energy, Ergon Energia (consolidated at 50%) and BAS Omniservizi (a former subsidiary of BAS).

• gas supplies This activity is carried out mainly by Plurigas SpA (30%-owned by ASM SpA), which has been the main supplier of gas used by the ASM group since the end of 2001, via ENI and, in small quantities, other suppliers.

• gas sales Gas is sold by ASMEA, ASM Energy, METAMER, Tidonenergie and BAS Omniservizi.

ELECTRICITY AND GAS GRIDS This division includes: • electricity transmission This is carried out by Reti Trasmissione Energia Elettrica ASM Srl (Retrasm), to which ASM SpA sold its

Report on Operations at 31 December 2006 10

own high-voltage grid in compliance with current regulations. It includes the operation of the section of the national transmission grid belonging to the ASM group.

• power distribution This is carried out by the electricity distribution division of ASM SpA in the Brescia municipality and 45 other local-authority areas in the province of Brescia. It includes transport and transmission of power on the high-, medium- and low-voltage grids that are not part of the national grid.

• gas transport Since 1 October 2003, gas transport has been managed by Retragas Srl, which was incorporated on 13 June 2003. The gas transport assets of ASM SpA, and of Valgas and Sinergia were transferred to the company on 15 July 2003. The grid extends over 300 kilometres across north-east Lombardy and Trentino Alto-Adige. In 2007, it is due to be extended to Oltrepo Pavese (Val Staffora) and Trentino-Val Giudicarie (see the section headed "Strategy”).

• gas distribution This is carried out by CIGE SpA, Valgas, Sinergia, ASVT and Sobergas SpA (a former subsidiary of BAS), each operating in its respective area. As stated above in the section “The ASM Group in 2006”, CIGE acquired ASM SpA’s gas distribution arm with effect from 1 October 2006, and since the beginning of 2007, has been the group’s only gas distribution arm.

The ASM group also runs street and cemetery lighting, through ASM SpA’s electricity distribution division.

DISTRICT HEATING This covers the production of heat - in cogeneration plants that also generate electricity - and its distribution for residential and industrial use. This activity is carried out by Teleriscaldamento ASM SpA in the cities of Brescia and Bergamo. Sales are managed by ASMEA.

INTEGRATED WATER SERVICES ASM SpA, Valgas, ASVT and BAS SII SpA (a former BAS subsidiary) carry out this service in their respective areas. It includes water catchment, mains operation, distribution, sewerage and water treatment. ASMEA manages water sales to customers served by the distribution grid of ASM SpA, Valgas and ASVT.

ENVIRONMENTAL SERVICES The ASM group operates directly in every aspect of waste management, from collection and street cleaning to disposal, through ASM SpA’s environmental services division, Aprica SpA, Valgas, ASVT and Ecofert in the provinces of Brescia, Bergamo and Mantua.

OTHER SERVICES The ASM group also runs the following support services, which were originally provided solely to group companies, but are now increasingly also offered to external customers: • engineering, through Aprica Studi Srl • telecommunications, information technology and customer relationship management, through Selene SpA, BAS.com (a former BAS subsidiary) and Itradeplace SpA • heat and facilities management, through ASM SpA and GeSi Srl

ASM does not have agencies but operates solely via local offices (article 2428 of the Italian civil code).

Report on Operations at 31 December 2006 11

CORE CORE BUSINESS BUSINESS

ELECTRICITY ELECTRICITY ELECTRICITY GRID OTHER ELECTRICITY GRID OTHER AND GAS SALES MANAGEMENT GENERATION AND GAS SALES MANAGEMENT SERVICES GENERATION SERVICES

ABRUZZO ABRUZZO ASM ENERGY VALGAS BAS S.I.I. 89% ENERGIA 100%ASM ENERGY 99.99% VALGAS 99.98% BAS S.I.I. ENERGIA

BAS POWER ASMEA ASVT APRICA 100% BAS POWER 100% ASMEA 47.81% ASVT 98.97% APRICA

ENDESA ENDESA PLURIGAS SINERGIA ECOFERT 20% ITALIA 30% PLURIGAS 88.13%SINERGIA 48.62% ECOFERT ITALIA

ERGOSUD METAMER RETRASM SELENE 50% ERGOSUD 50%METAMER 100% RETRASM 100% SELENE

ERGON ERGON RETRAGAS APRICA STUDI 50% ENERGIA 99.44% RETRAGAS 100% APRICA STUDI ENERGIA

TIDONENERGIE CIGE GESI 100% TIDONENERGIE 100% CIGE 47.50% GESI

BAS BAS SEASM BASCOM 100% OMNISERVIZI 67% SEASM 100% BASCOM OMNISERVIZI

SOBERGAS ITRADEPLACE 100% SOBERGAS 100% ITRADEPLACE

TRENTINO MONTICHIARI TRENTINO MONTICHIARI 14.48% SERVIZI 80% AMBIENTE SERVIZI AMBIENTE

Note: • ASM SpA operates in power generation, district heating, electricity and gas distribution, integrated water services and environmental services. • The table only shows shareholdings in consolidated companies at 31/12/06 (direct and indirect stakes), and in the main subsidiaries: Endesa Italia, Ergosud (formerly Eurosviluppo Elettrica) and Trentino Servizi.

Report on Operations at 31 December 2006 12

STRATEGY The ASM group is pursuing a growth strategy in its core businesses of energy, integrated water services, district heating and environmental services, and also aims to increase efficiency in all areas of activity.

The main business objectives for the period 2007-2011 are as follows:

ƒ to grow directly and through partnerships in the power generation sector, with an increase in the shareholding in the Gissi plant from 2007 and initiatives in the renewable sources field, particularly waste to energy, district heating and the use of biomass

ƒ to expand the customer base in electricity sales by strengthening the brand profiles of ASMEA and Ergon Energia (owned jointly with Endesa)

ƒ to further strengthen the supply of gas, partly through partnerships and by upgrading the gas transport grid

ƒ to keep a tight grip on costs in the gas and electricity grid businesses in order to increase the return on invested capital

ƒ to complete the repowering of the Lamarmora plant and to develop the district heating business in the Bergamo region and in other areas (Novara, etc.)

ƒ to extend integrated water services to other regions, and to develop the water treatment business. To redefine the tariff framework following the launch of the ATO

ƒ to build a new landfill site and increase treatment capacity, possibly through partnerships involving new WTE plants

Following the merger with BAS Bergamo, which strengthened the group’s competitive position in its region of operations, and represented an important step towards the consolidation of the sector at national and local level, integration and the alignment of procedures and organisation continued in 2006.

In Scandale (Crotone), the construction of a 800 MW gas turbine plant (owned jointly with Endesa) continued. The plant will come on stream in early 2008. ASM also continued with the construction of the 800 MW gas turbine plant in Gissi (Chieti), in which it will increase its stake to 95% during 2007. The plant will come on stream in mid-2008. These plants are in addition to the 400 MW Ponti sul Mincio plant (ASM: 45%) and the waste-to-energy plant, which handles 750,000 tonnes of municipal solid waste and biomass per year. Thanks to these projects, and the efficiency of its plants, ASM has consolidated its leading position in the Italian electricity sector, and has strengthened its presence on the market. In 2006, the Brescia WTE plant won the prestigious international WTERT 2006 INDUSTRY AWARD as the best WTE plant in the world, as judged by the WTE Research and Technology Council, an organisation of the “Earth Institute” at Columbia University in New York. Furthermore ASM won the Mediobanca award for medium-sized companies demonstrating dynamism and flexibility. The official presentation is to be held in May 2007. Total installed capacity is set to rise from 750 MW in 2005 to around 2,000 MW at the end of the period covered by the plan, while the amount of power generated will rise from 2.7 TWh in 2005 to 10.7 TWh in 2011.

In addition, the plan sets out a considerable expansion of the district heating business, which will mainly

Report on Operations at 31 December 2006 13

focus on the repowering of the Lamarmora cogeneration plant in Brescia. The project will involve selling off the oil-fired groups, maintaining the 75 MW coal-fired group and building a new 330 MW gas-fired group. ASM also plans to develop its district heating business by expanding the grids in Brescia and the neighbouring municipalities, which will lead to an increase of at least 3% a year in the quantity of heat sold, and by implementing district heating projects in the city of Bergamo, which will boost volumes by more than 25% a year.

In the integrated water services business, the plan incorporates the redefinition of the tariff plan established by the Brescia ATO following the definition of the plan and the launch of the ATO from 1 January 2007. In early February, the province of Bergamo’s Comitato Ristretto (“core committee”) approved a business plan, which will lead to the awarding of the water services concession by a company set up for that purpose by all the municipalities in the Bergamo ATO.

For the sales business, sales of electricity are expected to grow, thanks to Ergon Energia, while gas sales are expected to remain in line with the previous plan. The electricity grids division, however, will benefit from the redefinition of the company-specific electricity equalisation mechanism following the High Court’s decision of 17 January 2006, which also upheld an appeal by ASM (the asset value for the purchase of ENEL’s grids is the same as the price paid). The gas grids business will benefit from the positive effects resulting from the postponement of the tenders to assign the service and the significant expansion expected for the regional gas transport grid following the incorporation of the feeders located in Val Staffora and in Val Giudicarie totalling 57 km. Growth in the environment business is expected to be in line with the previous plan.

Gas supply is another important part of the strategy; here, the group is engaged in an ongoing search for new import sources at competitive prices, which will supplement the supplies already provided mainly by the subsidiary Plurigas, and to a lesser extent by companies operating on the domestic and international markets.

ASM’s substantial ability to generate cash will enable it to maintain a very sound financial profile: despite total investments of more than EUR 1.5 billion and the distribution of dividends totalling over EUR 600 million, net debt at the end of the period covered by the plan will be around EUR 1 billion, compared with EUR 802 million at end-2006, with a net debt/equity ratio of around 0.5.

As regards external growth, the major events of 2006 included activities developed jointly by ASM and AEM Milano, with a view to the possible merger between the two into a single combined entity of national importance, both in terms of industrial and financial size, and the role it will be able to play in the rapid consolidation under way in the multi-utility sector. To this end, 2006 saw the intensification of contacts and activities involving the two companies, with a view to defining a joint business plan to ensure the industrial rationale behind the integration is sound.

In light of the increase in competition, vertical and horizontal integration and consolidation of the multi- utilities sector (with increasing European/supranational parameters and principles), the main objective of a possible merger between ASM and AEM is to create a European player that is a leader in the Italian utilities sector able to leverage the companies’ strong presence in the energy sector (with high degree of vertical integration, and therefore availability of electricity and gas at competitive prices), their leadership in the environmental services sector on the free market and their strong roots in North Italy; the group would continue to invest and grow in the sector, and would be an operator grouping players in its core geographical market, where talks are being held with various sector organisations.

Report on Operations at 31 December 2006 14

CORPORATE GOVERNANCE The most important information regarding the group’s corporate governance is set out below. The full report on corporate governance can be read in the notes to the consolidated accounts.

SHAREHOLDER BASE Significant shareholdings at 31 December 2006, as defined in article 120 of the consolidated finance law (Testo Unico sulla Finanza), approved in legislative decree 58/1998 as amended, are shown in the table below, together with the percentage shareholdings held by institutional and retail investors.

no. of shared held % of share capital

Brescia local authority 536,114,184 69.24%

Bergamo local authority 38,734,500 5.00%

Fingruppo SpA 38,450,125 4.87%

Carlo Tassara SpA 22,120,000 2.86%

Amber Master Fund 12,633,575 1.63%

Market 126,252,974 16.41%

The shareholdings in ASM SpA held at 31 December 2006 by directors, auditors, the chief operating officer and managers with strategic responsibilities are shown below.

Shares held at Shares Shares held at Name 31/12/05 purchased Shares sold 31/12/06 Capra Renzo 203,000 - - 203,000 Barzellotti Bruno 10,000 - - 10,000 Facchetti Giuseppe 4,000 - - 4,000 Brunazzo Maurizio - - - - Clo' Alberto - - - - Onofri Giuseppe 11,475 - - 11,475 Vitale Marco 83,000* - 83,000* - Lonati Tiberio - - - - Rizzardi Giovanni - - - - Barbi Ferruccio - - - - Rivetti Diego- - - - Tomasoni Elio 19,925** - 8,000 11,925** Bonomo Antonio 26,000 4,000 - 30,000 Dabrassi Leonardo 36,725*** - 36,725*** - Rossetti Paolo 6,300* - 4,000* 2,300*

* shares held by spouse ** including 3,150 shares held by spouse *** including 13,500 shares held by spouse

Report on Operations at 31 December 2006 15

BOARD OF DIRECTORS ASM’s Board of Directors as of 31 December 2006, whose mandate will expire at the shareholders’ meeting held to approve the annual results for 2006, comprised:

Position Name Chairman and Chief Executive Renzo Capra Director Bruno Barzellotti* Director Maurizio Brunazzo Director Alberto Clô** Director Giuseppe Facchetti*** Director Tiberio Lonati** Director Giuseppe Onofri Director Marco Vitale

* Deputy Vice-Chairman ** representing minority shareholders *** Vice-Chairman

The chief operating officer is a permanent member of the board.

On 19 April, the Board of Directors assessed the independence of the directors, in accordance with the provisions of the Code of Conduct for Listed Companies. Following consultation with the Board of Auditors, the assessment showed that seven out of the eight directors could be considered as independent. Chairman Renzo Capra, as an executive director, is not independent.

In accordance with article 14 of the group's articles of association, the Board of Directors is vested with full powers for the management of the company, and for the implementation and achievement of the corporate purpose, except for those powers reserved by law and by the articles of association solely for the shareholders’ meeting. The Board of Directors is responsible for, inter alia, monitoring general operations (with special attention paid to conflicts of interest), approving the group’s strategic, business, financial and restructuring plans and its annual budgets, as well as examining and approving dealings with related parties, mergers (pursuant to articles 2505 and 2505 bis of the Italian civil code) and amendments to the articles of association to comply with legal requirements.

The Chairman of the Board of Directors is the legal representative of the company in accordance with article 18 of its articles of association. In accordance with the mandates currently in force, the Board of Directors has vested the Chairman with full powers to manage the company, with the exception of those otherwise assigned in accordance with the law or the articles of association, or those reserved for the Board of Directors. Currently, the Chairman also carries out the function of chief executive officer.

In accordance with article 14 of the group’s articles of association, the Board of Directors has created from among its members an appointments committee, a remuneration committee and an internal audit and corporate governance committee, and has set out the functions of each in accordance with the provisions of the Code of Conduct for Listed Companies that has been promoted and adopted by Borsa Italiana SpA.

Report on Operations at 31 December 2006 16

The Board of Directors has also appointed a supervisory committee to monitor the functioning and efficiency of, and compliance with, the organisation and management model applied to ASM SpA and group companies pursuant to legislative decree 231/01.

COMMITTEES

Appointments committee The appointments committee, appointed by the Board of Directors on 10 May 2004, currently comprises Bruno Barzellotti and Giuseppe Onofri, both non-executive and independent directors. The committee puts forward names of potential directors to the Board of Directors, based on the specific requirements of the company and proposals from shareholders.

Remuneration committee On 10 May 2004, the Board of Directors re-formed the committee, which comprises Maurizio Brunazzo, Alberto Clô and Giuseppe Onofri. The remuneration committee makes proposals to the Board of Directors regarding the remuneration of the chief executive officers and directors performing particular roles, and sets the remuneration criteria for the company’s senior management.

Internal audit and corporate governance committee On 10 May 2004, the Board of Directors re-formed the committee, which comprises Alberto Clô, Giuseppe Onofri and Marco Vitale. The Chairman of the Board of Auditors or his deputy, the Director of the Finance and Administration department and the Internal Audit Co-ordinator are all permanent members of the committee. The committee provides advice and recommendations to the Board of Directors, and assists it in its supervisory duties by monitoring the internal audit systems of the company and group.

BOARD OF AUDITORS In accordance with article 21 of the articles of association, the Board of Auditors comprises three statutory auditors and two deputy auditors, who are appointed for a three-year period and may be re-elected. The Board of Auditors comprises the following members:

Position Name Chairman Giovanni Rizzardi Statutory Auditor Ferruccio Barbi Statutory Auditor Diego Rivetti Deputy Auditor Pierfrancesco Cuter Deputy Auditor Pierfranco Aiardi

The Board of Auditors’ mandate is due to expire at the shareholders’ meeting held to approve the annual results for 2006.

The Board of Auditors is responsible for monitoring: • compliance with the law and the articles of association

Report on Operations at 31 December 2006 17

• compliance with the principles of proper business conduct • the adequacy of the company’s organisational, administrative and accounting systems, and their proper functioning.

Following the reform of company law (legislative decree 6/2003, which came into effect on 1 January 2004), all group companies brought their articles of association into line with the new legislation by the deadline of 30 September 2004. The subsequent law 262 of 28 December 2005, and legislative decree 303 of 29 December 2006 required listed companies to standardise their articles of association by 30 June 2007 (originally 12 January 2007). The changes required largely concern the Board of Directors, the Board of Auditors and the appointment of the director responsible for drawing up the company's accounting statements. ASM therefore amended its articles of association at an extraordinary shareholders' meeting held on 5 April 2006.

EXTERNAL AUDITOR The ordinary shareholders’ meeting of ASM SpA held on 27 September 2004 appointed PricewaterhouseCoopers SpA to audit both the company and consolidated annual and interim accounts for three years (2005-2007).

The group companies also appointed PricewaterhouseCoopers to carry out audits of their annual and interim accounts, as well as other accounting controls (the latter in response to changes made in the articles of association pursuant to legislative decree 6/2003).

Supervisory committee On 19 December 2003, the Board of Directors of ASM SpA approved the introduction of an Organisational and Management Model and a Code of Ethics as part of a programme to comply with legislative decree 231/01. This programme was also formally introduced in all ASM group companies. Following amendments to the decree and the introduction of new EU legislation, the Model was revised in July 2006 and again in January 2007.

The supervisory committee is responsible for monitoring the functioning and efficiency of, and compliance with the Model at ASM SpA and ASM group companies. It comprises two ASM board members (Giuseppe Onofri, the committee’s Chairman, and Giuseppe Facchetti), a statutory auditor from ASM (Diego Rivetti) and the head of the Internal Audit department.

Where ASM acts as an outsourcer for group companies, by providing certain administrative and general services under a service contract, it holds responsibility pursuant to legislative decree 231/01.

Confidential information and internal dealing On 23 March 2006, ASM’s board implemented measures to ensure its compliance with the new legislation relating to the “Register of persons with access to confidential information”, which took effect on 1 April 2006, and the “internal dealing” communications introduced by the 2004 EU law, included as an amendment to legislative decree 58 of 24 February 1998 (the consolidated finance law, or TUF), the implementing regulations of which are contained in the Consob issuer regulations. Specifically, ASM approved regulations on internal dealing, the handling of confidential information and the creation of a group register of individuals who, in the course of their professional activity or in the discharge of their duties, have access on a regular or occasional basis to confidential information, as defined in article 114 of the TUF and set out in article 115 bis of the TUF and the issuer regulations.

Report on Operations at 31 December 2006 18

CORPORATE SOCIAL RESPONSIBILITY

STAFF MANAGEMENT AND DEVELOPMENT

Industrial relations The most important collective employment agreement (CCNL) within the ASM group is that for the electricity sector, which covers about 55% of employees. Other employees are covered by national collective agreements for the street cleaning (24%), gas and water (17%) and services (4%) sectors.

All such agreements applied within the ASM group allow for and regulate performance-related pay schemes. Performance bonuses are paid upon the achievement of certain targets, which are set on the basis of four- year agreements: the most recent of these have been defined according to macroeconomic targets.

Training In 2006 the ASM group provided 26,000 hours of training for 3,679 employees.

The courses covered the following subjects:

Subject No. of hours No. of employees Average no. of hours per employee Administrative 581 hours 162 3.5 Communications and 630 hours 97 6.4 marketing Management 1,686 hours 151 11.1 IT 4,383 hours 323 13.5 Foreign languages 2,208 hours 104 21.3 Quality 1,416 hours 260 5.4 Safety 7,947 hours 730 10.8 Environment * 1,340 hours 165 8.12 Technical ** 5,231 hours 564 9.2

* only includes environmental management training ** also includes technical environmental training

LOCAL COMMUNITY LINKS

Company crèche March 2006 saw the inauguration of the company crèche, which currently looks after around 30 children belonging to employees of the ASM group, Banca Lombarda and Centrale del Latte di Brescia. The company launched the initiative in an attempt to help staff attain a healthy work-life balance. The new building housing the crèche was designed to the highest energy-efficient standards, including photovoltaic panels installed on the roof.

Report on Operations at 31 December 2006 19

Energy-saving and environmental awareness campaigns In November 2006 the group launched an initiative aimed at raising customer awareness about the need to save energy. To this end, ASM’s sales companies distributed 25,000 energy-saving kits consisting of three 11-watt energy-saving light bulbs and a practical guide to avoiding excess energy consumption in the home to customers, free of charge. In use, these 75,000 light bulbs would save about 22 million kilowatt hours of electricity in six years, and prevent the emission of 15,750 tonnes of CO2 into the atmosphere.

The group is also involved in awareness-raising programmes in schools. In partnership with the municipal authority of Vobarno, near Brescia, it offered primary school pupils and teachers lessons and a workshop on the subject of energy saving and efficiency, as well as the opportunity to enter the “Light up Christmas 2006” competition to design an original lighting concept for a place, building or monument using energy-saving lighting and energy produced entirely from renewable sources.

In Brescia, fourth- and fifth-year primary school pupils and secondary school students took part in a new project to raise awareness of the need to save energy. The classes selected took part in a television programme in February and March 2007 on the theme of energy efficiency, cogeneration and district heating, with a particular focus on environmental issues.

Another major initiative on the same theme was the “Pilgrims of the Sun” project based around the rediscovery of the Via Francigena pilgrimage route, which drew attention to energy-saving issues and the use of renewable sources, in addition to protecting the environment and promoting tourism.

Finally, ASM agreed to appoint Legambiente Lombardia (Lombardy’s environmental association) to manage the Bosco Sella park, which until 1989 was a landfill site for municipal solid waste. Under the agreement, Legambiente will identify suitable types of planting for “intelligent” reforestation, plan educational eco- activities, create and manage environmental awareness tours, and help protect native fauna by safeguarding food supplies and shelter, and thereby facilitating breeding.

ASM Foundation In April 2006 the Board of Directors of the ASM Foundation was re-formed. The Foundation continued the work begun previously, confirming its role as the interface of the company it represents, and focusing on the areas already defined: the needs of an ageing city, the problems of a changing city and a partnership with an evolving city. Within these key areas, the Foundation has chosen to co-finance projects aimed at finding proactive solutions to the problems of today while at the same time considering their future impact. To this end, it has published several pieces of research with the purpose of providing the knowledge and tools that can help in the cultural development and general enrichment of the environment in which we live. In line with the company’s geographical expansion, the Foundation has also expanded its activities to include the provision of quality services for the elderly in Valle Sabbia and the Lake Garda area, and initiatives to combat social exclusion in the Bassa Bresciana area. Resources were also set aside to develop and promote projects fostering cultural and social growth for the benefit of residents of the Bergamo area. In addition, the Foundation held a seminar entitled “Brescia 2015 - young people, immigrant cultures and senior citizens”, based on the second part of the “Brescia 2015” report on the future of the city and province, published by the Foundation in 2005 and sent to local bodies and associations.

The Foundation also turned its attention to children and young people by purchasing equipment for a new emergency orthopaedic ward at the local children’s hospital and upgrading the facilities of its intensive care unit.

Report on Operations at 31 December 2006 20

ASM AND THE FINANCIAL COMMUNITY ASM was listed on the Italian stock market in July 2002; it is part of the Blue Chips index, which includes companies with capitalisation of at least EUR 1 billion and a free float of at least 25%. It is also part of the Midex index of mid-cap companies. ASM is listed on the Axia Euro CSR and Axia Italy CSR ethical indices, highlighting its commitment to corporate responsibility in general.

Following the listing, a diverse group from the financial community, made up of individual investors, investment funds and financial analysts, joined the traditional stakeholders to which ASM has always paid close attention. The financial community’s main interest is focused on ASM’s financial profile, performance and future prospects.

Therefore, following the stock market listing, ASM set up an Investor Relations department to co-ordinate dealings with the financial community and meet its specific requirements as efficiently as possible. Its main task is to maintain an ongoing and effective relationship with the market as a whole.

ASM conducts its relations with the financial community on the basis of current legislation and its own voluntary code of conduct. In this respect, ASM abides by three fundamental principles: - timeliness; - transparency; - impartiality.

These principles mean that ASM releases regular and timely newsflow as required to create and maintain a transparent and equitable relationship with investors. This newsflow is necessary to ensure all stakeholders are given due access to company information, and that no one person can benefit from data not available to others.

ASM aims to ensure all its shareholders have access to the same information, which it provides in both Italian and English in order to comply with the impartiality principle mentioned above. However, the company’s efforts do not stop there: ASM always seeks to provide full responses to the information requests received from its financial stakeholders. To this end, ASM adopts various initiatives in addition to the usual release of quarterly, half-yearly and annual reports:

• one-to-one meetings with investment funds to raise the company’s profile on the most important national and international markets; • presentations to the financial community for particularly important events such as the release of quarterly, half-yearly and annual results; • conference calls with institutional investors to coincide with the release of quarterly, half-yearly and annual results; • one-off initiatives, such as guided tours of the company’s plants, to show the financial community at first hand the industrial processes on which ASM’s financial results are based; • press releases to inform the market of particularly important events; • mailouts to the main financial stakeholders and to the market as appropriate, providing updates on ASM's performance; • a section of the company website (www.asm.it) dedicated specifically to investors, which contains all the company’s financial information and real-time updates on the share price; • an e-mail address ([email protected]) and telephone number (030 355 4076) providing a direct point of contact with the company, thereby enabling stakeholders to ask questions and request clarification on particular issues; • a newsletter for private investors, aimed at providing the wider, non-specialist public with all the information necessary to assess the fair value of ASM’s shares.

Report on Operations at 31 December 2006 21

ASM guarantees that all the financial information it provides to the market, in whatever form, is true and accurate. ASM also monitors the information published in the press, and in the event of errors and/or inaccuracies, informs the publication in question.

Finally, ASM also shows its commitment to all categories of investor through its support for small investors’ associations such as ADIPASM, which can appoint one of the eight members of the Board of Directors and plays a crucial role in protecting the rights of minority shareholders.

Report on Operations at 31 December 2006 22

REPORT ON OPERATIONS

The ASM group The summary profit and loss account, balance sheet and related comments shown below were prepared in accordance with international accounting standards (IAS/IFRS). Note that unlike in the report to 31 December 2005, Itradeplace (100%-owned by the parent company, in part indirectly via the subsidiary Selene) is now consolidated in ASM’s accounts. At 31 December 2005, ASM's stake in Itradeplace (50% in total) was valued using the equity method.

In compliance with the Consob communication dated 28 July 2006, the first column of the summary profit and loss account and balance sheet contains a reference to the related comments in the notes to the accounts, where further detail is provided.

SUMMARY PROFIT AND LOSS ACCOUNT (EUR thousand)

Ref 2006 2005 Chg. '06 - '05

%

3.1;3.2 Revenues 2,051,844 1,672,368 379,476 22.7%

of which affiliates 83,535 127,273 -43,738 -34.4%

3.3;3.4;3.6 Operating costs 1,551,107 1,217,897 333,210 27.4%

of which affiliates 523,844 425,765 98,079 23.0%

Value added 500,737 454,471 46,266 10.2%

3.5 Personnel costs 119,584 115,734 3,850 3.3%

of which affiliates 1,848 1,865 -17 -0.9%

EBITDA (1) 381,153 338,737 42,416 12.5%

3.7;3.8;3.9 Deprec., amort, write-downs, prov, valuation of other assets at 136,900 130,346 6,554 5.0%

EBIT (2) 244,253 208,391 35,862 17.2%

3.10;3.11 Financial income and charges -35,684 -2,882 -32,802

of which affiliates -183 -188 5 -2.7%

3.12 Income and charges from investments 118,725 89,920 28,805 32.0%

Pre-tax profit 327,294 295,429 31,865 10.8%

3.13 Taxes -89,016 -82,561 -6,455 7.8%

Profit including minority interests 238,278 212,868 25,410 11.9%

Minorities' share of profits 4 -507 511

Net profit 238,282 212,361 25,921 12.2%

Report on Operations at 31 December 2006 23

(1) EBITDA is an alternative performance indicator not contained in IAS/IFRS accounting standards. ASM uses this indicator to assess the group’s operating performance for presentations to management and analysts and investors. EBITDA is a measure of profitability and refers to earnings before interest, tax, depreciation, amortisation, provisions and write-downs. It is calculated by subtracting labour costs from value added.

(2) EBIT (like EBITDA) is an alternative performance indicator used to measure the group’s operating performance in both internal and external reports, and refers to the group’s profitability before tax and interest charges on financial investments and equity investments. It is calculated by subtracting depreciation, amortisation, provisions and write-downs from EBITDA.

2006 revenues came in at around EUR 2 billion, up 23% on the previous year (almost EUR 1.7 billion), largely thanks to the increase in the price of electricity and gas sold (both to the power exchange and to end customers), and to a lesser extent, to an increase in volumes.

Operating costs (excluding personnel costs, depreciation, amortisation, write-downs and provisions) rose by EUR 333 million (from EUR 1.2 billion to over EUR 1.5 billion), largely due to the increased cost of fuels used in the power plants, and to an increase in volumes of electricity generated.

Value added stood at EUR 500 million, a rise of 10% compared to the EUR 454 million recorded at 31 December 2005.

Personnel costs rose by almost EUR 4 million (+3%) versus 2005, but fell as a proportion of value added from 25% in 2005 to 24% in 2006.

EBITDA was EUR 381 million, an increase of over EUR 42 million (+12%) versus 2005. The increase was largely attributable to improved profitability in the power generation business. As a percentage of revenues, there was a slight decline from 20% in 2005 to just over 18%, primarily owing to higher raw materials prices, which are reflected, to a lesser extent, in the margin.

The item “depreciation, amortisation, write-downs, provisions and valuation of other assets at fair value” increased by around EUR 7 million (from EUR 130 million to EUR 137 million), mainly because of provisions made for disputes relating to the possible application of AEEG resolutions 248/04 and 298/05, in relation to the price of gas, and equalisation payments that may have to be made to customers in respect of their energy supply.

EBIT increased by 17% versus 2005, from EUR 208 million to EUR 244 million. The EBITDA margin stood at 12%, broadly in line with the previous year.

Financial charges increased by almost EUR 33 million compared with the previous year (EUR -36 million versus EUR -3 million), as the 2005 figure was boosted by the early termination of contracts relating to swap operations and caps on the bond issued by ASM in May 2004. However, including the income from this transaction (EUR 25.5 million), the deterioration in the financial charges figure was EUR 7.3 million.

Net income from equity investments stood at EUR 118 million at 31 December 2006 compared to EUR 90 million a year earlier. The improvement was mainly due to the revaluation of the stake in Endesa Italia, which is consolidated

Report on Operations at 31 December 2006 24

using the equity method.

Net profit totalled EUR 238 million in 2006, an increase of almost EUR 26 million on the previous year (+12%).

SUMMARY BALANCE SHEET (EUR thousand)

Ref At 31/12/06 At 31/12/05 Chg. '06 - '05

%

1.3 Tangible assets 1,478,891 1,351,169 127,722 9.5%

1.1;1.2 Intangible assets 174,615 177,805 -3,190 -1.8%

1.4;1.5 Long-term investments 771,456 650,362 121,094 18.6%

Non-current assets 2,424,962 2,179,336 245,626 11.3% see notes in tab. work. capital Working capital 196,518 230,430 -33,912 -14.7% 1.7;1.8; 1.9;1.10 Other medium/long-term assets 99,257 46,941 52,316 111.5%

1.9 of which in respect of related parties 36,216 4,352 31,864 732.2%

2.9; 2.12;2.14 Other medium/long-term liabilities -185,510 -177,777 -7,733 4.3%

2.6 Staff severance fund -42,270 -39,989 -2,281 5.7%

2.7; 2.8 Provisions for risks and future liabilities -156,528 -128,049 -28,479 22.2%

Net invested capital 2,336,429 2,110,892 225,537 10.7% 2.1;2.2; 2.3;2.4;2.5 Shareholders' equity 1,534,508 1,408,452 126,056 8.9%

Net debt (1) 801,921 702,440 99,481 14.2% Funds 2,336,429 2,110,892 225,537 10.7% (1) Net debt is an alternative performance indicator not contained in IAS/IFRS accounting standards that ASM uses in its presentations to management and analysts and investors. It is calculated as the difference between financial receivables/payables and cash and cash equivalents (cash and banks). The "net debt" table below shows the balance sheet items used to calculate this indicator.

Note too that given the various restatement criteria used, the absolute values set out in the column showing the change between 2005 and 2006 on the summary balance sheet for the items “other medium-/long-term assets”, "other medium-/long-term liabilities" and "working capital" differ from the figures shown in the cash flow statement below.

The balance sheet shows an increase in fixed assets of almost EUR 246 million versus 2005 (from EUR 2.18 billion to EUR 2.43 billion). This breaks down as tangible assets of EUR 1.48 billion (EUR 1.35 billion in 2005), intangible assets (including goodwill) of EUR 175 million and long-term investments of EUR 771 million (excluding long-term loans of EUR 260,000, which were recorded under medium-/long-term debt). The EUR 121 million increase in long-term investments relates to the revaluation of the stake in Endesa Italia (valued at equity), which reflects the improved results achieved by the company.

Cash and cash equivalents increased from EUR 160 million at 31 December 2005 to EUR 242 million, principally

Report on Operations at 31 December 2006 25

due to a slight delay in the construction of the thermoelectric plants in Gissi and Scandale, for which ASM issued a new 30-year bond in 2006 (EUR 98 million, denominated in yen).

These operations reflect the long-term financial debt situation, which increased by over EUR 220 million in 2006. At 31 December 2006, net debt increased by almost EUR 100 million versus 2005 to EUR 802 million.

WORKING CAPITAL (EUR thousand)

Ref At 31/12/06 At 31/12/05 Chg. '06 - '05

%

1.11 Inventories 74,529 52,002 22,527 43.3%

1.12;2.21 Trade receivables 470,992 439,495 31,497 7.2%

1.13 Receivables from affiliates 46,844 58,272 -11,428 -19.6%

1.15 Tax receivables 28,794 28,697 97 0.3%

02:17 Trade payables -282,407 -254,346 -28,061 11.0%

02:18 Payables to affiliates -52,498 -16,911 -35,587 210.4%

02:20 Tax payables -54,656 -19,998 -34,658 173.3% 1.16;1.18; 2.16; 2.21 Other assets and liabilities -35,080 -56,781 21,701 -38.2%

196,518 230,430 -33,912 -14.7%

NET DEBT (EUR thousand)

Ref At 31/12/06 At 31/12/05 Chg. '06 - '05

%

2.10; 2.11 Long-term financial payables 934,398 711,148 223,250 31.4%

1.6; 2.13 Long-term financial payables to affiliates 2,051 3,242 -1,191 -36.7%

2.15 Short-term financial payables 105,929 65,418 40,511 61.9%

1.14; 2.19 Short-term related payables to affiliates (1) 1,890 5,252 -3,362 -64.0%

1.17;1.18;1.19 Securities and cash -242,347 -82,620 -159,727 193.3%

801,921 702,440 99,481 14.2%

(1) difference between financial receivables (note 1.14) and financial payables (note 2.19)

Report on Operations at 31 December 2006 26

INVESTMENTS Investments increased by EUR 116 million to EUR 244 million in 2006, including multi-year expenses and capitalised personnel costs. This substantial increase relates to construction work at the Gissi (Chieti) plant.

INVESTMENTS (EUR million)

244 5

128 4 239

124

2005 2006

Tangible assets Intangible assets

Report on Operations at 31 December 2006 27

FINANCIAL POSITION

CASH FLOW STATEMENT (EUR thousand)

31/12/06 31/12/05

Net profit 238,282 Depreciation and amortisation 115,646 Valuation of assets at fair value 174 Net change in staff severance fund 2,281 Net change in other funds 13,812 Income from equity investments -567 Adjustments to the value of investments -118,158 Change in medium- to long-term assets/liabilities -28,968 of which affiliates -31,864 Tax due for the year 89,016 Tax paid -71,060 Cash flow before change in working capital 240,458 Change in working capital and other medium- to long-term operating asse -30,731 of which affiliates -20,691 Total cash flow from operations 209,727 200,234

Net investment in tangible and intangible non-current assets -239,320 Net change in investments 1,482 Total cash flow from investments -237,838 -282,381

Free cash flow -28,111 -82,147

Distribution of dividends and reserves -100,660 Dividends from equity investments 35,767 Other consolidation differences -6,477 Total cash flow in respect of other assets and liabilities -71,370 -49,225

Increase/(decrease) from mergers - -59,761

Total cash flow for the period -99,481 -191,133

Operating cash flow was around EUR 210 million in 2006, compared to EUR 200 million in the corresponding period of 2005. The item “adjustments to the value of investments” totalled EUR -118 million and reflects the revaluation of the shareholding in Endesa Italia following the adoption of the equity valuation method.

Cash flow used in investment activities was almost EUR 238 million, compared with EUR 282 million in 2005.

Free cash flow stood at EUR -28 million, versus EUR -82 million at 31 December 2005.

The cash flow used in respect of other assets and liabilities (dividend payments and distributions of reserves; dividends received from equity investments) came to EUR 71 million (EUR 49 million at 31 December 2005).

Report on Operations at 31 December 2006 28

Total cash flow for the year was negative: EUR -99 million versus EUR -191 million the previous year.

Risk management

The ASM group has a special division whose task is to control and manage energy-related and financial risks.

The risk management committee is the main body that formulates financial and energy risk management strategies. It reports on its activities to the Board of Directors of ASM SpA on a quarterly basis. The committee also approves risk policies.

Risk policies set out the company’s strategic guidelines, its approach to individual risk factors, and the organisational and operating principles and macroprocesses needed for active management of the main sources of energy-related and financial risks.

A central risk management department was also set up within the finance and administration department, which provides support, and monitors and controls risks at group level.

Risk management activities, which are managed on a daily basis by the relevant departments, are aimed at taking measures to mitigate risks, except in the case of purely speculative transactions.

Energy and financial risks for the ASM group stem from changes in the price of electricity and raw materials, changes in interest and exchange rates, and exposure to credit risk.

The company has insurance policies with a specialist insurer to hedge against credit risk relating to free market customers, while for other energy and financial risks it carries out derivatives transactions.

Report on Operations at 31 December 2006 29

RECONCILIATION OF PARENT COMPANY SHAREHOLDERS’ EQUITY AND NET PROFIT WITH CONSOLIDATED SHAREHOLDERS’ EQUITY AND NET PROFIT The table below shows the reconciliation of parent company and consolidated shareholders’ equity and net profit pursuant to Consob communication DEM/6064293 of 28 July 2006.

RECONCILIATION OF PARENT COMPANY SHAREHOLDERS’ EQUITY AND NET PROFIT WITH CONSOLIDATED SHAREHOLDERS’ EQUITY AND NET PROFIT (EUR thousand) 31/12/2006 Shareholders' equity Net profit/(loss)

Balance from ASM Brescia SpA accounts 1,313,975 137,352

Portion of subsidiaries' net profit and shareholders' equity attributable to the group, before reversal of book values of the shareholdings and the portion relating to minority shareholders 365,675 37,467

Reversal of book value of consolidated shareholdings (369,165)

Minorities' portion (6,285) 4

Elimination of dividends from subsidiaries (32,872)

Effect of valuation of Endesa at equity 201,343 80,852

Effect of valuation of other companies at equity (782) 1,013

Consolidation difference and goodwill 52,021

Deferred taxes on capital gains from assets transfer to CIGE 10,600

Reversal of capital gains and goodwill resulting from intercompany disposals of sales divisions (46,915) 1,673

Minor adjustments and changes in the basis of consolidation 18,356 2,193

Balance from consolidated accounts of ASM group 1,528,223 238,282

TRANSACTIONS WITH RELATED PARTIES

This section includes the main commercial and financial transactions entered into by the ASM group with related parties, as defined in the current version of IAS 24.

Report on Operations at 31 December 2006 30

More specifically, reference is made to the transactions whose effects on the balance sheet or profit loss account were not eliminated when the accounts were consolidated. The effects on the balance sheets and profit and loss accounts of companies consolidated proportionally are also included, where not eliminated. The transactions referred to are classed as ordinary operations carried out by the parent company ASM SpA and its subsidiaries and affiliates with the Brescia and Bergamo local authorities (the main shareholders of ASM SpA) and with Endesa Italia (ASM's stake in this company is consolidated using the equity method).

For more information on the transactions of ASM SpA with related parties, please refer to the relevant notes (parent company).

Commercial transactions

Revenues

Endesa Italia – EUR 60.4 million payable to: 9 ASM SpA, for electricity. The amount outstanding at 31 December 2006 was approximately EUR 5.3 million.

Brescia local authority – EUR 11.4 million payable to: 9 ASM SpA: EUR 9.1 million, including EUR 4.7 million for street lighting and EUR 2.3 million for district heating management. The amount outstanding at 31 December 2006 was about EUR 7 million. 9 Asmea: EUR 2.3 million for electricity, gas, water and heating. The amount outstanding at 31 December 2006 was EUR 0.9 million.

Bergamo local authority – EUR 8.2 million payable to: 9 ASM SpA: EUR 7.2 million, including EUR 4.1 million for district heating and EUR 3 million for street lighting. The amount outstanding at 31 December 2006 was around EUR 1.4 million. 9 BAS SII, EUR 0.8 million for the supply of water. The amount outstanding at 31 December 2006 was approximately EUR 0.9 million. 9 Bascom, EUR 0.2 million for telecommunications services. The amount outstanding at 31 December 2006 was EUR 33,000.

Ergon – EUR 3.2 million payable to: 9 ASM Energy: EUR 2.4 million for electricity. The amount outstanding at 31 December 2006 was about EUR 26.3 million. 9 ASM: EUR 0.6 million for services and raw materials. The amount outstanding at 31 December 2006 was around EUR 0.7 million. 9 Selene: EUR 0.2 million for IT and telephone services. The amount outstanding at 31 December 2006 was around EUR 0.1 million.

GeSI – EUR 0.5 million payable to: 9 Asmea: EUR 0.3 million for gas. The amount outstanding at 31 December 2006 was about EUR 0.1 million. 9 ASM: EUR 0.2 million for services. The amount outstanding at 31 December 2006 was around EUR 0.1 million.

Costs

Endesa Italia – EUR 346 million due from: 9 Ergon Energia: EUR 243 million for electricity. The amount outstanding at 31 December 2006 was EUR 18 million.

Report on Operations at 31 December 2006 31

9 ASM Energy: EUR 103 million for electricity.

Plurigas – EUR 143.7 million due from: 9 ASM: EUR 143.7 million for gas. The amount outstanding at 31 December 2006 was about EUR 17.9 million.

Ergon – EUR 15.9 million due from: 9 Asmea: EUR 11.7 million for electricity. The amount outstanding at 31 December 2006 was around EUR 4.4 million. 9 ASM Energy: EUR 3.1 million for electricity. The amount outstanding at 31 December 2006 was approximately EUR 3.8 million. 9 Omniservizi: EUR 0.8 million for electricity. The amount outstanding at 31 December 2006 was about EUR 0.2 million. 9 TidoneEnergie: EUR 0.3 million for electricity. The amount outstanding at 31 December 2006 was around EUR 0.1 million.

Brescia local authority – EUR 10.5 million due from: 9 ASM: EUR 10.2 million for grid and infrastructure rental. The amount outstanding at 31 December 2006 was about EUR 7.6 million. 9 CIGE: EUR 0.3 million for grid and infrastructure rental following the acquisition of the gas distribution service. The amount outstanding at 31 December 2006 was around EUR 1.2 million.

Bergamo Infrastructure – EUR 6.9 million due from: 9 BAS SII: EUR 3.4 million for water grid rental and waste water infrastructure. The amount outstanding at 31 December 2006 was around EUR 0.9 million. 9 ASM: EUR 1.5 million for gas grid rental. There were no amounts outstanding at the end of the year. 9 Sobergas: EUR 1.5 million for gas grid rental. The amount outstanding at 31 December 2006 was around EUR 0.5 million. 9 CIGE: EUR 0.5 million for gas grid rental following the acquisition of the gas distribution service. The amount outstanding at 31 December 2006 was about EUR 0.5 million.

Bergamo local authority – EUR 0.8 million due from: 9 BAS SII: EUR 0.8 million in relation to fees for sewerage services. The amount outstanding at 31 December 2006 was around EUR 0.9 million.

Gesi – EUR 0.2 million due from: 9 ASM: EUR 0.2 million for district heating management. There were no amounts outstanding at the end of the year.

In addition, remuneration for directors, the chief operating officer, and senior managers with strategic responsibilities totalled EUR 1.9 million. Lastly, receivables of EUR 32.6 million were recorded in relation to Ergosud (owned jointly with Endesa) in respect of advance payments relating to the construction of the Scandale plant and payments on account pertaining to a future capital increase (see also Note 1.9 of the notes to the consolidated accounts).

Report on Operations at 31 December 2006 32

RESULTS BY BUSINESS AREA The results relating to individual business areas shown in this section were prepared in accordance with IAS/IFRS accounting principles. Adjustments relating specifically to individual businesses have been allocated to those areas, and any residual adjustments or restatements have been allocated to “other services”.

For a more accurate interpretation of the results relating to individual business areas, please note that: ƒ revenues and operating costs for each business include transactions between different group businesses ƒ costs, and depreciation and amortisation relating to corporate activities – namely those carried out by ASM SpA for other parts of the group – have been fully allocated to the individual businesses, either in proportion to the actual use of the services provided, or according to technical/financial factors.

EBITDA (EUR million)

2006 2005 Change

Power generation 168.36 131.37 28.2%

Electricity and gas sales 52.16 44.49 17.2%

of which: electricity 22.02 13.88 58.6%

gas 30.14 30.61 -1.5%

Electricity and gas grids 65.43 67.48 -3.0%

of which: electricity 37.10 33.46 10.9%

gas 28.33 34.02 -16.7%

District heating 45.63 39.65 15.1%

Intregrated water services 15.52 17.50 -11.3%

Environmental services 26.23 26.37 -0.5%

Other services 7.82 11.88 -34.2%

Totale 381.15 338.74 12.5%

Report on Operations at 31 December 2006 33

BREAKDOWN OF EBITDA BY BUSINESS AREA

MOL 2006 MOL 2005

4% 7% 2% 5% 8% 3% 39% 12% 44% 12%

17% 20% 13% 14%

power generation electricity/gas sales electricity/gas grids district heating integrated water services environmental services other services

INVESTMENTS (EUR thousand)

Tangible assets Intangible assets Total

Power generation 148,233 - 148,233

Electricity and gas sales 876 30 906

Electricity and gas grids 37,527 1,055 38,582

District heating 17,604 - 17,604

Integrated water services 21,502 1,093 22,595

Environmenal services 6,403 2 6,405

Other services 6,795 2,648 9,443

Total 2006 238,940 4,828 243,768

Total 2005 124,309 4,069 128,378

Investments increased by EUR 115 million compared to 2005, mainly due to the power generation business relating to construction work on the Gissi power plant, which accounted for over EUR 120 million.

Report on Operations at 31 December 2006 34

NON-CURRENT ASSETS (EUR thousand)

Tangible assets Intangible assets Total Power generation 507,940 878 508,818

Electricity and gas sales 1,037 14,843 15,880 Electricity and gas grids 483,892 81,951 565,843 District heating 162,880 1,736 164,616 Integrated water services 197,943 14,911 212,854 Environmental services 41,384 2 41,386 Other services 83,815 60,294 144,109 Total at 31/12/06 1,478,891 174,615 1,653,506

Total at 31/12/05 1,351,169 177,805 1,528,974

The value of tangible and intangible assets at 31 December 2006 (including plants under construction and non-current asset payments on account) was EUR 1.65 billion, compared to EUR 1.53 billion at the end of the previous year. The largest amounts, over EUR 500 million, relate to the electricity and gas grids business and power generation.

POWER GENERATION

Significant events during the period

• Repowering of existing plants The repowered second group of the Cassano d’Adda power plant (a new 380 MW gas turbine plant) came on stream in the first quarter of 2006. Thanks to the work, which was completed in 2005, the plant (25%- owned by ASM) now has total power of 1,000 MW compared with 620 MW previously.

New plants In January 2006, Abruzzoenergia (89%-owned by ASM) awarded the turnkey contract to build an 800 MW capacity gas-fired combined cycle co-generation plant in Gissi (province of Chieti). The contract is worth more than EUR 300 million, plus around EUR 30 million for additional work. Building works for the plant – scheduled to come on stream mid-2008 – commenced in the first three months of 2006 and are proceeding according to plan.

In March 2006, Ergosud (formerly Eurosviluppo Elettrica, which is owned 50-50 by ASM and Endesa Europa) awarded the turnkey contract to build the 800 MW gas-fired combined cycle cogeneration plant in Scandale, near Crotone in Calabria. The total investment comes to around EUR 370 million, of which EUR 30 million

Report on Operations at 31 December 2006 35

relates to additional plant work. This plant will become operational in early 2008.

Regulatory and tariff framework The environmental ministry decree relating to the allocation of carbon dioxide emission quotas for the period 2005-2007 was published in Italy’s Official Gazette, issue 57 of 9 March 2006. The decree is in response to EU directive 2003/87/CE on emissions, which requires each member state to adopt a national carbon dioxide emissions programme and to institute an emissions trading scheme. The bulk of ASM’s quotas (around 130 million tonnes out of an annual 220 million tonnes) was allocated to the thermoelectric plants. Quotas are granted through the national emissions register, operated by the environmental protection agency (APAT). On 18 December 2006, the environment and economic development ministries approved Italy’s national allocation plan for 2008-2012. The annual average quota to be assigned is 209 million tonnes of carbon dioxide, equivalent to a reduction of around 14 million tonnes on the previous period. The plan provides for an average limit of 100.6 million tonnes of carbon dioxide per annum for the thermoelectric sector. The plan was sent to the European Commission for its opinion, and will subsequently be submitted to the operators involved for consultation and final approval.

TERNA created a certificate called the CCC (assigned to operators via auction) to hedge against the risk of the change in the value of the CCT (transport capacity payment). The allocation of import quotas by TERNA was based on the pro rata assignment of CCCI certificates, a mechanism that allows energy flows to be managed through market instruments (bilateral agreements and the power exchange).

The system of green certificates for companies producing energy from renewable sources was updated by two interministerial decrees issued by the industry and environment ministries on 24 October 2005. The regulations stipulate that net energy production from plants fuelled by renewable sources that were operational after 1 April 1999 have a right to green certificates for their first eight years of operation. This period may be extended to 12 years on request of the producer, for biomass and waste-fuelled plants, but applies to only 60% of net energy production. The grid operator is responsible for issuing the certificates, each worth 50 MWh. The market operator is however responsible for organising and managing an exchange for the trading of these certificates. The ministries have also established that cogeneration plants cannot be used solely for district heating.

Again in 2006, the Sole Buyer held auctions to award contracts for difference to supply electricity, as a result of which baseload and peak contracts were granted.

On 25 January 2006, a decree, "Urgent measures to guarantee the supply of natural gas", was issued to reduce gas consumption in the thermoelectric sector. This decree authorised the urgent suspension, no later than 31 March 2006, of the obligation to observe emissions limits for certain plants in order to maximise the usage of oil-fired power generation plants.

An Italian industry ministry decree of 5 May 2005 was published in the Official Gazette issue 125 of 31 May 2006, officially listing the types of waste that can be included in the green certificates system. This list is in addition to the types of waste already stipulated at article 17, paragraph 1 of legislative decree 387/03 and consists of the waste and waste-derived fuels set out in the ministerial decree of 5 February 1998. The power plants that use this waste must obtain individual authorisation as stipulated by legislative decree

Report on Operations at 31 December 2006 36

387/03. Operators of these plants are required to apply to the GRTN for green certificates.

In resolution 111/06, the AEEG (Italy’s gas and electricity regulator) significantly amended the economic merit dispatch rules, thus preparing Italy’s regulatory framework for the introduction (scheduled for the second or third quarter of 2007) of mechanisms to manage forward contracts in electricity securely and with adequate guarantees. These contracts will serve to register sales and purchases of electricity entered into by individual market operators at the time they request such transactions leading to the injection and withdrawal of electricity into and from the grids. This mechanism will assist the creation of one or more forward trading platforms.

Resolution 181/06 sets out the bands for 2007. The approved system sets out three bands that distinguish between the price of energy during the day and at night, and between working days, Saturdays and Sundays/holidays.

Resolution 249/06 defined new criteria to calculate the “avoided fuel costs” allowed for CIP6 plants; the resolution is still being disputed by many operators (including ASM).

Following the consultation document issued on 23 June 2006, the AEEG approved ruling 165/06 aimed at curbing the costs of dispatch services for end customers. The measure, which became effective on 1 August 2006, introduces a number of changes to the procedures for supplying dispatch resources, and those for the provision of the same service by Terna. The purpose of this is to increase competition in the dispatch market, and thus keep the costs low to end customers.

The AEEG also set up a work group (with the involvement of the relevant operators) to look at further possible changes in the regulations that govern the running of the dispatch market, with a view to increasing its efficiency and transparency.

Note that there is still uncertainty among producers over the obligation to inject energy from renewable sources after 2006. In the absence of a ruling with specific details, only the Bersani decree sets this obligation at 2% of non-renewable production (3.05% for 2006, established by decree 387/03).

Operating performance Power plants generated 2,811 GWh of energy in 2006 compared to 2,324 GWh the previous year. The increase was mainly due to the entry on stream in early 2006 of the repowered second group of the Cassano d’Adda power plant, with an increase of 60% in quantities generated.

The WTE plant generated 528 GWh of electricity last year (510 GWh in 2005). Waste delivered to the plant totalled 801,000 tonnes (including biomass fuel purchased), compared to 757,000 tonnes in 2005.

The “other minor items” line includes 65 GWh of electricity generated during the period by the BAS Power plant (46 GWh at 31 December 2005), which uses waste-derived fuel.

Total energy generated by ASM power plants as of 31 December 2006 was 3,188 GWh, an increase of 16% compared to the 2,739 GWh generated during the same period in the previous year. In addition to the above-mentioned volumes, the co-generation plants belonging to the district heating business generated 377 GWh during the year, compared to 415 GWh in 2005.

Report on Operations at 31 December 2006 37

Lastly, 3,835 GWh of energy was generated from other sources (Endesa Italia and CIP 6).

ASM’s portion of own production (in GWh)

2.811 124

2.324 528 146

510 1,023

957

1,136 711

2005 2006

Cassano plant Mincio plant WTE other minor plants

Summary of revenues and costs

Revenues in 2006 came in at EUR 574 million, a rise of 6% on 2005. These revenues chiefly relate to the sale of power to the electricity and gas sales business, and sales to the GRTN, the Sole Buyer and the Italian power exchange. Revenues were also generated through the sale of heat produced by the WTE plant to the district heating business and the supply of waste disposal services undertaken by the WTE plant to the environmental services business.

This improvement was mainly due to sales of electricity to the GRTN and the Italian power exchange following a rise in the quantity of power available and higher sales prices.

EBIT rose from EUR 131 million to EUR 168 million (+28%), mainly due to the increase in the WTE plant’s margins and greater volumes generated by the Cassano plant, as well as higher energy sales prices.

Depreciation, amortisation and provisions came in at EUR 38 million for 2006. As a result, EBIT rose by 38% on 2005 and stood at EUR 130 million (EUR 94 million in 2005).

Report on Operations at 31 December 2006 38

Power generation (EUR thousand)

2006 2005 Chg. % '06 - '05 Revenues 574,496 542,791 5.8% Operating costs 406,136 411,426 -1.3% EBITDA 168,360 131,365 28.2% Deprec, amort & provisions 38,482 37,373 3.0% EBIT 129,878 93,992 38.2%

Revenues include the heat produced by the WTE plant and sold to the district heating business (EUR 21 million at 31.12.06) and the waste disposal service provided by the WTE plant and sold to the environmental services business (EUR 38 million at 31.12.06).

Investments Investments in tangible assets came to EUR 148 million in 2006 (EUR 28 million in 2005) and mainly relate to the construction of the Gissi power plant.

ELECTRICITY AND GAS SALES

Electricity

Regulatory and tariff framework In 2006, the group applied the electricity tariffs resulting from the resolutions shown in the table below to franchise customers.

Specifically, the average increases in the domestic sector, which are affected by the international trend in petroleum products, are as follows:

AEEG % increase resolution (gross) 1Q06 299/05 2.5% 2Q06 61/06 5.7% 3Q06 132/06 5.8% 4Q06 207/06 1.6% Total 15.6%

A Code of Business Conduct was approved under resolution 105/06 to protect eligible low-voltage customers (small businesses, cottage industries and other VAT-registered parties). The Code, which will be extended to domestic customers from 1 July 2007, covers the principles of proper conduct and transparency that sales companies have to apply while promoting offers, signing up new customers and amending previously-agreed contracts so that customers can choose between a variety of offers in an informed manner. The proposals relate to the transparency of information, ethical use of the various sales techniques, full information on the

Report on Operations at 31 December 2006 39

contractual and financial aspects of the offers, price comparability, clarity of contracts and simplicity of language used. If contracts are signed away from the sales premises or via correspondence, customers must have the right to reconsider.

Resolution 152/06 approved the text of the directive regarding the transparency of electricity bills, which incorporates the proposals contained in the consultation document issued in February 2006. The purpose of the directive is to amend and supplement the transparency rules introduced by the AEEG with resolution 55/00, with respect to making electricity bills easier to read and understand. The proposals – aimed at reconciling the requirements of simplicity and completeness of information – envisage two separate information sections: a summary of the main headings that includes the bill total, and a detailed breakdown of all the individual price elements and calculations. Resolution 267/06 deferred implementation of resolution 152/06 until 1 April 2007.

On 3 August 2006, the AEEG published a research document ahead of the liberalisation of power sales to end customers, scheduled for 1 July 2007. The document aims to assemble information that could be useful in highlighting operators’ and end customers’ problems and requirements relating to the power sales service. Specifically, the document defines retail power sales in detail, examines the anticipated effects of liberalisation and evaluates some of the protection mechanisms stipulated, especially the creation of two services: the servizio di vendita di maggior tutela (which aims to ensure a minimum level of quality and reasonable, transparent and comparable prices) and the servizio di vendita di salvaguardia (which aims to implement measures to guarantee uninterrupted supply). On 28 December 2006, the AEEG published a summary of the results of this research exercise.

Operating performance – electricity sales Power sold in 2006 was 7,154 GWh, versus 5,927 GWh the previous year. Volumes sold to eligible customers increased by 1,348 GWh, from 4,885 GWh to 6,233 GWh, thanks to the acquisition of new customers and the admission of low- and medium-voltage customers to the free market. Amounts sold to franchise customers, however, fell by nearly 12%, from 1,042 GWh to 921 GWh. Note that sales to GRTN, the power exchange and the Sole Buyer are made by the power generation business and are not therefore included in the above-mentioned amounts, which relate to the electricity and gas sales business.

Report on Operations at 31 December 2006 40

Electricity sales (in GWh)

7.154

5.927

6,233

4,885

1,042 921

2005 2006 Franchise market Free market

Gas

Regulatory and tariff framework

In resolution 298/05 of 29 December 2005, the AEEG reiterated its criteria for indexing raw materials, previously set out in resolution 248/04, for the first quarter of 2006. The AEEG’s measures aim to curb gas tariff rises, taking account of the effects of the ruling by the High Court (4921/05 of 14 October 2005), which as a precautionary measure, and pending a definitive decision, suspended the Lombardy regional court’s decision in June 2005 to repeal 248/04. Note that, in this last resolution, the AEEG changed the method of calculating the cost of the gas component to ensure that customers benefit from clauses used in international contract law.

The ASM group and other operators appealed against resolution 298/05 and, having obtained the suspension from the Lombardy regional court, subsequently applied the tariff increases set out in resolution 195/02 (which predated 248/04).

In the first quarter of 2006, the dispute went to the High Court, which upheld the AEEG’s appeal against the case brought by Hera Trading, but dismissed its appeals against other sales companies). On 6 June 2006 the High Court, in its capacity as arbitrator in the matter of resolution 248/04, deferred the decision to a future hearing, deeming it prejudicial in the first instance to wait for the plenary assembly’s ruling, to resolve on the procedural errors found in the AEEG’s appeals (see next page, rulings 1 and 2 of the plenary assembly dated 11 January 2007).

Resolutions 298/05 and 63/06 still form part of the current regulatory framework and will remain in force at least until the High Court issues its ruling on the appeals.

The updated raw materials tariffs for each of the four quarters of 2006, as determined by the AEEG using the above-mentioned indexation methodology, are as follows:

Report on Operations at 31 December 2006 41

AEEG Increase resolution (eurocents/ cubic m) 1Q06 298/05 0.2974 2Q06 63/06 1.4368 3Q06 134/06 2.3228 4Q06 205/06 - Total 4.0570

As the table shows, there is no change for the fourth quarter of 2006, since 205/06 confirms the raw materials component of the previous quarter, given that gas costs have risen by less than the no-change threshold beyond which price rises are applied. Resolution 134/06 shown in the table amended the procedures for updating the raw materials component, taking account of observations made by sector operators following the release of the consultation document dated 17 May. More specifically, it introduced a new formula for the safeguard clause setting a value of 0.95 eurocents (β) for average Brent prices above USD 60 per barrel (levels that have so far never been reached in the indexation methods used), based on nine-month averages. The no-change threshold, above which tariff changes come into effect, was also reduced from 5% to the current 2.5%, and an additional fixed payment of 1.5 eurocents per cubic metre was introduced for a maximum of three years.

With reference to the provisions of resolution 65/06, the AEEG also issued a partial reimbursement to customers, consisting of the difference between the sums applied in accordance with resolution 195/02 and those used in the calculation under resolution 248/04 in 2005.

The AEEG also reviewed the application of the pricing conditions that wholesale suppliers are required to offer, together with the conditions set by the wholesalers themselves. This requirement only applies to domestic customers with consumption of less than 200,000 cubic metres per year, partly in consideration of the full liberalisation of the gas and electricity markets set for 1 July 2007 by EU directive 2003/55.

Following the plenary assembly’s rulings 1 and 2 dated 11 January 2007, the High Court, in coming to its definitive judgment on the appeals submitted by the AEEG against rulings 3716/05 and 3718/05 of the Lombardy regional court (TAR), and in consideration of their nonsuit, stated that resolution 248/04, given its general nature, and as a result of the annulment resulting from the two decisions by the TAR, does not apply to all companies.

Based on this ruling, the AEEG issued resolution 12/07 on 24 January 2007, instituting the process to adopt criteria for updating the pricing conditions for the supply of natural gas with effect from 1 January 2005 as protection against the annulment of resolution 248/04. The results are not yet known.

Operating performance In 2006 824 million cubic metres of gas were sold (excluding the gas sold by Plurigas), a decline of 7% compared to the same period last year (882 million cubic metres). Overall, sales suffered significantly from the decline in amounts sold to residential customers (-40 million cubic metres) due to the unusually mild November and December, as well as the absence of sales to wholesalers, which amounted to 32 million cubic metres in 2005.

In 2006 electricity and heat generation absorbed 433.3 cubic metres of gas (ASM’s portion), broken down as follows:

Report on Operations at 31 December 2006 42

Mincio plant 202.4 Cassano plant 228.2 Lamarmora – North plants 2.7 Total 433.3

Gas sales (in million cubic metres)

882 824 32 0 258 272

592 552

2005 2006

Domestic customers Industrial customers Wholesale customers

Figures do not include Plurigas.

Summary of revenues and costs Revenues from sales and the intra-group use of electricity and gas came to EUR 1.5 billion in 2006, an increase of 24% on the EUR 1.2 billion recorded in 2005. This improvement is mainly due to electricity sales made by Ergon, higher volumes of gas sold to the thermoelectric plants that belong to the power generation business and the higher cost of raw materials reflected in the sales prices.

EBITDA stood at EUR 52 million (vs. EUR 44 million in 2005), or 3.4% of revenues (3.6% in 2005).

EBITDA in the electricity sales business was positive, improving by EUR 8 million on 2005, from EUR 13.9 million to EUR 22 million (+59%) thanks to improved profitability in marketing and greater volumes sold by the sales companies Ergon and ASMEA. EBITDA in the gas business, however, declined by 1.5%, from EUR 30.6 million to EUR 30.1 million, mainly due to lower volumes sold as a result of the mild weather in November and December.

EBIT fell by EUR 3.9 million, chiefly due to greater provisions made for disputes arising from the possible application of AEEG resolutions 248/04 and 298/05 (price of gas) and for liabilities in respect of possible equalisation payments that may have to be made to some customers as regards their energy supply.

Report on Operations at 31 December 2006 43

Electricity and gas sales (EUR thousand)

2006 2005 Chg. % '06 - '05 Revenues 1,541,758 1,240,932 24.2% Operating costs 1,489,596 1,196,439 24.5% EBITDA 52,162 44,493 17.2% of which elec sales 22,017 13,882 58.6% of which gas sales 30,145 30,611 -1.5% Deprec, amort & provisions 16,163 4,625 249.5% EBIT 35,999 39,868 -9.7%

Investments Investments in tangible assets came to EUR 876,000 and mainly relate to the new headquarters of Tidonergie.

ELECTRICITY AND GAS GRIDS

Electricity

Regulatory and tariff framework AEEG’s resolution 297/05 approved the tariff options for distribution/sales (for the franchise market) applied by the ASM group for 2006. In addition to approving the basic and special tariff options, together with the additional domestic options, the regulator approved the inclusion of the ASM group’s proposals in the equalisation mechanisms for additional time-of-use domestic tariff options.

The authority also fully defined the criteria for calculating the payments relating to general equalisation. As regards the ASM group specifically, the first phase of the inquiry into company-specific equalisation was completed with the AEEG’s announcement of a provisional company-specific coefficient for the grids in the city of Brescia.

With resolution 28/06, the AEEG introduced the option for end customers who have installed equipment that generates electricity from renewable sources (e.g. photovoltaic panels), to benefit from net metering. The distributor is responsible for metering the electricity produced.

AEEG resolution 208/06 launched the proceedings for formulating measures governing electricity transmission, distribution and metering tariffs for the 2008-2011 regulatory period. This document provides for possible reform of the current system of distribution tariffs, in light of the market deregulation currently under way. This may involve simplifying the tariff mechanisms and abolishing the system based on tariff options, as well as adjusting the system of connection payments and fixed charges. As regards investment, the document highlights the need to introduce mechanisms to encourage the efficient development of electricity transmission, distribution and metering infrastructure, in keeping with the general objectives of developing and integrating the national electricity system.

AEEG resolution 292/06 introduced the mandatory requirement for all the 100 or so electricity distributors in

Report on Operations at 31 December 2006 44

Italy to install new electronic meters in all households and small companies, and issued directives on the installation of electronic meters for low-voltage withdrawal points enabled for remote management. The initiative aims to stimulate the development of competition in electricity sales ahead of 1 July 2007 when, as stipulated by European legislation, the liberalisation of the demand side of the market will be completed, which will enable households (as well as SMEs and high- and medium-voltage industrial customers) to freely choose their electricity supplier. In the document on electronic meters, the initiative set out by the AEEG, in line with resolution 292/06, is aimed primarily at discouraging distributors from avoiding or delaying replacement of the old mechanical meters with new electronic meters by electricity distribution companies in Italy, including the smallest. The ASM group has already made electronic meters available to its customers (see the “Investment” section later). With the assistance of the AEEG, ASM held an international workshop in March 2007, which was well attended.

In December 2006, a consultation document was published with the aim of defining technical rules for the connection of medium- and high-voltage power to the distribution grid. In this document, the AEEG aims to encourage distribution companies to adopt connection rules in line with standard rules (drafted by the Italian Electrotechnical Committee, based on the authority’s directives), thereby complying with the requirements for transparency and anti-discrimination.

In resolution 7/06, the AEEG sets out the specific primary energy-saving targets for 2006 that gas and electricity distributors subject to the requirements of ministerial decree of 20 July 2004 are required to meet. ASM SpA’s energy-saving target is 3,242 TOE. ASM received approval from the AEEG on all its projects. The savings that the authority requires ASM to make are achievable through its own resources.

Resolution 7/06 is part of the “white certificates” market, the exchange mechanism for energy efficiency certificates established in July 2004 by industry ministry decrees on efficiency and energy savings. The purpose of the mechanism is to reduce power consumption by forcing electricity and gas distributors to make savings.

The white certificates market was officially launched in early March 2006 by the GME (Italy's power market operator), the authority that manages the IT platform matching supply and demand. As an alternative to buying white certificates (each of which corresponds to a saving of one tonne oil equivalent, or TOE), distributors with more than 100,000 users may obtain them by directly carrying out energy-saving measures that benefit end customers. They may also buy them via bilateral contracts or on the market created by the GME. One of the GME’s other responsibilities is to manage the certificates register, a computerised archive that for each member company creates a record of both the number of certificates held and the transactions carried out through bilateral contracts and on the organised market.

Following the consultation document of 16 March 2006, the AEEG issued resolution 11/07, which amalgamates the consolidated law on unbundling (administration and accounting separation) required for companies that operate in the electricity and gas sectors. The measure, which specifically refers to the European directives on joint regulations for internal gas and electricity markets, introduces rules on administrative separation to ensure the independent management of infrastructure essential for liberalisation, by assigning the decision-making powers to individuals who effectively operate autonomously and with no conflicts of interest. Regulation on unbundling, as a general rule, aims to guarantee: - that there is no cross-subsidisation of assets, by means of a fair and transparent separation and

Report on Operations at 31 December 2006 45

allocation of economic and book values to the assets; - a clear, consistent and detailed flow of information on the financial and balance-sheet position of the companies operating in the electricity and gas sectors, particularly their cost structures. - objective management of grids and, more generally, the infrastructure managed under concession that is essential for liberalisation (transmission, distribution and metering in the electricity sector, and transport, distribution, metering, storage and regasification in the gas sector);

The requirements for administrative separation have been temporarily suspended for activities connected with power distribution and metering (as for the distribution and metering of gas). Final decisions relating to activities in these areas will be deferred until a later date. The requirements for accounting separation are effective from the financial year 2007. However, operators are permitted to request that the complete application of the new legislation be postponed for one year. ASM has requested such a postponement.

Operating performance ASM distributed 4.5 TWh of electricity on the grids (including amounts supplied to free customers by companies that are not part of the ASM group) as of 31 December 2006, compared to 4.2 TWh distributed in 2005.

Gas

Significant events during the period As stated in the section “The ASM group in 2006”, on 1 October 2006 ASM’s gas distribution division was officially transferred to the subsidiary CIGE. The transfer document was drawn up on 25 September 2006. CIGE launched a EUR 100 million capital increase with the residual sum being allocated to reserves. All the shares were issued in favour of ASM SpA.

The above transaction was part of the company’s drive to rationalise its gas distribution activities into the only ASM group company that, at the date on which Law 239/04 came into force, met two of the requirements deemed by the Letta decree to qualify companies for an extension of the transitional period. Under the Letta decree, direct concessions awarded before the law came into force were to lapse on 31 December 2005, and the transitional period could be extended if the concession holder had met certain requirements by 31 December 2004. These requirements could be applied cumulatively, allowing “virtuous” concession holders to extend the transitional period for up to five years. In August 2004, the Marzano law amended the provisions of the Letta decree, abolishing the accumulation rule and setting the final date of the transitional period at 31 December 2007. Law 51/06 further amended the provisions, setting the final date of the transitional period at 31 December 2007 (from an original date of 31 December 2005), but allowing any concession holder that met at least one of the requirements set out in paragraph 5 of the Letta decree to extend the period to 31 December 2009. To this is added the extra year that may be granted by local authorities for reasons of public interest pursuant to Law 239/04. As a result of these regulations, the expiry date for the local authority gas distribution concessions held by the ASM group (around 200) will now be 31 December 2010.

The transfer of the gas distribution business from ASM to CIGE covered 44 concessions, including those for 32 municipalities in the province of Brescia, three in the province of Bergamo, five in Cremona province and four in the province of Mantua. At 31 December 2005 around 240,000 users were connected to the grid in question, which covers a distance of 2,031 km. Added to the users and grids already held by CIGE, this makes a total of around 328,000 users connected to a 4,079 km grid.

Report on Operations at 31 December 2006 46

The project to rationalise distribution also includes the transfer of the relevant division from Valgas to CIGE, as detailed in the section “The ASM group in 2006”. The operation was concluded in December 2006 and became effective from 1 January 2007.

Regulatory and tariff framework AEEG resolution 57/06 of 21 March 2006 approved the tariffs presented by the ASM group’s gas distribution companies for the 2004-2005 thermal year, defined according to the criteria set out in resolution 122/05 (which amended and supplemented resolution 170/04). Therefore, pursuant to resolution 206/05, the distribution tariffs approved for the thermal year 2004-2005 were applied on a temporary basis until such time as approval is obtained for the tariffs relating to the thermal year 2005/2006. These tariffs are also subject to equalisation. AEEG resolution 258/06 of 29 November 2006 approved the distribution tariffs for the thermal years 2005-2006 and 2006-2007 for Sobergas SpA and ASVT SpA only. Note also that AEEG resolution 109/06 initiated a procedure to amend resolutions 170/04 (natural gas) and 173/04 (other gases) in respect of the rate of productivity gains for the thermal years subsequent to the first (in execution of the High Court’s rulings) and the tariff rules stipulated for the first year of operation and the next year.

Meanwhile, with resolution 170/06, the AEEG set the deadlines for submitting data necessary to determine distribution tariffs for the 2005-2006 and 2006-2007 thermal years. AEEG resolution 218/06 amended resolution 170/04 as a result of the consultation document mentioned above and in execution of the High Court’s rulings on updating the gas distribution revenue cap. Specifically it set out decreasing levels of productivity gains set by the price cap mechanism of 4.8%, 4.6% and 4.4% for the thermal years 2005-2006, 2006-2007 and 2007-2008, granting companies that have carried out mergers and acquisitions leading to a fall in the overall number of distribution companies a reduction in the rate of productivity gains required, on an increasing scale according to the size of the operation and how recently it took place.

In resolution 7/06, the AEEG (see the “regulatory and tariff framework” section under “electricity grids”) defined specific primary energy savings targets for 2006, including the responsibilities of gas distributors with obligations pursuant to the ministerial decree issued on 20 July 2004. ASM SpA’s objective is 2,055 TOE. ASM received approval from the AEEG on all its projects. The savings that the authority requires ASM to make are achievable through its own resources.

Law 51/06 was published in Official Gazette 49 of 28 February 2006. This law enacted a number of decree laws included in decree number 273 (the milleproroghe decree), as amended, which obtained final parliamentary approval on 9 February 2006. The provisions of law 51/06 include the extension of the transitional period for gas concessions to 31 December 2007, as per article 15, paragraph of legislative decree 164/00 (the Letta decree). This period will be automatically extended further, to 31 December 2009, if at least one of the conditions set out in article 15, paragraph 7 of legislative decree 164/00 is met. To this may be added an extra year as set out in the Marzano decree.

After producing a consultation document dated 22 February 2006, the AEEG issued resolution 50/06, to regulate the criteria for determining storage tariffs in the second regulatory period (1 April 2006-31 March 2010). The resolution provides for a single national tariff to facilitate the matching of supply and demand, including in the case of the most expensive services, an equalisation mechanism to enable companies to recover revenues (to provide adequate incentives for the upgrade of existing infrastructure and the development of new storage facilities), the introduction of peak capacity allocations and the change in the method for allocating supply point

Report on Operations at 31 December 2006 47

availability, with the aim of encouraging companies to act more in accordance with customers’ requirements, especially in the domestic sector. As shown in the section on the electricity grids regulatory framework, the AEEG issued resolution 11/07, a set of integrated rules on unbundling (administrative and accounting separation) for companies that operate in the electricity and gas sectors. For further details please see the section in question.

With regard to safety, AEEG resolution 87/06 updated the 2004 regulations (resolution 40/04). The aim was to further simplify the procedures for checking documentation. The distribution company will activate the gas supply even if the documentation sent by the end customer is incomplete, provided that it has received the gas contractor’s declaration that the equipment has been installed according to the regulations.

AEEG resolution 108/06 introduced the gas grid code containing rules for access to and provision of the gas distribution service. Distributors are legally obliged to abide by this code in supplying gas distribution services in a neutral and equitable way to gas sales companies and wholesalers who use their grids. The gas grid code includes clauses relating to services carried out by distribution companies at the request of interested parties, such as the commencement, termination or interruption of supply; procedures for billing and metering the quantities of gas that pass through redelivery points, as well as regulating the procedures for allocating to, and communicating with transporters.

ASM’s gas distribution companies complied with the grid code by the deadline – with some minimal modifications resulting from the particular characteristics of the group, which are still awaiting approval.

The grid code for gas transport companies was drawn up based on the provisions of AEEG resolution 137/02. Retragas submitted its grid code to the AEEG for approval in February 2004. Pending this approval, Retragas adopted access conditions that complied with the above resolution.

Following the publication of consultation document 14/06 on 6 June 2006, the AEEG initiated a preliminary consultation process on metering activities in the gas transport sector as it relates to the billing of network balancing and transport charges. This will be followed by a second phase on metering in the distribution sector in respect of billing for the local transport service on the distribution grids, allocations to shared city gates and billing to end clients.

With regard to transport tariffs, on 28 June 2006 the AEEG circulated a consultation document on tariffs for the entry points to national gas pipelines connected to countries outside Italy for periods of less than one year. The document also contains a review of the mechanism for updating the costs incurred by the transport company in the purchase of gas to supply the compression plants and for grid leakage.

Resolution 171/06 approved gas transport and balancing charges calculated pursuant to resolution 166/05, while the earlier resolution 170/06 approved LNG regasification charges.

Following the consultation document of 26/9, the AEEG published resolution 294/06 which set the communication standards to be adopted by gas sector operators. From 1 July 2007 communications between distributors and sellers relating to requests for commercial services or to changes of supplier must be sent by certified email (or via application-to-application or web application, provided that these instruments are available to all distribution service users in a non-discriminatory way, from 1 October 2008).

Also in the matter of communications between distributors and sellers, AEEG resolution 17/07 set out the standard withdrawal profiles at national level, according to which, in the absence of a meter reading, the distributor must estimate the volumes to be charged to the sales company.

On 4 August the ministry for economic development issued two decrees, which came into force on 22 August, as part of its efforts to deal with a possible gas emergency in the winter.

Report on Operations at 31 December 2006 48

The first decree regulates the obligations of owners of transport capacity and sales companies that supply industrial customers directly connected to the transport grid during the winter. The former are obliged to maximise imports at any entry point of the national transport grid connected with other countries in accordance with the maximum volumes allowed by import contracts. Sales companies will have to agree with their clients directly connected to the transport grid to provide uninterrupted supply that enables them to obtain, if severe weather procedures need to be applied, guaranteed interruption at the respective redelivery points of not less than 10% of the average quantity supplied.

The second decree governs the use of gas stocks by companies with allocated storage space: these companies will have to maximise gas storage until they fill up the space allocated to them, bound only by the system’s physical restrictions and related management issues set by the storage companies concerned. As a result, resolution 192/06 of 7 August 2006 was issued, in which for the thermal year 2006-2007 the AEEG cut by 90% transport charges for withdrawal from the national grid and at the redelivery points with clients directly connected to the transport grid with contracts containing interruptibility clauses or equipped with a dual-fuel generator (and, in this case, industrial withdrawal contracts). The reduction applied to these delivery points brings the overall average reduction in transport charges to nearly 50%.

The ministry for economic development's decree of 29 September 2006 stated that at the start of the 2006- 2007 thermal year, the wholesale provider of the last instance must step in to supply, directly or indirectly, gas to customers consuming less than 200,000 cubic metres per year, for whom transport capacity had not been requested and allocated at the beginning of the thermal year according to the grid code procedures.

On 24 October 2006 the AEEG published a consultation document on the subject of checking commercial and safety quality data. The document contains proposals to supplement and amend the regulations on verifying distribution, metering and gas sales quality data.

As regards the quality of service in the gas transport sector, in which Retragas operates, on 19 December 2006 the AEEG published a consultation document to propose additions to the measures already set out in the transport grid codes, aimed at improving transport service quality, standardising minimum quality levels, and increasing protection for service users and end customers connected to the transport networks.

Finally, AEEG resolution 20/06 approved the rules for managing the gas storage service and for access to reserves by users, in view of the transition from a monopoly to an open and competitive market.

Operating performance The gas supplied via the ASM group’s distribution grids in 2006 totalled 864 million cubic metres (of which 133 million cubic metres were distributed to users connected to the Retragas grid), a decline of almost 6% versus the 917 million cubic metres recorded in 2005. The gas transported by Retragas totalled 384 million cubic metres (405 million cubic metres in 2005). 509 customers are connected to the Retragas grid, which has 158 redelivery points. The Retragas grid is 359.2 km in length (compared with 325.9 km in 2005).

Summary of revenues and costs Revenues were in line with 2005, at EUR 223 million. The positive performance of electricity distribution revenues (which do not include revenues from company- specific equalisation, since full details of demand are not yet available) was almost completely offset by a drop in revenues from the gas grids due to a reduction in tariffs by the AEEG, and to a fall in volumes supplied following the unusually mild weather in late 2006.

EBITDA from the electricity and gas grids fell by around EUR 2 million (3%) versus 2005, to just over EUR 65 million.

Report on Operations at 31 December 2006 49

As a percentage of revenues, it fell from 30% in 2005 to 29%. As stated above, the contraction was largely due to the gas distribution business, where EBITDA fell 17%, from EUR 34 million to EUR 28.3 million.

Conversely, EBITDA from electricity distribution rose by 11%, from EUR 33.5 million to EUR 37.1 million, thanks to a rise in the metering component of the distribution tariff.

EBIT stood at about EUR 28 million, up 10% on the almost EUR 26 million generated in 2005.

Electricity and gas grids (EUR thousand)

2006 2005 Chg. % '06 - '05 Revenues 223,123 222,362 0.3% Operating costs 157,691 154,883 1.8% EBITDA 65,432 67,479 -3.0% of which elec grids 37,100 33,464 10.9% of which gas grids 28,332 34,015 -16.7% Deprec, amort & provisions 37,051 41,627 -11.0% EBIT 28,381 25,852 9.8%

The group had 223,781 electricity customers in 2006, compared with 220,901 the previous year. It had 391,961 gas customers last year, up from 386,735 in 2005.

Investments Investments in tangible assets totalled more than EUR 37 million at 31 December 2006, compared to EUR 40 million in 2005. Work mainly related to grid development and upgrades, including the installation of electronic meters. This project will generate significant economic benefits, since the new, technologically advanced equipment will enable the group to remotely control meters and provide other services to its customers. The replacement of meters is proceeding on schedule: at end-December 2006 around 206,000 had been installed, out of a planned 231,000.

As stated above, the AEEG has ruled that electricity distributors must replace traditional meters belonging to low-voltage customers with electronic meters. This obligation will be extended gradually from 2008, and 95% of meters must be replaced by 2011. The project has also been implemented at national level by ENEL Distribuzione and ACEA Roma, while AEM Milano and AEM Torino will shortly launch their own initiatives.

DISTRICT HEATING Events during the period In May, the first sector conference on the plan to upgrade the Lamarmora cogeneration plant was held at the industry ministry. Under the plan, the current cogeneration groups 1 and 2 (total heat capacity of 171 MWt and around 60 MWe) will be replaced with a new CCGT group with heat capacity of 250 MWt and

Report on Operations at 31 December 2006 50

power-generating capacity of 330 MWe. The new plant, which boasts innovative systems to combat pollution, will significantly cut emissions.

The project is part of the programme to develop and extend the district heating service in the city of Brescia and neighbouring areas, which will see the connection of around 8.5 million cubic metres of new building volume over the next 14 years.

In Bergamo, works to lay pipes continued according to plan. The project – scheduled for completion in 2015 – aims to extend the service to around 30% of buildings able to receive district heating (10 million cubic metres served, with a network of double pipes covering about 100 kilometres). In the last quarter of 2006 a further 1.2 km of pipes were laid and buildings with a total volume of 370,000 cubic metres connected. At 31 December 2006 the network of double pipes was more than 8.4 km in length and building volume connected to it totalled more than 850,000 cubic metres. Commercial activity continued apace. At end-2006 the building volume acquired, already served or waiting to be connected stood at 1.1 million cubic metres. The upgrade of the new Goltara cogeneration plant in the south-west of Bergamo is awaiting completion. In the meantime, work has finished on the heating plant in the Piscine Italcementi sports centre, which came into operation in early November and is supplying the north-west area of the city.

In July 2006, ASM and Pessina Costruzioni were awarded the concession to design, build and manage a district heating system in the city of Novara. An agreement for the 40-year concession was signed in November. The project will see the construction of a heat distribution network, with the laying of 30 km of double pipes and the building of a cogeneration plant with a thermal capacity of around 80 MW and a power generating capacity of 18 MW. The first phase of the project will be completed in 2010, and will serve over 115 GWht per year to a total building volume of 3.3 million.

Following the planned merger between ASM and AEM Milano, the district heating service in Milan and its densely populated suburbs will be expanded, using highly efficient WTE plants.

Operating performance In 2006 1,103 GWh of heat were sold, compared with 1,159 GWh the previous year. The 5% fall in volumes sold was due to lower demand from customers in the wake of the mild weather that occurred towards the end of 2006.

The cogeneration plants belonging to the district heating business generated 377 GWh of electricity, a 9% decline versus 2005 due to the rescheduling of production following a rise in the cost of the raw material used.

Report on Operations at 31 December 2006 51

District heating (in GWh thermal power)

1.159 1.103

2005 2006

District heating (million cubic metres connected)

38,3 36,8 0.8 0.4

36.5 37.4

2005 2006

Cubic metres connected in Brescia Cubic metres connected in Bergamo

The increase in the number of new and old buildings connected continued rapidly in both Brescia and Bergamo, with 37.4 million cubic metres connected in Brescia and 0.8 million cubic metres connected in Bergamo.

Report on Operations at 31 December 2006 52

Electricity produced by cogeneration plants (in GWh electricity)

415 377

2005 2006

Summary of revenues and costs

In 2006 revenues from district heating totalled EUR 117 million, an increase of around EUR 10 million (9%) versus 2005.

EBITDA stood at over EUR 45 million (39% of revenues), from around EUR 40 million (37%) in 2005. The improvement was due to the rise in the building volume connected and an increase in unit sale prices for heat and those for electricity produced by the cogeneration plants, despite a reduction in volumes sold.

EBIT totalled EUR 29 million at 31 December, an increase of 16% compared with the previous year's figure of EUR 25 million.

District heating (EUR thousand)

2006 2005 Chg. % '06 - '05 Revenues 117,002 106,945 9.4% Operating costs 71,373 67,297 6.1% EBITDA 45,629 39,648 15.1% Deprec, amort & provisions 16,096 14,285 12.7% EBIT 29,533 25,363 16.4%

Revenues include electricity produced by cogeneration plants and sold to the electricity generation business (EUR 28 million at 31.12.06). Operating costs include the purchase of heat generated by the WTE plant, which is part of the electricity generation business (EUR 21 million at 31.12.05).

District cooling

Report on Operations at 31 December 2006 53

In 2006 the north buildings of the University of Brescia joined Brescia hospital in being connected to the district cooling network. Some 490 million cubic metres were connected to the network in 2006, compared with 465 million cubic metres in 2005. In 2006 21.3 million kwh were supplied.

Investments Investments in tangible assets totalled almost EUR 18 million in 2006, compared with around EUR 16 million in 2005, and mainly concerned work on cooling plants and the district heating system for Bergamo West.

INTEGRATED WATER SERVICES

Significant events during the period In the third quarter of 2006 Lumetec, a company owned by the Lumezzane local authority (BS), sold its integrated water services arm to ASVT. Water sales are carried out by ASMEA.

As stated in the section “The ASM group in 2006”, in December 2006 the agreement for the transfer to BAS SII of part of ASM's integrated water service operations in the province of Bergamo was signed. The operation became effective from 1 January 2007.

The transfer represents the natural completion of a transfer operation carried out in 2003 by the former Bergamo Ambiente e Servizi SpA (merged with ASM in 2005), which transferred to BAS SII most of its receivables, payables and water service concessions relating to the water business for a significant part of the province of Bergamo. At the time, BAS SpA (now ASM) retained management software licences, vehicles, equipment, inventories and some staff that belonged wholly or mainly to the water services business.

As regards larger-scale work on plants, at the Verziano water treatment plant work is nearing completion on the construction of the new lifting and pre-treatment facility and a 24,000 cubic metre equalisation tank to store pre-treated sewage, which will be completely underground. In November 2006 the tertiary treatment “line A” facility came into operation. This consists of a microfiltration and ultrafiltration block downstream of the secondary sedimentation tank, which will improve the quality of the effluent produced by the new facility. The Verziano plant is expected to start receiving waste from Valtrompia by 2008.

Regulatory and tariff framework On 16 December 2005, the ATO (optimal territorial area) conference for the province of Brescia discussed the division of the ATO into three homogeneous areas, which are broadly equivalent to the province's main water catchment areas: the Lake Garda, central and western areas. ASM will continue to operate in the areas where it is already present (a legal requirement) and may bid for the concessions mentioned above. The size of these areas in terms of population served is as follows (figures at 31 December 2005): • The ASM group 627,247 • Garda area: 100,644 • Central area: 102,669 • Western area: 351,794 • Total 1,182,354

Report on Operations at 31 December 2006 54

On 14 June 2006 the ATO conference approved its ATO plan, establishing that the programme of works and their scheduling, in terms of objectives, priorities and the availability of funds, would direct the execution of works. It deferred the identification of specific projects to an annual/multi-year investment plan. The tariff (and any changes made to it over the period of the ATO plan) is the basic tariff to be applied annually in the ATO, plus any changes necessary to ensure that lower charges can be applied to essential domestic consumption and other specific categories (according to pre-set income bands), which will be partly offset by other types of consumption. Also on 14 June 2006, the ATO conference acknowledged that ASM SpA manages the entire integrated water service, or segments of it, in over 40 comuni in the province, and gave its approval for this to continue, pursuant to current regulations (regime di salvaguardia).

With its resolution of 21 December 2006, the ATO conference identified the most important measures and works to carry out in the period 2007-2009, and decided on how to allocate the resources for investment raised from the application of the water service tariff in accordance with the various types of work required for the water sector and the sewerage/treatment sector. It also decided on the resources to be allocated to each operator, given that numerous companies operate in each homogeneous area. The core committee (Comitato Ristretto) is responsible for defining the work to be carried out and for deciding on timescales and procedures. At the same session on 21 December 2006, the ATO conference approved the tariffs for 2007 in accordance with consumption brackets and the various types of usage. The tariffs for 2007 are valid from 1 January 2007, and are applied to comuni in which an integrated water service concession has been awarded, or where it has been decided that the current management will continue pursuant to article 113 c. 15 bis of legislative decree 267/00 as amended. To encourage further tariff discounts for particular user categories, the ATO conference agreed to give comuni the option to apply a surcharge of 1 euro to the fixed tariff component for domestic users, to raise funds to apply such discounts to these categories.

In early February 2006, the province of Bergamo’s ATO core committee approved a business plan, which will lead to the awarding of the water services concession by a company set up for that purpose by all the comuni in the Bergamo ATO. On 1 August 2006, the contract for the supply of the service was signed by the province and Uniacque, a company set up by the comuni. Owing to its long-established operating and management capabilities in the area, BAS SII will be responsible under current regulations (regime di salvaguardia) for the supply of the service that falls under its remit. BAS SII operates in 50 municipalities in the Bergamo area, including the city of Bergamo. It serves 51,759 customers, equivalent to 245,550 residents.

On 29 March 2006, the government approved the legislative decree on the environment, implementing law 308/04. Known as the “Environmental Code”, it fully implements EU directive 2000/60/EC in the water sector. The decree provides for the replacement of the different river basin authorities with a merged entity incorporating them into the district river basin authorities, and for the designation of a district water catchment plan with the key aim of eliminating overlap between the different sector plans. The establishment of the ATO authority, and of a supervisory authority for water resources and waste to ensure that sector regulations and standards are respected, are also notable developments in this area. The Code was then amended a number of times over the next few months. First, 17 ministerial decrees implementing parts of the Code were declared legally unenforceable (as the Court of Auditors had failed to carry out a priori control). These included decrees relating to the creation of a supervisory authority on water resources and waste; technical standards for the re-use of waste water, and regulations governing the procedures and timeframes for awarding integrated water services contracts.

Report on Operations at 31 December 2006 55

On 31 August 2006, the Italian government approved the first decree to amend the Code, deferring the start of operations of the river basin authorities (pending the creation of water districts and the issue of a subsequent amending decree) and abolishing the above-mentioned supervisory authority.

Law 248 of 4 August 2006, which enacted, with amendments, legislative decree 223 (the Bersani decree) was published in the ordinary supplement to Official Gazette 186 of 11 August 2006. On 30 June 2006, the Italian government approved, at the same time as a decree on liberalisation, a draft law providing for the adoption of one or more legislative decrees reorganising the regulation of local public services, within one year of law 308/04 coming into force. As can be inferred from the government’s draft law, integrated water services are not included. It specifies that the key principles and criteria contained in the above-mentioned decrees (the award of new concessions and the renewal of existing concessions for running local public services by public tender) do not apply to water services.

Regional law 18/2006, amending regional law 26/2003 on the regulations governing local services of general economic interest (waste, electricity and gas, underground infrastructure, water resources) was published in the Lombardy Region Official Bulletin 32 of 11 August 2006. The law ratified the principle that the supervisory authority for water services must establish a service at ATO level, with mandatory separation of the management of grids/plants and the supply of services. Grid/plant management is to be assigned to a public limited company (one for each ATO), which will be responsible for management and investment, while the supply of services (including maintenance of the grids/plants) will be awarded via public tender. The tariff will be used both to pay for the service and to finance investment. Note that the transitional and final provisions of article 5, paragraph 9 of regional law 18/2006 apply to Brescia and Bergamo provinces. These stipulate that, notwithstanding the effects of the tenders already awarded by the ATOs, the requirement to separate the management from the supply of the service does not apply to authorities that on 10 July 2006 had already approved an ATO plan and authorised the award of a tender for integrated management, even if for a later date. This measure safeguards the importance of work initiated and continued in the last few years by the Brescia and Bergamo ATOs.

On 6 October 2006, the government allowed an appeal against the water section of regional decree 18/2006, ruling that the provision maintaining the separation between the management and supply of the water service contravenes the principle of unity shared nationally and at community level.

Operating performance On a like-for-like basis, volumes of water sold fell by around 0.9 million cubic metres versus 2005, from 86.7 million cubic metres to 85.8 cubic metres. This was mainly due to reductions in consumption by some major users.

Summary of revenues and costs Revenues totalled EUR 72 million, a rise of over EUR 2 million compared with 2005.

EBITDA came in at EUR 15.5 million (21% of revenues), versus EUR 17 million (25%) in 2005. This drop of 11% was due chiefly to an increase in fixed costs, particularly for maintenance of plants acquired recently from local authorities.

Report on Operations at 31 December 2006 56

EBIT declined by EUR 1.5 million, from EUR 7 million to EUR 5.5 million.

Integrated water services (EUR thousand)

2006 2005 Chg. % '06 - '05 Revenues 72,433 70,128 3.3% Operating costs 56,918 52,626 8.2% EBITDA 15,515 17,502 -11.4% Deprec, amort & provisions 10,029 10,538 -4.8% EBIT 5,486 6,964 -21.2%

Investments Investments in tangible assets totalled EUR 21 million in 2006, compared with EUR 22 million the previous year. The work related mainly to normal grid and plant development, and to the upgrade of the Verziano treatment plant (equalisation tank).

ENVIRONMENTAL SERVICES

Significant events during the period On 12 May 2006, Distrasm Srl, a wholly-owned subsidiary of ASM, became a company limited by shares. Its name was changed to Montichiariambiente SpA (80%: ASM; 20% Montichiari local authority). The company requested a statement of environmental compatibility from the Lombardy Region, based on the environmental impact analysis carried out in relation to the expansion of the landfill for non-hazardous waste at Montichiari. The project involves the construction of a landfill with capacity of around 1,990,000 cubic metres in a sand and gravel pit nearing the end of its useful life. As stated in the section “The ASM group in 2006”, in December 2006 the group completed the transfer of Valgas’ environmental services division to Aprica SpA, with effect from 1 January 2007.

Regulatory framework Law 248 of 2 December 2005 postponed the introduction of new criteria for acceptance of waste at landfills by a year, to 1 January 2007. This means that the landfills already approved as of 27 March 2003 may receive waste, as authorised originally, until 31 December 2006. This period was then extended by Italy’s 2007 budget law to 31 December 2007, although it does not apply to second category type A (formerly 2A) landfills or to landfills for inert waste that receive cement containing asbestos (article 1, paragraph 184, point c) of the above law).

On 29 March 2006, the Italian government approved the environmental legislative decree 152/2006, implementing law 308/04. This decree represents a consolidated law or “Environmental Code", which co- ordinates sector regulations on soil protection, water resources, waste and air quality. In particular, with regard to the regulations on waste, the Code, on coming into force, superseded the provisions of the Ronchi decree, except for the implementing measures, which continue to apply until the

Report on Operations at 31 December 2006 57

date the implementing measures for the new regulations come into force. In addition, the Code establishes the organisation of integrated management of municipal waste based on ATOs to be designated at regional level via Regional Plans. In each ATO an area authority will be established, with responsibility for organising, commissioning via a public tender process, and monitoring, on a regional scale, the integrated management of municipal waste.

In the second quarter of 2006, 17 ministerial decrees implementing many new areas of the Code were found to be legally unenforceable (due to the Court of Auditors failing to carry out a prior control), and therefore the validity of the implementing measures of the Ronchi decree (legislative decree 22/1977) was restored. On 31 August, the government approved the first decree amending the Code, which meant it had to review legislative decree 152/2006, starting from the laws and implementing regulations relating to waste. Some of the measures that were immediately operational include the abolition of the water supervisory authority and the extension to 12 months of the period within which CONAI must amend its articles of association to include the principles set out in the law. Legislative decree 284/2006 approved the first amendments and additions to the Environmental Code. Following the repeal of articles 159, 160 and 207 of legislative decree 152/2006, the national waste monitoring office was reinstated.

With decree 186 of 5 April 2006, the environment ministry reformulated the ministerial decree of 5 February 1998, which established the rules for collecting non-hazardous waste using the simplified procedure. The amendments concerned, in particular, storage (establishing the maximum volumes of waste that can be kept at production or recovery facilities); the amount of waste allowed under the simplified procedures for recovery; and sampling, analysis and percolation tests.

Legislative decree 300/2006 was postponed until the date of new enacting legislation for legislative decree 151/2005, but in any event not beyond 30 June 2007, the date on which the system for collecting and recovering electrical and electronic equipment (RAEE) is due to be launched.

Operating performance Some 311,000 tonnes of waste were disposed of at the Montichiari landfill in 2006, compared with a total of 400,000 tonnes disposed of in 2005 (note that this figure included 86,000 tonnes at the Castenedolo landfill, which closed on 1 July 2005, having used up its authorised capacity). The volumes of waste delivered to the WTE plant are shown under the power generation business.

Waste disposed of at ASM group landfill sites (in thousand tonnes)

Report on Operations at 31 December 2006 58

400

86 311 0

314 311

Montichiari2005 landfill Castenedolo 2006landfill

Summary of revenues and costs Revenues increased by 7% versus 2005, from EUR 125 million to over EUR 133 million, chiefly because of a rise in volumes and prices of waste delivered to the WTE plant (pass-through revenues) and an increase in revenues from separated waste collection.

EBITDA came in at EUR 26.2 million, or around 20% of revenues. This was a slight decline versus 2005, when the figure stood at EUR 26.4 million (21% of revenues). The positive margins generated by the Montichiari landfill and the improved results from waste collection offset the negative impact of the closure of the Castenedolo site on 1 July 2005.

Environmental services (EUR thousand)

2006 2005 Chg. % '06 - '05 Revenues 133,379 125,097 6.6% Operating costs 107,146 98,727 8.5% EBITDA 26,233 26,370 -0.5% Deprec, amort & provisions 14,997 18,671 -19.7% EBIT 11,236 7,699 45.9%

Operating costs include charges for waste disposal at the WTE plant (EUR 38 million at 31.12.06), which the electricity generation business carries out for the environmental services business. The revenues booked for the environmental services business are equal to the costs incurred (pass-through revenues).

Investments Investments in tangible assets totalled over EUR 6 million in 2006 (EUR 11 million in 2005) and related

Report on Operations at 31 December 2006 59

essentially to new street waste solids separation plants and the purchase of waste collection vehicles and equipment.

OTHER SERVICES

Significant events during the period For details on the installation of electronic meters, please see the section on investment under the heading "Electricity and gas grids".

Following a two-year trial period (2005-2006) in a sample area of the city of Brescia on ten power transformer rooms involving around 200 pilot users, the broadband telecommunications service that uses the electricity grid became operational in two areas of the city from the end of 2006. The system, known as PLC (Power Line Communication), uses technology that enables a telecommunications access network to be created and managed using low- and medium-voltage electricity grids as a means of transmission. The use of this technology means that telecommunications services can be immediately obtained from any electrical socket in customers’ homes and offices, without the need for any additional works or changes to be made to the electricity systems within buildings.

The decision to use the most advanced PLC technology is part of the group’s strategy to continuously develop its distribution grids (electricity, district heating and water supply) using a broadband connection of over 700 power transformer units.

Broadband connection will mean that ASM will be able to continually monitor power distribution services in real time, significantly improving service levels. PLC technology increases the potential of the power distribution grid, enabling it to be used as a means of delivering telecommunications services, while at the same time improving monitoring and management (by taking remote control of the grid up to the final service point – the customer’s point of supply – thereby exploiting its potential to be used for all utility grids, whether gas, water, heat, etc).

At the same time, it means that ASM can fully exploit the infrastructure already in place across the country, which constitutes a viable alternative in the broadband access market in the “last mile” and the “last metre”. Moreover, it is a way to bridge the digital divide between urban and rural areas, which are not well-served by internet services.

The project involves a total of around 700 power rooms, over 9,000 district heating meters, 2,000 meters for the supply of other services (gas, water) and the connection of 12,000 users to internet services.

The range of services made available includes connection to broadband internet under a number of commercially competitive contracts. The company plans to expand shortly into integrated telephony services (using VoIP technology) and over the longer term, will offer various other packages, such as home automation and multi-media video-on-demand services.

The planned timescale in which to obtain complete coverage of the Brescia municipality and achieve the above-mentioned objectives is 36 months. The first phase of the project is expected to be completed by the end of 2009. The services discussed above are undertaken by ASM’s subsidiary, Selene.

Summary of revenues and costs

Report on Operations at 31 December 2006 60

“Other services” mainly includes activities carried out by the group in engineering, telecommunications/IT/customer relationship management, heat management and facility management. Specifically, telecoms/IT services and customer relationship management are predominantly the responsibility of Selene.

EBITDA in 2006 was EUR 7.8 million, compared with EUR 12 million in 2005. EBITDA for information and communication technology came to EUR 6.1 million (versus EUR 5.4 million in 2005), while heat management and engineering services generated an EBITDA figure of EUR 6 million, compared to EUR 5.4 million in 2005.

The difference is largely attributable to the consolidation of group accounts and relates to the portion of consolidation differences and IAS adjustments that cannot be allocated directly to any other business.

MAIN SUBSIDIARIES

Endesa Italia (ASM’s stake: 20%, valued at equity in the ASM group’s accounts)

In August 2006, the Spanish regulator Comisiòn Nacional de Energia authorised German company E.ON’s takeover of Endesa, subject to specific conditions, a deal that would make E.ON Europe’s leading energy player and give it indirect control, via Endesa Europa, of Endesa Italia, Italy’s third-largest power generation company.

In early 2007, this led to important new developments, as described in the paragraph “Significant events since 31 December 2006”.

With regard to the more industrial partnership between ASM and Endesa, note that in March 2006, Ergosud (formerly Eurosviluppo Elettrica, which is owned 50-50 by ASM and Endesa Europa) was awarded the turnkey contract to build the 800 MW gas-fired combined cycle cogeneration plant in Scandale, near Crotone in Calabria. It is scheduled to become operational in early 2008.

The significant results achieved by Endesa Italia in 2006 (see table below) are positively reflected in the ASM group’s financial results. Endesa Italia’s contribution to ASM’s consolidated pre-tax profit came to EUR 116 million (around EUR 89 million in 2005).

In 2006, ASM received dividends for 2005 of EUR 35.2 million. Dividends received in the previous year came to EUR 20.4 million.

Endesa Italia group – key profit and loss account and balance sheet figures (in accordance with international accounting standards IAS/IFRS)

(EUR million)

2006 2005 Chg. '06 - '05 Revenues 2,816 2,292 22.9% EBITDA 914 694 31.7% Net profit 589 443 33.0% Shareholders' equity 3,300 2,860 440 Net debt 747 815 -68

Report on Operations at 31 December 2006 61

Endesa Italia group – key operating figures

UoM 2006 2005 Chg. '06 - '05 Installed capacity MW 6,614 6,590 0.4% Net electricity generated TWh 25.1 23.3 7.7% Headcount n. 1,010 1,033 -2.2%

Trentino Servizi group (ASM Brescia: 14.48%) In 2006, adjustments were made to the Trentino Servizi group’s organisational structure following the integration of the power distribution grid from ENEL in the Trento province acquired by its subsidiary SET Srl. Initiatives to consolidate the public services sector in the Trento province, centred on the Trentino Servizi group, continue, and are expected to bear fruit during 2007.

In 2006, ASM received dividends relating to 2005 of EUR 0.91 million (EUR 0.78 million in 2005).

Report on Operations at 31 December 2006 62

ASM SpA

ASM in figures

Key figures (EUR thousand)

2006 2005

Revenues 1,234,767 100% 1,133,753 100% [1] EBITDA 284,487 23.0% 246,838 21.8% [2] EBIT 176,779 14.3% 151,787 13.4% Net profit 137,352 11.1% 129,622 11.4%

[1] Revenues – operating costs – personnel costs [2] EBITDA – depreciation and amortisation/provisions/valuation of other assets at fair value

Balance sheet data (EUR 000)

2006 2005 Equity 1,313,975 1,258,265 Net debt [3] 617,768 688,114 Net invested capital [4] 1,931,743 1,946,379 Cash-flow [5] 245,060 224,673 Investimenti 80,623 108,225 [3] Financial payables + Securities and cash [4] Non-current assets + working capital + other medium-/long-term assets and liabilities – staff severance fund – provisions for risks and future liabilities [5] Profit + depreciation and amortisation/provisions/valuation of other assets at fair value

Financial indicators 2006 2005 ROI [6] 9.2% 7.8% ROE [7] 10.5% 10.3% EBITDA/Revenues 23.0% 21.8% ROS [8] 14.3% 13.4% Interest cover [9] 7.3 6.8 Net debt/Equity 47.0% 54.7% Net debt/EBITDA 2.17 2.79

[6] EBIT/Net invested capital [7] Profit/Equity [8] EBIT/Revenues [9] EBITDA/financial charges Summary of the group’s financial position The profit and loss account, balance sheet and cash flow statements, and related explanatory comments,

Report on Operations at 31 December 2006 63

set out below, were prepared in accordance with IAS/IFRS. Figures for the period ending 31 December 2005, which were prepared and published under Italian accounting principles when originally released, have been restated in accordance with IAS/IFRS for comparison purposes.

In compliance with the Consob communication dated 28 July 2006, the first column of the summary profit and loss account and balance sheet contains a reference to the related comments in the notes to the accounts, where further detail is provided.

SUMMARY PROFIT AND LOSS ACCOUNT (EUR thousand)

Ref 2006 2005 Var. '06 - '05

assoluta %

3.1;3.2 Revenues 1,234,767 1,133,753 101,014 8.9%

of which relating to affiliates 745,876 731,617 14,259 1.9% 3.3;3.4; 3.6 Operating costs 860,120 798,466 61,654 7.7%

of which relating to affiliates 344,934 308,289 36,645 11.9%

Value added 374,647 335,287 39,360 11.7%

3.5 Personnel costs 90,160 88,449 1,711 1.9%

of which relating to affiliates -1,569 -1,233 -336 27.3%

EBITDA (1) 284,487 246,838 37,649 15.3% 3.7;3.8; 3.9 Depreciation, amortisation, write-downs and provisions 107,708 95,051 12,657 13.3%

EBIT (2) 176,779 151,787 24,992 16.5%

3.10;3.11 Financial income and charges -32,434 -515 -31,919

of which relating to affiliates -1,067 -910 -157 17.3%

3.12 Income and charges from equity investments 65,851 43,274 22,577 52.2%

of which relating to affiliates 65,568 43,542 22,026 50.6%

Pre-tax profit 210,196 194,546 15,650 8.0%

3.13 Taxes -72,844 -64,924 -7,920 12.2%

Net profit 137,352 129,622 7,730 6.0%

(1) EBITDA is an alternative performance indicator not contained in IAS/IFRS accounting standards. ASM uses this indicator to assess the company’s operating performance for presentations to management and analysts and investors. EBITDA refers to earnings before interest, tax, depreciation, amortisation and write-downs. It is calculated by subtracting labour costs from value added.

Report on Operations at 31 December 2006 64

(2) EBIT (like EBITDA) is an alternative performance indicator used to measure the group’s operating performance in both internal and external reports, and refers to the company’s profitability before tax and interest charges on financial investments and equity investments. It is calculated by subtracting depreciation, amortisation, provisions and write-downs from EBITDA.

Revenues for 2006 were EUR 1.2 billion, an increase of EUR 101 million (9%) compared with 2005, chiefly due to the higher prices of electricity and gas sold (both on the power exchange and to end customers) and, to a lesser extent, to lower volumes.

Operating costs (excluding personnel costs, depreciation, amortisation, write-downs and provisions) rose from EUR 798 million in 2005 to EUR 860 million, mainly due to higher volumes of electricity generated and higher raw materials costs.

Value added rose by EUR 39 million from EUR 335 million to more than EUR 374 million, while personnel costs increased by 2% on 2005 to EUR 90 million. These costs accounted for 24% of value added, an increase of 26% on the previous year.

EBITDA stood at EUR 284 million, an improvement of nearly EUR 39 million (15%) on the previous year. The increase was largely attributable to improved profitability in the power generation business. The EBITDA margin rose from almost 22% in 2005 to 23% in 2006.

“Depreciation, amortisation, write-downs, provisions and valuation of other assets” totalled EUR 108 million at 31 December 2006, compared with EUR 95 million in the previous year. The increase was mainly because of provisions made for disputes relating to the possible application of AEEG resolutions 248/04 and 298/05, in relation to the price of gas, and equalisation payments that may have to be made to customers in respect of their energy supply.

EBIT rose by EUR 25 million compared with 2005, from EUR 152 million to EUR 177 million (+16%). The EBIT margin was 14%, compared with 13% in 2005.

The total of financial income and charges at 31 December 2006 was EUR -32 million, compared with EUR - 0.7 million in 2005. The marked deterioration compared with the previous year was mainly due to income of EUR 25.5 million recorded in the first quarter of 2005 following the early termination of contracts relating to swap operations and caps on the fixed-rate bond issued by ASM in May 2004. Stripping out that income, total financial income and charges worsened by around EUR 6 million on 2005.

The balance of income and expenses in relation to equity investments stood at around EUR 66 million, an increase of EUR 22 million, thanks chiefly to dividends from Endesa Italia (+ EUR 14.8 million on 2005)

Net profit for the year ending 31 December 2006 stood at EUR 137 million, a rise of nearly EUR 8 million (6%) compared with 2005.

Report on Operations at 31 December 2006 65

SUMMARY BALANCE SHEET (EUR thousand)

Ref At 31/12/06 At 31/12/05 Chg. '06 - '05

assoluta %

1.3 Tangible assets 1,024,481 1,129,780 -105,299 -9.3%

1.1;1.2 Intangible assets 118,002 118,960 -958 -0.8%

1.4;1.5 Long-term investments 922,066 768,504 153,562 20.0% Non-current assets 2,064,549 2,017,244 47,305 2.3% see note in table Net Working Capital Net working capital 59,604 108,161 -48,557 -44.9% 1.6; 1.7;1.8; 1.9;1.10 Other medium- to long-term assets 102,024 84,039 17,985 21.4%

1.6;1.9 of which relating to affiliates 63,413 52,027 11,386 21.9%

2.9; 2.12;2.14 Other medium- to long-term liabilities -127,103 -117,608 -9,495 8.1%

2.6 Staff severance fund -34,167 -33,871 -296 0.9%

2.7; 2.8 Risks for charges and future liabilities -133,164 -111,586 -21,578 19.3%

Net invested capital 1,931,743 1,946,379 -14,636 -0.8%

2.1;2.2; 2.3;2.4;2.5 Shareholders' equity 1,313,975 1,258,265 55,710 4.4%

Net debt (1) 617,768 688,114 -70,346 -10.2% Funds 1,931,743 1,946,379 -14,636 -0.8%

(1) Net debt is an alternative performance indicator not contained in IAS/IFRS accounting standards that ASM uses in its presentations to management, and analysts and investors. It is calculated as the difference between financial receivables/payables and cash and cash equivalents (cash and banks). The "Net debt" table below shows the balance sheet items used to calculate this indicator. Note too that given the various restatement criteria used, the absolute values set out in the column showing the change between 2005 and 2006 on the summary balance sheet for the items “other medium-/long-term assets”, "other medium-/long-term liabilities" and "working capital" differ from the figures shown in the cash flow statement below.

Non-current assets at 31 December 2006 rose to EUR 2.065 billion, compared with EUR 2.017 billion in 2005. The value of tangible assets was EUR 1.024 billion (EUR 1.130 billion in 2005), while that of intangible assets (including goodwill) was EUR 118 million, in line with the 2005 figure. The company also held long-term investments worth EUR 922 million (excluding long-term financial receivables of EUR 3.9 million, which were reallocated as medium-/long-term debt), an increase of EUR 153 million on 2005. The increase is mainly due to the rise in value of ASM's stake in CIGE (EUR 133.8 million) following the above-mentioned transfer of its gas distribution business, and the increase in its holdings in Abruzzoenergia and Valgas, totalling EUR 20 million.

Working capital fell by EUR 48 million (45%) compared with 2005, due to a reduction in receivables from related parties and tax payables.

Report on Operations at 31 December 2006 66

As already explained in the comments relating to the profit and loss account, the increase in provisions for risks and liabilities of around EUR 22 million, is due to provisions allocated in respect of possible disputes over AEEG resolutions on gas prices and equalisation payments that may have to be made to some customers in respect of their energy supply.

The sharp increase of EUR 140 million in cash and cash equivalents is mainly due to the slight postponement of the start of planned investments (particularly the building works on the Gissi and Scandale thermoelectric plants), for which ASM issued a new yen-denominated 30-year bond of EUR 98 million in 2006.

Net debt fell by around EUR 70 million, from EUR 688 million in 2005 to around EUR 618 million at 31 December 2006.

WORKING CAPITAL (EUR thousand)

Ref At 31/12/06 At 31/12/05 Chg. '06 - '05

assoluta %

1.11 Inventories 24,089 18,352 5,737 31.3%

1.12 Trade receivables 99,927 85,546 14,381 16.8%

1.13 Receivables from affiliates 236,542 271,109 -34,567 -12.8%

1.15 Tax receivables 3,314 9,021 -5,707 -63.3%

02:16 Trade payables -157,151 -149,008 -8,143 5.5%

02:17 Payables to affiliates -79,449 -72,359 -7,090 9.8%

02:19 Tax payables -34,529 -3,898 -30,631 785.8%

1.16;2.20 Other current assets and liabilities -33,139 -50,602 17,463 -34.5%

59,604 108,161 -48,557 -44.9%

NET DEBT (EUR thousand)

Ref At 31/12/06 At 31/12/05 Chg. '06 - '05

assoluta %

2.10; 2.11 Long-term financial payables 783,492 679,232 104,260 15.3%

1.6; 2.13 Long-term financial payables to affiliates -1,593 -308 -1,285 417.2%

2.15 Short-term financial payables 26,332 22,188 4,144 18.7%

1.14; 2.18 Short-term financial payables to affiliates (1) 6,980 44,202 -37,222 -84.2%

1.17;1.18 Securities and cash -197,443 -57,200 -140,243 245.2%

617,768 688,114 -70,346 -10.2%

Report on Operations at 31 December 2006 67

INVESTMENTS (EUR million)

108 6 81 4

102 77

2005 2006

Tangible assets Intangible assets

INVESTMENTS (EUR thousand)

Tangible assets Intangible assets Total Power generation 12,026 12,026 Electricity and gas grids 22,310 1,011 23,321 District heating 17,604 17,604 Integrated water services 16,112 16,112 Environmental services 4,211 4,211 Other services 4,834 2,515 7,349 Total 2006 77,097 3,526 80,623 Total 2005 102,163 6,062 108,225

Investments in 2006 (including multi-year expenses and capitalised personnel costs) totalled EUR 81 million. Investments in tangible assets fell by EUR 25 million versus 2005, mainly in the electricity distribution and generation businesses. Some of the more significant investment related to the installation of electronic meters to replace the traditional ones, work on the thermoelectric plants and the WTE plant, the upgrading of the Verzano plant and work on the Bergamo district heating plants.

Report on Operations at 31 December 2006 68

NON-CURRENT ASSETS (EUR thousand)

Tangible assets Intangible assets Total

Power generation 337,712 349 338,061

Electricity and gas grids 267,228 45,736 312,964

District heating 162,880 892 163,772

Integrated water services 173,375 13,340 186,715

Environmental services 25,907 25,907

Other services 57,379 57,685 115,064

Total 2005 1,024,481 118,002 1,142,483

Total 2005 1,129,780 118,960 1,248,740

The value of tangible and intangible assets at 31 December 2006 (including plants under construction and non- current asset payments on account) was EUR 1.14 billion, compared with EUR 1.25 billion at 31 December 2005. Intangible assets include goodwill (totalling EUR 102 million) relating to the acquisition of the electricity distribution business by ENEL and the merger of BAS into ASM.

FINANCIAL POSITION The cash flows generated in 2006 are reported below.

Report on Operations at 31 December 2006 69

CASH FLOW STATEMENT (EUR thousand)

31/12/06 31/12/05 (pro-forma IAS) Net profit 137,352 Depreciation and amortisation 90,915 Capital gains -258 Capital losses 4,357 Valuation of assets at fair value -2,290 Adjustments to the value of investments -238 Income from equity investments -65,613 Net change in staff severance fund 1,637 Net change in other funds 13,996 Change in medium- to long-term assets/liabilities -31,241 of which affiliates -31,865 Tax due 72,845 Tax paid -41,295 Cash flow before change in working capital 180,167 240,893 Change in working capital and other medium- to long-term operating asse 25,232 -80,888 of which affiliates 41,656 Total cash flow from operations 205,399 160,005

Net investment in tangible and intangible non-current assets -80,623 Income from sale of tangible and intangible non-current assets 468 Net change in investments -19,525 Total cash flow from investments -99,680 -286,733

Free cash flow 105,719 -126,728

Distribution of dividends and reserves -100,660 Equity dividends 65,613 Other cash flow -326 Total cash flow in respect of other assets and liabilities -35,373 -29,882

Increase/(decrease) from mergers - -36,811

Total cash flow for the period 70,346 -193,421 In 2006, the group generated operating cash flow of EUR 205 million, compared with EUR 160 million in 2005.

Cash flow used for investment totalled around EUR 100 million, a decline of EUR 187 million on 2005, during which ASM increased its stake in Endesa Italia by 5.33%.

Free cash flow was EUR 106 million, compared to EUR -127 million at 31 December 2005.

Cash variances relating to other assets/liabilities associated with the payment of dividends and the distribution of reserves as well as receipt of dividends from equity investments were negative to the tune of EUR 35 million (EUR -30 million at 31 December 2005).

Report on Operations at 31 December 2006 70

Total cash flow for 2006 was EUR 70 million, compared to EUR -193 million at the end of 2005.

OPERATING FIGURES

UoM 2006 2005 Chg. '06 - '05

Net electricity produced (on site) GWh 3,102 2,659 16.7%

Electricity distributed GWh 4,533 4,229 7.2%

Gas distributed* Mmc 302 454 -33.5%

Heat sold GWht 1,103 1,159 -4.8% Water supplied (excluding self- consumption) Mmc 46 47.3 -2.7%

Waste disposed of at WTE and Montichiari landfill site 1000 tonnes 1,112 1,071 3.8%

* 2006 figures do not include the fourth quarter (from 1/10/06 the gas division was transferred to CIGE SpA)

Total gas distributed and consumed by the power and heat generation plants is shown on pages 44 and 51.

ASM AND RENEWABLE SOURCES

Photovoltaic energy As part of its environmental policy aimed at using renewable energy sources, ASM launched a pilot programme in 1994 for photovoltaic plants, helping to build 23 plants with 192 kW of capacity over more than a decade. Of these plants, 13 form part of ASM’s production pool, representing combined capacity of 99 kW.

In 2006, in partnership with the Brescia local authority, the ASM group took on the role of promoter of a large international programme to widen the use of photovoltaic plants in the municipal housing set out in the plans in the Violino and Sanpolino districts. In total, 333 photovoltaic plants are to be installed, 304 of which are for single terraced dwellings and the remaining 29 for the communal areas of apartment blocks, providing total power of 723 kW. These new installations will mean power production of 750,000 kW/h each year, with energy savings of 165 TOE and a 500-tonne reduction in CO2 emissions. Brescia will thus move closer to European models of excellence, such as Amersfoort in the Netherlands and Vauban in Germany, and will be well ahead of other Italian provincial capitals, with average photovoltaic power of 7.35 watts per head of population, compared with a national average of 0.64 watts per head. The project was financed by the Brescia local authority and ASM, which will benefit from the energy efficiency certificates associated with the initiative.

Over the next few years, the ASM group plans to continue its commitment to photovoltaic energy, identified as one of the main alternatives to power generation from fossil fuels. This commitment will involve: • significantly increasing its share of photovoltaic production in the next five years • promoting the use of photovoltaic energy, particularly on the domestic market, through information campaigns, offers and dedicated services in the areas where it distributes electricity and gas.

Report on Operations at 31 December 2006 71

Wind energy The transformation of wind energy into electricity, particularly in very windy areas of Italy, now represents one of the cheapest renewable sources. ASM has therefore launched a research and development project with a view to building wind farms, facilities consisting of a series of wind turbines positioned along the ridges of hills spaced a few dozen metres apart. The feasibility of these initiatives depends on the prevailing wind of the site chosen, and the location of these plants is therefore heavily restricted by wind speed and frequency. Since these conditions are found in south Italy and the islands (less than 1% of Italy’s installed wind capacity is in the Alps), ASM has initiated authorisation procedures to build wind farms in certain areas of Calabria and Molise. ASM’s objective in developing these initiatives is to have plants with an installed capacity of at least 100 MWe by 2012.

Biomass Biomass refers to organic plant or animal material, such as wood or other tree matter, that can be used as fuel in thermoelectric plants, cultures used to produce biofuel, livestock manure for the production of biogas etc.; the energy generated in these processes is renewable. For some years, one of the three lines of ASM’s WTE plant in Brescia has been fuelled by biomass, and the company has put forward various initiatives in other areas of Italy that are being considered by the relevant authorities. Specifically, a request for a programme agreement to build a biomass plant in Foggia fuelled by material produced locally has been submitted; the company is also in talks with bodies and associations of local farmers to ascertain the potential and contract conditions provided by long-term contracts.

TRANSACTIONS WITH RELATED PARTIES

The tables below show the amounts relating to the main commercial and financial transactions entered into by ASM SpA with related parties, as defined in IAS 24. A brief description of the nature of the most important transactions entered into by the company is also included. Please see the notes to the accounts for further details.

These transactions, which are part of the ordinary management of the company, mainly refer to dealings with ASM’s subsidiaries and affiliates, and with the Brescia and Bergamo local authorities (the company’s main shareholders). Transactions with subsidiaries and affiliates mainly relate to the provision by the parent company of administrative and logistics services and the supply/receipt of industrial goods and services, as described in detail in the comment on the most important transactions. Industrial logistics and IT services are governed by specific service contracts and charged at market rates, while administrative services carry an annual fee, agreed annually by the parties, that reflects the parent company's costs.

Financial services, which generate receivables from and payables to group companies and financial income/charges, include those provided with a view to centralising, rationalising and optimising financial resources management at ASM. These services are charged at a fixed annual rate according to agreements reached between ASM and each individual group company, under which cash is transferred from their accounts to a central account managed by the parent company. In this account interest is managed and credited or debited to the individual companies, based on the 3-month Euribor rate, plus or minus an agreed percentage (depending on whether interest is credited or debited).

Report on Operations at 31 December 2006 72

As regards dealings with the Brescia local authority, in accordance with the programme agreement in force between the local authority and ASM SpA, since 1 January 2003 ASM SpA has been managing the following public services on an exclusive basis for all Brescia municipal areas:

• water supply • gas distribution • heat distribution • municipal waste collection, transport and disposal • sewerage and waste water treatment • street lighting • cemetery lighting • auditing and monitoring of thermal power plants

The agreement states that ASM SpA is free to adopt the organisational and managerial arrangements it considers best suited to providing services that are as efficient and as cost-effective as possible. Consequently, the activities that make up each service, as well as related, ancillary or similar activities, as set out in the company’s articles of association, may be carried out via subsidiaries, agreements or forms of control or co-operation with companies or businesses, which shall be jointly responsible with ASM SpA for complying with the provisions of the agreement. ASM SpA pays an annual fee to the local authority for the right to perform some of these services, while the sums paid by the local authority for the services provided by the company are detailed in the agreements specific to each service. ASM SpA provides these services as an independent business, in that, with the sole exception of street lighting, it is responsible for dealings with customers, and also receives directly the income from their bill payments.

As regards dealings with the Bergamo local authority, on 12 May 2005, the local authority and BAS signed a new programme agreement assigning to BAS (and/or its subsidiaries) management of the following public services for all Bergamo municipal areas:

• gas distribution • integrated water services • municipal waste collection and transport, as well as special treatment of cemetery and hospital waste • street lighting • heat management

Following the merger of BAS into ASM SpA, ASM took over the programme agreement with the Bergamo local authority. For street lighting and building management services, ASM is paid by the Bergamo local authority, while for the remaining services the company is responsible for dealings with customers and receives the income from their bill payments directly.

Report on Operations at 31 December 2006 73

Dealings with subsidiaries and affiliates

Receivables and payables EUR 000 (ref.1.13;1.14;2.17;2.18) Costs (Ref.3.3;3.4;3.5;3.6) Revenues (ref. 3.1;3.2) Financial income/charges and shareholdings (ref.3.10;3.11;3.12) Subsidiaries/affiliates Receivables Payables Goods Services Goods Services Financial charge Financial income Divs. from eq. investments ABRUZZOENERGIA 273 8,726 0 0 0 0 0 0 0 APRICA SPA 4,829 9,001 126 9,704 30 8,279 171 0 2,326 APRICA STUDI 583 1,116 0 2,646 0 64 0 0 300 ASMEA 130,633 27,800 17,286 5,426 449,181 93,456 719 0 2,826 ASM ENERGY 19,580 -5,319 72,010 0 4,352 0 207 0 4,859 ASSOENERGIA 3,627 4,944 0 0 0 0 152 0 778 ASVT 988 0 0 0 47 1,584 0 0 BASCOM 298 1,032 2 0 0 124 0 0 BAS OMNISERVIZI 26,766 2,091 3,433 533 59,137 6,123 0 0 700 BAS POWER 3,179 3,312 610 336 0 2,303 0 0 BAS SII 4,879 2,322 670 343 0 4,453 0 0 2,000 CIGE 3,655 13,094 0 -69 0 1,290 314 0 1,098 COGAS 136 0 0 0 0 0 0 0 0 ENDESA ITALIA 5,281 0 0 0 60,416 0 0 0 35,200 ERGON ENERGIA 748 0 0 -87 0 1,036 0 0 200 GESI 1,652 141 0 339 0 264 0 74 ITRADEPLACE 308 107 144 84 0 0 0 0 0 METAMER 9 00000 0 0 132 MONTICHIARIAMBIENTE 12 0 0 0 0 0 0 0 0 PLURIGAS 1,102 25,502 205,280 0 0 0 0 0 9,000 RETRAGAS 392 2,865 2 -201 0 1,221 140 0 936 RETRASM 5,472 1,105 0 324 0 2,432 0 11 350 SEASM 226 0 0 0 0 0 0 151 0 SELENE 15,296 7,712 213 10,624 0 4,851 0 291 2,386 SINERGIA 172 1,384 0 29 0 94 0 0 125 SOBERGAS 1,285 80 0 -23 0 383 0 0 700 TIDONENERGIE 11,064 996 0 0 22,868 241 0 0 VALGAS 13,150 312 0 -27 31,809 0 376 741 Other companies 2,191 689 1,120 46 TOTAL 257,786 109,012 299,776 29,981 596,034 131,127 1,749 903 64,657

The receivables and payables shown in the table above relate to notes 1.13, 1.14, 2.17 and 2.18 of the notes to the accounts. On the restated balance sheet shown above, these receivables and payables are reported in the table of working capital (note 1.13 “Receivables from affiliates” and note 2.17 “Payables to affiliates”) and in the net debt table (notes 1.14 and 2.18 “Current payables to affiliates”).

Sale of materials and services

To APRICA The main revenues from dealings with Aprica SpA were generated by the waste disposal service at the landfill sites and the WTE plant (totalling EUR 5.7 million), and administrative, logistical and technical services relating to urban waste management (around EUR 2 million). The amount outstanding at 31 December 2006 totalled EUR 4.8 million.

To APRICA STUDI Revenues from Aprica Studi mainly related to the provision of administrative services for EUR 53,700. The amount outstanding at 31 December 2006 was around EUR 0.6 million.

To ASMEA Revenues related to the sale of electricity and gas (EUR 210.7 million and EUR 161.5 million respectively), the supply of heating and cooling energy (EUR 59.7 million), the distribution of electricity (EUR 40.6 million), gas (EUR 10.6 million) and heat (EUR 20.2 million), the sale of water (EUR 20.8 million), and administrative and logistics services (EUR 1.2 million). The amount outstanding at 31 December 2006 was almost EUR 131 million.

Report on Operations at 31 December 2006 74

To ASM ENERGY Revenues were generated by the sale of electricity and the provision of administrative and commercial services for a total of EUR 4.3 million. The amount outstanding at 31 December 2006 totalled more than EUR 19 million.

To ASVT Revenues chiefly related to the waste disposal service at the WTE plant (EUR 0.9 million), the provision of administrative and meter reading services for a total of EUR 238,000 and the sale of materials for EUR 121,000. The amount outstanding at 31 December 2006 was almost EUR 1 million.

To BASCOM Revenues were generated by administrative and logistics services totalling EUR 34,500, and the recovery of IT services costs (EUR 63,700). The amount outstanding at 31 December 2006 totalled EUR 300,000.

To BAS OMNISERVIZI Revenues related to gas sales of EUR 59 million, gas distribution services of EUR 5.4 million, and administrative, logistics and technical services of EUR 0.7 million. The amount outstanding at 31 December 2006 came to around EUR 27 million.

To BAS POWER Revenues from BAS Power mainly related to the operation of the Bergamo WTE plant and the provision of administrative services, for a total of EUR 2 million. The amount outstanding at 31 December 2006 was around EUR 3 million.

To BAS SII Revenues from BAS SII chiefly related to the service contract that charges for technical and administrative services provided by ASM staff in integrated water services, which came to EUR 3.4 million. Other revenues of EUR 0.94 million related to the sale of materials for the water service. The amount outstanding at 31 December 2006 was almost EUR 5 million.

To CIGE The main revenues related to the provision of administrative, logistics and technical services (EUR 0.88 million) and the sale of materials (EUR 280,000). The amount outstanding at 31 December 2006 came in at more than EUR 3.6 million.

To ENDESA ITALIA Revenues related to the sale of electricity (EUR 60.4 million). The amount outstanding at 31 December 2006 totalled more than EUR 5 million.

To ERGON ENERGIA Revenues mainly concerned the provision of administrative, logistics and technical (metering) services for around EUR 1 million. The amount outstanding at 31 December 2006 totalled more than EUR 0.7 million.

To GESI Revenues mainly related to administrative and support services, which generated around EUR 230,000.

Report on Operations at 31 December 2006 75

The amount outstanding at 31 December 2006 exceeded EUR 1.6 million.

To RETRAGAS Revenues chiefly related to technical operations carried out by ASM on gas transport equipment/grids owned by Retragas (EUR 0.78 million), and administrative, logistics and technical services (EUR 380,000). The amount outstanding at 31 December 2006 totalled EUR 400,000.

To RETRASM ASM’s chief revenues from Retrasm (EUR 2 million) related to the plant rental contract for the high-voltage transmission of electricity. ASM charged Retrasm around EUR 41,000 in 2006 for administrative and logistics services. The amount outstanding at 31 December 2006 totalled around EUR 5.5 million.

To SELENE Revenues mostly related to the leasing of hardware/software/fibre-optic networks (EUR 3.73 million), administrative and logistics services (EUR 0.56 million) and miscellaneous services provided by the Press Office (EUR 440,000). The amount outstanding at 31 December 2006 exceeded EUR 15 million.

To SINERGIA Revenues were mainly generated by administrative and meter reading services totalling EUR 67,900, and works worth EUR 17,400. The amount outstanding at 31 December 2006 came in at almost EUR 200,000.

To SOBERGAS Revenues related to the sale of materials for EUR 226,000, the provision of administrative and logistics services for EUR 103,600 and costs recovery of EUR 53,200. The amount outstanding at 31 December 2006 totalled almost EUR 1.3 million.

To TIDONENERGIE Revenues were generated by the sale of gas (EUR 22.9 million), gas distribution services (EUR 240,000) and administrative services. The amount outstanding at 31 December 2006 was EUR 11 million.

To VALGAS The main revenues related to the waste disposal service at the landfill sites and the WTE plant (for a total of EUR 1.7 million) and the provision of administrative and meter reading services for more than EUR 100,000. The amount outstanding at 31 December 2006 was around EUR 13 million.

ASM also booked receivables from Assoenergia (EUR 3.6 million) and Plurigas (EUR 1.1 million).

Purchase of materials and services

From APRICA The costs sustained by ASM mainly concerned waste management services (collection, street cleaning, etc.) provided by Aprica in the municipalities that have agreements with ASM (EUR 8.6 million) and transport/disposal/miscellaneous services for a total of EUR 1.1 million. Costs recovery for seconded staff totalled EUR 1.2 million, and have been written off against services costs in the table above.

Report on Operations at 31 December 2006 76

The amount outstanding at 31 December 2006 was EUR 9 million.

From APRICA STUDI In 2006 ASM sustained costs of around EUR 2.5 million for design and technical consultancy work carried out by Aprica in ASM’s areas of activity. The amount outstanding at 31 December 2006 came in at around EUR 1 million.

From ASMEA The main costs relating to dealings with ASMEA concerned energy supplies for the company’s premises and plants, specifically: electricity (EUR 10.4 million), heat (EUR 5.4 million), water (EUR 0.8 million) and gas (EUR 0.7 million). Other costs included the waste collection billing service (EUR 1.1 million) and the charge of EUR 1.2 million for recovery of costs sustained by ASMEA for electricity metering services. The amount outstanding at 31 December 2006 came to almost EUR 28 million.

From ASM ENERGY The main costs sustained from ASM Energy related to the supply of electricity and gas, totalling EUR 69 million and EUR 2.9 million respectively. The amount outstanding at 31 December 2006 was EUR -5.3 million, owing to credit notes that ASM Energy has to issue to ASM.

From BASCOM The costs sustained in 2006 with respect to Bascom mainly related to the purchase of telecommunications services. The amount outstanding at 31 December 2006 totalled around EUR 1 million, and include capitalised costs of EUR 0.84 million for the purchase of software from Bascom.

From BAS OMNISERVIZI The main costs related to the supply of gas by the building management service and for the company offices and plants of Bergamo for a total of EUR 3.7 million, and the waste collection billing service (EUR 408,000). The amount outstanding at 31 December 2006 totalled EUR 2 million.

From BAS POWER In 2006 ASM sustained costs of approximately EUR 0.95 million, of which EUR 0.6 million related to the supply of materials/equipment, and EUR 300,000 to the waste disposal service of the waste-derived fuel plant. The amount outstanding at 31 December 2006 was EUR 3.3 million.

From BAS SII The main costs sustained with respect to BAS SII related to purchases for integrated water services (EUR 0.62 million) and to laboratory analyses for integrated water and gas services (EUR 0.29 million). The amount outstanding at 31 December 2006 totalled EUR 2.3 million.

From CIGE Costs sustained in respect of CIGE mainly concerned recovery of costs for staff seconded to ASM (EUR 81,200) and miscellaneous works (EUR 43,000). The recovery of costs for seconded staff (EUR 230,000) is written off against services costs in the table above. The amount outstanding at 31 December 2006 came in at EUR 13 million.

From ERGON ENERGIA Costs for services, shown in the table as a negative figure, related to the recovery of costs for seconded staff.

Report on Operations at 31 December 2006 77

From GESI Costs related to miscellaneous works (EUR 219,000) and the provision of heat management services (EUR 173,000). The amount outstanding at 31 December 2006 came in at around EUR 100,000.

From PLURIGAS Dealings with Plurigas (in which ASM has a 30% stake and which is active in wholesale gas trading) concerned the supply of gas to ASM power stations and ASM subsidiaries selling gas to end users. The overall cost sustained by ASM in 2006 was EUR 205.3 million. The amount outstanding at 31 December 2006 totalled around EUR 25.5 million.

From RETRAGAS Costs for services, shown in the table as a negative figure, related to the recovery of costs for seconded staff. The amount outstanding at 31 December 2006 came to almost EUR 2.9 million.

From RETRASM In 2006 ASM sustained costs of EUR 300,000 for design and technical consultancy activities carried out by Retrasm in the electricity sector. The amount outstanding at 31 December 2006 totalled EUR 1.1 million.

From SELENE The costs sustained in 2006 in respect of subsidiary Selene, which provides IT services, concerned IT services and systems (hardware, software, applications, consultancy) totalling EUR 8.4 million, and the provision of telephone/telecommunications and other services for EUR 3.2 million. Costs for services also include the recovery of costs for seconded staff of EUR 1.67 million, shown as a negative figure. The amount outstanding at 31 December 2006 totalled EUR 7.7 million.

From SOBERGAS In 2006 ASM recorded capitalised costs of EUR 1.1 million relating to the acquisition from Sobergas of the gas grid located in the municipality of Presezzo. Costs for services, shown in the table as a negative figure, mainly relate to the recovery of costs for seconded staff (EUR 37,000). The amount outstanding at 31 December 2006 was EUR 80,000.

From VALGAS Costs for services, shown in the table as a negative figure, mainly related to the recovery of costs for seconded staff (EUR 56,000). The amount outstanding at 31 December 2006 totalled EUR 312,000.

ASM also recorded payables to Abruzzoenergia (EUR 8.7 million) and Assoenergia (EUR 4.9 million).

The item “Personnel costs in respect of related parties” (see notes to the accounts, no. 3.5) include – as well as recovery of costs from group companies for seconded staff, as detailed above – remuneration to directors and managers (board members, chief operating officer and managers with strategic responsibilities). The amount paid in 2006 was EUR 1.936 million.

Other operations carried out in 2006 by ASM with subsidiaries/affiliates included under points 1.6 (“Other financial assets”) and 1.9 (“Other assets”) of the parent company balance sheet are set out below with comments. Please see the ASM notes to the accounts for further details.

Report on Operations at 31 December 2006 78

Other financial Other assets assets EUR thousand (ref.1.6) (ref.1.9) Subsidiaries/affiliates ABRUZZOENERGIA 921 0 CIGE 27,197 0 ERGOSUD 36,216 SEASM 2,723 0 Other companies 260 TOTAL 31,101 36,216

Receivables from Abruzzoenergia relate to an interest-bearing loan due on 31 December 2006.

Receivables from CIGE, relating to extraordinary operations, include the net balance between the receivable for the purchase of shareholdings from ASM and the payable relating to equalisation following the transfer of the gas division.

Receivables from Ergosud refer to advance payments for the construction of the Scandale plant and payments on account relating to a future capital increase.

Receivables from subsidiary Seasm relate to a EUR 3 million loan paid out in February 2004 and due in 15 years.

Dealings with the Brescia local authority, Bergamo local authority and Bergamo Infrastrutture

receivables and payables EUR 000 (ref.1.13;1.14;2.17;2.18) costs (Ref.3.3;3.4;3.5;3.6) revenues (ref. 3.1;3.2) Financial income and charges (ref.3.10;3.11) affiliates receivables a Payables Goods Services Goods Services Financial charge Financial income BRESCIA LOCAL AUTHORITY 6,963 6,531 - 10,170 50 11,495 121 - BERGAMO LOCAL AUTHORITY 2,507 1,600 - - - 7,170 100 - BERGAMO INFRASTRUCTURE 1,503 - - - - TOTAL 9,470 8,131 1,503 10,170 50 18,665 221 -

The receivables and payables shown in the table above relate to notes 1.13, 1.14, 2.17 and 2.18 of the notes to the accounts. On the restated balance sheet shown above, these receivables and payables are reported in the table of working capital (note 1.13 “Receivables from affiliates” and note 2.17 “Payables to affiliates”) and in the net debt table (notes 1.14 and 2.18 “Current payables to affiliates”).

Sales of materials and services

To the BRESCIA LOCAL AUTHORITY The main revenues from the Brescia local authority related to street lighting (EUR 4.7 million, including the consumption of electricity) and the building management service (EUR 4.2 million).

Report on Operations at 31 December 2006 79

The amount outstanding at 31 December 2006 totalled approximately EUR 7 million.

To the BERGAMO LOCAL AUTHORITY For its street lighting and buildings management services, the Bergamo local authority paid ASM around EUR 3 million and EUR 4.1 million respectively in 2006. The amount outstanding at 31 December 2006 totalled EUR 2.5 million.

Purchase of materials and services

From the BRESCIA LOCAL AUTHORITY Payments made to the Brescia local authority mainly refer to the fees set out in the programme agreement under which, as mentioned above, the local authority gave ASM exclusive management of some public utilities. In 2006 the overall cost sustained by ASM was EUR 10.1 million, of which around EUR 5.7 million related to these fees (including use of the city’s water supply, sewerage and water treatment systems), EUR 1.4 million to biomass fees to the WTE plant and EUR 2.5 million to the leasing of office and industrial premises (the 20-year lease was signed on 5 June 2003). The amount outstanding at 31 December 2006 totalled EUR 6.5 million.

From the BERGAMO LOCAL AUTHORITY The amount outstanding at 31 December 2006 was EUR 1.6 million, and mainly related to the sale of grids in 2002.

From BERGAMO INFRASTRUTTURE In 2006 ASM paid Bergamo Infrastrutture EUR 1.5 million in fees for the use of gas grids.

Financial operations included charges owed to the Brescia local authority amounting to EUR 122,000 relating to a loan taken out in 1990 for the construction of the coach station car park.

Report on Operations at 31 December 2006 80

CONTRACTUAL COMMITMENTS

The table below shows the amounts relating to the main contractual commitments entered into by ASM in respect of subsidiaries and affiliates. A brief description of the largest operations is also provided.

EUR 000 subsidiaries/affiliates Guarantees & pledges

ABRUZZOENERGIA 295,810

APRICA SPA 516

APRICA STUDI 77

ASMEA 500

ASM ENERGY 13,511

BAS POWER 31,900

PLURIGAS 2,441

VALGAS 491

TOTAL 345,246

Abruzzoenergia These commitments concerned guarantees mainly in respect of loans issued by financial institutions for plant relating to the building of the Gissi (Ch) thermoelectric plant.

BAS Power Guarantees of EUR 31.9 million were issued to the lending bank with the transfer of the loan from ASM (formerly BAS) to BAS POWER for the construction of the thermoelectric generator.

Plurigas The whole amount relates to guarantees given for the gas storage contract and sureties in respect of Stogit.

ASM Energy The whole amount relates to guarantees for dispatch/transport contracts, for power exchange price hedges and guarantees to Terna (EUR 1.5 million).

ASM also reported contractual commitments to other smaller companies worth a total of EUR 4.29 million.

Report on Operations at 31 December 2006 81

OTHER INFORMATION

HUMAN RESOURCES At 31 December 2006 the group had 2,210 employees, 30 fewer than the 2,240 at 31 December 2005, chiefly due to the contraction in the parent company's headcount from 1,699 to 1,594 employees following the transfer of 64 staff to CIGE (effective 1 October 2006) in respect of the above-mentioned transfer of the gas distribution business.

The tables below show the headcount at 31 December 2006 and 31 December 2005, and the breakdown of group personnel by category. Note that staff numbers for Ergon Energia Srl, GeSi Srl, Plurigas SpA and Metamer are shown in proportion to the size of ASM SpA’s stake in each company.

Headcount

ASM Other companies Total

Headcount at 31/12/05 1,699 541 2,240

Headcount at 31/12/06 1,594 616 2,210

Chg. '06 - '05 -105 75 -30

Headcount – breakdown by company

31/12/06 31/12/05 Change Aprica 114 114 0 Aprica Studi 14 15 -1 Asmea 85 89 -4 Asvt 40 33 7 Cige 141 78 63 Selene 89 91 -2 Valgas 44 43 1 Other 89 78 11 Total 616 541 75

Headcount – breakdown by category

Directors Managers Office staff Manual workers Total

Headcount at 31/12/05 30 105 1,055 1,050 2,240

Headcount at 31/12/06 29 103 1,067 1,011 2,210

Chg. '06 - '05 -1 -2 12 -39 -30

Based on the monthly trend, in 2006 the average group headcount was 2,216 , while staff at ASM SpA numbered 1,654 at 31 December 2006.

Report on Operations at 31 December 2006 82

RESEARCH, DEVELOPMENT, QUALITY AND ENVIRONMENT Research and development The group has been involved in various research and innovation projects in the last few years, including the NextGenBioWaste project, which was in progress at 31 December 2006.

This major four-year plan, financed partly by the European Commission as part of its sixth framework programme, is aimed at improving the energy efficiency, reliability and performance of plants that use waste or biomass fuel to produce energy, while at the same time reducing their environmental impact and running costs. The project is being run jointly with European partners including research centres, multi-utilities and power plant builders. ASM's main activity will be to install a high dust catalyst at line 2 of the WTE plant to reduce NOx emissions, and to test performance thereafter. This technology has not yet been applied successfully on an industrial level in the field of waste, but if it proves to be reliable, it could be a new solution for reducing nitrogen oxide emissions from WTE plants. As part of the project, ASM will also evaluate the quality of combustion residues, and will look into possible systems for recovering them.

The treatment plant for the recovery of heavy waste produced in large quantities by the WTE plant (20% of the incinerated waste) is at an advanced stage.

Studies looking at the changes to be made to the power distribution grid as a result of the roll-out of electronic metering have been completed. The bulk of these meters have been installed and are in operation. The introduction of this system offers numerous opportunities, including the possibility of extending it to heat distribution from the district heating grid, with remote reading of its meters (around 15,000).

Another application that has been implemented is the use of the low-voltage power grid in one area of the city of Brescia for internet services (the “power line”). For more information see the “other services” section. A major upgrade of the power distribution grid is under way, which will enable it to adapt to new forms of power generated, including photovoltaic energy.

A study has been launched to examine the replacement of the meters for the gas distribution grid. This activity is however being hindered by uncertainty over the duration of concessions. The installation of meters that can be read remotely on the Retragas grid is however at an advanced stage.

Quality, environment and safety – voluntary quality, environment and safety certification systems In 2006 the following achievements were made in the areas of quality, environment and safety:

ASM SpA o Renewal in February 2006 by the certification body for ASM SpA’s UNI EN ISO 9001:2000 certificate (first issued on 27 October 1993): a single certificate covering all areas of ASM for which it had already obtained certification prior to the merger in 2005 of the Brescia (city and province) and Bergamo operational headquarters, including the extension of the scope of the quality management system to the street lighting service provided from the Brescia site; o positive assessment in February and March 2006 of greenhouse gas emissions notification pursuant to article 15 of directive 2003/87/EC and article 4, paragraph 6 of DEC/RAS/074/2006 (Emissions Trading directive) for the following authorised plants: Lamarmora, Nord, Mincio and the Brescia WTE plant;

Report on Operations at 31 December 2006 83

o positive assessment in March 2006 for the purpose of obtaining a UNI EN ISO 14001:2004 certificate for the environmental management system at the Brescia WTE plant; o positive assessment in May 2006 aimed at maintaining UNI EN ISO 9001:2000, UNI EN ISO 14001:2004 and OHSAS 18001:1999 certification for the quality, environment and safety integrated management system for the plants managed by Settore Impianti Bergamo at Via Goltara, Bergamo; o positive assessment in June 2006 aimed at maintaining the quality management system at the Mincio plant; o positive assessment in May 2006 aimed at maintaining the environmental management standard for the Mincio plant, pursuant to UNI EN ISO 14001:2004, and at validating the environmental statement for the purposes of maintaining EMAS registration; o positive assessment in June 2006 at the Lamarmora cogeneration plant with a view to the extension of UNI EN ISO 14001:2004 certification of the environmental management system (for the three years from 2006 to 2008) and EMAS registration; o positive assessment in June 2006 aimed at maintaining the environmental management standard for the Brescia district heating grid, pursuant to UNI EN ISO 14001:2004, and at validating the environmental statement for the purposes of maintaining EMAS registration; o positive assessment in July 2006 at the Montichiari landfill site for the purpose of extending UNI EN ISO 14001:2004 certification of the environmental management system (for the three years from 2006 to 2008) and maintaining EMAS registration (issue of the new certificate for 2006-2008 pending); o positive assessment in October 2006, for the purpose of extending UNI EN ISO 9001:2000 certification of ASM SpA’s quality management system (for the three years from 2006 to 2008) – with the addition of the activities carried out by Settore Impianti Bergamo (transfer of certification body) and the removal of the gas distribution business (transferred to CIGE).

GROUP COMPANIES o Sobergas SpA: positive assessment in May 2006 aimed at extending UNI EN ISO 9001:2000 quality management system certification to 2006-2008; o GeSi Srl: positive assessment in May 2006 aimed at maintaining UNI EN ISO 9001:2000 quality management system certification; o BAS Power Srl: positive assessment in May 2006 aimed at maintaining UNI EN ISO 9001:2000 quality management system certification; o BAS Servizi Idrici Integrati (SII) SpA: in June 2006, SINAL accreditation (which had been pending since December 2005) of laboratory tests, including environmental services, at the Via Goltara test facilities was confirmed pursuant to UNI CEI EN ISO/IEC 17025; o Selene SpA: positive assessment in September 2006 aimed at maintaining UNI EN ISO 9001:2000 quality management system certification; o Valgas SpA: positive assessment in September 2006 aimed at maintaining UNI EN ISO 9001:2000 quality management system certification; o CIGE SpA - Abruzzo area: positive assessment in October 2006 aimed at extending UNI EN ISO 9001:2000 quality management system certification, granted by a different certification body, to 2006- 2008; o CIGE SpA - Brescia and Bergamo areas: completion of the implementation of the quality management system, pursuant to UNI EN ISO 9001:2000, for gas distribution (after ASM’s gas distribution business was hived off); positive assessment by the certification body in October and December 2006; o Aprica SpA: in September 2006, positive assessment aimed at maintaining UNI EN ISO 14001:2004 environmental management system certification for waste collection and street cleaning services; o Aprica SpA: positive assessment in October 2006 aimed at maintaining UNI EN ISO 14001:2004

Report on Operations at 31 December 2006 84

environmental management system certification, for waste treatment and disposal services; completion of the implementation of the environmental management system in accordance with UNI EN ISO 14001:2004, and positive assessment in October 2006 of post-closure management of landfills for special non-hazardous waste with recovery of biogas. o Aprica Studi Srl: positive assessment aimed at maintaining quality management system certification pursuant to UNI EN ISO 9001:2000 in November and December 2006.

Details of the above certificates issued to ASM SpA and group companies are provided in the corporate governance report.

The ASM group is working to minimise its impact on the environment and contribute to the social and economic well-being of the regions in which it operates. These initiatives are described in its 2007 “Sustainability Report”, which is being produced alongside this annual report. Lastly, for more detail on projects under way on harnessing renewable sources of energy, please see the relevant paragraph in the notes to the parent company accounts.

Note also that, as in the case of the gas grids purchased, moves are under way to combine operational methods in the former BAS areas. ASM is undertaking an internal benchmarking operation to compare its methods with those of the newly-acquired companies, and will adopt the best practices identified. One important comparison study under way, with the contribution of the relevant local authorities, concerns the municipal waste collection systems in Brescia and Bergamo.

Data protection code In accordance with rule 26 of Annex B of legislative decree 196/03 (Code on personal data protection), the ASM group's planning document on security has been brought up to date.

Own shares and nominal value As mentioned in the notes to the accounts, the company acquired 3,092,698 own shares with a nominal value of EUR 1 per share as part of the share buy-back programme authorised by the shareholders’ meeting on 5 April 2006. The company owned 364,551 shares at 31 December 2006. The shares were used to acquire minority stakes in Valgas.

ACCOUNTING AND ADMINISTRATIVE SEPARATION (AEEG RESOLUTION 310/01)

ASM SpA The requirement for “accounting and administrative separation” for “legal entities operating in the electricity sector”, established by AEEG resolution 61/99, was confirmed in AEEG resolution 310/01, which simplified and updated the previous regulation.

In January 2007, a new resolution (11/07) was introduced, governing accounting separation with effect from the first financial year commencing after 31 December 2006. However, ASM and the group companies in question asked to defer implementation of the measure for one year, as permitted by the resolution.

Specifically, the above-mentioned resolution 310/01 prescribes that the balance sheet and profit and loss account must be prepared by classifying items by “business” and “corporate services” (article 9, paragraph 1 of the resolution) and shown in the report on operations.

For ASM SpA, the activities that are subject to accounting separation are: y generation y distribution y gas

Report on Operations at 31 December 2006 85

y miscellaneous activities y corporate services (broken down in accordance with the provisions of article 5 of the above-mentioned resolution).

Accounting separation is maintained by allocating the assets and liabilities, and the costs and revenues, to each of the supply chain activities, in accordance with article 4 of the above-mentioned resolution. The company decided to assign the management of the electricity sales contracts (mainly concerning the sale of power to its subsidiaries ASMEA Srl, ASM Energy Srl, Assoenergia SpA and – for the electricity sold under the CIP6 incentive scheme – to GRTN SpA) to its generation business.

As required by the regulations, internal transactions within the legal entity have been eliminated for the purpose of reconciling each activity’s figures with ASM SpA’s accounting statements, and are listed under “eliminations”.

Balance sheet and profit and loss items that are not permitted by this regulation to be broken down across supply chain activities have been allocated to “non-attributable”, as stipulated by the resolution.

Metering (of electricity and other services), is considered to be a shared operational function in accordance with article 5, paragraph 5, of resolution 310/01. As per the scope of attachment 1 of the resolution, the costs of this shared operational function have been allocated to the relevant activities according to the criterion of reasonableness (article 10).

Note that tangible assets have been allocated on the basis of technical parameters specified in the Technical Report of the previous resolution 61/99.

It should be further noted that, as required by the regulations, individual corporate services are listed under two columns: “corporate services (a – d)” and “corporate services (e – k)”. Please see article 5 of resolution 310/01 for details.

The attached accounting statements show the figures deriving from this accounting separation by business and by corporate service, as stipulated in article 9, paragraph 1 of the above-mentioned resolution.

The information specifically required by article 9, paragraph 2 of the resolution will also be prepared, for the AEEG’s sole use, within 60 days of approval at the shareholders’ meeting. The details of the accounts and the related notes have been included in a special attachment to the notes to the accounts of ASM SpA.

The ASM group Article 16 of the above-mentioned resolution establishes the requirement for accounting separation in the group’s consolidated accounts.

This is the fourth year in which we have applied the requirement for accounting and administrative separation, as discussed earlier, to the consolidated accounts.

For the ASM group, the power supply chain activities that are subject to accounting separation are: y generation y power transmission y distribution y sales y gas y miscellaneous activities y corporate services (broken down in accordance with the provisions of article 5 of the above-mentioned resolution).

Accounting separation is maintained by allocating the assets and liabilities, and the costs and revenues, to

Report on Operations at 31 December 2006 86

each of the supply chain activities, in accordance with article 4 of the above-mentioned resolution.

As required by the regulations, transactions within the parent company or between group companies have been eliminated, for the purpose of reconciling each activity’s figures with the ASM group’s consolidated accounts, and are listed under “eliminations”.

Balance sheet and profit and loss items that are not permitted by this regulation to be broken down across supply chain activities have been allocated to “non-attributable”, as stipulated by the resolution.

Commercial and sales activity, and metering (of electricity and other services) are considered to be shared operational functions, as defined in article 5, paragraph 5 of resolution 310/01. As per the scope of attachment 1 of this resolution, the costs of this shared operational function have been allocated to the relevant activities according to the criterion of reasonableness (article 10).

The accounting balances of subsidiary Retrasm Srl are included under the heading “power transmission”, in accordance with article 3 of the Bersani Decree, which states that all goods, relationships, assets and liabilities in respect of power transmission should be so transferred.

The heading “electricity sales” shows the consolidated balances of power sales for ASMEA Srl, ASM Energy Srl, Ergon Energia Srl and Assoenergia SpA.

The effects of the consolidation entries that can be directly allocated to individual activities have been included under each heading. The details of the accounts and the related notes have been included in a special attachment to the notes to the accounts.

SIGNIFICANT EVENTS SINCE 31 DECEMBER 2006

On 31 January and 28 February 2007, further meetings were held between the mayors of Brescia and Milan to determine the terms of the possible merger of ASM SpA and AEM SpA. A decision was taken to engage consultants to examine methods of achieving certain key objectives, namely, equal shareholdings for the two local authorities, stable joint control by both authorities of the post-merger entity (so the new company would not be a takeover target) and the optimisation of services for the two communities.

It emerged from the meetings that work is progressing in line with the objectives set on 31 January and according to the schedule agreed by the companies in question. The technical groups will complete work on the strategically important issues with a view to defining their conclusions. As regards the takeover bid launched by German company E.ON to acquire Endesa, note that in early February 2007, after the withdrawal of Iberica Gas Natural, E.ON submitted its final offer, which was valid until the end of March. Endesa’s Board of Directors approved this offer at their meeting on 6 February 2007, and deferred a favourable recommendation until the extraordinary shareholders’ meeting scheduled for March. In late February/early March 2007, ENEL SpA announced that it had obtained around 24% of Endesa’s capital, thereby becoming the Spanish group’s biggest shareholder. Against this backdrop, ASM is carefully monitoring developments in the above-mentioned operation, as it is in the company’s interest to safeguard its investment in Endesa Italia, to avoid undesired changes in the company’s shareholder base, and if necessary, bid for control of Endesa Italia.

Since March 2007, ASM has been included in the "Global Water Index", a new index created by Standard & Poor’s, which includes 50 companies from 14 different countries. Companies are chosen according to their market capitalisation and compliance with strict performance standards. There are only three other companies in the index apart from ASM in Italy.

The Global Water Index was created as a response to the financial markets’ increasing interest in companies operating in the integrated water services sector. Standard & Poor’s move is in step with this trend, which

Report on Operations at 31 December 2006 87

will enable companies included in the index to attract new investors, thereby increasing their liquidity and enhancing their growth prospects.

OUTLOOK In light of the results achieved in the 2006, ASM believes that in 2007 it will be able to meet the targets established in the business objectives described in the “Strategy” section. The outlook could also be affected by the possible merger of ASM SpA and AEM SpA, which would create one company of primary importance at national and European level, both on account of its industrial and financial scale and its potential for integration in the multi-utility sector, which is currently undergoing a rapid phase of consolidation.

RECOMMENDATIONS PROPOSED BY THE BOARD OF DIRECTORS OF ASM SPA TO THE ORDINARY SHAREHOLDERS’ MEETING

Dear Shareholders

We invite you to approve the accounts for the year ending 31 December 2006 submitted here, and set out our proposals for distribution of profits of EUR 137,351,748.88 as follows:

- EUR 6,867,587.44 (5% of the profits for the year) to the legal reserve;

- EUR 137,044.48 to a non-distributable reserve for exchange rate gains;

- EUR 228,094.00 to a non-distributable reserve for the valuation of shares at fair value;

- EUR 10,101,692.47 to a specific distributable reserve

- EUR 120,017,330.49 for dividends to shareholders for the year 2006 (EUR 0.155000 for each of the 774,305,358 ordinary shares), with a proposed ex-date of 28 May 2007 and payment date of 31 May 2007.

The entire dividend amount of EUR 120,017,330.49 (EUR 0.155000 for each of the 774,305,358 ordinary shares) is taxable.

Please note that an examination of the stipulations imposed by article 109, paragraph 4, point b) of presidential decree 917/86, to establish the total dividends payable, revealed that the dividend payout described above is not subject to tax.

Report on Operations at 31 December 2006 88

ASM BRESCIA SPA

ACCOUNTING STATEMENTS AND NOTES TO THE ACCOUNTS

TO 31 DECEMBER 2006

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 89

ASM BRESCIA SPA

BALANCE SHEET

Ref ASSETS 31/12/2006 31/12/2005

1.1 Intangible assets 16,819,430 17,304,563 1.2 Goodwill 101,181,983 101,655,012 1.3 Tangible assets 1,024,481,164 1,129,780,032 1.4 Investments in subsidiaries and affiliates 902,093,309 748,257,550 1.5 Investments in other companies 19,973,427 20,245,576 1.6 Other investments 31,101,436 51,489,359 of which affiliates 31,101,436 51,489,359 1.7 Assets for derivative valuations 560,214 7,030,010 1.8 Receivables for deferred taxes 28,163,379 16,661,984 1.9 Other assets 44,837,544 11,231,950 of which affiliates 36,215,894 4,351,894 Total NON-CURRENT ASSETS 2,169,211,886 2,103,656,036

1.10 NON-CURRENT ASSETS HELD FOR SALE 1,265,580 1,440,000

1.11 Inventories 24,088,536 18,352,249 1.12 Receivables from customers 100,235,467 86,155,145 1.13 Trade receivables from affiliates 236,542,156 271,109,305 1.14 Financial receivables from affiliates 30,714,349 14,661,712 1.15 Receivables for current taxes 3,314,422 9,021,125 1.16 Miscellaneous receivables 46,801,371 43,498,343 1.17 Current financial assets 7,942 7,942 1.18 Cash and cash equivalents 197,435,159 57,191,690 Total CURRENT ASSETS 639,139,402 499,997,511

Total ASSETS 2,809,616,868 2,605,093,547

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ASM BRESCIA SPA

Ref LIABILITIES 31/12/2006 31/12/2005

2.1 Share capital 774,305,358 774,305,358 2.2 Capital reserve 205,841,457 205,841,457 2.3 Other reserves 205,034,549 147,402,858 2.4 Derivatives valuation reserve -9,111,033 - 2.5 IFRS 1 reserve 553,331 1,093,331 Profit for the period 137,351,749 129,621,668 Total SHAREHOLDERS' EQUITY 1,313,975,411 1,258,264,672

2.6 Staff severance fund and pension reserve 34,167,040 33,870,471 2.7 Deferred tax reserve 105,643,563 98,061,834 2.8 Reserve for risks and future liabilities 27,519,971 13,524,444 2.9 Liabilities for derivative valuations 13,786,674 64,922 2.10 Bonds 593,685,284 495,776,950 2.11 Payables and other financial liabilities 189,806,694 183,454,841 2.12 Landfill liabilities 75,114,785 76,052,528 2.13 Long-term payables to affiliates 2,311,316 3,506,475 2.14 Other liabilities 38,201,513 41,491,551 Total NON-CURRENT LIABILITIES 1,080,236,840 945,804,016

2.15 Current financial liabilities 26,331,828 22,188,043 2.16 Payables to suppliers 157,151,243 149,008,231 2.17 Trade payables to affiliates 79,448,743 72,359,524 2.18 Financial payables to affiliates 37,693,892 58,861,931 2.19 Current tax payables 34,529,495 3,897,760 2.20 Miscellaneous payables 80,249,416 94,709,370 Total CURRENT LIABILITIES 415,404,617 401,024,859

Total SHAREHOLDERS' EQUITY & LIABILITES 2,809,616,868 2,605,093,547

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ASM BRESCIA SPA

Ref PROFIT AND LOSS ACCOUNT 2006 2005

REVENUES 3.1 Revenues from sales and services 1,093,411,098 1,002,309,635 of which affiliates 719,337,704 701,681,307 3.2 Other income 141,355,682 131,443,451 of which affiliates 26,538,105 29,936,017 Total REVENUES 1,234,766,780 1,133,753,086

3.3 Raw materials costs 689,097,658 632,918,146 of which affiliates 300,028,615 268,454,661 3.4 Services costs 140,441,780 124,832,589 of which affiliates 36,265,987 32,400,166 3.5 Personnel costs 90,159,767 88,449,400 of which affiliates -1,569,113 -1,232,998 3.6 Other miscellaneous costs 30,580,104 40,714,626 of which affiliates 8,639,684 7,434,557 Total OPERATING COSTS 950,279,309 886,914,761

EBITDA 284,487,471 246,838,325

3.7 Depreciation, amortisation and write-downs 91,494,601 90,104,250 3.8 Provisions 16,039,186 446,766

3.9 Valuation at fair value of non-current assets held for sale 174,420 4,500,000

EBIT 176,779,264 151,787,309

3.10 Financial income 6,493,756 35,927,246 of which affiliates 903,071 597,961 3.11 Financial charges -39,065,188 -36,442,252 of which affiliates -1,970,458 -1,507,794 Exchange rate gains 137,044 Total FINANCIAL INCOME AND CHARGES -32,434,388 -515,006

3.12 Income/expenses from equity investments 65,851,401 43,273,382 of which affiliates 65,568,331 43,542,447

PROFIT BEFORE TAX 210,196,277 194,545,685

3.13 Corporate income tax -72,844,528 -64,924,017

NET PROFIT 137,351,749 129,621,668

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ASM SpA

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AS OF 31 DECEMBER 2006

(EUR thousand) CAPITAL RESERVES RETAINED PROFITS IFRS 1 Reserves Reserve for the Reserve for valuation at fair derivatives Other Share premium value of capital Transfer-related Legal Restricted Reserve for Other Profit for the Share capital valuation reserves for Total reserve increase reserve reserve reserve own shares reserves Listing period Description (cash flow first-time generated by expenses hedge) adoption of BAS IAS

Balance at 31 December 2005 774,305 146,965 58,876 - 20,282 12,911 - 114,211 - -13,578 14,671 129,621 1,258,264

2005 earnings carried forward 7,713 21,248 -28,961 - - ordinary dividend payout -81,302 -81,302 - extraordinary dividend payout -19,358 -19,358

Valuation cash flow hedge derivatives -9,111 -9,111

reclassification of effects on Endesa revaluation reserve 540 -540 -

purchase of own shares -326 -326

Reserve for the transfer of business division to CIGE 28,456 28,456

Profit for the period 137,352 137,352

Balance as of 31 December 2006 774,305 146,965 58,876 28,456 27,995 12,911 -326 135,999 -9,111 -13,578 14,131 137,352 1,313,975 205.841 205.035

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 93

ASM Brescia Spa

Cash flow statement to 31/12/06 31/12/2005 (EUR thousand) IAS sub-total total

A. Opening net debt (688,114) (494,693)

B. Cash flow generated by operations Net profit 137,352 Depreciation and amortisation 90,915 Capital gains (258) Capital losses 4,357 Valuation of assets at fair value (2,290) Adjustments to the value of investments (238) Net income from shareholdings (65,613) Net increase in reserve for staff severance fund 1,637 Net increase in other reserves 13,996 Change in medium- to long-term assets/liabilities (31,241) of which related parties (31,865) Tax for the period 72,845 Tax paid (41,295) Cash flow generated by operations before change in net working capital 180,167 240,893 (increase)/decrease in receivables 13,497 of which related parties 34,567 Increase/(decrease) in payables 11,735

of which related parties 7,089 Change in net working capital 25,232 (80,888) Total cash flow generated by operations 205,399 160,005 C. Cash flow generated by investments

Investments in tangible and intangible assets (80,623) Income from sale of tangible and intangible assets 468 Net change in value of shareholdings (19,525) Total cash flow generated by investments (99,680) (286,733) D. Cash flow generated by other assets/liabilities Dividends and distribution of reserves (100,660) Dividends from shareholdings 65,613 Other (326) Total cash flow generated by other assets/liabilities (35,373) (286,733) E. Total increase/(decrease) generated by merger - (36,811) F. Cash flow for the period (B+C+D+E) 70,346 (193,421) G. Closing net debt (A+F) (617,768) (688,114)

Net financial debt - cash flow details and movement 31/12/2006 31/12/2005 1 Cash and short-term securities 197,435 57,192

Opening balance 57,192 Change 140,243 2 Current financial investments 8 8

Opening balance 8 Change - 3Long-term financial receivables 3,904 3,814 Opening balance 3,814 Change 90 4 Bonds (593,685) (495,777) Opening balance (495,777)

Change (97,908) 5 Payables to banks (214,204) (203,316) New loans (25,948)

Repayments 15,060 6Payables to other financial institutions (1,935) (2,327) Opening balance (2,327)

Changes 392 7 Loans and financing from controlling shareholder (3,506) (4,649) Opening balance (4,649)

Changes 1,143 8Payables to affiliates (4,376) (38,950) Opening balance (38,950) Changes 34,574 9 Payables to other related parties (1,409) (4,109) Opening balance (4,109) Changes 2,700

Total net debt (*) (617,768) (688,114)

(*) Total net debt does not include accrued interest of EUR 16,759,000 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 94

ASM BRESCIA SPA

NOTES TO THE ACCOUNTS

TO 31 DECEMBER 2006

With the entry into force of Regulation 1606/2002, issued by the European Parliament and European Council in July 2002, companies whose securities are authorised for trading in regulated markets of member states of the European Union are required, starting in 2005, to prepare their consolidated accounts in accordance with the international accounting standards (IAS/IFRS) issued by the IASB (International Accounting Standards Board) if ratified by the EU and published in the Official Journal of the European Union (OJEC).

Legislative decree 38/2005 extended to listed companies the requirement to use IAS/IFRS to prepare accounts from the year ending 31 December 2006, and also granted the option to draft according to IAS/IFRS all the accounts of companies included in the basis of consolidation from the same date.

Thus, the accounts of ASM Brescia SpA to 31 December 2006 were prepared for the first time in accordance with these accounting and measurement policies.

These notes to accounts also provide the information specifically required by Consob Regulation 11971/99 as well as all supplementary information deemed necessary to provide a true and accurate representation of the financial position regardless of whether the law specifically requires this.

This report has been fully audited by PricewaterhouseCoopers SpA in accordance with Consob regulations.

Figures from the balance sheet, profit and loss account, cash flow statement and statement of changes in shareholders’ equity were compared with the corresponding figures of the accounts to 31 December 2005, which were restated to comply with IAS/IFRS.

As required by IFRS 1, the information on the transition to IAS/IFRS is in the appendices.

ACCOUNTING PRINCIPLES AND POLICIES

General principles

These accounts were prepared in accordance with IAS/IFRS issued by the International Accounting Standards Board (IASB), as ratified by the European Union. The acronym IAS/IFRS here stands for International Accounting Standards and International Financial Reporting Standards, as supplemented by interpretations issued by the IFRIC, previously known as the SIC.

The accounts are prepared on the basis of the historical cost principle with the exception of fair value designations for financial instruments.

Below is a summary of the accounting standards used by ASM based on IAS/IFRS requirements. Where possible, these standards are the same as those applied to the consolidated accounts.

Presentation of financial statements ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 95

The financial statements were prepared in accordance with Consob resolution 15519/2006.

For the presentation of the balance sheet, ASM has chosen to make a distinction between “current” and “non-current” items. Items in the profit and loss account are shown in single column format by nature. The cash flow statement is presented using the indirect method.

These statements provide relevant information on items in the accounts. They also comply with the minimum content required by IAS 1.

Non-current assets and liabilities

Intangible assets

These assets are reported at purchase cost including any ancillary charges.

They are amortised on a straight-line basis over their remaining useful life. Concession fees are amortised on a straight-line basis over the life of the concession or on the basis of the remaining useful life of plants managed under concession and other types of plant described in the related section.

Regardless of amortisation already recorded, in the event there is a permanent loss in value, intangible assets are written down by the corresponding amount.

Tangible assets

Tangible assets are reported at their historical, purchase or manufacturing cost including any directly allocable ancillary costs that are necessary for installing the asset for the use for which it was purchased or manufactured. This cost is adjusted for any significant increases, resulting from current obligations, in the amount of the estimated cost of dismantling and removing the asset, and the cost of reclaiming the site where the asset is located. Assets consisting of several components of a significant value and with different useful lives, are recorded separately.

Assets are depreciated on a straight-line basis every year based on economic and technical rates determined in relation to the remaining useful life of the assets.

Depreciation rates are as follows (the different values for each of these classes of assets refer to the various sectors of activity):

Buildings: - Industrial buildings 2.50%-3% - Hydroelectric plant buildings 1.50%-3% - Temporary buildings 10%

Plant and machinery: - Hydroelectric plants 3.50% - Thermoelectric plants 7% - Gas reduction chambers 5%-7% - Heat and WTE plants 5%-7%

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- High- and medium-voltage power lines 2%-4% - Receivers and substations 3.50%-7% - Power booths, low-voltage lines and - lifting equipment 4%-7% - Chlorination and purification equipment 5%-8% - Sewer networks 2.50% - Fibre-optic networks 5% - Pipelines 4%-2.50% - Bypasses and inlets 2.50-4% - Street lighting 4%-5% - Waste collection equipment/general 10% plant

Industrial and commercial equipment: - Special equipment relating to street 12% cleaning - Miscellaneous industrial equipment 10%-25% - Mobile phones 10%-20%

Other tangible assets: - Office furniture and electronic office 10%-12%-12.50%-20% equipment - Transport vehicles 10%-12.50%-20% - Automobiles 10%-12.50%-25%

Land is not depreciated since it has an unlimited useful life. An exception is made for land used for landfills, which, by their nature, are subject to physical deterioration over time.

Landfill sites are depreciated based on the proportion of the site that is filled.

Depreciation is reported starting at the moment when the asset is available for use or is potentially able to provide the economic benefits associated with it.

Regardless of depreciation already recorded, in the event that there is a permanent loss of value, tangible assets are written down by the corresponding amount.

The estimated costs for the closure and post-closure of landfill sites operated under concessions, which are incurred after they are full, are included in non-current liabilities as a balancing entry for the asset to which they are related. The reporting of the charge to the profit and loss account occurs through the depreciation of the tangible asset to which this charge is related.

Incremental and maintenance costs that produce a significant and tangible increase in production capacity or in the safety of the assets or that extend the useful life of the assets, are capitalised and are applied as an increase to the asset for which these costs are incurred, and depreciated in relation to the residual useful life of the assets to which they refer, which is redetermined based on the benefit provided by these investments.

Ordinary maintenance costs are recorded directly in the profit and loss account.

Leasehold improvements are classified as tangible assets based on the nature of the cost incurred. The depreciation period is the lower of the remaining useful life of the tangible asset and the contract term.

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Lease contracts are classified as finance leases whenever the terms of the contract transfer substantially all risks and benefits of ownership to the lessee. All other leases are considered as operating leases.

Assets under finance leases are reported as assets of ASM at their fair value on the contract date adjusted for ancillary charges on the contract date and any costs incurred for taking over the contract, or the present value of minimum lease payments due under the lease contract, whichever is lower. The corresponding liability to the lessor is included in the balance sheet under “debt and other financial liabilities.” Lease payments are broken down into principal and interest in order to arrive at a constant interest rate for the residual liability. Financial charges are directly allocated to the profit and loss account for the period.

Costs related to lease payments under operating leases are reported in equal amounts based on the term of the contract. Benefits received, or to be received, or paid, or to be paid as an incentive for entering into operating leases are also reported in equal amounts based on the contract term.

Loss in value of tangible and intangible assets

At each annual or interim reporting date, ASM reviews the book value of its tangible and intangible assets to determine if there is any sign that these assets have declined in value. If such signs exist, the recoverable amount of these assets is estimated in order to determine the amount of any write-down. When it is not possible to estimate the recoverable value of an individual asset, ASM makes an estimate of the recoverable value of the cash-generating unit to which the asset belongs. Goodwill is verified annually and at any time there are signs of a potential loss in value, in order to determine whether there are actual losses in value.

The recoverable value is the higher of the fair value minus sales costs, and the usage value. When determining the usage value, future estimated cash flows are discounted to their present value using a rate, before taxes, that reflects current market valuations of the cash value and specific risks associated with the asset.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than the related book value, it is reduced to the lower recoverable value. A loss in value is immediately recorded in the profit and loss account.

When there is no further justification for maintaining a write-down, the book value of the asset (or cash- generating unit), with the exception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, which is not to exceed the net book value that asset would have assumed if the write- down for the loss of value had not been applied. Any recovery in value is immediately allocated to the profit and loss account.

Financial assets

Financial assets are added to and removed from the accounts on the basis of the trade date, and are initially valued at cost including any charges directly associated with the purchase. On subsequent reporting dates, the financial assets that ASM intends, and is able, to hold to maturity (held-to-maturity securities) are reported at their amortised cost less write-downs applied to reflect a loss in value.

For those equity investments, which, on the basis of IAS 39 can be classified as available for sale, the fair value adjustment in subsequent periods is reflected directly in shareholders’ equity until they are sold or have declined in value. In this event, total profits or losses previously reported in shareholders’ equity are recorded in the profit and loss account for the period.

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Investments in affiliates and subsidiaries that are not available for sale are valued at cost or at the fair value of shares representing such equity investments if there is an active market, and fair value can actually be applied. No affiliate or subsidiary is currently listed on a regulated market. Investments in other companies not held for sale are designated at fair value. If this principle cannot be applied due to a lack of necessary information, the cost method is used as an alternative.

Losses in value on available-for-sale financial assets which have already been entered in the profit and loss account may not be written back to the profit and loss account.

Severance pay and retirement funds

Severance pay (TFR) is determined by using an actuarial methodology. The amount of benefits accrued during the period by employees is recorded in the profit and loss account under “personnel costs,” while the notional (financial) charge that the company would incur if it went to the market with a request for a loan in an amount equal to the TFR fund is allocated to financial income and charges. Actuarial profits and losses that reflect the effects of changes in the actuarial assumptions underlying the calculation are transferred to the profit and loss account.

Reserve for risks and future liabilities

Reserves for risks and future liabilities include provisions resulting from current (legal, contractual or implicit) obligations for a past event, the fulfilment of which will probably require the use of funds totalling an amount that can be reliably estimated.

If the impact is significant, the reserves must be reported at their present value.

Financial liabilities

Financial liabilities in the form of bonds are initially recorded at cost, corresponding to the fair value of the liability minus transaction costs incurred to obtain the financing. After the initial reporting, these liabilities are valued at amortised cost using the effective interest rate method.

Capital grants

Grants from the government and other public bodies made in accordance with the law are booked under other liabilities when there is legal certainty of the right to this grant. This certainty is assumed when the amount is drawn down. In order to include these grants in the results for the year, the portions applicable to individual financial years are credited to the profit and loss account under “other income” based on the useful life of the assets to which they refer.

Non-current assets classified as held for sale

Assets held for sale are those non-current assets for which the company believes the related value is recoverable mainly through their sale rather than their ongoing use. These balance sheet items are reported at the lower of their book value and fair value less sales costs (IFRS 5). If they are of a significant amount, they are reported in a special section of the balance sheet, while the related operating figures are reported in special accounts of the profit and loss account.

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Current assets and liabilities

Inventories

Inventories are stated at the lower of market value and the purchase/manufacturing cost including directly allocable ancillary costs, minus any discounts and allowances. Cost is determined using the weighted average cost method. Inventories of obsolete or slow turnover goods are written down according to their use or sale potential. Work in progress is valued on the basis of contractual payments accrued with reasonable certainty.

Receivables and payables

Receivables are initially reported at fair value, represented by the present value of the amount to be collected. They are then valued at amortised cost and reduced for losses in value.

Cash and cash equivalents

These assets are reported at face value.

Derivatives

Those transactions, which, in compliance with ASM’s policies for managing the risk of fluctuating interest rates and electricity values, are eligible for hedge accounting treatment, have been classified as derivatives used for hedging. All other derivatives are classified as "derivatives for trading purposes" even though they were created with the intent of managing risk exposure.

In particular, in the case of the cash flow hedge, the portion of profits or losses on the hedging instrument that is considered effective must be recorded directly under shareholders’ equity; the ineffective portion of profits and losses must be recorded in the profit and loss account. As a result, there is usually a difference in shareholders’ equity between Italian accounting standards and IFRS with respect to the effective portion of such hedging instruments.

With regard to financial instruments that are not used for hedging purposes, IAS 39 requires the differential against the contractual value to be reported in the profit and loss account.

Revenue and cost recording

Revenues and income, and costs and charges are recorded net of returns, rebates and bonuses, and net of taxes linked directly to the sale and/or provision of services. Contract work in progress is recorded on the basis of accrued contractual payments based on the progress of the work. Financial income and charges are recorded in the profit and loss account in accordance with the matching principle.

Dividends are reported at the time shareholders are entitled to receive payment, which normally corresponds to the date of the annual shareholders’ meeting that votes on the distribution of dividends.

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Income taxes for the period

Income taxes for the period are the total of current and deferred taxes.

Current taxes are based on the taxable profit for the period. Taxable income differs from the profit reported in the profit and loss account since it excludes positive and negative components that are taxable or deductible in other periods, and it also excludes items that will never be taxable or deductible. The liability for current taxes is calculated using current rates or rates in effect on the annual or interim reporting dates.

Deferred taxes are those taxes that are expected to be paid or recovered on the temporary differences between the book value of assets and liabilities and the corresponding tax value used in the calculation of taxable income. Deferred tax liabilities are generally recorded for all temporary taxable differences, while deferred tax assets are reported to the extent it is deemed likely that there will be future taxable income that will allow the use of deductible temporary differences. The book value of deferred tax assets is reviewed on each reporting date and reduced to the extent it is no longer likely that there will be sufficient taxable income to allow for the full or partial recovery of these assets.

Deferred assets and liabilities are not recorded if the temporary differences result from goodwill or the initial recording of other assets and liabilities involving transactions (with the exception of business combination transactions) that have no impact on reported or taxable income. In addition, deferred tax liabilities are recorded for temporary taxable differences related to investments in subsidiaries, affiliates and joint ventures unless ASM is able to monitor the elimination of these temporary differences, and it is likely that that these differences will not be eliminated in the foreseeable future.

Deferred taxes are calculated on the basis of the tax rate that is expected to be in effect at the time the asset is sold or the liability settled. Deferred taxes are directly allocated to the profit and loss account with the exception of those related to items reported directly under shareholders’ equity, in which case the related deferred taxes are also allocated to shareholders’ equity.

Deferred tax assets and liabilities are offset when there is a legal right to offset current tax income and expenses, and when they are related to taxes due to the same tax authority, and ASM intends to settle current tax assets and liabilities on a net basis.

Tax moratorium

With reference to the infraction procedure notice served on the Italian government in May 1999 by the European Commission in relation to tax relief made available to companies operating as local public utilities that are majority-owned by a public entity, and which adopted SpA (public limited company) status under law 142/90, on 2 August 1999 the Italian government stated in a letter to the Commission that, in particular, the measures referred to in the notice do not constitute state aid.

Based on memorandum IP/02/817 of 5 June 2002, the Commission decided that it did not accept this reply in full; specifically, the Commission considers that the opportunity to benefit from subsidised loans and exemptions from corporate income tax (tax moratorium) does constitute state aid. ASM may therefore have to pay, in whole or in part, the corporate income tax that would have applied without the tax relief, backdated to the start of operations (1 July 1998), and until the end of the moratorium period (31 December 1999).

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However, in 2002 and 2003, the Italian government, the relevant trade association and the companies concerned filed an appeal against the Commission’s decision.

In February 2004, the Italian government asked the Court of Justice to suspend the proceedings initiated by the government against the Commission’s decision, in order to allow the pending proceeding to take place at the European Court of First Instance, with which the companies receiving the alleged aid filed appeals.

Note that law 62/2005 (“Provisions for the fulfilment of obligations deriving from Italy’s membership of the European Community – Community Law 2004”) came into force on 12 May 2005. Article 27 of this law, pending the ruling on the appeals lodged with the European Court of Justice, is aimed at regulating the procedure for recovering state aid in relation to the European tax moratorium period. Under this article, in its original form, within 60 days of the law coming into force (i.e. by 11 July 2005), the companies concerned had to submit a tax return for the period in which they benefited from the exemption regime (for ASM this period runs from 1 July 1998 to 31 December 1999), on a self-assessment basis, to the relevant regional tax collection office. The financial authorities would then inform the company if there was any tax to pay, and how much, once the appeals procedure had been completed.

The ASM group companies concerned (ASM Brescia, on its own behalf and on behalf of BAS Bergamo, the company with which it recently merged, and ASVT), in compliance with the requirements of the aforementioned regulation, submitted a tax return for each of the periods covered by the tax moratorium.

BAS Bergamo (merged into ASM Brescia on 1 January 2005) and ASVT produced no taxable income in the period covered by the moratorium, and these companies are therefore unlikely to be liable for any tax.

The 2006 budget law (article 1, paragraph 132 of law 266 of 22 December 2005) substantially changed the original content of article 27 mentioned above, incorporating many of the comments of companies in the sector and trade associations, and specifying that the recovery procedure would be governed by an interministerial decree, and that authority for recovery would be granted to the interior ministry.

In February 2007 the government issued a decree (decree law 10 of 15 February 2007, effective from 16 February of this year), stipulating in article 1 that recovery procedures should be determined according to new methods rather than set out in article 27 of law 62/2005, as revised by the 2006 budget law.

Specifically, the new text again transfers the authority for recovery from the interior ministry to the tax office, which, on the basis of communications sent by local authorities and the tax returns of the receiving companies, settles the taxes and related interest. Within ninety days of the above-mentioned decree coming into force, the tax office will give proper notice of the order to pay the amounts due. The companies receiving the communication will have 30 days to act. Regulations expressly provide that customary sanctions, deferral or administrative suspension of payments will not apply to such payments. The communication containing the order to pay may be contested before tax commissions. There is also a provision to suspend the orders as a precautionary measure, but only in the event of human error, a significant taxpayer error or an obvious calculation error. Lastly, the above-mentioned decree repealed paragraphs 2-6 of article 27 of law 62/2005, which had introduced several elements to protect companies subject to the recovery procedure.

In ASM Brescia’s case, pending the outcome of the appeals at the Court of First Instance in Luxembourg, which were presented on its own behalf and on behalf of other sector companies and trade associations, European Commission decision 2003/293 of 5 July 2002 was deemed not applicable to ASM because of certain factors specific to its position: in the period under consideration, the services provided by ASM in the territories in which it operates were not yet subject to free competition on an open market.

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Furthermore, the tax periods covered by the moratorium (second half of 1998 and the whole of 1999) were subject to a standard calculation (for the purposes of the tax amnesty) pursuant to article 9 of law 289/2002, as properly notified to the European Commission. Any investigation is therefore precluded under the provisions of article 9, paragraph 9 of law 289/2002. Due in part to the above-mentioned points, ASM submitted tax returns for the applicable periods pursuant to article 27 of law 62/2005 and reported income equal to zero.

These accounts contain no provision for this purpose since the directors believe that the case concerned falls under the definition of potential liabilities under IAS 37: on the basis of available information and the opinion of leading consultants, it is possible, but not likely, that the tax relief may be withdrawn.

However, as a precaution, resolutions were approved at shareholders’ meetings in previous years not to distribute a portion of available reserves that accrued during the years covered by the tax moratorium (EUR 12.91 million) to shareholders until the infraction procedure is settled.

Tax consolidation scheme

ASM Brescia SpA and several ASM group companies opted to comply with the provisions of articles 117 et seq of presidential decree 917/1986 and subsequent amendments (national tax consolidation scheme).

As a result, ASM will submit the group’s annual declaration of income (but only for companies included in consolidation) and pay the relevant corporate income tax (IRES).

Thus, the individual subsidiaries will determine the balance of their tax position (taxes payable less advance tax payments) and transfer their taxable profit or tax loss to the parent company which will record a payable (or receivable) in relation to the subsidiaries.

Full tax disclosure

By agreement with its shareholders ASM Brescia, AEM Milano and AMGA Genova, the affiliate Plurigas opted to use the full disclosure scheme provided under article 115 of presidential decree 917/1986 for corporate income tax (IRES) relating to the year.

As a result of applying this scheme, ASM reported current and deferred taxes related to Plurigas's tax position in its accounts in proportion to the stake held in the company.

During the year, interpretation document no. 2 of the Italian accounting body (OIC) was approved in final form. This document indicates that to achieve full disclosure, companies must report the results of their current and deferred tax positions in their accounts. Together with the other entities noted above that comply with the disclosure agreement, ASM opted to adopt the interpretation contained in the aforementioned principle starting this year, and released the amount of receivables and payables relating to Plurigas’ deferred taxes that were allocated in the accounts for the previous year, resulting in an overall insignificant impact on the profit and loss account.

The adoption of the full tax disclosure scheme will, inter alia, exempt shareholders from taxation on profits and reserves distributed in the years when this option applied.

OTHER INFORMATION

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 103

Co-owned power plants (jointly controlled assets – IAS 31). The company co-owns some power plants with other entities. The total values of assets and liabilities are recorded in the accounts based on the various agreements the company has entered into, in proportion to the company’s ownership in the co-owned plant: the company responsible for managing the plant debits and credits other co-owned assets on a proportional basis.

The company has the following relationships:

Plant Owners % of plant owned

Ponti sul Mincio (MN) ASM Brescia SpA 25 thermoelectric plant AEM SpA – Milano 75

Ponti sul Mincio (MN) ASM Brescia SpA 45 thermoelectric plant AGSM SpA 45 Aziende Industriali Municipalizzate di Vicenza 5 Trentino Servizi SpA 5

Diesel Nord (BS) plant ASM Brescia SpA 94 Aziende Industriali Municipalizzate di Vicenza 6

Ponte Caffaro (BS) ASM Brescia SpA 16.25 power plant Caffaro SpA 83.75

Consolidated accounts. The company has a controlling stake in a number of companies and has therefore prepared consolidated accounts as required by legislative decree 127/91. These accounts provide the relevant supplementary information on the financial position and results of the company and the group as a whole.

Share buy-back. The ASM shareholders’ meeting of 5 April 2006 approved a share buy-back programme involving a maximum of 15 million shares (1.937% of the share capital). This buy-back is mainly intended to accumulate shares that may be offered to groups prepared to sell stakes in utilities companies in exchange for ASM shares, and is authorised for a period of 18 months, and in any event, by the approval date of these accounts by the Board of Directors.

In 2006, ASM acquired on the Italian stock market 3,092,698 shares, worth EUR 9.40 million, at a weighted average price of EUR 3.04 per share (0.40% of the share capital). On 1 September 2006, 2,429,854 own shares were sold to some minority shareholders in subsidiary Valgas in exchange for shares they owned in this company, thereby increasing ASM’s stake from 74.14% to 99.53%. Note that as part of the contract to acquire the shares of minority shareholders in Valgas, a further 298,293 own shares were transferred in October.

At the end of the year, therefore, the residual number of own shares held by ASM was 364,551. The value of these shares was EUR 326,000, booked as a reduction in the specific shareholders’ equity reserve, as required by IAS/IFRS.

In addition, in January 2007, a further 64 own shares were transferred in exchange for Valgas shares held by minority shareholders. With this purchase, ASM completed the acquisition of the entire Valgas share capital. Again in January 2007, a further 180,371 own shares were transferred to allow for the purchase of all of Sinergia’s capital. At 31 December 2006 ASM already had an 88.13% stake in the company.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 104

To complete the buy-back transaction, and in light of further transactions, ASM carried out the purchase until the expiration of the period set for this transaction.

Distribution of dividends. On 5 April 2006 the shareholders’ meeting also approved the distribution of profits for the 2005 accounts. It approved an ordinary dividend of 10.5 eurocents for each of the 774,305,358 ordinary shares each with a nominal value of EUR 1. The ex-date was 2 May, with payment from 5 May 2006. The shareholders also approved an extraordinary dividend of 2.5 eurocents for each of the 774,305,358 ordinary shares with a nominal value of EUR 1. The ex-date for this dividend was set for 4 September 2006, with payment from 7 September.

Transfer of gas distribution division to CIGE SpA. Effective 1 October 2006, ASM transferred all its gas distribution business to CIGE, a wholly-owned subsidiary. The transaction was based on the need to rationalise and reorganise the businesses of the companies comprising the ASM group, and was also intended to fully implement the regulatory guidelines concerning the separation of the company’s gas distribution business (see legislative decree 164/2000, EU directives 54/03 and 55/03, law 239/04 and the recent AEEG resolution 11/07). The division transferred was assessed by Antonio Porteri of the University of Brescia pursuant to the appointment order issued by the chief judge of the court of Brescia on 28 November 2005. On 17 July 2006 the expert delivered the assessment, which was notarised by Mario Mistretta in Brescia, to ASM. The division was valued at EUR 133.8 million, i.e. at a premium of EUR 28.5 million over the book value of shareholders’ equity of EUR 105.3 million as reported in the accounts to 31 December 2005. Pursuant to IFRS 3, the company increased the value of its investment in CIGE by EUR 133.8 million, and the difference between the expert valuation and book value (EUR 28.5 million) was recorded in a special shareholders’ equity reserve. These accounts also include the amortisation related to the division transferred for the nine months during which it was a part of ASM.

Exemptions pursuant to paragraph 4 of article 2423 and article 5 of legislative decree 38/2005. No extraordinary situations occurred requiring exemptions to legal provisions relating to company accounts pursuant to paragraph 4 of article 2423, as reported in paragraph 1 of article 5 of legislative decree 38/2005.

The figures provided in these notes are expressed in thousand euro, unless otherwise stated.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 105

BALANCE SHEET

For ease of comparison, figures indicating the position at 31 December 2005 are also provided.

NON-CURRENT ASSETS

Non-current assets

Details of intangible and tangible assets are set out in the appendix. For each item, the historical cost, the accumulated depreciation/amortisation, changes during the period and closing balances at the end of the period are given.

1.1 Intangible assets

The intangible assets position at 31 December 2006 is shown below.

31.12.06 31.12.05

Gross Accumulate Net value value d Net value amortisatio n Intellectual property rights 6,661 -4,732 1,929 1,167 Concessions, licences, trademarks, software and 20,979 -6,467 14,512 15,805 similar rights Intangible assets in course of acquisition and 150 - 150 150 payments on account Other 1,327 -1,099 228 183 29,117 -12,298 16,819 17,305

Intellectual property rights

This item includes software purchasing costs, which are amortised over three to five years.

The change in this item from the previous year was largely due to amortisation.

Concessions, licences, trademarks and similar rights

The cost of acquiring water supply, gas, water treatment and sewerage concessions from various local authorities in the provinces of Brescia and Bergamo is included under this item. These costs are amortised over the lifetime of the concession.

Intangible assets in course of acquisition and payments on account

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 106

Intangible assets in the course of acquisition relate almost entirely to software licences from Elsag for the use of the software needed to operate on Italy’s power exchange.

1.2 Goodwill

31.12.06 31.12.05 Goodwill 101,182 101,655

Goodwill mainly relates to: • the acquisition of an electricity distribution division from ENEL for EUR 45.70 million. This division, which was purchased in previous years, represents a significant portion of the electricity grids in the province of Brescia. • goodwill of EUR 55.47 million arising from the merger of BAS SpA into ASM. Note that since the share swap ratio was set by the auditing firm appointed by the court of Brescia, in the previous year BAS launched a capital increase of 38,734,500 shares (nominal value of EUR 1). As required by IFRS 3, this capital increase was stated at fair value taking into account the market value of ASM shares on the date the controlling interest was acquired (EUR 2.52 per share as at 29 December 2004). Since the value of book shareholders’ equity in the BAS accounts was EUR 46.76 million for the purposes of the acquisition, the gross goodwill figure was EUR 51.84 million, which also included the merger costs incurred by ASM. This goodwill was partially adjusted in the previous year to reconcile BAS values with the values drawn from the proper accounting standards used by the ASM group, resulting in net goodwill of EUR 55.47 million; • EUR 10,000 for minor acquisitions.

The decrease of EUR 473,000 in the current year relates to the transfer of the gas division by ASM to CIGE (as described above), which, among other things, made it necessary to remove certain small goodwill figures relating to the gas distribution business that were originally booked by ASM. In particular, the goodwill related to the acquisition of the Angelo Gadda division (a gas distribution company in the area of Mantua) was eliminated.

As regards the current period, impairment tests conducted pursuant to IAS 36 showed no indications that the values assigned to goodwill could not be recovered, and thus no impairment was applied.

1.3 Tangible assets

31.12.05 Book value Accumulated Net value Net value depreciation Land 15,125 - 15,125 15,429 Buildings 118,615 -26,132 92,483 90,961 Plant and machinery 1,262,581 -402,349 860,232 920,536 Industrial and commercial 7,061 -4,440 2,621 2,619

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 107

equipment Other tangible assets 52,571 -34,492 18,079 18,577 Landfill sites 32,167 -26,291 5,876 13,303 Freely transferable assets - - - 2,051 Tangible assets under construction - 30,065 30,065 66,304 and payments on account 1,518,185 -493,704 1,024,481 1,129,780

“Land” mainly refers to the land and other items relating to the WTE plant, the thermoelectric plants, the district heating/cooling division and the environmental services business. It also includes the value of land on which buildings are located.

“Plant and machinery” largely comprises transport lines, distribution grids, meters, conductors, gauges, station box instruments and machinery relating to thermoelectric plants and the WTE plant for power generation and district heating plants.

“Industrial and commercial equipment” chiefly includes operating assets relating to services and equipment that supplement the operating and functional capacity of plant and machinery.

The “other tangible assets” line mainly includes furnishings, vehicles and office equipment.

“Landfills” includes the cost of the Montichiari landfill site, adjusted for closure and post-closure costs pursuant to IFRIC 1. The decrease from the previous year was mainly due to the process of depreciation.

“Freely transferable assets" related chiefly to assets obtained following the acquisition of a gas distribution division by Angelo Gadda & C. Srl and gas plants located in the municipality of Seriate that were already a part of the former BAS. Following the transfer of the entire gas business to CIGE, as noted above, the related assets were disposed of.

The following divisions invested in new tangible assets during the year:

Investments Advances on Total capital grant Water treatment and sewerage 9,770 508 10,278 Street lighting 676 - 676 Waste collection/handling 4,350 -139 4,211 Corporate services 4,834 - 4,834 Power generation 7,822 4,204 12,026 Power distribution 17,972 - 17,972 Water 5,834 - 5,834 Gas 3,662 - 3,662 District heating - production 5,541 108 5,649

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 108

District heating - distribution 11,955 - 11,955 72,416 4,681 77,097 At the end of the year, assets under construction and payments on account related to:

Assets under construction

Power generation WTE plant: third MSW bridge crane and automation of existing 1,328 equipment Repowering of the second group - Cassano 510 220 Kv connection station, Mincio 424 Emergency electricity generating unit for group 3 - Mincio 319 Restructuring and upgrading of plant for churches 103 other payables 90 Total 2,774 Power distribution Electronic meters 2,294 High-voltage section – main Mazzano power substation 318 Grid movement for work on ring road 119 other payables 211 Total 2,942 Integrated water services Equalisation tank for Verziano treatment plant 6,707 Pre-treatment plant for the Verziano facility 3,345 Main sewer/treatment plant – Nuvolento/Nuvolera 529 Trepola-Ospitaletto treatment plant storage tank 465 New biological line- Verziano treatment plant 338 Main sewer - Valtrompia/Concesio/Verziano 368 Botticino sewer 137 Southern zone of sewer network - Ospitaletto 135 other payables 618 Total 12,642 Local authorities Design of fuel cell bus 137 other payables 51 Total 188 District heating Plant under the church at Brescia Hospital 1,279 Repowering of Lamarmora plant 626 Goltara-Bergamo plant (BAS) 137 Three-tower cooling plant, Via Flero, Brescia 495 Pipeline movement for work on ring road 168 other payables 109 Total 2,814 Street cleaning Treatment plant for road destruction debris 1,845 other payables 69 Total 1,914 Total assets under construction 23,274

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 109

Payments on account Local authorities Offlaga plant 1,146 SNAM 129 Cremona power plant 246

Power generation Connection of Mincio thermoelectric plant to 220 kv national grid 4,523 District heating Upgrading of Lamarmora power plant 108 Integrated water services Polaveno local authority main sewer 131 Fanghi-Verziano pre-treatment electro-mechanical plant 508 Total payments on account 6,791 TOTAL ASSETS UNDER CONSTRUCTION AND PAYMENTS ON 30,065 ACCOUNT

Investments made during 2006 relate to:

Repowering of group 2 at Cassano thermoelectric plant 37,742 Carnovali power plant, Bergamo 4,286 Cooling plant at Brescia University 3,911 West Bergamo district heating grid 2,872 Company crèche 1,284 Experimental denox catalyst for WTE line 1,091 Upgrade of different devices relating to Verziano treatment plant 164 Low voltage concentration devices for electronic meters 110 132-15/KV high-voltage transformers, north receiver/CP Nuvolento 48 Well for urban estates 15 Total 51,523

1.4 Investments in subsidiaries and affiliated companies

31.12.06 31.12.05 Subsidiaries 350,407 195,969 Affiliated companies 551,686 552,289 902,093 748,258 % owned Book value Subsidiaries: - CIGE SpA 100.00 188,586 - ASM Energia e Ambiente Srl 100.00 22,645 - Valgas SpA 99.99 21,425

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 110

- Abruzzoenergia SpA 89.00 21,074 - BAS Power Srl 100.00 21,000 - Retragas Srl 59.26 18,723 - BAS SII SpA 99.98 17,163 - Assoenergia SpA in liquidation 97.76 5,848 - BAS Power Srl 100.00 6,460 - Sinergia SpA 88.13 5,681 - Aprica SpA 98.97 5,329 - Bas.Com SpA 100.00 3,802 - Sober Gas SpA 100.00 3,747

- Azienda Servizi Valtrompia SpA 47.49 2,919 - Selene SpA 100.00 1,548

- Montichiariambiente SpA 80.00 1,200 - ASM Energy Srl 100.00 1,000 - Cogas SpA 100.00 120 - Ecofert Srl 47.00 874

- Retrasm Srl 100.00 100 - Aprica Studi Srl 100.00 674 - Bas International Srl 100.00 20 - Seasm Srl 67.00 469 350,407 Affiliated companies: - Endesa Italia SpA 20.00 482,936 - Trentino Servizi SpA 14.48 51,000 - Ergosud SpA 50.00 14,325 - Metamer Srl 50.00 885 - Sviluppo Turistico Lago d’Iseo SpA 23.88 752 - Ergon Energia Srl 50.00 600 - Ge.S.I. Srl 47.50 475 - Plurigas SpA 30.00 240 - Lombardia Gas Trader (in liquidation) 23.74 29 - Coges SpA 2.01 22

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 111

- Visano Soc. tratt. Reflui Scarl 40.00 10 - C.le Termoelettrica Mincio Srl 45.00 6 - Bergamo Servizi Srl 50.00 5 - C’è gas Srl 40.74 1 - Serio Energia Srl 40.00 400 551,686 902,093

INVESTMENTS IN SUBSIDIARIES

Below are highlights of events concerning subsidiaries:

• CIGE SpA: Following the transfer of the ASM gas distribution division to CIGE, the value of the equity investment rose by EUR 133.80 million. As noted above, this value was determined on the basis of a valuation carried out by Antonio Porteri from the University of Bologna, who was appointed by the chief judge of the court of Brescia by order dated 28 November 2005. The net book value transferred was EUR 105.3 million. • Abruzzoenergia SpA: on 11 January 2006 ASM acquired a further 22.75% in AbruzzoEnergia from shareholders CONIV and Di Vicenzo, taking its shareholding to 89%. ASM also acquired an option to purchase another 6% in the company. Following this transaction, the value of the equity investment rose from EUR 10.27 million to EUR 21.07 million. Note that AbruzzoEnergia commenced the construction of a thermoelectric power plant in Abruzzo (Gissi); • Valgas SpA: on 1 September 2006, ASM bought 25.39% of Valgas from several local authorities and from local communities in the Val Sabbia area, thereby increasing its stake from 74.14% to 99.53%. On 13 December 2006, ASM bought a further stake of 0.47% in Valgas increasing its stake to 99.99%. Thus, the value of the equity investment rose from EUR 12.18 million in the previous year to EUR 21.43 million. The company and shareholdings acquired were valued on the basis of an independent valuation prepared by Antonio Porteri, who assigned a total value of EUR 35.75 million to the subsidiary. Note that in January 2007 the remaining 64 shares held by minority shareholders were purchased giving ASM the entire share capital of Valgas. On 11 December 2006, the ASM Board of Directors approved (as witnessed by notary Mistretta) the merger of Valgas into ASM. The merger plan for this transaction was prepared on 9 November 2006, and the merger will be finalised in 2007 with the signing of the merger agreement. The merger will be effective from 1 January 2007; • Montichiariambiente SpA: during the year, Distrasm Srl, a dormant company 100%-owned by ASM until 31 December 2005, changed its name to Montichiariambiente, and changed its status from an Srl (limited liability company) to an SpA (public limited company). At the same time, this company’s capital was increased to EUR 1.50 million, and a minority interest of 20% was sold to the local authority of Montichiari. As a result of these transactions, the value of the equity investment rose from EUR 10,000 in the previous year to EUR 1.20 million. ASM now holds a stake of 80%. • Sinergia SpA: the company increased its capital, which thereby increased the value of ASM’s equity investment at 31 December 2006 by EUR 204,000, with a slight rise in the stake held (from 87.68% to 88.13%). On 19 January 2007 the municipalities of Valtrompia and local authority bodies in the Valtrompia area sold their shareholdings in Sinergia to ASM Brescia SpA, which became the company’s sole shareholder. The company was valued on the basis of an independent appraisal. In addition, on 9 January 2007 the Sinergia Board of Directors approved the merger of the company

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 112

into CIGE SpA. The merger was a part of the programme to rationalise businesses within the ASM group, especially in gas distribution; • Azienda Servizi Valtrompia SpA: the increase in the value of the equity investment over the previous year (EUR 683,000) was for the paid portion of a capital increase approved by the subsidiary in 2006. As a result of the capital increase, the stake held directly by ASM in this company rose slightly from 44.12% in the previous year to 47.49% in the current period. • Assoenergia: this company was put into liquidation in February 2006. In fact, this company sold its power sales division to ASMEA, a company wholly-owned by ASM. The change in the reported value over the previous year was due to the fair value anticipated by the company.

Finally, in February 2007 the sole director of Sober Gas SpA approved and signed the merger of Sober Gas into CIGE.

INVESTMENTS IN AFFILIATED COMPANIES

Endesa Italia. ASM owns 20% of Endesa Italia SpA, which during 2001 incorporated Elettrogen, the first genco sold off by ENEL. In the first half of 2005, ASM exercised an option purchased earlier thereby increasing its stake by 5.33% (to the current level of 20%). The price paid on that occasion included a premium of EUR 26.11 million over the portion of equity held. Based on actual and projected results, this higher value is being fully compensated.

In 2006, ASM collected EUR 35.20 million in dividends approved and distributed by Endesa.

Trentino Servizi. In 2001, ASM acquired 20% of Trentino Servizi SpA for EUR 51 million. ASM’s portion of shareholders’ equity for the Trentino Servizi group at the acquisition date was EUR 37.15 million. The difference of EUR 13.85 million represents the premium paid to take into account the strategic initiatives that the company intends to develop. The launch of these initiatives, which occurred later than originally planned, came in 2004 following the agreement reached between ENEL and the Autonomous Province of Trento regarding the acquisition of the entire electricity grid for the province of Trento on behalf of SET Srl, a subsidiary of Trentino Servizi. The premium is expected to be fully recoverable, as the company’s potential and strategic initiatives continue to exist. Following the transactions surrounding the merger of ASM Rovereto and SIT Trento into Trentino Servizi (which already held a controlling stake in those companies), ASM’s stake in Trentino Servizi fell from 20% to 14.79%. In 2004, a reserved capital increase without pre-emption rights was carried out for the purpose of facilitating the entry of a new shareholder. The capital increase was accomplished via the transfer of a business complex including power plants in the town of Ala. Following this transaction, ASM’s stake fell further to 14.48%. Since ASM’s influence continues to be significant, it was deemed appropriate to keep this company among its affiliated companies in light of the business agreements and relationships between shareholders.

In Trentino, a major reorganisation of service companies is under way. Dolomiti Energia (hydroelectric power generation), SET (the former ENEL distribution grid) and several other small local entities are to be combined with Trentino Servizi.

In 2006, ASM collected EUR 911,000 in dividends approved and distributed by Trentino Servizi.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 113

Other investments in affiliates. During the period Eurosviluppo Elettrica SpA changed its name to Ergosud SpA. The current mission of this company, which is 50%-owned (the remainder is owned by Endesa), is to build a thermoelectric plant in Calabria.

Up until 31 December 2005, ASM held a 36.11% stake in Itradeplace SpA, which was valued at EUR 542,000. In 2006, the subsidiary Selene, which already owned 13.89% of this company, acquired its entire share capital by buying 36.11% from ASM and the remaining 50% from minority shareholders. The sale of the equity investment did not result in a capital loss or gain for ASM.

Lombardia Gas Trader was put into liquidation earlier this year.

C’E’ Gas Srl, which was valued at EUR 57,000 at 31 December 2005, was written down by EUR 56,000 due to significant losses reported during the previous year. Finally, ASM holds a 44.48% stake in Comuni Associati Valtrompia Gestioni, which is in liquidation, and 30% of Enerfin Srl, also in liquidation. The value of these equity investments was fully written down in previous periods, and thus does not appear in the above table.

1.5 Other holdings

31.12.06 31.12.05

Other holdings 19.973 20,246

% owned Gross book value - Infracom SpA (*) 1.60 7,068 - Immobiliare Fiera di Brescia SpA 9.20 5,532 - Autostrade Lombarde SpA 2.50 2,484 - Autostrade Centro Padane SpA 1.63 1,386 - Emit SpA 10.00 1,247 - Brescia Mobilità SpA 0.33 598 - HERA SpA (*) 0.01 423 - Bergamo Energia SpA (*) 5.00 248 - AQM Srl 11.4 240 - Fravt Srl 6.53 180 - Isfor 2000 SpA 4.94 153 - Camuna Energia Srl (*) 14.50 131 - Cons. Innov. Tecnologiche Srl 10.89 100 - Livo Srl 10.00 59 - Ecoisola SpA (*) 13.06 37

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 114

- Liro Srl 10.00 32 - Gardone 2002 SpA 4.70 24 - Banca PMI 0.0001 10 - LEAP Consortium 10.53 10 - Acb Servizi Srl 5.00 5 - Cramer Scrl 6.67 5 - Tre Valli SpA in liquidation 7.54 1 19,973

In 2006 the search for partners interested in purchasing the 0.5% stake in Earchimede held by ASM at 31 December 2005 was concluded successfully. As indicated earlier in the accounts for the previous period, the sale occurred at a value of EUR 1.04 million. This value, at which the ASM stake was reported in the accounts, reflected the portion of equity held in the company.

Following several increases in share capital, the value of the stake held in Immobiliare Fiera di Brescia increased during the year from EUR 5.12 million to EUR 5.53 million, and the value of the stake held in EMIT increased from EUR 943,000 to EUR 1.25 million. As part of the process to rationalise equity investments held by ASM, minority interests in SAAB SpA, Valcavallina Servizi and Codif Scrl were sold in 2006. The sales did not result in a loss since they were all sold at book value given their small size.

As regards the attribution of a fair value to equity investments other than those in subsidiaries and affiliates, please note that Hera is listed on the Italian stock market. At 29 December 2006, the value of the stake according to closing prices was EUR 423,000, compared to a purchase price of EUR 195,000.

Furthermore, it is reasonable to assume that the book value of the stake in Infracom SpA is accurate in view of other acquisitions of shareholdings in 2005 that followed ASM’s purchase of a 1.6% interest in the company.

In respect of Immobiliare Fiera di Brescia, we report that this company has recently completed its start-up phase and is now preparing to become fully operational. The company Autostrade Lombarde, which is to build a new motorway between Brescia and Milan (BreBeMi), is also at this stage of development. For these companies the valuations that led to the investment being made remain unchanged pending confirmation of their acquisition values when their respective missions are completed.

For the remaining companies, whose value in terms of portion of equity held or value recorded in the accounts is not significant, an active market cannot be identified and there is no information available that can be used to determine the fair value of the investments in a reliable manner. The valuation of these equity investments thus remained unchanged, at cost.

1.6 Other financial assets

31.12.06 31.12.05 Related to subsidiaries

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 115

- Loan to Abruzzoenergia 921 689 - Receivables from CIGE for extraordinary 27,197 47,675 operations - Interest-bearing loan to Seasm 2,723 2,865 Related to affiliated companies - Subscription of Sviluppo Turistico Lago d’Iseo 260 260 bonds 31,101 51,489

Following transactions that led to the purchase of a 22.75% stake in AbruzzoEnergia from several minority shareholders, portions of a receivable related to AbruzzoEnergia and an interest-bearing loan that the shareholders made to the company (maturing on 31 December 2006) were purchased. As a result of this transaction, the value of the receivable rose by EUR 232,000.

The receivable from CIGE for extraordinary operations includes the net balance of the following items: • Receivable for the purchase of equity investments from ASM: EUR 47.68 million • Payable for settlement from transfer: EUR 20.48 million

The receivable for the purchase of equity investments, already reported at 31 December 2005, refers to an item opened in previous years as the remaining unpaid balance for the sale of several companies originally owned by ASM to CIGE in the last quarter of 2003. Specifically, the receivable concerns the equity investment in Tidone Gas (EUR 25.30 million), Gastecnica Reggiana (EUR 8.08 million), Alfa Metano (EUR 7.10 million) and Gas Orobica (EUR 7.20 million). These companies were then merged into CIGE. The payable for the settlement from a transfer refers to the amount owed by ASM following the change in the net balance of the division transferred between the evaluation reference date (31 December 2005) and the date it was actually transferred to CIGE (1 October 2006). Given the decrease in the net appraised value resulting from ordinary operations, ASM must pay EUR 20.48 million to the subsidiary CIGE.

Note that since ASM began the process of merging Valgas, and since Valgas is a creditor of CIGE in the amount of EUR 16.87 million for the sale of its gas division, CIGE will be a debtor to ASM for a total of EUR 44.07 million. In order to adjust the credit exposure to CIGE, at the beginning of 2007 ASM will partially waive the receivable from the subsidiary in an amount totalling EUR 43 million, with a concurrent increase in shareholders' equity by CIGE (including EUR 3 million in capital and EUR 40 million as a capital reserve). Thus, from next year, these amounts will be recorded at the higher value of the equity investment.

Receivables from Seasm refer to a EUR 3 million loan granted on 11 February 2004. The loan term is 15 years The loan accrues interest at the 9-year IRS rate plus 1.2%. Repayments are made every six months.

Finally, this item includes the value of a bond issued by Società Turistica Lago d’Iseo. The value of the receivable is considered to be broadly in line with the fair value.

1.7 Assets for derivative valuations

At 31 December 2006, this item related chiefly to hedging instruments used by ASM and the group. As stated in the report on operations, the ASM group uses hedging strategies which are recorded in the accounts pursuant to IAS 39. ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 116

Assets for derivative valuations relate to contracts for differences on commodities (electricity), which at year- end had a positive mark to market of EUR 543,000. These values were booked to the profit and loss account pursuant to the above-mentioned accounting standard.

This item also included EUR 17,000 for an interest-rate collar signed by ASM for its variable-rate loans.

Further information required by law and the main international accounting standards on the financial derivatives held by ASM are appended to this report.

1.8 Receivables for deferred taxes

At 31 December 2006, the deferred tax position was as follows:

31.12.06 31.12.05

Deferred tax on provisions and reserves 13,622 7,878 Deferred tax on capital grants received from public sector 1,242 1,086 bodies Deferred tax on capital grants received from private sector 3,028 2,894 organisations Deferred tax on capital grants in respect of the “tax clean- 641 886 up” Deferred tax on plant write-downs 2,996 2,996 Deferred tax on write-downs in respect of meters 1,676 1,676 Deferred tax assets on excess loan write-downs 405 405 Deferred tax assets on write-downs of equity investments 218 437 Deferred tax assets on derivatives 4,303 -2,112 Deferred tax assets on small items 32 110 Deferred tax on Plurigas tax disclosure scheme - 207 Deferred tax on taxation of goodwill - 199 28,163 16,662

Details of deferred tax assets recorded as of 31 December 2005 are set out below. 2006:

• Deferred tax on provisions and reserves. This relates to deferred tax assets recorded in respect of taxed reserves. Specifically, the reserves relate to stock obsolescence (please see the section on inventories for more details), the legal dispute with the local finance office (UTF), the INPS (Italian National Social Security) litigation, the reserve for the dispute concerning AEEG resolution 248/04 (see the section on reserves for more details) and other liability reserves. Note that the deferred tax assets relating to the provisions made for the INPS litigation and other provisions made in respect of personnel expenses, are recorded solely for corporate income tax (IRES) purposes. ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 117

Changes (EUR 000) Value at 31.12.05 7,878 Increases 7,025 Decreases -1,281 Value at 31.12.06 13,622

• Deferred tax on capital grants received from public sector bodies. The company receives capital grants from public sector bodies in relation to assets for which accelerated depreciation will be used for income reporting purposes. In accordance with tax regulations, these amounts are higher than those recorded in the profit and loss account, which merely states the economic and technical depreciation rate. In addition, the company has received capital grants under contracts with private sector organisations.

Changes (EUR 000) Value at 31.12.05 1,086 Increases 329 Decreases -173 Value at 31.12.06 1,242

• Deferred tax on capital grants received from private sector organisations. The company also receives capital grants based on contracts with private sector organisations. These grants (which from a statutory point of view should be recorded in the profit and loss account in accordance with the economic and technical depreciation rate of the assets to which they refer), are considered as wholly taxable income (article 85, paragraph 1, point g of presidential decree 917/86).

Changes (EUR 000) Value at 31.12.05 2,894 Increases 661 Decreases -527 Value at 31.12.06 3,028

• Deferred tax on capital grants in respect of the “tax clean-up”. Following the tax clean-up in respect of the surplus portion of capital grants posted to the profit and loss account in past financial years for the purpose of obtaining benefits that would not otherwise have been available, the related tax benefits are included in the deferred tax figure.

Changes (EUR 000) Value at 31/12/05 886 Increases - Decreases -245 Value at 31.12.06 641

• Deferred tax on plant write-downs. This relates to write-downs on assets relating to the Ponti sul Mincio plant (deferred taxes of EUR 2.64 million) in 2004 and to the Cassano plant (deferred taxes of 357,000). For plants that had been taken out of production but not yet physically scrapped at year end, an impairment expense (non-deductible) was recorded. Once the assets have been scrapped, these expenses will then be deducted.

Changes (EUR 000) Value at 31.12.05 2,996

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 118

Increases - Decreases - Value at 31.12.06 2,996

• Deferred tax on write-downs relating to meters. This relates to write-downs made in relation to electricity meters that are to be replaced by new electronic meters in the next financial year. As indicated in the section on tangible assets, an impairment test was carried out on the traditional meters still in operation to estimate their recoverable value. The relative amount of deferred tax was recorded in respect of the amount posted to the profit and loss account (EUR 4.5 million).

Changes (EUR 000) Value at 31.12.05 1,676 Increases - Decreases - Value at 31.12.06 1,676

• Deferred tax assets on write-downs of receivables exceeding the tax limit. This item relates to the non- deductible portion of write-downs of receivables from previous financial years, determined in line with statutory requirements.

Changes (EUR 000) Value at 31.12.05 405 Increases - Decreases - Value at 31.12.06 405

• Deferred tax on write-downs of equity investments. This item refers to the write-down of equity investments made in previous years, which could be offset against tax in equal amounts over five years pursuant to article 1, paragraph 1, point b) of legislative decree 209/2002 (which later became law 265/2002).

Changes (EUR 000) Value at 31.12.05 437 Increases - Decreases -219 Value at 31.12.06 218

• Deferred tax assets on derivatives. This item reflects the amount of taxes on derivatives reported under liabilities or shareholders’ equity pursuant to IAS 39. These liabilities are considered to be non- deductible and subject to taxation.

Value at 31.12.05 -2,112 Increases 4,303 Decreases 2,112 Value at 31.12.06 4,303

• Deferred tax assets on small items. This entry relates to several minor items (specifically service costs that are temporarily non-deductible).

Value at 31.12.05 110 Increases -

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 119

Decreases -78 Value at 31.12.06 32

• Deferred tax on Plurigas tax disclosure scheme. As indicated above, starting in 2004 Plurigas SpA and its shareholders (ASM Brescia, AEM Milano and Iride) opted to comply with the provisions of the tax disclosure scheme set out in the new text of article 115 et seq of presidential decree 917/86. Up until the previous year, ASM reported current and deferred taxes related to Plurigas's tax position in its accounts in proportion to the stake held in the company (30%). However, based on interpretation document no. 2 of the Italian accounting body in 2006, it was determined that to achieve full disclosure, companies must report the results of their current and deferred tax positions in their accounts. Together with the other entities noted above that comply with the disclosure agreement, ASM opted to adopt the interpretation contained in the aforementioned principle starting this year, and released the amount of receivables and payables relating to Plurigas’ deferred (and current) taxes that were allocated in the accounts for the previous year, resulting in an overall insignificant impact on the profit and loss account.

Changes (EUR 000) Value at 31.12.05 206 Increases 0 Decreases -206 Value at 31.12.06 0

• Deferred tax assets on the taxation of intangible assets. In previous years deferred tax assets were allocated for the temporarily non-deductible amortisation of certain intangible assets (due to different amortisation rates used for accounting and tax purposes). In this year, since this effect was deemed to be permanent, the related deferred tax assets were removed.

Changes (EUR 000) Value at 31.12.05 199 Increases 0 Decreases -199 Value at 31.12.06 0

As indicated in the section on accounting policies, deferred tax is calculated using the theoretical tax rate (33% for IRES and 4.25% for IRAP, where due).

1.9 Other assets

At 31 December 2006, other assets broke down as follows:

31.12.06 31.12.05

Costs incurred in converting users to gas and 5,880 4,607 district heating Management expenses for buildings owned by 1,242 1,165 third parties Other payables 1,500 1,108 Receivables from affiliated companies: ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 120

- receivables from and advances to Ergosud for 36,216 4,352 future increases in share capital 44,838 11,232

The costs incurred in converting district heating and gas installations include the residual value of the cost of converting traditional heating systems for connection to the district heating network, and the cost of converting plants for methane gas operation. These costs are allocated to the profit and loss account over a period of five years.

Management expenses for buildings owned by third parties refer to the expenses incurred over several years to upgrade third-party installations as required by heat service agreements signed by ASM and other group companies. These expenses are allocated to the profit and loss account over the term of the agreements in proportion to the related revenues.

This item also includes receivables for the future capital increase for Ergosud, which is currently in start-up phase since it recently initiated the steps necessary to build a thermoelectric plant in Calabria. Of the increase over year-end 2005, EUR 29.56 million was for advances to Ergosud for activities related to the construction of the Scandale power plant as noted above, and EUR 2.30 million was for contributions made to Ergosud for the future increase in share capital. In fact, the amounts paid in respect of increases in share capital are recorded under this item where these remained outstanding at 31 December. On completion of capital increases, the corresponding amount is added to the value of the holding, and if necessary, the percentage owned is amended.

“Other” includes receivables for security deposits (EUR 1.14 million) and amounts due from employees for loans, with respect to the portion due after 31 December 2007 (EUR 331,000) and for expense reserves (EUR 22,000).

1.10 NON-CURRENT ASSETS HELD FOR SALE

In 2005, ASM launched a large-scale project to replace traditional electrical meters with new electronic meters. This decision was based on the need for technologically-advanced instruments to improve consumption measurement and provide greater synergies with the rest of the electricity chain. In resolution 292/06, the AEEG recently determined that by 2011 all companies in the electricity sector must install electronic meters in place of traditional meters. ASM is the only Italian company, along with Acea and ENEL Distribuzione, that has already begun and substantially completed this process. At 31 December 2006, about 206,000 traditional meters had been replaced including 37,000 meters installed in 2006, thereby largely completing the programme to replace all traditional meters. Moreover, following the issue of the resolution, the sales programme launched at the end of the previous period was delayed.

ASM decided to initiate a search, in the second half of last year, for potential buyers of the traditional meters being replaced. Therefore, around 116,800 meters were warehoused pending sale. It should also be noted that at the beginning of 2007 an exchange agreement will come into effect with a leading supplier resulting in the exchange of about 36,000 meters for new electronic ones. In compliance with international accounting standards (IFRS 5), ASM classified the meters to be sold in a specific section of the balance sheet, and valued them at the lower of their net book value and fair value, less expected sales costs. The fair value of the meters was determined using prices taken from list prices in the used meter market. Thus, of the EUR 1.27 million reported at 31 December 2006, EUR 682,000 was for the meters that ASM will provide in exchange to the supplier, and EUR 584,000 was for the value of meters for which the sales ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 121

programme was initiated; adjusted for the write-down made during the year to account for the negative performance of the sales programme.

CURRENT ASSETS

1.11 Inventories

Inventories break down as follows:

31.12.06 31.12.05 Gross Write-downs Net value Net value value Raw materials, supplies and 24,542 -4,988 19,554 14,597 consumables Contract work in progress 4,535 - 4,535 3,755 29,077 -4,988 24,089 18,352

Inventories largely consist of materials and equipment predominantly used in maintenance and operation of plants in operation, materials needed to extend distribution grids and fuels. This item reflects the ordinary requirements of such stocks. The inventory valuation has been adjusted to take into account materials with a long turnover time through the establishment of an obsolescence reserve. This reserve rose by EUR 593,000 during the current year based on the performance of turnover ratios for stocks.

Contract work in progress relates to orders from third parties.

1.12 Customer receivables

This item relates to customer receivables, and is shown after write-down provisions as follows:

31.12.06 31.12.05

Customers 102,813 91,692 Unmetered customers 2,998 2,784 Less: Write-down reserve (receivables) -5,576 -5,140 100,235 89,336

All receivables from franchise customers fall due in the next financial year. Receivables from the GRTN for electricity sales totalled EUR 22.64 million.

The receivables listed for unmetered usage customers consist of the portion of bills relating to 2005 but issued after 31 December in respect of waste water treatment and sewerage.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 122

The increase in customer receivables versus the previous year was due to higher energy raw material prices.

Write-down reserve (receivables)

Changes in the write-down reserve are shown below.

Value at 31/12/05 5,140 Increases 480 Decreases -44 Value at 31.12.06 5,576

1.13 Trade receivables from related parties

Receivables from related parties break down as follows:

31.12.06 31.12.05

Receivables from subsidiaries 218,448 253,582

Receivables from affiliated companies 8,624 3,740 Receivables from controlling shareholders 6,963 10,606

Receivables from other related parties 2,507 3,181

236,542 271,109

Receivables from subsidiaries

This item is related to companies over which ASM exercises control as defined in IAS/IFRS and article 2359 of the Italian civil code. These companies are indicated in the comments on investments in subsidiaries and affiliated companies.

These receivables break down as follows:

31.12.06 31.12.05 Services and supplies 172,810 208,218 VAT 34,336 30,353 Tax consolidation scheme (IRES) -- - Due from Retragas 72 256 - Due from Sinergia - - - Due from Retrasm 77 266 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 123

- Due from Selene - 850 - Due from ASM Energy 1,669 1,232 - Due from Aprica Studi 92 83 - Due from Tidonenergie - 539 - Due from CIGE 707 307 - Due from Asmea 1,647 738 - Due from Valgas - 274 - Due from BAS SII 416 466 - Due from BAS Power 1,138 - - Due from BAS-Omniservizi 55 -

- Due from Seasm 7 -

Due from ASMEA for A3 GRTN CCSE component 5,422 -

Due from ASMEA in relation to former ENEL user - 10,000 division

218,448 253,582

Receivables for goods and services are mainly related to services provided by ASM as a part of service and supply contracts with other group companies.

The receivables for VAT and the tax consolidation scheme were for ASM's positions in relation to subsidiaries in order to comply with the group’s VAT position and the provisions of the national consolidated tax scheme (see the comments at the beginning of these notes to accounts). Specifically, receivables in respect of the IRES tax consolidation scheme refer to the positions transferred by companies participating in the scheme as set out in article 117 et seq of presidential decree 917/86, whose tax position shows a negative net balance (taking into account both the tax due and payments made on account).

The receivable from ASMEA totalling EUR 10.00 million reported in the previous year represented the remaining unpaid amount relating to the transfer of electricity customers in the division that ENEL sold to ASM involving a portion of the province of Brescia. This receivable was paid off in 2006.

No write-downs were made in respect of receivables from subsidiaries as they are expected to be recovered.

Receivables from affiliated companies

This item is related to companies over which ASM exercises significant influence as defined in IAS/IFRS and article 2359 of the Italian civil code. These companies are shown in the comments on investments in subsidiaries and affiliated companies. Specifically, this item included EUR 5.28 million from Endesa.

Receivables from controlling shareholders

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 124

This item relates to receivables from the Brescia local authority for goods and services, namely, urban regeneration programmes carried out under a memorandum of understanding signed by the parties. Please see the report on operations for further details.

31.12.06 31.12.05 Receivables for the payment of street light services – 2,386 2,282 second half Receivables for supplies 2,266 1,278 Receivables for complementary waste handling services – 139 207 second half Receivables for accrued building management services 548 1,440 Receivables for 2004-2005 work on Marchesina irrigation - 1,004 ditch Receivables for extension work on gas grid - 496 Receivables for other goods and services 1,624 3,899 6,963 10,606

Receivables from other related parties

The other related parties identified are those which, based on IAS 24 and the significance of the transactions carried out with ASM, can be considered “related parties.”

The main receivable reported under this item relates to the Bergamo local authority.

1.14 Financial receivables from related parties

Financial receivables from related parties break down as follows:

31.12.06 31.12.05

Receivables from subsidiaries 29,210 12,202 Receivables from affiliated companies 1,504 2,460 30,714 14,662

Financial receivables from subsidiaries

31.12.06 31.12.05

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 125

from Selene (positive cash balance) 9,887 1,858 from Valgas (positive cash balance) 12,279 9,318

from ASM Energy – positive cash balances 6,866 -

from other minor companies 178 220 from Retrasm (positive cash balance) - 806 29,210 12,202

The company has a cash pooling agreement with several group companies that transfer negative (or positive) balances in their cash and cash equivalents to the parent company. These balances accrue interest income (or expense) payable to (or due from) ASM on the basis of rates set out in agreements.

Financial receivables from affiliated companies

This item refers entirely to the positive cash balance in relation to GeSI.

1.15 Receivables for current taxes

This item breaks down as follows:

31.12.06 31.12.05 Receivables from public authorities: VAT receivables 1,381 6,614 Receivables in respect of advance staff severance fund 207 601 payments Receivables in respect of withholding tax (law 412) 877 856 Tax/withholding tax/corporate income tax (IRES) credits 184 184 Other receivables 540 472 Receivables from regional authorities for grants/excise duty/advance regional tax (IRAP) 125 294 3,314 9,021

1.16 Other receivables

At 31 December 2006, these receivables comprised:

31.12.06 31.12.05 Receivables from co-owners of Mincio and Cassano power 35,654 32,432

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 126

plants Advances to employees 333 689 Receivables from electricity equalisation fund (CCSE) - for credit relating to the continuity of supply grant 1,400 700 - for equalisation of charges for power distribution 478 778 - for green certificates (Montichiari biogas plant) 703 703 - for energy efficiency certificates 2,882 - Receivables in respect of fuel excise duty 116 233 Advances and payments on account to suppliers 1,972 781 Receivables for waste water treatment/sewerage – 4th - 3,871 quarter Insurance premiums and property tax/other 1,679 2,501 Other minor items 1,584 810 46,801 43,498

Receivables from the Cassa Conguaglio (compensation fund for the electricity sector) relate to the new provisions for the general standardisation of electricity charges introduced under AEEG resolution 5/04. Since some group companies are entitled to receive this income, a conservative amount was included in this year ending 31 December 2006, based on the accruals principle. The receivable for continuity of supply represents the amount due from the AEEG for efficiency in limiting unscheduled interruptions to the electricity supply.

The receivable from CCSE for energy efficiency certificates reflect the value of these certificates in relation to energy-saving projects for which the AEEG successfully concluded testing and recognised the right to register for these certificates. These certificates are recorded at the prices set by the AEEG and paid to the company at the time of the periodic annulment procedures for certificates corresponding to the annual objectives set for distributors by the AEEG.

Receivables for waste water treatment/sewerage in the previous year related to the portion of revenues pertaining to ASM but billed by water services companies. These were paid to ASM in early 2006.

Receivables from co-owners were largely due to goods and services charged to other joint owners. With regard to the Mincio plant (co-owners: ASM Brescia SpA, AGSM Verona SpA, AIM Vicenza and Trentino Servizi), ASM covers the running costs (mostly fuel) and charges its co-owners the appropriate amount according to their share in the plant. This item also includes receivables from these parties in respect of the dispute regarding water usage fees, described under the section “other payables”.

Receivables from co-owners of the Mincio and Cassano plants break down as follows:

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 127

31.12.06 31.12.05 AGSM Verona 18,294 23,202 Trentino Servizi 2,878 2,606 AIM Vicenza 2,902 2,181 AEM Milano 11,580 4,443 35,654 32,432

1.17 Current financial assets

This item is made up of government bonds.

1.18 Cash and cash equivalents

This item breaks down as follows:

31.12.06 31.12.05

Interest on bank and post office deposits 197,292 57,088 Cash and other negotiable instruments 143 104 197,435 57,192

The sharp increase in cash and cash equivalents was mainly the result of funding transactions carried out by the company to support investments projected in budgets and multi-year plans. Some of these investments, notably those relating to the construction of thermoelectric plants, have been partially deferred resulting in a shift of a few months in the original schedule.

Specifically, in light of the financial obligations that the construction of thermoelectric plants would require over the period, in 2006 the company issued a new thirty-year EUR 98 million bond denominated in yen (see comments on bonds). The features of this bond (thirty-year bullet, fixed-rate bond) and interest rate trends made it advisable to issue the bond in 2006, even though the proceeds will be specifically allocated only in the next period, which is consistent with the slight deferral of planned investments.

Temporary cash and cash equivalent balances are held in time deposits paying interest that is higher than normal market rates.

Shareholders’ equity

2.1 Share capital

The fully paid-up share capital totalled EUR 774.31 million. It consists of 774,305,358 ordinary shares, each

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 128

with a nominal value of EUR 1. ASM has not issued any preference or saving shares.

At year-end, no subsidiary held or had held any shares in ASM.

2.2 Capital reserve

This item included a share premium reserve of EUR 146.97 million, which was also reported in the previous year.

This item included EUR 58.88 million for the fair value designation of the capital increase carried out in 2005 to allow for the merger of BAS SpA into ASM. This reserve was created to reflect the booking at market value of the ASM shares issued following the merger with BAS. IFRS 3 requires the shares issued to be stated at the market value on the acquisition date (since ASM is a listed company) rather than at nominal value. In this case, 38,734,500 shares with a nominal value of EUR 1.00 were issued, with market value of EUR 2.52 per share on the date the controlling interest was acquired.

2.3 Other reserves

This item includes:

31.12.06 31.12.05

Legal reserve 27,995 20,282 Designated reserve 12,911 12,911 Reserve for own shares held -326 - Extraordinary distributable reserve 135,868 114,079 Sinking fund 131 131 Transfer-related reserve 28,456 - 205,035 147,403

The legal reserve was formed in accordance with article 2430 of the Italian civil code.

This reserve contains EUR 12.91 million earmarked by the shareholders’ meeting to cover the possible tax bill that may arise in the event of an adverse ruling emerging from the EU infraction procedure relating to the tax moratorium from which ASM benefited.

On 17 May 1999, the European Commission served an infraction procedure notice on the Italian government in relation to tax relief made available to companies operating as local public utilities which adopted SpA (public limited company) status under law 142/90.

The Italian authorities, to which the procedure was directed, presented their own observations to the Commission, in co-operation with the beneficiaries of the alleged aid, stating, in particular, that the measures referred to in the notice did not constitute state aid.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 129

At the end of the procedure, the Commission may decide that the tax relief regulations as a whole are unlawful or that they are incompatible with the European regulations on tax relief in respect of individual public services provided by companies.

In this case, the Commission could force the Italian government to recover the tax plus interest, although appeals may still be made to the competent authorities. The company may therefore have to pay, in whole or in part, the corporate income tax that would have applied without the tax relief, backdated to the start of operations (1 July 1998), until the end of the moratorium period (31 December 1999). As a precautionary measure, the shareholders’ meeting resolved that this reserve should not be distributable.

The reserve for own shares held represents the value of the remaining shares acquired as part of the share buy-back programme described above.

The specific distributable reserve is made up of profits not distributed in previous years.

The sinking fund is a reclassification of the share premium reserve, created for the bonus issue to increase the company’s capital. This item also includes EUR 28.46 million for a transfer-related reserve. As indicated at the beginning of these notes, this reserve was created in this period to reflect the difference between the book value for the gas distribution division transferred to CIGE (EUR 105.3 million) and the value resulting from the appraisal (EUR 133.8 million). In accordance with IFRS 3, this amount was allocated directly to a shareholders’ equity reserve.

2.4 Derivative valuation reserve

This reserve includes the valuation of the cross currency swap entered into in 2006 by the company in relation to the euro-yen exchange rate following the issuance of the thirty-year bond denominated in yen and maturing on 10 August 2036. The mark to market valuation of this contract at 31 December 2006 was a negative EUR 13.60 million, which, adjusted for the tax impact, totalled EUR 9.11 million.

Pursuant to IAS 39, the derivative concerned can be classified as a “cash flow hedge.” As a result, since the conditions were met for its valuation as a hedging instrument, the valuation was recorded directly in shareholders’ equity without passing through the profit and loss account.

2.5 Reserve for first-time adoption of IAS (IFRS1)

31.12.06 31.12.05

Listing expenses -13,578 -13,578 Other effects from the first-time adoption of IAS 14,131 14,671 553 1,093

This reserve relates to the effects on ASM of the first-time adoption of international accounting standards. The change from 31 December 2005 was solely due to the restatement to other reserves in this period.

The information required by article 2427, paragraph 1, point 7-bis of the Italian civil code is summarised in the table below.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 130

Amount Type Use Restrictions on distribution Share premium reserve 146,965 Capital reserve A, B, C, D Restrictions pursuant to article 2431 of the Italian civil code Reserve for fair value 58,876 Capital reserve A Restrictions pursuant to designation of capital article 6 of legislative increase for BAS decree 38/2005 Transfer-related reserve 28,456 Retained earnings A, B, D No restrictions Legal reserve 27,995 Retained earnings A Restrictions pursuant to article 2430 of the Italian civil code Designated reserve 12,911 Retained earnings A, B Restrictions voted by shareholders’ meeting Reserve for own shares -326 Negative reserve -- -- Extraordinary reserve 135,868 Retained earnings A, B, D No restrictions Sinking fund 131 Retained earnings A, B, D No restrictions Derivative valuation reserve -9,111 Negative reserve -- -- IFRS 1 reserve 553 Retained earnings A, B Restrictions pursuant to article 7 of legislative decree 38/2005

A = hedging against losses B = share capital increase via bonus issue C = increase in legal reserve D = distributable to shareholders (subject to restrictions on distribution)

2.6 Staff severance pay and retirement funds

Employee benefits break down as follows:

Value at 31.12.05 33,858 Service costs 2,082 Interest costs 2,434 Employee benefits paid -2,966 Decrease due to transfer of division to Cige -1,241 Value at 31.12.06 34,167

The total amount for employee benefits in 2005 also included a pension reserve of EUR 12,000 resulting from the acquisition of the ENEL division. This reserve was released in 2006. ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 131

The valuation of employee benefits was carried out by an independent expert using the “projected unit credit method.” The valuation was based on the following:

Discount rate: 4.25% Inflation rate: 2% Annual growth rate of staff severance fund: 3% Mortality: ISTAT figures for 2000 Incapacity: INPS statistics broken down by age and sex Retirement age: as set out in Assicurazione Generale Obbligatoria (Italian national insurance) regulations Frequency of advance payments: 4% Staff turnover: 2%

Actuarial losses, which were posted directly to the profit and loss account, totalled around EUR 1.1 million.

Starting 1 January 2007, the budget law and related implementation decrees introduced significant changes in the rules governing the severance fund, including the worker’s ability to choose how his/her accruing fund will be used. Specifically, employees may direct new staff severance funds to pre-selected retirement funds or they may be maintained at the company (in which case the latter will make severance fund contributions to a treasury account set up at INPS). At present uncertainty regarding the interpretation of this recently enacted regulation, the potentially different interpretations of the qualification of the accruing staff severance payments under IAS 19 and the resulting changes in actuarial calculations regarding accrued staff severance payments, as well as the inability to predict the choices made by employees on the investment of accruing staff severance pay (for which employees have been given until next 30 June to decide) make any assumptions premature regarding the actuarial changes in the calculation of accrued staff severance pay at 31 December 2006.

2.7 Deferred tax reserve

The components of this reserve and a breakdown of changes are shown below.

Value at Increases/ Value at 31.12.05 decreases 31.12.06 Deferred tax reserve - on the payment of grants pursuant to art. 102 2,702 137 2,839 bis of the TUIR - on accelerated depreciation for income 51,575 14,827 66,402 reporting purposes - on tax clean-up 37,091 -6,609 30,482 - on capital gains arising from asset transfer 1,584 -792 792 (former BAS) - on valuation of staff severance reserve 502 -230 272 pursuant to IAS 19 - on bond 208 -130 78 - on taxation of goodwill 2,271 1,136 3,407

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 132

- other small amounts 2,129 -757 1,372 98,062 7,582 105,644

The “deferred tax reserve” relates largely to provisions allocated in the accounts to cover depreciation and amortisation deducted to obtain tax benefits when reporting income to tax authorities.

“Deferred taxes on the payment of grants and depreciation pursuant to article 102-bis of the TUIR law” refers to the provisions of the budget law 2006, which significantly amended the depreciation tax rates in respect of assets held by companies operating in the gas and electricity transport and distribution sectors. The new legislation requires that any decreases in the amounts issued on the capital grants account or depreciation are included in the income declaration and deferred taxes apportioned accordingly.

The reserve for deferred taxes on accelerated depreciation relates to taxes calculated on depreciation charges shown solely in the declaration of income.

The deferred taxes for the tax clean-up relate to the calculation made as of 1 January 2004 to release from the accounts the depreciation charged to the 2004 profit and loss account that was in excess of the economic and technical depreciation rate.

The reserve for deferred taxes on capital gains arising from the asset transfer from BAS relates to the transfer of a business division to BAS Power, which amounted to EUR 12 million originally, divided into instalments over five years (solely for IRES purposes). Deferred taxes of EUR 792,000 will be paid each year until the reserve is used up.

The deferred tax reserve on the valuation of the staff severance reserve pursuant to IAS 19 relates to the difference in value between the liability resulting from the application of the actuarial methodology required by IAS/IFRS and the calculation criterion specified in article 2120 of the Italian civil code, as dictated by tax laws.

The deferred tax reserve on the bond is related to the financial impact resulting from the application of the amortised cost methodology with respect to the amortisation calculated on additional bond issuance charges.

Deferred taxes on goodwill refer to the fact that under the new tax laws, goodwill amortisation is deductible over 18 years. In the accounts, goodwill is no longer amortised on a straight-line basis, but is subject to the calculation of impairment required by IAS 36.

Deferred taxes on small amounts refer to a number of items that temporarily have no relevance for tax purposes, and individually are of an insignificant amount.

Taxes are calculated using the theoretical tax rate of 37.25% (33% for IRES and 4.25% for IRAP).

2.7 Reserve for risks and future liabilities

Changes in the reserve for risks and future liabilities are shown below.

Value at Value at 31.12.05 Increases Decreases 31.12.06

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 133

Tax risk provisions: - UTF (local tax office) dispute 4,042 1,135 - 5,177 - tax risks - 300 - 300 4,042 1,435 - 5,477

Provisions for risks: - pursuant to law 336/70 67 - -9 58 - risks associated with foreign 447 -2,108 575 2,236 markets - gas tariff risks - 2,000 - 2,000 - risks associated with energy - 10,000 - 10,000 equalisation payments - risks associated with 3,527 229 - 3,756 contributions payable - risks for litigation: AEEG - 1,930 - 1,930 resolution 310/06 - disputes relating to former ENEL 18 - - 18 company - labour dispute at former BAS 332 - - 332 - risks associated with Premungas 231 - -58 173 6,411 14,606 -2,175 18,842 Provisions for future liabilities: - plant closure expenses 2,667 113 - 2,780 - environmental clean-up in - respect of demolition of gas 404 17 421 turbine 3,071 130 - 3,201 13,524 16,171 -2,175 27,520

The provisions for the UTF (local finance office) dispute have been earmarked to cover the tax on methane gas consumption in respect of gas used to generate thermal energy supplied to the Brescia health authority. Specifically, in its first payment notice, the UTF asked the company to pay higher excise duties and did not recognise the subsidy for the industrial use of the gas used by the Nord plant until 2000. ASM established a reserve, which at 31 December 2005 totalled EUR 4.04 million, and which is regularly increased for interest and late payment charges in anticipation of the conclusion of the legal procedure in which ASM won out in both the trial and appeal courts. The company is currently awaiting the decision of the court of cassation.

In 2006 the UTF issued another payment notice for the years 2001 to 2005. This notice totalled EUR 1.99 million and included a portion of interest for the first assessment that the company had already set aside in ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 134

previous years. The company prudently created a provision for the higher amount of taxes contested totalling EUR 1.14 million, pending the final outcome of the outstanding legal issue.

The tax risk reserve created in this period totalled EUR 300,000 and was for the assessment of the risk associated with the inspection conducted by the tax office in the first half of 2006 at the former BAS for the year 2003 (direct and indirect taxes). Since the former BAS was merged with ASM, any additional taxes assessed will have an impact on ASM’s accounts. The estimate reflects the projected conclusion of the dispute in light of observations made by tax experts, which the company is using to contest the assessment made.

The provisions for risks associated with foreign markets relate to the full hedging of risks resulting from business in Argentina developed by the BAS group. Specifically, the former BAS held a 30% stake in Enerfin Srl, a company now in liquidation that controls a holding company incorporated in Argentina (HISA SA), which in turn controls two gas distribution companies in two Argentine provinces. Owing to the economic downturn in Argentina, the operating companies were not able to meet their original targets. In December, ASM, in agreement with other Enerfin shareholders, took on a pro-rata share of the debt that Enerfin had incurred with MCC, the company’s sole creditor. As a result, ASM used EUR 2.11 million, which had been set aside in previous years, to pay the portion of that loan that had already matured (EUR 1.15 million). In addition, financial liabilities totalling EUR 948,000 were allocated for maturing instalments of this loan, which will mature fully by the end of 2008. Finally, EUR 15,000 was used to pay the company’s smaller debts. The increase in the reserve was for litigation initiated by the former BAS with an Argentine supplier. For prudential reasons, and in the expectation that the legal procedure would continue, the reserve was adjusted during the year based on information obtained by our Argentine legal counsel.

In 2006, the company made provisions for risks associated with disputes resulting from the possible application of AEEG resolutions 248/04 and 298/05 on gas prices. In 2005, resolution 248/04, which like 298/05 is intended to revise the indexing mechanisms for gas sales prices, was the subject of litigation filed by sales companies that are opposed to the AEEG measures. In the first half of 2006, the High Court heard the AEEG's appeal and found in favour of Hera Trading and against the other sales companies.

In 2006 the High Court met in a plenary session and confirmed, for the legal disputes that have so far been settled, that it would be impossible for the AEEG to launch appeals in all cases where the deadline set by the regulations had passed (as in the case of the ASM group companies). However, the High Court recognised that the AEEG could issue new resolutions to normalise gas tariffs, which were already covered by resolution 248/04. In 2007 the AEEG issued resolution 12/07 in which it announced the beginning of a procedure aimed at adopting measures concerning criteria for updating the terms for supplying natural gas commencing 1 January 2005.

Pending the definitive conclusion of the administrative and legal procedures, and given the difficulties in quantifying potential liabilities, the risk relating to the conclusion of this dispute is considered to have increased compared to the assessment made at the end of 2005, and as a result, a provision of EUR 2 million was made in the period.

Provisions for estimated energy equalisation payments refer to possible equalisation payments that will have to be made to some users as regards their energy supply.

The provisions for risks associated with contributions payable relate to the claim made by the INPS (Italian social security agency) in respect of child benefit contributions (CUAF). In a letter sent to ASM Brescia SpA, dated 25 October 2002, the Brescia branch of the INPS confirmed that the reduction applied to CUAF and maternity contributions was not allowed thereby contradicting an earlier note issued by INPS.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 135

The company, in conjunction with other sector companies, and supported by the opinions of its legal team, intends to oppose any (to date, unquantifiable) demands from the INPS.

The reserve for the dispute over AEEG resolution 310/06 concerns a sanction received in December 2006 regarding the method for structuring gas tariffs in the area of switches (changing sales companies). ASM believes the AEEG’s claims are unfounded, and is in the process of filing an appeal with the regional administrative court. It will take action in all appropriate jurisdictions to reverse the sanction, since it believes it is groundless and unjust in the amount assessed.

The provision for former ENEL litigation relates to the business division acquired from ENEL SpA and did not change in 2006.

The provision for the labour dispute at the former BAS refers to a labour dispute against the company initiated by former BAS employees.

The provisions relating to Premungas are intended to cover the cost of adjusting some salary components of 13 gas service employees in accordance with the Federgasacqua national collective agreement of 4 April 1974.

The provision for plant closure expenses, which is also included in this item, was created to cover environmental cleanup expenses at the Mincio plant.

Over the last year, a new reserve has been established for environmental clean-up operations in respect of the demolition of the gas turbine in Mincio, as required by the agreement reached with the competent authorities. The provisions for plant closure expenses and those for environmental clean-up in respect of the demolition of the gas turbine were calculated in compliance with the method set out in IFRIC 1.

2.9 Liabilities for derivatives valuations

This item includes liabilities relating to derivative contracts that may generate a capital loss.

Liabilities for the fair value designation of derivatives included: • EUR 13.60 million for the negative mark to market valuation of a derivative entered into by ASM relating to a swap on the euro-yen exchange rate, both for the principal and the interest with the bond issued in August 2006 as the underlying asset. The balancing entry for this derivative, less the related tax effect, is a shareholders’ equity reserve, in accordance with the cash flow hedge method set out in IAS 39. • EUR 188,000 for the negative fair value tied to a derivative on electricity price agreements with differentiated rate regulation that could potentially generate a capital loss.

2.10 Bonds

This item refers to two bond issues launched by ASM.

The first, issued on 28 May 2004, is listed on the Luxembourg market, and is worth EUR 500 million. The issue comprises ten-year bearer bonds with a nominal value of EUR 100,000 and a fixed coupon of 4.875%. The rate of return of 5% and value of EUR 496.19 million were calculated using the amortised cost method.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 136

There are no specific covenants linked to the bond, apart from those relating to the insolvency of the issuer or the group’s main companies.

The second bond, issued on 10 August 2006 in a private placement, is worth EUR 98 million. This thirty-year bond is denominated in yen, as it was fully subscribed by the Japanese branch of a leading US insurance company. The bond carries a fixed coupon of 5.405%. The rate of return of 5.44% and value of EUR 97.49 million were calculated using the amortised cost method.

There are no specific covenants linked to this bond either, apart from those relating to the insolvency of the issuer or the group’s main companies.

2.11 Debt and other financial liabilities

This item includes the non-current portion of financial liabilities.

Due after 5 Total years Loans 188,265 78,133 Payables to other financial 1,542 445 institutions 189,807 78,578

As of 31 December 2006, “loans” primarily consisted of loans from the EIB, IMI, Comit and Banco di Brescia.

“Payables to other financial institutions” refers to funding provided by the Lombardy region for new plant and equipment in the Polaveno (EUR 630,000) and Bergamo (EUR 397,000) areas, and for the separated waste facility in Buffalora (EUR 515,000).

2.12 Liabilities for landfills

Liabilities for post-closure landfill charges cover the total cost likely to be incurred in the future (as supported by independent expert reports) to limit the negative environmental impact from landfills operated by ASM, together with future costs associated with the post-closure management of such landfills. The post-closure management period has been estimated at 50 years from the date when each landfill site is expected to be closed. This period has been determined on the basis of EU forecasts (as incorporated into Italian law), which envisage a minimum period of 30 years, together with technical evaluations supported by external expert reports. The portion of costs relating to the period was calculated based on the proportion of the site filled. The estimate of the closure and post-closure management costs has been reviewed by a specialist company that has issued a certificate confirming the accuracy of the amounts forecast by ASM for the year-end.

The amounts for landfill costs are shown in the following table:

Total % filled costs

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 137

Castegnato: post-closure management 12,349 100 Buffalora: post-closure management 10,352 100 Calcinato: 1st/2nd tank post-closure management – 14,051 100 operational 1st/2nd tank post-closure management – 73 100 Concession fees Montichiari: equipping post-closure – operating costs 2,058 91.46 post-closure – operating costs 25,690 91.46 post-closure – clean-up operations 10,542 91.46 Total 75,115

2.13 Long-term payables to related parties

31.12.06 31.12.05 Payables to controlling shareholder Residual principal on water treatment and sewerage loans 1,220 2,102 Residual principal on Cassa Depositi e Prestiti loan 1,091 1,404 2,311 3,506

The portion maturing beyond five years totalled EUR 154,000 (EUR 185,000 at 31 December 2005). These payables are of a financial nature.

2.14 Other liabilities

This item includes the deferred income from capital grants as detailed below:

31.12.06 31.12.05 Deferred income from capital grants: - Network installations/extensions 19,353 23,926 - other 2,653 1,957 - Street lighting installations 5,291 4,427 Sub-total 27,297 30,310 Deposits 7 15 Water usage concession fees 9,275 9,209

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 138

Local authority concession fees 1,132 1,430 Staff severance fund - Cassano 491 528 38,202 41,492

The item “deferred income from capital grants” includes network expansion grants paid by property developers for urbanisation investments relating to the expansion of the company’s network services, as well as amounts paid by customers for work relating to network connection that was not yet complete at the end of the year.

Water usage concession fees are payable to the Mantua Territory Office and relate to tax payments on water used by the Mincio power station. In previous accounting periods, the company received a notice of payment for a total of EUR 6.07 million. The company has disputed the notice, as it believes it is not payable under the decree awarding the concession. The payable is increased annually to incorporate accrued interest on the original amount requested.

CURRENT LIABILITIES

2.15 Current financial liabilities

This item includes short-term loans provided by several credit institutions as well as the current portion of loans and other loans provided.

It is broken down as follows:

31.12.06 31.12.05 Current portion of loans 19,206 19,642 Short-term bank loans 6,733 2,153 Current payables to other financial institutions 393 393 26,332 22,188

2.16 Payables to suppliers

The total amount falls due in the next accounting period.

2.17 Trade payables to related parties

31.12.06 31.12.05

Payables to subsidiaries 47,732 35,861 Payables to affiliated companies 26,190 29,946 Payables to other related parties 191 183 Payables to controlling shareholders for other 5,336 6,369 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 139

short-term debt 79,449 72,359

Payables to subsidiaries break down as follows:

31.12.06 31.12.05 For goods and services: - due to Asmea 18,690 7,247 - due to Selene 7,522 6,035 - due to Aprica 3,483 1,991 - due to BAS-Omniservizi - 6,680 - due to ASM Energy - 5,457 - due to other subsidiaries 843 1,955 IRES (tax consolidation scheme) - - - due to Assoenergia 1,207 - - due to Aprica 349 190 - due to Selene 190 - - due to Tidonenergie 589 - - due to Valgas 191 - - due to Asmea - 2,828 - due to BAS-Omniservizi - 316 - due to other companies 88 131

Other payables - - - due to Asmea for miscellaneous payables 1,622 1,601 - due to Bas II for VAT and sale of division 1,822 - - due to AbruzzoEnergia for VAT 8,726 - - due to CIGE for miscellaneous payables 2,410 1,430 47,732 35,861

Payables to subsidiaries are largely tied to services provided (gas, electricity and water in particular) by ASMEA or by other companies. Of particular interest are the IT services provided by Selene and waste collection and management services provided by Aprica.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 140

Payables to affiliated companies were almost entirely related to the affiliate Plurigas for gas supplies.

Payables to controlling shareholders comprise short-term payables to the Brescia local authority, which broke down as follows at 31 December 2005:

31.12.06 31.12.05

Concession fees 3,116 4,211 Network usage rental 1,433 1,388 Biomass usage 674 620 Other payables 113 150 5,336 6,369

The amounts under “concession fees” and “network usage rental” relate to fees for the electricity, gas and heating concessions, and rental for use of the water supply, sewerage and water treatment networks, payable by the company.

1.18 Financial payables to related parties

31.12.06 31.12.05

Payables to subsidiaries 35,090 53,610 Payables to other related parties 1,409 4,109 Current portion of payables to controlling 1,195 1,143 shareholders in respect of loans 37,694 58,862

Payables to subsidiaries break down as follows:

31.12.06 31.12.05 For centralised treasury balances - due to Asmea 7,489 14,770 - due to Assoenergia 3,672 7,331 - due to Aprica 5,169 9,323 - due to Aprica Studi 629 414 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 141

- due to BAS Power 2,500 2,500 - due to CIGE 10,670 6,686 - due to Retragas 2,790 6,370 - due to Retrasm 448 - - due to Sinergia 1,331 1,227 - due to Tidonenergie 392 - - due to ASM Energy - 4,989 35,090 53,610

As already noted, ASM has cash pooling agreements with nearly all subsidiaries. The payables above represent the cash balances that subsidiaries have transferred to ASM and that constitute payables on ASM’s books to those companies.

Of the payables to related parties, EUR 1.41 million (EUR 4.11 million at 31/12/2005) represents a payable to the Bergamo local authority for the sale of grids in 2002. This liability carries interest at the 3-month Euribor rate (flat).

Payables to controlling shareholders

31.12.06 31.12.05

Current portion of payables to controlling 1,195 1,143 shareholders in respect of loans 1,195 1,143

The item "water treatment and sewerage loans" relates to the portion of payables charged to the company by the Brescia local authority in respect of the concession for the management of this service. Pending novation of the financing contracts, this amount is payable to the Brescia local authority.

2.18 Current tax payables

As of 31 December 2006, this item included:

31.12.06 31.12.05

VAT 40 39 Corporate income tax (IRES) 28,201 1,404 Withholding tax payable on group and external staff 1,683 1,662 remuneration ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 142

To Bergamo province for waste management tariff 185 174 (TIA) Regional taxes and IRAP 4,257 413 Other taxes payable 164 206 34,530 3,898

2.20 Other payables

This item breaks down as follows:

31.12.06 31.12.05 Payments on account from customers 309 609 Payables to social security agencies 13,131 12,822

Short-term accrued liabilities and deferred 18,095 income 20,176 Other payables 46,633 63,184 80,249 94,710

Payments on account from customers mainly relate to advance payments for consumption.

Payables to social security agencies mainly relate to payables to the Italian social security agency (INPS) for December salaries and wages.

A breakdown of accrued liabilities and deferred income at 31 December 2006 is shown below.

31.12.06 31.12.05 Accrued liabilities: Interest payable on bonds 16,567 14,491 Interest payable on loans 192 88 Insurance premiums 89 106 16,848 14,685 Deferred income: Capital gain on the sale of grids to Retrasm 2,855 3,020 Other deferred income 473 390 3,328 3,410 Total accrued liabilities and deferred income 20,176 18,095

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 143

Accrued interest payable on bonds relates to net interest accrued at 31 December 2006.

In order to comply with the provisions of article 3, paragraph 20 of the Bersani decree, in 1999 the company transferred its transmission business to its subsidiary Reti Trasmissione Energia Elettrica ASM Srl. This business comprises the group’s high-voltage electricity grids. The transfer took place based on an evaluation carried out by an expert appointed by the court of Brescia and generated a capital gain of EUR 4.19 million. Maintaining a prudent approach (and since this was an extraordinary transaction with a subsidiary), the company decided to apportion the capital gain, which was recorded on the profit and loss account when the transfer took place in proportion to the depreciation relating to the assets transferred. The residual value of this capital gain at 31 December 2006 was EUR 2.86 million.

As at 31 December 2006, “other payables” broke down as follows:

31.12.06 31.12.05

Payables to co-owners of the Mincio and Cassano thermoelectric 12,822 27,312 plants Concession fees 779 1,107 Payables to employees 9,786 9,680 Payables relating to deferred income: fees relating to connection work not carried out 3,905 3,584 plant apportionment 2,154 1,616 other payables 1,692 7,237 Payables to electricity sector equalisation fund (CCSE) 1,227 1,438 Payables to GSE for accreditation certificates 7,262 5,979 Payables to the province in respect of landfill – WTE plant 3,349 1,781 Policy-related payables 1,509 1,136 Other minor payables 2,148 2,497 46,633 63,367

Payables to the co-owners of the Mincio and Cassano thermoelectric plants totalled EUR 4.08 million (EUR 13.56 million at 31.12.05) for AEM Milano, EUR 5.26 million (EUR 11.41 million at 31.12.05) for AGSM Verona, EUR 1.80 million (EUR 1.02 million at 31.12.05) for Trentino Servizi and EUR 1.69 million (EUR 1.34 million at 31.12.05) for AIM di Vicenza.

The item “payables relating to deferred income” includes network expansion grants paid by property developers for substantial urbanisation investments relating to the expansion of the company’s service network, as well as amounts paid by customers for work on connection to the company’s network that was not yet complete when the accounts were prepared.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 144

The amount payable to the grid operator GRTN (EUR 7.26 million) relates to the mandatory requirement for green certification with effect from 2001. As stipulated by article 11 of legislative decree 79/99, companies that produce or import electricity from non-renewable sources are required to input energy from renewable sources on the basis of electricity generated or imported from such non-renewable sources, pursuant to legislative decree 387/03 and subsequent revisions and amendments. ASM has accounted for the cost of acquiring the certificates as set out in the GRTN guidelines.

Commitments

This item includes: • sureties provided to subsidiaries and affiliated companies totalling EUR 349.54 million (EUR 63.73 million in 2005); • sureties provided to other companies totalling EUR 84.40 million (EUR 48.79 million in 2005); • Financial assets related to third parties (EUR 70,000), unchanged from the previous year; • Commitments in respect of assets leased from third parties of EUR 33.01 million (EUR 62.75 million in the previous year); • Commitments to third parties of EUR 1.44 million, largely unchanged from the previous year.

A large part of the increase compared to the previous year (EUR 284.30 million) was for sureties provided to the banks OPI and EIB to secure the loan obtained by Abruzzoenergia for equipment related to the Gissi power plant, EUR 19.00 million was for a surety to ENEL, on behalf of ASM Energy, to secure an electricity transport agreement, and EUR 10.28 million was for sureties provided to the Ministry of the Environment to secure waste transport.

The sharp decrease in commitments in respect of assets leased from third parties related to the value of the Bergamo local authority’s gas network which was transferred to CIGE following the sale of ASM gas networks.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 145

PROFIT AND LOSS ACCOUNT

3.1 Revenues from sales and services

Revenues from sales and services, broken down by sector, are shown below.

01.01.06 01.01.05 31.12.06 31.12.05 Revenues from sales: - Electricity 496,478 493,413 - Gas 243,842 179,942 - Water 20,886 21,640 - District heating 54,558 49,627 - District cooling 5,198 4,877 - Water treatment and sewerage 14,150 13,788 - Property management 19,774 18,472 - Street lighting 0 . Brescia local authority fees 4,726 4,448 . Bergamo local authority fees 3,228 3,280 . other municipal fees 57 52 . fees for cemetery lighting 427 420 - Street cleaning 0 . Brescia waste collection/ handling fees 21,638 21,378 . Bergamo waste collection/handling fees 12,830 12,252 . waste disposal to subsidiaries’ landfill and other 23,322 18,688 installations . waste disposal to waste-to-energy plant 34,914 29,959 . Bergamo waste disposal to bio-desiccator 4,384 2,507 . fees for separated waste collection 2,369 2,142 . other revenues 7,474 7,321

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 146

Revenues from the provision of services: - Connection and repositioning of meters 12,082 9,032 - meter reading fees 2,626 2,319 - Compensation for available production capacity/capacity 1,052 796 payment to GRTN - Electricity transmission, dispatch and balancing fees 58,168 52,562 - Power exchange fee 12,093 3,053 - Gas transmission, dispatch fee 16,202 29,320 - Heat transmission fee 20,215 20,708 - Other services provided 718 314 1,093,411 1,002,310

The above revenues were generated primarily in Lombardy, predominantly in the towns and provinces of Brescia and Bergamo.

The item "electricity" breaks down into the following classes:

01.01.06 01.01.05 Sales: 31.12.06 31.12.05

to ASMEA – franchise customers 83,061 80,827 to ASMEA/Energy/eligible wh.sale cust. – free mkt 190,897 274,100 electricity sold on the power exchange/to GRTN/to 222,520 138,486 Sole Buyer 496,478 493,413

Sales to the national grid operator include the payment for the sale of electricity to the GRTN (mainly generated by the WTE plant) pursuant to the agreement, reached on a preliminary basis on 28 November 1996 and effective from 27 October 1998, as required by resolution CIP 6/92. This resolution offers an eight- year incentive (which may be extended) to generate power from renewable sources, the value of which is included under the “contributions to operating costs” line of the “other income” section. Sales to GRTN totalled EUR 47.59 million.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 147

“Connection and repositioning of meters” refers to the following services:

01.01.06 01.01.05 31.12.06 31.12.05 Water 2,616 1,985 Gas 2,547 2,894 Electricity 5,222 3,618 District heating 797 49 Sewerage 900 486 12,082 9,032

“Waste disposal” also includes revenues for waste disposal services provided to neighbouring towns and the private sector as well as towns outside the province. Waste disposed of is shown in the table below, broken down by destination (in tonnes):

01.01.06 01.01.05 31.12.06 31.12.05

WTE plant 801,407 756,848 Montichiari landfill 311,189 313,723 Biocube 52,760 51,783 1,165,356 1,122,354

Revenues from sales and services provided to related parties

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Of which, revenues related to subsidiaries Asmea 539,209 465,977 Aprica 6,262 5,495 Bas Omniservizi 64,807 28,366 Asm Energy 4,352 45,371 Tideonenergie 23,109 19,222 Valgas 1,812 1,676

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 148

Azienda Servizi Valtrompia 1,109 1,157 Assonergia - 24,392 Other small subsidiaries 322 81 Of which, affiliated companies: - - Ergon - 94,427 Endesa 60,416 - Other related parties: - - Brescia local authority 10,806 10,488 Bergamo local authority 7,134 5,029 719,338 701,681

Revenues related to Asmea, the group’s sales company, were largely for the supply of electricity, heating, gas and other energy carriers. Revenues related to Bas Omniservizi and Tidonenergie were mainly for sales of gas. Revenues from Aprica SpA were for waste disposal services.

Revenues from Endesa were for the sale of electricity and related services. Revenues from the Brescia and Bergamo local authorities were primarily for street lighting services and building management services.

The changes for Bas Omniservizi were due to the fact that the company only became a part of the ASM group on 18 May 2005.

As regards Assoenergia, at the beginning of 2006 this company sold its electricity sales division to Asmea, and thus, revenues from that company were eliminated.

ASM has significantly reduced or eliminated sales of power to ASM Energy and Ergon, given the different supply channels used by these companies in 2006.

3.2 Other revenues

“Other revenues” breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Changes in contract work in progress 1,997 238 Increase in non-current assets as a result of internal work 20,482 17,862 Other miscellaneous income 118,877 113,343 141,356 131,443

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 149

Increase in non-current assets as a result of internal work

The amount includes the cost of constructing internal installations, which has been capitalised in tangible non- current assets. This item comprises:

01.01.06 01.01.05 31.12.06 31.12.05

Stock utilised 10,617 8,503 In-house personnel 9,865 9,359 20,482 17,862

Other miscellaneous income

A breakdown of this item is shown below:

01.01.06 01.01.05 31.12.06 31.12.05

Contributions towards operating costs 69,163 64,770 Other 49,714 50,092 118,877 114,862

“Contributions to operating costs” breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

CIP6 grant for electricity sold to GRTN 63,419 60,303 Contribution from CCSE for equalisation of charges 889 706 for power distribution Annual portion of capital grants 1,326 1,300 Grant from AEEG for continuity of supply guarantee 700 700 COREPLA (plastics recycling body) grant for separated collection of organic waste 464 - Grant from Terna 901 - Green certificates grant 1,408 1,718

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 150

Other grants 56 43 69,163 64,770 The CIP6 grant for electricity sold relates to amounts received for the sale of electricity generated using renewable sources (primarily using the WTE plant for municipal solid waste). These grants, which totalled EUR 0.118 per kWh in 2006, will be received for the first eight years of the plant’s operation.

The “annual portion of capital grants” represents the portion of capital grants credited annually to the profit and loss account and calculated in proportion to the depreciation rate applied to the assets to which the grants relate.

The item “annual portion of capital grants” breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 District heating/power generation divisions: - grants pursuant to law 308/82 13 13 - grants towards photovoltaic plants 34 33 - grants towards group 1 of the Cassano plant 45 46 District heating production division - Carnovali plant 22 - Water/electricity/treatment and sewage/gas/local

authority/buildings/district heating divisions: - grants towards network installations/extensions 931 969 Local authority services: - grants for electric and methane vehicles 19 - Street cleaning division - grants for electric vehicles 25 34 - various capital grants 4 3 Street lighting division - grants for street lighting 232 202 1,325 1,300

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 151

Other income - other:

01.01.06 01.01.05 31.12.06 31.12.05

Compensation for costs of subsidiaries/affiliates 19,581 26,837 Contingent assets and non-recurring items: equalisation of 2005/2004 prices for sale of electricity to 3,166 1,092 GRTN - IAS adjustment for revenues from connections 3,126 - - 2005 ASM Energy power imbalance payments 288 - - 2005 transmission fee 277 - - adjustment in estimate of users of waste water 228 - treatment and sewage services - adjustment of CTE Cassano revenues for 2005 166 - - other extraordinary items 3,426 3,358 - CCSE grants for continuity improvement in respect of - 745 previous years - adjustment to estimated billing from property - 592 management for Brescia local authority Sale of materials 3,646 1,204 Penalties charged to suppliers (Enelpower for the - 2,375 repowering of the Mincio thermoelectric plant) Fees for work on behalf of third parties 7,944 7,835 Rentals 2,073 2,109 Compensation for loss at Cassano thermoelectric plant 1,227 487 Other miscellaneous income 3,242 2,005 Miscellaneous refunds 778 925 Capital gains from asset sales 168 145 Refund of Mincio personnel expenses relating to AIM 154 159 Vicenza Refund of Mincio co-ownership expenses 224 224 49,714 50,092

The compensation for the loss at the Cassano thermoelectric plant was for damage caused to plant equipment due to a defect in supply lines for the turbine in 2005. Insurance companies paid ASM and AEM for the damage. ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 152

The “penalties charged to suppliers” item reported in the previous year represented income due to ASM under the settlement agreements with Enelpower, which authorised refunds for the loss of energy generation at the Mincio plant due to delays in delivery.

Other revenues from related parties

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Of which, revenues from subsidiaries Asmea 3,428 2,694 Aprica 2,047 2,211 Bas Power 2,303 2,394 CIGE 1,290 467 Retragas 1,221 1,066 Retrasm 2,432 1,576 Selene 4,851 4,128 Bas SII 4,453 6,982 Azienda Servizi Valtrompia 522 510 Bas Omniservizi 453 1,847 Other small subsidiaries 1,727 1,711 Of which, affiliated companies: - - Ergon energia 1,036 650 Of which, other related parties: - - Brescia local authority 739 3,698 Bergamo local authority 36 2 26,538 29,936

Revenues from subsidiaries were almost entirely made up of the recovery of costs incurred by ASM on behalf of these companies.

Specifically, this item related to grid rental revenues for Selene.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 153

3.3 Raw materials costs

A breakdown of this item is shown below:

01.01.06 01.01.05 31.12.06 31.12.05

Raw materials 371,167 263,245 Electricity 256,736 251,210 Materials, spare parts and consumables 56,127 110,198 Stock materials and spare parts for investment 10,617 8,503 Change in inventories -5,549 -238 689,098 632,918

“Raw materials” consist of fuel purchased for thermoelectric plants and heat generation, methane gas for energy production for residential and industrial use, and water.

Cost of raw materials from related parties

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Of which, from subsidiaries Asmea 17,539 15,312 Asm Energy 72,010 65,237 Aprica 126 174 Bas Power 610 - Bas SII 670 344 Bas Omniservizi 3,432 4,812 Selene 213 150 Other small subsidiaries 149 1 Of which, from affiliated companies: Plurigas 205,280 182,425 300,029 268,455

Plurigas costs were for the gas supplied by that company to ASM.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 154

The costs charged by ASM Energy were almost entirely due to ancillary services related to the management of the electricity service. ASMEA, the group’s sales company, charges the parent company for the cost of gas, electricity and district heating consumed by the latter.

3.4 Service costs

Service costs break down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Costs for use of third-party assets 7,460 9,853 Power transmission/balancing service 28,970 20,043 Works/maintenance 32,039 29,390 Professional and miscellaneous services 15,683 15,059 Waste disposal 16,430 15,455 Insurance and damages paid 4,423 4,388 Employee services 2,489 2,512 Miscellaneous street cleaning management services 12,551 11,449 Loans to employees and miscellaneous services costs 1,463 1,491 relating to Cassano thermoelectric plant Advertising, marketing and development 2,027 1,709 Security and cleaning 6,197 5,454 Communications and transport 5,134 3,784 Meter reading service 1,596 1,207 Remuneration to the board of auditors 187 272 Metering service fees 1,200 - Other minor items 2,593 2,767 140,442 124,833

Costs for use of third-party assets include costs incurred for hire, rental and lease payments. More specifically, this item includes the leasing fees paid to the Brescia local authority by ASM Brescia in respect of its registered offices in Via Lamarmora in Brescia.

"Works/maintenance" mainly relates to works and maintenance undertaken during the period ending 31 December 2006.

The metering service fee was mainly for the metering services provided by ASMEA under contract. ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 155

Note that remuneration to the board of auditors for 2005 also included the cost of internal auditors at the former BAS, which was merged into ASM on 18 May 2005.

Fees paid to internal auditors (amounts in euro)

POSITION DURATION OF SALARY AT OTHER NAME HELD MANDATE ASM REMUNERATION

Chairman of Until approval of RIZZARDI the Board of 2006 annual 80,000 52,808 Auditors results BARBI Auditor “ 50,000 27,182 RIVETTI Auditor “ 50,000 3,041 TOTAL 180,000 83,031

None of the auditors held other professional positions in any of the group companies.

Cost of services provided by related parties

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Of which, by subsidiaries Asmea 2,943 1,532 Aprica 10,493 9,960 Aprica Studi 2,646 1,279 Bas Power 336 359 Bas SII 315 274 Bas.com - 1,248 Bas Omniservizi 466 - Selene 12,340 10,417 Retrasm 362 347 Other small subsidiaries 233 158 Of which, by affiliated companies: GeSI 392 347 Of which, by other related parties:

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 156

Brescia local authority 4,237 4,195 Bergamo local authority 1,503 2,284 36,266 32,400

The costs charged by Selene relate to the IT services it provides. The costs charged by Aprica related to waste collection/handling services it provides. Aprica Studi provided design and project management services to the parent company. In 2005 Bas.com provided services to ASM which were not provided in 2006, due to a change in the service contract. The costs related to the Brescia local authority included the lease of the Via Lamarmora office and the cost of using grids.

3.5 Personnel costs

01.01.06 01.01.05 31.12.06 31.12.05

Personnel costs 87,103 85,725 Remuneration paid to directors 798 927 Co-ordinated full-time contract work/temporary staff 1,187 724 Other 1,072 1,073 90,160 88,449

Note that the item for remuneration paid to directors included the amount reported in 2005 for the Board of Directors of the former BAS, which was merged into ASM on 18 May 2005.

Remuneration to directors, the chief operating officer and senior managers with strategic responsibilities (EUR)

DURATION OF SALARY AT OTHER NAME POSITION HELD MANDATE ASM REMUNERATION

Until approval of CAPRA Chairman of the Board 2006 annual 300,000 163,358 results BARZELLOTTI Vice-chairman of the Board “ 103,000 ONOFRI Director “ 86,000 BRUNAZZO Director “ 53,000 FACCHETTI Vice-chairman of the board “ 88,000 VITALE Director “ 65,000 CLO’ Director “ 68,000 LONATI Director “ 35,417 TOMASONI Chief Operating Officer 344,277 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 157

Senior managers with 793,549 strategic responsibilities TOTAL 798,417 1,301,184

None of the directors held other professional positions in any of the group companies. All directors were in post from 1/1/2006 to 31/12/2006. The “other remuneration” column relates to remuneration due from and paid by ASM subsidiaries. The senior managers with strategic responsibilities are ASM’s three Vice-Chief Operating Officers.

Personnel costs in respect of related parties

01.01.06 01.01.05 31.12.06 31.12.05

Compensation paid to group companies -3,505 -3,180 Remuneration paid to senior managers and directors 1,936 1,947 -1,569 -1,233

In relation to the services provided to other group companies, ASM allocated EUR 3.51 million to such companies for employed staff. Pursuant to international accounting standards, this amount was subtracted from total personnel costs.

This item also included EUR 1.94 million for the remuneration of directors, the Chief Operating Officer and senior managers with strategic responsibility (as specified by IAS 24).

3.6 Other miscellaneous expenses

This item includes:

01.01.06 01.01.05 31.12.06 31.12.05

Taxes and rentals 17,461 19,187 Loss on non-current asset disposals 1,506 12,034 Indirect taxes 1,149 1,162 Ordinary contingent liabilities 4,641 3,594 Ecotax on emissions 505 573 Other expenses 5,318 4,165 30,580 40,715

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 158

Indirect taxes include consumption taxes and stamp duty.

“Taxes and rentals” include:

01.01.06 01.01.05 31.12.06 31.12.05 Local authority concession fees for: - water 411 402 - water treatment and sewerage 525 552 - gas 1,504 1,894 - district heating 3,116 3,018 WTE plant rental to provincial authority 2,384 2,324 WTE biomass fund 1,401 1,230 Montichiari landfill concession fees: - fees to Montichiari local authority (monitoring) 2,153 2,171 - fees to provincial authorities 964 973 Biogas concession fee paid to Calcinato local authority 228 235 Biogas concession fee paid to Montichiari local authority 164 349 Water usage concession fees: - fees to Cassano thermoelectric plant 456 319 - fees to Mincio thermoelectric plant 310 306 Public utilities tax 338 475 Service continuity improvement charge 1,886 1,924 Property tax and other taxes 1,621 3,015 17,461 19,187

Other miscellaneous expenses related to related parties

This item breaks down as follows: 01.01.06 01.01.05 31.12.06 31.12.05 Of which, amount related to subsidiaries Asmea 2,238 558 Aprica 377 52 Other small subsidiaries 92 63

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 159

Of which, amount related to other related parties: Brescia local authority 5,933 6,762 8,640 7,435 The expenses related to Asmea are for an ordinary contingent liability concerning AEEG resolution 20/04 on electricity costs.

Expenses related to the Brescia local authority included the assignment of certain grid services.

3.7 Depreciation, amortisation and write-downs

01.01.06 01.01.05 31.12.06 31.12.05

Amortisation of intangible assets 2,796 2,545

Depreciation of tangible assets 88,119 87,301

Write-downs of non-current assets 100 - Write-downs of current assets 480 258 91,495 90,104

Depreciation and amortisation

Depreciation and amortisation break down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Power generation 32,596 30,700

District heating - production 8,491 8,171

Power distribution 14,277 13,522 Water 4,913 4,766 Gas 4,615 6,092 District heating - distribution 5,211 4,052 Property management 29 36 Water treatment and sewerage 2,248 2,111 Street lighting 722 703 Street cleaning 10,620 12,803 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 160

Corporate services 7,193 6,890 90,915 89,846

The depreciation of waste management assets breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Depreciation of plant/machinery and multi-year charges for the management of street cleaning 3,034 7,942 services Depreciation of landfills 7,586 4,861 10,620 12,803

The depreciation rates applied are explained earlier in the section on accounting policies.

Write-downs of other tangible assets

This item relates to the write-down of the non-current receivable from Cogas totalling EUR 100,000.

Write-downs of receivables and cash at bank and in hand

This item includes a provision of EUR 480,000 to the “write-down reserve”.

3.8 Provisions

These provisions comprise:

01.01.06 01.01.05 31.12.06 31.12.05

Tax risk provisions 300 - Provision for UTF (local finance office) dispute 1,135 240 Provisions for litigation: AEEG resolution 310/06 1,930 - Provision for risks associated with child benefit 228 207 contributions (CUAF) Provision for risks associated with foreign markets 446 - Provision for risks associated with energy equalisation 10,000 -

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 161

payments Provisions for gas tariff risks 2,000 - 16,039 447

3.9 Fair value designation of non-current assets held for sale

As indicated in the balance sheet section on “non-current assets held for sale”, this item includes the economic impact from the fair value designation of traditional meters for which the group has set up a special sales programme. The change reflects the reduction in fair value connected with the ongoing sales programme initiated in the previous year.

3.10 Financial income

This item comprises:

01.01.06 01.01.05 31.12.06 31.12.05 Interest on receivables from subsidiaries/affiliated companies 903 598 Interest on bank and post office deposits 5,014 2,483 Interest on current account - Mincio plant management 327 155 Interest income and other miscellaneous income 168 7,207 Income from financial hedging transactions 82 25,484 6,494 35,927

Income from financial hedging transactions at 31 December 2005 refers to the closing of a swap related to the bond issued in 2004. The unusually favourable trends in 10-year rates seen in the last year made it advisable to settle the swap transaction early, with proceeds of EUR 31.59 million, including EUR 25.48 million applicable to 2005.

Financial income from related parties

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Of which, amount from subsidiaries Selene 291 113 Seasm 151 158

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 162

Valgas 376 214 Other small subsidiaries 11 36 Of which, from affiliated companies: GeSI 74 69 Other small amounts - 8 903 598 The interest charged to Selene and Valgas was for overdraft treasury account balances related to those companies. The interest owed by Seasm was on the loan made by the company.

3.11 Financial charges

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Interest on payables to subsidiaries 1,845 1,329 Interest payable on bonds 26,450 24,375 Interest payable on loans 8,333 7,048 Financial charges on amortised cost of bond 420 398 Financial charges related to employee benefits 1,327 1,980 Other interest and financial charges 690 1.312 39,065 36,442

The increase in interest expense on bonds was due to the issuing of a new thirty-year bond denominated in yen in 2006.

Financial charges payable to related parties

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Of which, amount due to subsidiaries Asmea 719 628 Aprica 171 126 CIGE 314 89

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 163

Retragas 140 91 Asm Energy 207 151 Assonergia 152 100 Other small subsidiaries 46 91 Other related parties: Bergamo local authority 100 89 Brescia local authority 121 143 1,970 1,508

Interest expense payable to subsidiaries related to amounts owed to the latter by the parent company in relation to cash pooling arrangements.

3.12 Income and expenses from equity investments

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Dividends from equity investments 67,113 43,675 Capital gains on the sale of equity investments 71 - Fair value designation of equity investments 228 -

Write-downs of equity investments -1,561 -402 Total 65,851 43,273

Of which, amounts related to related parties

01.01.06 01.01.05 31.12.06 31.12.05 Dividends from equity investments 67,075 43,626 Capital gains on the sale of equity investments 54 - Write-downs of equity investments -1,561 -84 Total 65,568 43,542

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 164

Dividends from equity investments

01.01.06 01.01.05 31.12.06 31.12.05 From affiliated companies: Asm Energy 4,859 2,801 ASMEA 2,826 6,802 Selene 2,386 554 Aprica S.p.A. 2,326 2,920 Assoenergia 2,278 8 BAS SII 2,000 - Retragas 936 640 Valgas 741 778 Sobergas 700 - BAS Omniservizi 700 - Retrasm 350 - Aprica Studi 300 280 Sinergia 125 109 CIGE 1,098 791 Plurigas 9,000 6,600 Endesa 35,200 20,400 Trentino Servizi 911 781 Metamer 132 125 Ergon Energia 200 - Bergamo Energia 7 37 67,075 43,626 From other companies: Hera 9 10 Earchimede - 7 Camuna energia - 2 Autostrade Centro Padane 18 18 Serenissima Infracom 11 11 Other companies - 1

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 165

38 49 67,113 43,675

The revaluation of equity investments at fair value was for the valuation of Hera’s stock at the value taken from year-end stock spreads since Hera is listed on the stock exchange.

The write-down included EUR 56,000 for the investment in the affiliated company C’e’ Gas and EUR 5,000 for small equity investments.

3.13 Corporate income tax

01.01.06 01.01.05 31.12.06 31.12.05

Current taxes 72,233 43,601 Deferred taxes 612 21,323 72,845 64,924

The amount shown for current taxes relates to corporate income tax (IRES) and regional tax (IRAP) due for the year 2006.

The overall tax rate was 34.65% compared with 33.37% for the previous year. The table below shows a reconciliation between the theoretical and effective tax rates.

IRES Taxable Tax base

Theoretical tax (33%) 210,196 69,365 Income and expenses from equity investments 65,851 -21,731 Taxation of capital gain on transfer 28,455 9,390 Other minor adjustments 12,016 3,965 Total 60,989

IRAP Taxable Tax base Theoretical tax (4.25%) 210,196 8,933 Financial income and charges -32,434 1,378 Income and expenses from equity investments 65,851 -2,798

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 166

Personnel costs not relevant for IRAP purposes 90,160 3,832 Other minor adjustments 12,016 511 Total 11,856

Total tax (IRES + IRAP) 72,845 Total taxes recorded in the balance sheet 72,845

Other minor adjustments almost entirely concerned amortisation and depreciation that are never deductible.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 167

The appendices, which form an integral part of these notes to the accounts, comprise:

- statement of changes in intangible assets for the year ending 31 December 2006 (appendix 1)

- statement of changes in tangible assets for the year ending 31 December 2006 (appendix 2)

- list of equity investments in subsidiaries and affiliates at 31 December 2006 (appendix 3)

- list of significant shareholdings (appendix 4)

- details of loans at 31 December 2006 (appendix 5)

- unbundled accounts pursuant to AEEG resolution 310/2001 (appendix 6)

- list of derivatives contracts in force at 31 December 2006 (appendix 7)

- transition to IAS/IFRS (appendix 8).

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 168

ASM BRESCIA SPA Appendix 1

STATEMENT OF CHANGES IN INTANGIBLE ASSETS FOR THE YEAR ENDING 31/12/06

SALES AND ELIMINATION OF SALES AND REVALUATIONS REVALUATIONS ELIMINATION OF ELIMINATIONS OPENING AMORTISATION NET VALUE INITIAL VALUE ELIMINATIONS GROSS VALUE AMORTISATION NET VALUE ASSETS ACQUISTIONS (INITIAL (AMORTISATION AMORTISATION OF AMORTISATION BALANCE AS OF 31/12/05 AS OF 1/1/2006 DUE TO (INITIAL AS OF 31/12/06 AS OF 31/12/06 AS OF 31/12/06 VALUE) ) DUE TO DISPOSALS AMORTISATIO DISPOSALS VALUE) N

- SOFTWARE 4,529,435.51 3,362,050.33 1,167,385.18 2,514,867.04 -377,000.00 -125,666.67 - - 5,718.86 1,906.28 1,497,579.77 6,661,583.69 4,732,057.15 1,929,526.54 - INTELLECTUAL PROPERTY RIGHTS 4,529,435.51 3,362,050.33 1,167,385.18 2,514,867.04 -377,000.00 -125,666.67 - - 5,718.86 1,906.28 1,497,579.77 6,661,583.69 4,732,057.15 1,929,526.54

- CONCESSIONS 22,135,749.01 6,335,338.05 15,800,410.96 1,011,480.00 - - 2,143,858.79 828,091.80 42,000.00 10,500.00 955,894.68 20,961,370.22 6,452,640.93 14,508,729.29 - TRADEMARKS AND PATENTS 17,503.28 12,796.88 4,706.40 - - 1,176.60 17,503.28 13,973.48 3,529.80 CONCESSIONS,LICENCES, TRADEMARKS AND R 22,153,252.29 6,348,134.93 15,805,117.36 1,011,480.00 - - 2,143,858.79 828,091.80 42,000.00 10,500.00 957,071.28 20,978,873.50 6,466,614.41 14,512,259.09

- OTHER EXPENSES 1,011,595.22 829,534.46 182,060.76 - 2,960,827.31 2,307,501.41 2,537,609.12 2,270,625.49 107,805.21 107,805.21 340,758.89 1,327,008.20 1,099,364.06 227,644.14 OTHER INTANGIBLE ASSETS 1,011,595.22 829,534.46 182,060.76 - 2,960,827.31 2,307,501.41 2,537,609.12 2,270,625.49 107,805.21 107,805.21 340,758.89 1,327,008.20 1,099,364.06 227,644.14

INTANGIBLE ASSETS IN PROGRESS 150,000.00 - 150,000.00 ------150,000.00 - 150,000.00

TOTAL INTANGIBLE ASSETS 27,844,283.02 10,539,719.72 17,304,563.30 3,526,347.04 2,583,827.31 2,181,834.74 4,681,467.91 3,098,717.29 155,524.07 120,211.49 2,795,409.94 29,117,465.39 12,298,035.62 16,819,429.77

GOODWILL 101,773,269.17 118,257.20 101,655,011.97 - - - 591,286.04 118,257.20 - - - 101,181,983.13 - 101,181,983.13

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 169

ASM BRESCIA SPA Appendix 2

STATEMENT OF CHANGES IN TANGIBLE ASSETS FOR THE YEAR ENDING 31/12/2006

WORK IN DEPRECIATION ADJUSTMENTS DEPRECIATION NET VALUE AT PROGRESS SALE OF GAS SALES AND NET VALUE AS OF ASSETS OPENING BALANCE PROVISIONS AS OF FOR VALUATION PURCHASES REVALUATIONS CLOSING BALANCE PROVISIONS AS OF 1/1/2006 COMPLETED DIVISION ELIMINATIONS 31/12/06 31/12/2005 AT FAIR VALUE 31/12/06 DURING THE YEAR

- LAND AND NON-INDUSTRIAL BUILDINGS 9,424,436.31 240.80 9,424,195.51 - 29,700.00 - 303,652.19 - - 9,150,484.12 240.80 9,150,243.32 - PLANT EQUIPMENT 8,511,898.67 - 8,511,898.67 ------8,511,898.67 - 8,511,898.67 - INDUSTRIAL BUILDINGS 111,749,440.14 23,295,501.09 88,453,939.05 - 1,716,934.52 3,236,677.16 569,056.50 55,973.67 - 116,078,021.65 26,132,322.39 89,945,699.26 LAND AND BUILDINGS 129,685,775.12 23,295,741.89 106,390,033.23 - 1,746,634.52 3,236,677.16 872,708.69 55,973.67 - 133,740,404.44 26,132,563.19 107,607,841.25

PLANT AND MACHINERY 1,286,812,811.93 366,276,535.66 920,536,276.27 3,204,086.00 54,206,253.73 48,152,994.71 123,734,768.23 6,059,714.14 -590.00 1,262,581,074.00 402,348,661.70 860,232,412.30

INDUSTRIAL AND COMMERCIAL EQUIPMEN 6,479,781.35 3,860,283.21 2,619,498.14 - 660,604.08 - - 79,502.31 - 7,060,883.12 4,440,276.50 2,620,606.62

- OFFICE MACHINERY AND FURNITURE 17,595,866.18 13,254,150.12 4,341,716.06 - 1,548,647.96 - - 501,003.31 377,590.00 19,021,100.83 14,653,286.38 4,367,814.45 - VEHICLES 27,137,086.14 14,789,869.91 12,347,216.23 - 2,590,701.62 - - 974,558.30 - 28,753,229.46 16,538,749.61 12,214,479.85 - COSTS ON THIRD-PARTY ASSETS 4,639,200.32 2,751,397.83 1,887,802.49 - 157,122.20 - - - - 4,796,322.52 3,300,015.22 1,496,307.30 OTHER TANGIBLE ASSETS 49,372,152.64 30,795,417.86 18,576,734.78 - 4,296,471.78 - - 1,475,561.61 377,590.00 52,570,652.81 34,492,051.21 18,078,601.60

- PLANTS UNDER CONSTRUCTION 64,193,503.87 - 64,193,503.87 - 10,960,757.39 -51,523,112.00 - 356,841.26 - 23,274,308.00 - 23,274,308.00 - ADVANCES TO SUPPLIERS 2,110,223.91 - 2,110,223.91 - 4,680,995.15 - - - - 6,791,219.06 - 6,791,219.06 PAYMENTS ON ACCOUNTS AND ASSETS UN 66,303,727.78 - 66,303,727.78 - 15,641,752.54 -51,523,112.00 - 356,841.26 - 30,065,527.06 - 30,065,527.06

LANDFILLS 32,006,994.14 18,704,390.37 13,302,603.77 - 159,861.27 - - - - 32,166,855.41 26,290,680.48 5,876,174.93

FREELY TRANSFERABLE GOODS 6,459,265.01 4,408,439.92 2,050,825.09 - 385,243.35 - 6,844,508.36 - - - - -

TOTAL TANGIBLE ASSETS 1,577,120,507.97 447,340,808.91 1,129,779,699.06 3,204,086.00 77,096,821.27 -133,440.13 131,451,985.28 8,027,592.99 377,000.00 1,518,185,396.84 493,704,233.08 1,024,481,163.76

ADJUSTMENTS FOR SALE OF GAS SALES AND CLOSING DEPRECIATION PROVISIONS OPENING BALANCE VALUATION AT FAIR REVALUATIONS DEPRECIATION DIVISION ELIMINATIONS BALANCE VALUE

- LAND AND NON-INDUSTRIAL BUILDINGS 240.80 - - - - - 240.80 - PLANT EQUIPMENT ------INDUSTRIAL BUILDINGS 23,295,501.09 - 100,461.33 14,712.81 - 2,951,995.44 26,132,322.39 LAND AND BUILDINGS 23,295,741.89 - 100,461.33 14,712.81 - 2,951,995.44 26,132,563.19

PLANT AND MACHINERY 366,276,535.66 739,917.05 34,507,133.92 1,945,739.80 -29.50 71,785,112.21 402,348,661.70

INDUSTRIAL AND COMMERCIAL EQUIPMEN 3,860,283.21 - - 62,699.79 - 642,693.08 4,440,276.50

- OFFICE MACHINERY AND FURNITURE 13,254,150.12 - - 409,711.68 125,696.17 1,683,151.77 14,653,286.38 - VEHICLES 14,789,869.91 - - 705,921.41 - 2,454,801.11 16,538,749.61 - COSTS ON THIRD-PARTY ASSETS 2,751,397.83 - - - - 548,617.39 3,300,015.22 OTHER TANGIBLE ASSETS 30,795,417.86 - - 1,115,633.09 125,696.17 4,686,570.27 34,492,051.21

LANDFILLS 18,704,390.37 - - - - 7,586,290.11 26,290,680.48

FREELY TRANSFERABLE GOODS 4,408,439.92 - 4,874,970.33 - - 466,530.41 -

TOTAL DEPRECIATION RESERVE 447,340,808.91 739,917.05 39,482,565.58 3,138,785.49 125,666.67 88,119,191.52 493,704,233.08

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 170

Appendix 3 LIST OF SHAREHOLDINGS IN SUBSDIARIES AND AFFILIATES AT 31 DECEMBER 2006 (ART. 2427, no. 5 of the Italian civil code) (EUR 000) Shareholders' equity Profit for the year

Share Pro-rata share % owned as of Book value Difference Company name Registered office Total Total Pro-rata share capital (A) 31/12/06 (B) (A) - (B)

Subsidiaries Abruzzoenergia S.p.A. San Salvo (CH) 15,510 14,003 12,463 (353) (314) 89.00 21,074 (8,611) Aprica S.p.A. Brescia 2,500 8,316 8,230 1,623 1,606 98.97 5,329 2,901 Aprica Studi S.r.l. Brescia 275 999 999 502 502 100.00 674 325 ASM Energia e Ambiente S.r.l. Brescia 22,497 30,513 30,513 5,242 5,242 100.00 22,645 7,868 - Tidonenergie S.r.l.* Piacenza 500 781 781 179 179 100.00 781 ASM Energy S.r.l. Brescia 1,000 10,020 10,020 8,404 8,404 100.00 1,000 9,020 Assonergia S.p.A. Brescia 126 5,169 5,053 187 183 97.76 5,848 (795) Azienda Servizi Valtrompia S.p.A. Gardone VT 5,200 5,889 2,797 10 5 47.49 2,919 (122) Bas International S.r.l. Bergamo 20 19 19 (3) (3) 100.00 20 (1) Bas Omniservizi S.r.l. Bergamo 6,460 10,222 10,222 799 799 100.00 6,460 3,762 Bas Power S.r.l. Bergamo 21,000 23,211 23,211 4,903 4,903 100.00 21,000 2,211 Bas S.I.I. S.p.A. Bergamo 17,166 21,912 21,908 2,927 2,926 99.98 17,163 4,745 Bas.Com S.p.A. Bergamo 3,700 2,348 2,348 (93) (93) 100.00 3,802 (1,454) Cige S.p.A. Brescia 103,051 141,773 141,773 3,639 3,639 100.00 188,586 (46,813) Co.Gas S.p.a. Brescia 120 210 210 (18) (18) 100.00 120 90 Montichiariambiente S.p.A. Brescia 1,500 1,516 1,213 11 9 80.00 1,200 13 Ecofert S.r.l. S.Gervasio 1,808 2,012 946 (11) (5) 47.00 874 72 Retragas S.r.l. Brescia 31,597 34,186 20,259 1,994 1,182 59.26 18,723 1,536 Retrasm S.r.l. Brescia 100 2,258 2,258 868 868 100.00 100 2,158 Seasm S.r.l. Brescia 700 665 446 (3) (2) 67.00 469 (23) Selene S.p.A. Brescia 1,549 4,243 4,243 2,062 2,062 100.00 1,548 2,695 - Itradeplace S.p.A.** Brescia 180 301 301 (456) (456) 100.00 301 Sinergia S.p.A. Brescia 4,967 6,202 5,466 125 110 88.13 5,681 (215) Sober Gas S.p.A. Bergamo 103 1,586 1,586 433 433 100.00 3,747 (2,161) Valgas S.p.A. Nozza di Vestone 9,960 25,930 25,927 699 699 99.99 21,425 4,502

* Subsidiary of Asmea S.r.l. ** Subsidiary of Selene S.p.A. ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 171

Appendix 3

EUR 000) Shareholders' equity Profit for the year (continued)

Share Pro-rata share % owned as of Book value Difference Company name Registered office Total Total Pro-rata share capital (A) 31/12/06 (B) (A) - (B)

Affiliates

GeSI S.r.l. Brescia 1,000 2,111 1,003 473 225 47.50 475 528 Metamer S.r.l. San Salvo (CH) 650 2,183 1,092 118 59 50.00 885 207 Endesa Italia S.p.A. Rome 700,810 3,473,382 694,676 488,703 97,741 20.00 482,936 211,740 Trentino Servizi S.p.A.*** Rovereto 224,790 304,198 44,048 14,773 2,139 14.48 51,000 (6,952) C'è Gas S.r.l.*** Cernusco s/Naviglio (MI) 140 10 4 13 5 40.74 1 3 Serio Energia S.r.l.*** Concordia s/Secchia (MO) 1,000 1,040 416 53 21 40.00 400 16 Lombardia Gas Trader S.r.l. - in liquidation*** Milan 20 64 15 (17) (4) 23.74 29 (14) Bergamo Servizi S.r.l.*** Sarnico (BG) 10 26 13 14 7 50.00 5 8 Ergosud S.p.A.*** Crotone 100 17,859 8,930 (128) (64) 50.00 14,325 (5,396) Sviluppo Turistico Lago d'Iseo S.p.A.*** Iseo 2,122 1,763 421 (511) (122) 23.88 752 (331) Ergon Energia S.r.l. Brescia 600 2,850 1,425 1,020 510 50.00 600 825 Plurigas S.p.A. Milan 800 26,265 7,880 9,334 2,800 30.00 240 7,640 Coges S.p.A.*** S.Gervasio 1,100 1,533 31 56 1 2.01 22 9 Visano Soc. Tratt: Reflui Scarl*** Brescia 25 26 10 0 0 40.00 10 0 Cte Mincio S.r.l. Ponti s/Mincio 11 7 3 (4) (2) 45.00 6 (3) Comuni Ass.Valtrompia Gestioni S.p.A. - in liquidation*** Gardone V.T. 588 201 89 3 1 44.48 5 84 *** Figures refer to the annual accounts for the year ending 31 December 2005

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 172

Appendix 4

ASM BRESCIA SpA LIST OF SIGNIFICANT SHAREHOLDINGS AS AT 31.12.2006 (pursuant to article 120, legislative decree 58/1998 – article 126 of Consob resolution 11971/1999)

Company name Share % Legal % direct Shareholder and registered office capital indirect title

Abruzzo Energia SpA Registered ASM Brescia 15,510,000 89% Corso Garibaldi, 71 owner SpA 66050 – San Salvo (CH) Aprica SpA EUR Registered ASM Brescia Via Lamarmora, 230 98.97% 2,500,000 owner SpA 25100 - Brescia Aprica Studi Srl Registered ASM Brescia EUR 275,000 100% Via Lamarmora, 230 owner SpA 25100 – Brescia Aqm Srl EUR Registered ASM Brescia 11.21% Via Lithos, 53 2.141.466 owner SpA 25086 – Rezzato (BS) ASM Energia e Ambiente Srl EUR Registered ASM Brescia 100% Via Lamarmora, 230 22.497.000 owner SpA 25100 – Brescia ASM Energy Srl EUR Registered ASM Brescia 100% Via Lamarmora, 230 1,000,000 owner SpA 25100 – Brescia Assoenergia SpA (in liquidation) c/o The liquidators Registered ASM Brescia EUR 126,000 97.76% Franco Baiguera owner SpA Via Dalmazia, 99 25125 - Brescia Azienda Servizi Valtrompia SpA EUR Registered ASM Brescia Via Matteotti, 325 47.493% 5,200,000 owner SpA 25063 – Gardone Val Trompia (BS)

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 173

Bas.Com SpA EUR Registered ASM Brescia Via Codussi 46 100% 3,700,000 owner SpA 24124 - Bergamo Bas – Servizi Idrici Integrati SpA (Bas. SII EUR Registered ASM Brescia SpA) 99.98% 17,166,000 owner SpA Via Codussi 46 24124 - Bergamo Bas International Srl Registered ASM Brescia Via Codussi 46 EUR 20,000 100% owner SpA 24124 - Bergamo

Bas – Ominiservizi Srl EUR Registered ASM Brescia Via Codussi 46 100% 6,460,000 owner SpA 24124 - Bergamo

Bas – Power Srl EUR Registered ASM Brescia Via Codussi 46 100% 21,000,000 owner SpA 24124 - Bergamo Centrale Termoelettrica del Mincio Srl Registered ASM Brescia EUR 11,000 45% Via Lamarmora, 230 owner SpA 25100 – Brescia

Bergamo Servizi Srl Registered ASM Brescia Via Roma, 63 EUR 10,000 50% owner SpA 24067 – Sarnico (Bg)

C’è gas Srl Registered ASM Brescia Via Monsignor Guidali 2 EUR 10,000 40.74% owner SpA Cernusco sul Naviglio (Mi)

COGAS – Compagnia Del Gas Altoatesina SpA Registered ASM Brescia EUR 120,000 100% Via Lamarmora, 230 owner SpA 25124 Brescia

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 174

Camuna Energia Srl Registered ASM Brescia EUR 900,000 14.5% Piazza Roma, 1 owner SpA 25051 – Cedegolo (BS) Comuni Associati Valtrompia Gestioni SpA (in liquidation) Registered ASM Brescia EUR 588,240 44.48 % c/o The liquidators owner SpA Massimo Botti via Verginella 34/A 25066 -Lumezzane (Bs)

Montichiariambiente SpA EUR Registered ASM Brescia 80% Via Lamarmora, 230 1,500,000 owner SpA 25100 – Brescia

Ecofert Srl EUR Registered ASM Brescia Via Industriale, 5 47% 25020 – S. Gervasio 1,808,000 owner SpA Bresciano (BS) Ecoisola Spa EUR Registered ASM Brescia Via Bravi, 16 13.06% 311,934,42 owner SpA 24030 - Terno d’Isola (Bg) Enerfin Srl (in liquidation) c/o The liquidators EUR Registered ASM Brescia Mauro Casari 30% 2,500,000 owner SpA p.zza Repubblica, 13 41033 – Concordia sulla Secchia (Mo) Ergon Energia Srl Registered ASM Brescia Via Lamarmora, 230 EUR 600,000 50% owner SpA 25100 – Brescia Ergosud SpA Registered ASM Brescia Via G. Mangili, 9 EUR 100,000 50% owner SpA 00197 - Roma

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 175

Gestione Servizi Integrati Srl (GE.S.I. Srl) EUR Registered ASM Brescia 47.5% Via Lamarmora, 230 1,000,000 owner SpA 25100 – Brescia Endesa Italia SpA EUR Registered ASM Brescia 20 % Via Mangili, 9 700,810,000 owner SpA 00197 – Roma INN.TEC Srl Registered ASM Brescia EUR 918,493 10.887% Piazza Paolo IV, 16 owner SpA 25121 - Brescia Lombardia Gas Trader Srl (abbreviated as L.G.T. Srl) Via L. Settembrini, 11 EUR 20,000 Registered ASM Brescia 23.74% 20124 - Milano owner SpA (in liquidation) Liquidator Roberto Riccioni Metamer Srl Registered ASM Brescia C.so Garibaldi, 71 EUR 650,000 50% owner SpA 66050 – San Salvo (CH)

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 176

Plurigas SpA Registered ASM Brescia EUR 800,000 30% C.so Porta Vittoria, 4 owner SpA 20100 – Milano Retragas Srl EUR Registered 59.26% ASM Brescia SpA Via Lamarmora 230 31,597,100 owner 25100 – Brescia Retrasm Srl Registered ASM Brescia EUR 100,000 100% Via Lamarmora, 230 owner SpA 25100 – Brescia Seasm Srl Registered ASM Brescia EUR 700,000 67% Via Lamarmora, 230 owner SpA 25100 – Brescia Serio Energia Srl EUR Registered ASM Brescia Via Miglioli, 5 40% 41033 – Concordia sulla 1,000,000 owner SpA Secchia (Mo) Sinergia SpA EUR Registered ASM Brescia 88.131% Via Lamarmora, 230 4 ,967,466 owner SpA 25100 – Brescia

Sober Gas SpA Registered EUR 103,200 100% ASM Brescia Via Condussi 46 owner 24124 - Bergamo Sviluppo Turistico Lago D’Iseo SpA EUR Registered ASM Brescia 23.88% Via Colombera 2 2,121,630 owner SpA 25049 – Iseo (BS) Selene SpA EUR Registered ASM Brescia 100% Via Lamarmora, 230 1,549,371 owner SpA 25100 – Brescia Trentino Servizi SpA EUR 14.4754 Registered ASM Brescia

Via Manzoni, 24 224,790,159 % owner SpA 38068 - Rovereto (TN) Valgas SpA EUR Registered ASM Brescia Via Reverberi, 2 99.999% 25070 - Nozza di Vestone 9,960,310 owner SpA (BS) Visano Società Trattamento Reflui Scarl Registered ASM Brescia EUR 25,000 40% Via Lamarmora, 230 owner SpA 25100 - Brescia

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 177

Coges SpA EUR Registered ASM Brescia Via Martinengo, 32 2.01% 25020 – Bassano Bresciano 1,100,000 owner SpA (BS)

CI.G.E. SpA EUR Registered ASM Brescia 100% Via Lamarmora. 230 103,050,800 owner SpA 25100 - Brescia

Coges SpA EUR Registered Via Martinengo, 32 30.69% Aprica SpA 25020 – Bassano Bresciano 1,100,000 owner (BS) C.B.B.O. SpA Registered EUR 723,000 25.82% Aprica SpA Via Industriale, 33/35 owner 25016 - Ghedi (BS) TidonEnergie Srl Registered ASM Energia EUR 500,000 100% Via Roma, 48 owner eAmbiente Srl 29100 - Piacenza Itradeplace SpA Registered Corso Zanardelli, 32 EUR 180,000 100% Selene SpA owner 25100 - Brescia

Retragas Srl EUR Registered 4.72% Sinergia SpA Via Lamarmora 230 31,597,100 owner 25100 - Brescia Azienda Servizi Valtrompia SpA EUR Registered Via Matteotti, 325 0.368% Sinergia SpA 5,200,000 owner 25063 - Gardone Val Trompia (BS) Giudicarie Gas SpA Registered EUR 1,060,000 39.55% Valgas SpA Via Stenico, 11 owner 38079 – Tione (TN) Fusio Srl Registered Località La Perla EUR 40,000 19% Valgas SpA Frazione Livemmo owner 25070 - Pertica Alta (BS) Retragas Srl EUR Registered 36.02% Valgas SpA Via Lamarmora 230 31,597,100 owner 25100 – Brescia Aqm Srl EUR Registered 0.257% Valgas SpA Via Lithos, 53 2,141,466 owner 25086 – Rezzato (BS)

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 178

ASM BRESCIA SpA Appendix 5 LOANS

portion of of which, PORTION ANNUAL DATE F=FIXED RESIDUAL principal paid RESIDUAL OF PRINCIPAL TO LONG-TERM RESIDUAL NOMINAL NO. LENDER DIV. AGREEMENT V=VARIAB AMOUNT AS OF from 1/1/06 to AMOUNT AS OF BE PAID FROM RESIDUAL AMOUNT AS INTEREST SIGNED LE 31/12/05 31/12/06 31/12/06 01/01/07 TO AMOUNT OF 31/12/2011 RATE % (*) 31/12/07

7 CRED. FOND. CARIPLO 826,33 CO 04/07/1972 6.00 F 80.26 52.71 27.55 27.55 0.00 0.00 9 CASSA DD.PP. 99,16 CO 25/08/1982 7.50 F 62.35 3.82 58.53 4.11 54.42 34.59 12 CARIPLO 1.549,37 CO 22/12/1993 4.61 V 563.94 165.70 398.24 187.06 211.18 0.00 13 IMI BEI 12.911,42 CO 21/12/1995 11.42 F 6,661.00 1,066.48 5,594.52 1,185.26 4,409.26 0.00 14 IMI BEI 12.911,42 CO 21/12/1995 3.73 V 4,303.81 860.76 3,443.05 860.76 2,582.29 0.00 15 BEI COMIT 51.645,69 CO 29/01/1998 5.59 F 30,672.38 3,697.83 26,974.55 3,904.41 23,070.14 5,138.75 16 BEI COMIT 51.645,69 CO 01/12/1998 4.59 F 31,617.49 3,630.69 27,986.80 3,795.96 24,190.84 7,204.57 19 BEI COMIT 25.822,84 CO 15/12/2000 3.27 V 17,808.85 1,780.89 16,027.96 1,780.89 14,247.07 7,123.53 20 BEI COMIT 25.822,84 CO 15/06/2001 3.27 V 18,699.30 1,780.89 16,918.41 1,780.89 15,137.52 8,013.98 21 BEI 50.000,00 CO 31/05/2004 3.29 V 50,000.00 0.00 50,000.00 3,571.43 46,428.57 17,857.15 22 BEI 25.000,00 CO 15/12/2005 3.29 V 25,000.00 0.00 25,000.00 0.00 25,000.00 14,285.72 23 BEI 25.000,00 CO 15/06/2006 3.29 V - 0.00 25,000.00 0.00 25,000.00 16,071.43 24 BANCO DI SICILIA - UNIPOL CO 20/05/1994 3.70 V 464.53 51.23 413.30 54.18 359.12 109.19 25 BANCO DI SICILIA - UNIPOL CO 20/05/1994 3.70 V 464.53 51.23 413.30 54.18 359.12 109.19 26 BANCO DI SICILIA - UNIPOL CO 20/05/1994 3.70 V 446.88 49.27 397.61 52.13 345.48 105.04 27 BNL EP 21/02/1996 4.12 V 206.00 206.00 0.00 0.00 0.00 - 28 BNL CO 20/03/1998 3.47 V 911.08 89.25 821.83 95.37 726.46 274.90 29 BANCA POP. DI BERGAMO EP 08/04/1998 3.70 V 1,118.74 108.85 1,009.89 116.52 893.37 339.16 30 BANCA POP. DI BERGAMO EP 08/04/1998 3.70 V 983.12 95.64 887.48 102.40 785.08 298.05 31 BANCA POP. DI BERGAMO CO 24/09/2002 3.70 V 358.84 40.89 317.95 43.20 274.75 81.64 32 CREDITO BERGAMASCO CO 09/04/2004 2.63 V 2,141.00 586.43 1,554.57 602.15 952.42 - 33 UNICREDIT CO 02/08/2004 3.03 V 3,116.88 346.32 2,770.56 346.32 2,424.24 1,038.96 34 MINISTERO DEL TESORO CO 21/06/1986 6.00 F 205.25 46.92 158.33 49.73 108.60 - 35 CASSA DEPOSITI E PRESTITI CO 27/11/1980 7.50 F 50.44 3.54 46.90 3.81 43.09 24.69 36 CASSA DEPOSITI E PRESTITI CO 23/07/1980 7.50 F 45.88 3.21 42.67 3.47 39.20 22.47 37 CASSA DEPOSITI E PRESTITI CO 08/06/0988 7.50 F 208.15 64.34 143.81 69.26 74.55 - 38 CASSA DEPOSITI E PRESTITI CO 27/07/1988 7.50 F 166.53 51.48 115.05 55.41 59.64 - 39 MCC CO 13/11/2006 6.00 F - - 948.13 459.59 488.54 - TOTALE 196,357.23 14,834.37 207,470.99 19,206.04 188,264.95 78,133.01 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 179

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 180

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 181

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 182

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 183

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 184

Below are the notes required by article 9, paragraph 1 of AEEG resolution 310/01. As noted in the report on operations, in resolution 1/07 the AEEG expressed its intent to reconsider the entire context of accounting, administrative and functional unbundling. However, for ASM, this resolution will be applicable only from the first year beginning after 31 December 2007. Since the regulations currently in effect (resolution 310/01) require the disagregation of financial statement balances prepared in accordance with the new IAS/IFRS while still maintaining the format of accounts required by the fourth EU directive, the company made all restatements necessary to arrange account balances in that format. For this reason, comparisons with the previous year may not be meaningful.

BALANCE SHEET

Non-current assets (EUR 2.13 billion)

Intangible assets relating to power generation (EUR 349,000) consist mainly of the costs incurred to acquire the concession for the Caffaro hydroelectric plant. The decrease from the amount reported at 31 December 2005 (EUR 28,000) was mainly due to amortisation calculated for the period.

Intangible assets relating to power distribution (EUR 45.74 million) consist almost entirely (EUR 45.70 million) of the goodwill paid for the purchase of the ENEL SpA electricity distribution division on 30 December 2003 and a portion of the municipal and provincial grids. Based on the technical report issued by outside experts, the value assigned to assets included in the division acquired totalled EUR 120.10 million, and largely consisted of the value of the plant grids. This appraisal also acknowledged that the amount paid for the goodwill in relation to the transaction was appropriate from a financial standpoint.

The intangible assets relating to the gas business were eliminated following the transfer of the gas division to CIGE SpA effective 1 October 2006.

Intangible assets reported in the accounts for other operations were mainly in relation to outstanding costs for concessions related to the integrated water service totalling EUR 14.16 million.

Intangible assets relating to joint operations (EUR 57.68 million) mainly included the goodwill (EUR 55.47 million) associated with the fair value designation of the capital increase carried out by ASM for the merger with BAS (May 2005). This item also includes capitalised software costs of EUR 1.93 million.

Net tangible assets related to power generation (EUR 336.11 million) can be broken down as follows:

• EUR 37.77 million (EUR 38.67 million in the previous year) for land and buildings; • EUR 290.67 million (EUR 281.70 million in the previous year) for plant and machinery; • EUR 180,000 (EUR 234,000 in the previous year) for industrial and commercial equipment; • EUR 185,000 (EUR 195,000 in the previous year) for other tangible assets; • EUR 7.30 million (EUR 39.67 million in the previous year) for tangible assets under construction and payments on account.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 185

“Land and buildings” mainly refers to land, buildings and other items relating to the WTE plant and the thermoelectric plants, while "plant and machinery" mainly refers to the value of the Mincio power plant and WTE plant. Plants under construction mainly refer to the construction of the third bridge crane at the WTE plant (EUR 1.33 million) and work being done at the Cassano thermoelectric plant (EUR 4.52 million) for connections to be made to the 220 kv grid.

Net tangible assets relating to power distribution (EUR 255.68 million) can be broken down as follows:

• EUR 9.14 million (EUR 8.60 million in the previous year) for land and buildings; • EUR 243.25 million (EUR 240.05 million in the previous year) for plant and machinery; • EUR 91,000 (EUR 60,000 in the previous year) for industrial and commercial equipment; • EUR 250,000 for other tangible assets; • EUR 2.94 million (EUR 2.50 million in the previous year) for tangible assets under construction and payments on account.

"Plant and machinery” mainly referred to power distribution grids.

“Tangible assets under construction and payments on account” included EUR 2.29 million for the project to install new electronic meters.

Net tangible assets related to the gas business were eliminated for the previous year following the complete transfer of the gas division to CIGE SpA.

Inventories (EUR 25.35 million)

This amount largely consists of materials and equipment predominantly used in maintenance of plants in operation and materials needed to extend distribution grids and fuels. This item reflects the ordinary requirements of such stocks.

Contract work in progress, which is reported under corporate services, relates to orders from third parties.

Receivables not classified as non-current assets (EUR 444.09 million)

Receivables from customers for power generation increased from EUR 50.06 million in the previous year to EUR 51.96 million in 2006. These are mainly receivables from GRTN SpA for the sale of power subject to the incentives provided under CIP 6/92.

Receivables from subsidiaries for power generation (EUR 13.57 million) mainly refer to the supply of raw materials to ASMEA Srl for residential customers and to ASM Energy Srl for industrial users.

Receivables from subsidiaries for distribution activities include wheeling-related receivables from ASMEA Srl and ASM Energy Srl.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 186

Receivables from others for power generation increased from EUR 33.85 million at 31 December 2005 to EUR 37.80 million at 31 December 2006 due to investments made at power plants (share of compensation due from other owners). In fact, this item includes receivables from these companies totalling EUR 35.65 million (EUR 32.43 million at 31 December 2005).

Reserves under liabilities (EUR 146.95 million)

Taxation reserves related to power generation totalled EUR 42.57 million compared to EUR 31.75 million for the previous year. This item relates to the effect of amortisation and depreciation calculated solely for the purposes of tax returns.

Other reserves under liabilities related to power generation activities (EUR 3.39 million compared to EUR 8.21 million in the previous year) included a provision for future dismantling charges, primarily for group 1 at the Mincio power plant, and for environmental clean-up charges for demolition at the same plant.

Reserves relating to power distribution totalled EUR 14.04 million compared to EUR 10.33 million for the previous year. This item reflects the impact of the higher amounts of amortisation and depreciation reported for tax purposes than for reporting purposes.

Similarly, the reserves for the gas business, which totalled EUR 13.93 million (EUR 11.99 million for the previous year) included a EUR 2.00 million provision for potential refunds pursuant to resolution 248/04 and EUR 10,000 for potential risks associated with possible energy equalisation payments that may have to be made to some users.

Staff severance fund (EUR 34.17 million)

This item is allocated to corporate operations and services as a function of payroll costs.

Payables (EUR 1.27 billion)

Payables to suppliers (EUR 158.75 million compared to EUR 178.31 million in 2005). This item declined sharply compared to the previous year. Payables to controlling shareholders (EUR 8.84 million at 31 December 2006 compared to EUR 11.02 million at 31 December 2005). There were no changes worth noting in this item. Taxes payable (EUR 13.13 million) This payable was allocated in respect of the assets for which the service was provided. Other payables (EUR 132.65 million at 31 December 2006 compared to EUR 144.38 million at 31 December 2005). This item included EUR 12.82 million in payables to the joint owners of the Ponti sul Mincio and Cassano d’Adda power plants (reported under power generation operations) and EUR 75.12 million in payables related to landfill post-closure charges (reported under “other assets”). This item also included EUR 9.28 million for the dispute with the Mantua Territory Office over water usage concession fees for the Mincio power plant. In addition, payables totalling EUR 7.26 million to GSE for the purchase of green certificates through 2006 were allocated to the power generation division.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 187

Deferred income (EUR 47.47 million)

With specific regard to electricity operations in their strictest sense, EUR 2.86 million was allocated to power generation activities for the deferred income related to the capital gain generated in relation to the subsidiary Retrasm Srl for the sale of high-voltage and ultra-high-voltage grids in 1999 in exchange for the sale of the division (in accordance with article 3, paragraph 20 of the Bersani decree).

PROFIT AND LOSS ACCOUNT

Revenues from sales and services (EUR 1,095.76 million).

Item A.1 on the profit and loss account refers to revenues from third parties, which here are the main balances deriving from transactions between businesses and units in the same company and between companies in the same group.

Electricity sales mainly related to the sale of power to the GRTN (EUR 47.59 million) and to subsidiaries, for sale on the free market (EUR 190.90 million), and power sales for franchise customers (EUR 83.06 million).

Sales to the GRTN include the payment for the sale of electricity (mainly generated by the WTE plant from municipal solid waste) pursuant to an agreement, reached on a preliminary basis on 28 November 1996 and effective from 27 October 1998, as required by resolution CIP 6/92. This resolution offers an eight-year incentive to generate power from renewable sources, the value of which is included under the “contributions to operating costs” line of the “other income” section. This contribution was listed under the power generation business.

Revenues for the distribution business were EUR 146.40 million versus EUR 137.35 million in 2005. These were mainly generated through electricity wheeling services and were mostly received from subsidiaries.

The gas business posted revenues of EUR 452.18 million versus EUR 338.84 million in 2005. These revenues mainly relate to the sale of natural gas to sales companies ASMEA Srl and ASM Energy Srl, and to the distribution of natural gas on the grid belonging to ASM Brescia SpA.

Contributions to operating costs (EUR 68.46 million).

The amount of EUR 63.42 million, largely relating to an expected contribution in accordance with CIP 6/92 was classified under the power generation business.

Raw materials, supplies, consumables and other goods costs (EUR 694.12 million).

This represented a substantial increase versus the 2005 figure of EUR 636.75 million.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 188

Services costs (EUR 134.57 million).

These stood at EUR 118.22 million in 2005.

Personnel costs (EUR 92.72 million).

These costs are attributed to the individual businesses based on the personnel assigned to each activity. Personnel costs were down by EUR 515,000 from 2005.

Depreciation, amortisation and write-downs (EUR 91.50 million).

Depreciation and amortisation were allocated to the individual businesses based on the tangible and intangible assets pertaining to each business. Depreciation and amortisation are reported solely in relation to the useful life of the assets.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 189

Appendix 7 List of derivative instruments - ASM 31/12/2006

INTEREST RATE RISK Counterparty Type Description PurposeValid Maturity Notional amount MTM value date From To

BBVA Collar with KO Interest rate collar, with KO variable rate ASM 15/12/03 15/12/09 15/12/09 34,727,274 17,552 31/12/06 loans

EXCHANGE RATE RISK Counterparty Type Description PurposeValid Maturity Notional amount MTM value date From To

Merrill Lynch Cross Currency Swap on euro/yen exchange rate, both Aflac financing in 10/08/06 10/08/36 10/08/36 14.000.000.000 YEN -13,598,556 31/12/06 Swap for notional amount and interest yen vs 98.000.000 EURO

DERIVATIVE CONTRACTS ON COMMODITIES Counterparty Type Description PurposeValid Maturity Quantity/notional amount MTM value date From To

Sole Buyer OLIO, GAS1 and One way contracts for difference on the Power sales on 01/01/05 31/12/07 31/12/07 72 MW baseload (2006) 542,682 31/12/06 GAS2 options difference between the hourly single exchange 60 MW baseload (2007) national price (PUN) and a basket of fuels Sole Buyer Fixed-price swap Two way contracts for difference on the Power sales on 01/01/07 31/12/07 31/12/07 50 MW baseload -188,118 31/12/06 difference between the hourly single exchange national price (PUN) and a strike price, either fixed or indexed to Brent

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Appendix 8

TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS (IAS/IFRS) OF ASM SPA

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TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS (IAS/IFRS) OF ASM SPA

Introduction

With the entry into force of Regulation 1606/2002, issued by the European Parliament and European Council in July 2002, companies whose securities are authorised for trading in regulated markets of member states of the European Union are required, starting in 2005, to prepare their consolidated accounts in accordance with the international accounting standards (IAS/IFRS) issued by the IASB (International Accounting Standards Board) if ratified by the EU and published in the Official Journal of the European Union (OJEC).

Legislative decree 38/2005 extended to listed companies the requirement to use IAS/IFRS to prepare accounts from the year ending 31 December 2006, and also granted the option to draft according to IAS/IFRS all the accounts of companies included in the basis of consolidation from the same date.

As required by IFRS 1, these accounts include the reconciliations required by paragraphs 39 and 40 of IFRS 1 “First-time adoption of international financial reporting standards” (as interpreted by paragraph IG 63 of the Implementation Guidance), accompanied by notes on the criteria used for preparing the accounts and on the items included in the reconciliation statements.

This document was prepared in accordance with IFRS 1 and contains the reconciliations, and the related notes, of shareholders’ equity and net profit of ASM SpA in accordance with previously applied accounting principles and based on the new international accounting standards as of 1 January 2005 (balance sheet) and 31 December 2005 (balance sheet and profit and loss account).

Reconciliations between shareholders’ equity and net profit determined in accordance with Italian accounting standards and in accordance with IAS/IFRS were prepared only for the purposes of the transition to the preparation of separate ASM accounts in accordance with the IAS/IFRS adopted by the European Commission: thus, these reconciliations do not include the comparison data and the necessary explanatory notes that would be required to give a true and accurate picture of the consolidated balance sheet and profit and loss account of ASM pursuant to IAS/IFRS.

IFRS 1: First-time adoption of international accounting standards and reconciliations

IFRS 1 covers the methods for making the transition to the new accounting standards. It specifies that on the IAS/IFRS transition date (1 January 2004, based on the timeline set by the European Union) a balance sheet must be prepared. This report has been prepared based on the following criteria:

• all assets and liabilities that must be reported in accordance with IAS/IFRS have been taken into account even where such reporting was not permitted pursuant to the previously applicable Italian accounting standards; • assets and liabilities have not been recorded if not permitted by IAS/IFRS; • all items that were previously reported in ways that were not compliant with IAS/IFRS have been restated.

As required by IFRS 1, the adjustments made for the first-time application of IAS/IFRS have been included in a special reserve under shareholders’ equity.

With respect to the options permitted under IFRS 1, ASM has made the following choices:

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• valuation of property, plant and equipment. IFRS 1 allows for the valuation of property, plant and equipment at fair value as an alternative to historical cost and the use of the new value starting on the transition date (1 January 2004). ASM did not take advantage of this option and has confirmed the use of the historical cost method. • employee benefits. As at 1 January 2004, the group fully recognised the overall effect of valuing defined benefit pension plans (for ASM this only involves the staff severance fund) using the actuarial criteria required by IAS 19. ASM did not use the “corridor method” when revaluing the actuarial effects after the transition date.

ACCOUNTING PRINCIPLES AND POLICIES

General principles

Starting with the report to 31 December 2006, the accounts will be prepared in accordance with the IAS/IFRS issued by the IASB, as ratified by the European Union. The acronym IAS/IFRS here stands for International Accounting Standards and International Financial Reporting Standards, as supplemented by interpretations issued by the IFRIC, previously known as the SIC.

Accounts will be prepared on the basis of the historical cost principle with the exception of fair value designations for financial instruments.

Below is a summary of the accounting standards used by ASM based on IAS/IFRS requirements. Where possible, these standards are the same as those applied to the consolidated accounts.

Non-current assets and liabilities

Intangible assets

These assets are reported at purchase cost including any ancillary charges.

They are amortised on a straight-line basis over their remaining useful life. Concession fees are amortised on a straight-line basis over the life of the concession or on the basis of the remaining useful life of plants managed under concession and other types of plant described in the related section.

Regardless of amortisation already recorded, in the event there is a permanent loss in value, intangible assets are written down by the corresponding amount.

Tangible assets

Tangible assets are reported at their historical, purchase or manufacturing cost including any directly allocable ancillary costs that are necessary for installing the asset for the use for which it was purchased or manufactured. This cost is adjusted for any significant increases, resulting from current obligations, in the amount of the estimated cost of dismantling and removing the asset, and the cost of reclaiming the site where the asset is located. Assets consisting of several components of a significant value and with different useful lives, are recorded separately.

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Assets are depreciated on a straight-line basis every year based on economic and technical rates determined in relation to the remaining useful life of the assets.

Depreciation rates are as follows (the different values for each of these classes of assets refer to the various sectors of activity):

Buildings: - Industrial buildings 2.50%-3% - Hydroelectric plant buildings 1.50%-3% - Temporary buildings 10%

Plant and machinery: - Hydroelectric plants 3.50% - Thermoelectric plants 7% - Gas reduction chambers 5%-7% - Heat and WTE plants 5%-7% - High- and medium-voltage power lines 2%-4% - Receivers and substations 3.50%-7% - Power booths, low-voltage lines and

- lifting equipment 4%-7% - Chlorination and purification equipment 5%-8% - Sewer networks 2.50% - Fibre-optic networks 5% - Pipelines 4%-2.50% - Bypasses and inlets 2.50-4% - Street lighting 4%-5% - Waste collection equipment - general 10%

Industrial and commercial equipment: - Special equipment relating to street cleaning 12% - Miscellaneous industrial equipment 10%-25% - Mobile phones 10%-20%

Other tangible assets: - Office furniture and electronic office equipment 10%-12%-12.50%-20% - Transport vehicles 10%-12.50%-20% - Automobiles 10%-12.50%-25%

Land is not depreciated since it has an unlimited useful life. An exception is made for land used for landfills, which, by their nature, are subject to physical deterioration over time.

Landfill sites are depreciated based on the proportion of the site that is filled.

Depreciation is reported starting at the moment when the asset is available for use or is potentially able to provide the economic benefits associated with it.

Regardless of depreciation already recorded, in the event that there is a permanent loss of value, tangible assets are written down by the corresponding amount.

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The estimated costs for the closure and post-closure of landfill sites operated under concessions, which are incurred after they are full, are included in non-current liabilities as a balancing entry for the asset to which they are related. The reporting of the charge to the profit and loss account occurs through the depreciation of the tangible asset to which this charge is related.

Incremental and maintenance costs that produce a significant and tangible increase in production capacity or in the safety of the assets or that extend the useful life of the assets, are capitalised and are applied as an increase to the asset for which these costs are incurred, and depreciated in relation to the residual useful life of the assets to which they refer, which is redetermined based on the benefit provided by these investments.

Ordinary maintenance costs are recorded directly in the profit and loss account.

Leasehold improvements are classified as tangible assets based on the nature of the cost incurred. The depreciation period is the lower of the remaining useful life of the tangible asset and the contract term.

Lease contracts are classified as finance leases whenever the terms of the contract transfer substantially all risks and benefits of ownership to the lessee. All other leases are considered as operating leases.

Assets under finance leases are reported as assets of ASM at their fair value on the contract date adjusted for ancillary charges on the contract date and any costs incurred for taking over the contract, or the present value of minimum lease payments due under the lease contract, whichever is lower. The corresponding liability to the lessor is included in the balance sheet under “debt and other financial liabilities.” Lease payments are broken down into principal and interest in order to arrive at a constant interest rate for the residual liability. Financial charges are directly allocated to the profit and loss account for the period.

Costs related to lease payments under operating leases are reported in equal amounts based on the term of the contract. Benefits received, or to be received, or paid, or to be paid as an incentive for entering into operating leases are also reported in equal amounts based on the contract term.

Loss in value of tangible and intangible assets

At each annual or interim reporting date, ASM reviews the book value of its tangible and intangible assets to determine if there is any sign that these assets have declined in value. If such signs exist, the recoverable amount of these assets is estimated in order to determine the amount of any write-down. When it is not possible to estimate the recoverable value of an individual asset, ASM makes an estimate of the recoverable value of the cash-generating unit to which the asset belongs. Goodwill is verified annually and at any time there are signs of a potential loss in value, in order to determine whether there are actual losses in value.

The recoverable value is the higher of the fair value minus sales costs, and the usage value. When determining the usage value, future estimated cash flows are discounted to their present value using a rate, before taxes, that reflects current market valuations of the cash value and specific risks associated with the asset.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than the related book value, it is reduced to the lower recoverable value. A loss in value is immediately recorded in the profit and loss account.

When there is no further justification for maintaining a write-down, the book value of the asset (or cash- generating unit), with the exception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, which is not to exceed the net book value that asset would have assumed if the write-

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down for the loss of value had not been applied. Any recovery in value is immediately allocated to the profit and loss account.

Financial assets

Financial assets are added to and removed from the accounts on the basis of the trade date, and are initially valued at cost including any charges directly associated with the purchase. On subsequent reporting dates, the financial assets that ASM intends, and is able, to hold to maturity (held-to-maturity securities) are reported at their amortised cost less write-downs applied to reflect a loss in value.

For those equity investments, which, on the basis of IAS 39 can be classified as available for sale, the fair value adjustment in subsequent periods is reflected directly in shareholders’ equity until they are sold or have declined in value. In this event, total profits or losses previously reported in shareholders’ equity are recorded in the profit and loss account for the period.

Losses in value on available-for-sale financial assets which have already been entered in the profit and loss account may not be written back to the profit and loss account.

Severance pay and retirement funds

Severance pay (TFR) is determined by using an actuarial methodology. The amount of benefits accrued during the period by employees is recorded in the profit and loss account under “personnel costs,” while the notional (financial) charge that the company would incur if it went to the market with a request for a loan in an amount equal to the TFR fund is allocated to financial income and charges. Actuarial profits and losses that reflect the effects of changes in the actuarial assumptions underlying the calculation are transferred to the profit and loss account.

Reserve for risks and future liabilities

Reserves for risks and future liabilities include provisions resulting from current (legal, contractual or implicit) obligations for a past event, the fulfilment of which will probably require the use of funds totalling an amount that can be reliably estimated.

If the impact is significant, the reserves must be reported at their present value.

Financial liabilities

Financial liabilities in the form of bonds are initially recorded at cost, corresponding to the fair value of the liability minus transaction costs incurred to obtain the financing. After the initial reporting, these liabilities are valued at amortised cost using the effective interest rate method.

Capital grants

Grants from the government and other public bodies made in accordance with the law are booked under other liabilities when there is legal certainty of the right to this grant. This certainty is assumed when the amount is drawn down. In order to include these grants in the results for the year, the portions applicable to individual financial years are credited to the profit and loss account under “other income” based on the useful life of the assets to which they refer.

Current assets and liabilities

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Inventories

Inventories are stated at the lower of market value and the purchase/manufacturing cost including directly allocable ancillary costs, minus any discounts and allowances. Cost is determined using the weighted average cost method. Inventories of obsolete or slow turnover goods are written down according to their use or sale potential.

Receivables and payables

Receivables are initially reported at fair value, represented by the present value of the amount to be collected. They are then valued at amortised cost and reduced for losses in value.

Cash and cash equivalents

These assets are reported at face value.

Derivatives

Those transactions, which, in compliance with ASM’s policies for managing the risk of fluctuating interest rates and electricity values, are eligible for hedge accounting treatment, have been classified as derivatives used for hedging. All other derivatives are classified as "derivatives for trading purposes" even though they were created with the intent of managing risk exposure.

In particular, in the case of the cash flow hedge, the portion of profits or losses on the hedging instrument that is considered effective must be recorded directly under shareholders’ equity; the ineffective portion of profits and losses must be recorded in the profit and loss account. As a result, there is usually a difference in shareholders’ equity between Italian accounting standards and IFRS with respect to the effective portion of such hedging instruments.

With regard to financial instruments that are not used for hedging purposes, IAS 39 requires the differential against the contractual value to be reported in the profit and loss account.

Revenue and cost recording

Revenues and income, and costs and charges are recorded net of returns, rebates and bonuses, and net of taxes linked directly to the sale and/or provision of services. Contract work in progress is recorded on the basis of accrued contractual payments based on the progress of the work. Financial income and charges are recorded in the profit and loss account in accordance with the matching principle.

Dividends are reported at the time shareholders are entitled to receive payment, which normally corresponds to the date of the annual shareholders’ meeting that votes on the distribution of dividends.

Dividends received from affiliates are recorded as a reduction to the value of the equity investment (for those valued using the equity method).

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Income taxes for the period

Income taxes for the period are the total of current and deferred taxes.

Current taxes are based on the taxable profit for the period. Taxable income differs from the profit reported in the profit and loss account since it excludes positive and negative components that are taxable or deductible in other periods, and it also excludes items that will never be taxable or deductible. The liability for current taxes is calculated using current rates or rates in effect on the annual or interim reporting dates.

Deferred taxes are those taxes that are expected to be paid or recovered on the temporary differences between the book value of assets and liabilities and the corresponding tax value used in the calculation of taxable income. Deferred tax liabilities are generally recorded for all temporary taxable differences, while deferred tax assets are reported to the extent it is deemed likely that there will be future taxable income that will allow the use of deductible temporary differences. The book value of deferred tax assets is reviewed on each reporting date and reduced to the extent it is no longer likely that there will be sufficient taxable income to allow for the full or partial recovery of these assets.

Deferred assets and liabilities are not recorded if the temporary differences result from goodwill or the initial recording of other assets and liabilities involving transactions (with the exception of business combination transactions) that have no impact on reported or taxable income. In addition, deferred tax liabilities are recorded for temporary taxable differences related to investments in subsidiaries, affiliates and joint ventures unless ASM is able to monitor the elimination of these temporary differences, and it is likely that that these differences will not be eliminated in the foreseeable future.

Deferred taxes are calculated on the basis of the tax rate that is expected to be in effect at the time the asset is sold or the liability settled. Deferred taxes are directly allocated to the profit and loss account with the exception of those related to items reported directly under shareholders’ equity, in which case the related deferred taxes are also allocated to shareholders’ equity.

Deferred tax assets and liabilities are offset when there is a legal right to offset current tax income and expenses, and when they are related to taxes due to the same tax authority, and ASM intends to settle current tax assets and liabilities on a net basis.

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SUMMARY OF MAIN BALANCE SHEET EFFECTS OF THE FIRST-TIME APPLICATION OF IAS/IFRS AT 1 JANUARY 2005

Below is a summary of the balance sheet at the IAS transition date.

For a more thorough understanding, comments are provided on the main changes resulting from adjustments and reclassifications required to bring the accounts prepared in accordance with Italian accounting standards into line with IAS/IFRS-compliant accounts.

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ASM BRESCIA SPA

BALANCE SHEET Italian Gaap IAS/IFRS ASSETS 01/01/2005 restatements adjustments 01/01/2005

Intangible assets 26,372 - 3,621 - 1,294 21,457 Goodwill 43,077 - 3,108 46,185 Tangible assets 1,085,497 2,389 9,681 1,097,567 Investments in subsidiaries and affiliates 552,010 - - 27,194 524,816 Investments in other companies 19,012 - - 19,012 Other investments 57,601 - 400 58,001 Assets for derivative valuations - 24,697 24,697 Receivables for deferred taxes 16,271 - 133 16,404 Other assets 9,981 1,231 - 3,277 7,935 Total NON-CURRENT ASSETS 1,809,822 - 6,253 1,816,075

Inventories 13,888 - 1,694 15,583 Receivables from customers 63,243 - - 63,243 Receivables from affiliates 189,455 - - 20,400 169,055 Receivables for current taxes 6,630 - - 6,630 Miscellaneous receivables 39,408 - - 39,408 Cash and cash equivalents 187,646 - - 187,646 Total CURRENT ASSETS 500,269 - - 18,706 481,564

Total ASSETS 2,310,091 - - 12,452 2,297,638

LIABILITIES

Share capital 735,571 - - 735,571 Capital reserve 146,965 - - 146,965 Other reserves 91,241 - - 25,858 65,382 IFRS 1 reserve - - 1,093 1,093 Retained earnings 172,125 - - 172,125 Total SHAREHOLDERS' EQUITY 1,145,901 - - 24,765 1,121,136

Staff severance fund and pension reserve 24,569 - 17 24,586 Deferred tax reserve 76,393 - 11,485 87,877 Reserve for risks and future liabilities 11,993 - - 5,853 6,140 Bonds 500,000 - - 4,621 495,379 Payables and other financial liabilities 162,137 - - 162,137 Landfill liabilities 65,900 - 11,284 77,184 Long-term payables to affiliates 4,649 - - 4,649 Other liabilities 26,654 - - 26,654 Total NON-CURRENT LIABILITIES 872,295 - 12,313 884,607

Current financial liabilities 13,469 - - 13,469 Payables to suppliers 130,788 - - 130,788 Payables to affiliates 64,371 - - 64,371 Current tax payables 8,710 - - 8,710 Miscellaneous payables 74,557 - - 74,557 Total CURRENT LIABILITIES 291,895 - - 291,895

Total SHAREHOLDERS' EQUITY AND LIABILITIES 2,310,091 - - 12,452 2,297,638

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Intangible assets and goodwill

Certain capitalised costs reported under intangible assets pursuant to Italian accounting standards do not meet the requirements for capitalised costs under IAS/IFRS (IAS 38).

Specifically, in the reconciliation at 1 January 2005:

• reclassifications included EUR 2.39 million for leasehold improvements, which were restated under tangible assets, and EUR 1.23 million mainly relating to multi-year expenses for heat management, which were restated under other assets; • an adjustment of EUR 1.37 million was made in relation to transaction expenses for the ten-year bond issued by ASM Brescia in May 2004 with a nominal value of EUR 500 million. According to IAS/IFRS, this liability should be valued using the amortised cost method by initially netting the issuance expenses and discounts against the amount of the liability for the bond. • Goodwill was increased by EUR 3.11 million to eliminate amortisation (especially in respect of ENEL’s networks), which, pursuant to IAS/IFRS, must no longer be calculated but instead replaced by a test to verify whether there has been any loss in value.

Tangible assets

Total adjustments applicable to this item were EUR 9.68 million.

Specifically, the main changes in the reconciliation statement at 1 January 2005, were as follows:

• EUR 1.48 million was added for the higher asset values as a result of the elimination of accumulated depreciation to the period ending 31 December 2004 for the portion of land capitalised with buildings. Under IAS/IFRS, land should never be depreciated. The value of land was obtained by taking into account the appraisals done during the transformation of ASM from a municipally-owned company to an SpA and from values obtained from subsequent appraisals and valuations. • EUR 11.28 million was reported in respect of the change in accounting treatment required for liabilities related to landfill closure and post-closure costs. Pursuant to IAS/IFRS, amounts related to environmental cleanup reserves (decontamination procedures, landfill disposal costs, environmental restoration costs to be incurred to clean up an area, etc.) are to be posted as a direct increase to the assets to which they relate, and a balancing entry is posted for these costs in the same amount in a specific item called “liabilities for landfills.” The impact on the profit and loss account in future years is reported in the form of depreciation of the asset. • EUR 3.09 million was eliminated in respect of excess accumulated depreciation on the portion of the tangible assets that is subject to regular maintenance and depreciated using the “component” approach by the date on which the maintenance is done instead of over the estimated life of the asset. As a balancing entry for this adjustment, at the time of the first-time application of IAS/IFRS, the provision for regular maintenance, pursuant to the previously applicable accounting principles, was eliminated.

The reclassifications reported are for improvements to leased assets that were discussed earlier.

Investments in subsidiaries and affiliated companies

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This item was adjusted because under IAS/IFRS, investments may not be valued at equity in the separate financial statements, as this is only obligatory in the consolidated accounts. As a result, the shareholding in Endesa, valued at equity under Italian GAAP, has been revalued at cost under IAS/IFRS.

Assets for derivative valuations

ASM entered into an interest rate swap when it launched its fixed-rate EUR 500 million bond over ten years. Under IAS 39, this derivative instrument is identified as a cash flow hedge. As a result, in accordance with IAS, the company recorded an asset of EUR 24.7 million, which, net of the related deferred tax reserve of EUR 8.15 million, necessitated a liability of EUR 16.55 million under a shareholders’ equity reserve.

Other non-recurring assets

The adjustment of EUR 3.28 million included a decrease for the elimination of EUR 3.48 million for the bond discount, which was netted against the debt to which it relates, and an increase of EUR 203,000 for the elimination of the deferred charges related to the bond issuance discount taken during the period.

Receivables for deferred taxes and deferred tax reserve

These include the tax impact of the adjustments applied.

Inventories

The adjustments for this item primarily concerned the change in the inventory valuation method from LIFO (no longer permitted) to weighted average cost, and they resulted in an increase in this item of EUR 1.69 million.

Receivables from related parties

The adjustment of EUR 20.4 million relates to the elimination of a receivable for dividends recorded by ASM. Under IAS/IFRS, dividends may only be recorded on the balance sheet in the year in which they are approved by the shareholders’ meeting. For equity investments valued at equity (Endesa) only, ASM recorded the dividends according to the matching principle allowed by Italian accounting standards.

Staff severance and pension reserves

The staff severance reserve was recalculated, with the assistance of external experts, using the actuarial and statistical approach required by IAS 19.

Reserve for risks and future liabilities

The decrease of EUR 5.85 million was largely due to the change in the recording method used for regular maintenance reserves and for a dismantling expense reserve pursuant to IAS 16 and 37. In particular, the adjustment for the regular maintenance reserves resulted in the elimination of EUR 6.97 million, while the

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dismantling expense reserve resulted in the recording of EUR 949,000. In addition, a reserve was reported to take into account the fair value of a loan collar in the amount of EUR 169,000.

Bonds

The adjustment related to this item refers to the use of the amortised cost method. Under Italian accounting standards, this item was recorded at nominal value.

Liabilities for landfills

Please refer to the section on tangible assets.

Shareholders' equity

As required by IFRS 1, the balance of the adjustments applied was reflected in a shareholders’ equity reserve called the “IFRS 1 reserve,” the net value of which was EUR 1.09 million. Other reserves also incorporate an amount of EUR 25.79 million relating to the valuation of Endesa at cost rather than shareholders’ equity.

Net debt

The impact of the transition on net debt is summarised in the table below.

Effects on net debt

Net debt under previous accounting standards - 499,314

Amortised cost of bond loan 4,621

Net debt under IAS/IFRS at 01/01/2005 - 494,693

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SUMMARY OF MAIN BALANCE SHEET AND PROFIT AND LOSS EFFECTS OF THE FIRST-TIME APPLICATION OF IAS/IFRS AT 31 DECEMBER 2005

Below is a summary of the balance sheet and profit and loss account at 31 December 2005. For a more thorough understanding, comments are provided on the main changes resulting from adjustments and reclassifications required to bring the accounts prepared in accordance with Italian accounting standards into line with IAS/IFRS-compliant accounts.

ASM BRESCIA SPA

BALANCE SHEET Italian Gaap IAS/IFRS ASSETS 31/12/2005 restatements adjustments 31/12/2005

Intangible assets 26,408 - 1,888 -7,216 17,305 Goodwill 39,969 61,686 101,655 Tangible assets 1,124,025 1,888 3,867 1,129,780 Investments in subsidiaries and affiliates 886,022 -137,765 748,258 Investments in other companies 20,246 20,246 Other investments 51,489 51,489 Assets for derivative valuations - 7,030 7,030 Receivables for deferred taxes 19,021 -2,359 16,662 Other assets 8,938 - 2,295 11,232 Total NON-CURRENT ASSETS 2,176,118 - - 72,462 2,103,656

Total NON-CURRENT ASSETS HELD FOR SALE 1,440 - - 1,440

Inventories 17,014 1,339 18,352 Receivables from customers 86,155 86,155 Trade receivables from affiliates 306,309 - 35,200 271,109 Financial receivables from affiliates 14,662 14,662 Receivables for current taxes 9,021 9,021 Miscellaneous receivables 43,498 - 43,498 Current financial assets 8 8 Cash and cash equivalents 57,192 57,192 Total CURRENT ASSETS 533,859 - - 33,861 499,997

Total ASSETS 2,711,417 - - 106,323 2,605,094

Italian Gaap IAS/IFRS LIABILITIES 31/12/2005 restatements adjustments 31/12/2005

Share capital 774,305 774,305 Capital reserve 205,841 205,841 Other reserves 228,158 - 80,755 147,403 IFRS 1 reserve - 1,093 1,093 Profit for the period 154,275 - 24,653 129,622 Total SHAREHOLDERS' EQUITY 1,362,580 - - 104,315 1,258,265

Staff severance fund and pension reserve 35,351 - 1,481 33,870 Deferred tax reserve 93,533 4,529 98,062 Reserve for risks and future liabilities 20,640 - 65 - 7,051 13,524 Liabilities for derivative valuations - 65 65 Bonds 500,000 - 4,223 495,777 Payables and other financial liabilities 183,455 - 183,455 Landfill liabilities 69,661 6,392 76,053 Long-term payables to affiliates 3,506 3,506 Other liabilities 41,492 41,492 Total NON-CURRENT LIABILITIES 947,638 - - 1,834 945,804

Current financial liabilities 22,188 22,188 Payables to suppliers 149,008 149,008 Trade payables to affiliates 72,360 72,360 Financial payables to affiliates 58,862 58,862 Current tax payables 3,898 3,898 Miscellaneous payables 94,884 - 174 94,709 Total CURRENT LIABILITIES 401,199 - - 174 401,025

Total SHAREHOLDERS' EQUITY AND LIABILITIES 2,711,417 - - 106,323 2,605,094 ______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 204

ASM BRESCIA SPA Italian Gaap IAS/IFRS PROFIT AND LOSS ACCOUNT 2005 restatements adjustments 2005

REVENUES Revenues from sales and services 1,002,310 1,002,310 Other income 131,443 131,443 Total REVENUES 1,133,753 1,133,753

Raw materials costs 632,563 356 632,918 Services costs 126,392 - 1,559 124,833 Personnel costs 91,928 - 3,479 88,449 Other miscellaneous costs 40,213 502 40,715 Total OPERATING COSTS 891,095 - - 4,181 886,915

EBITDA 242,658 - 4,181 246,838

Depreciation, amortisation and write-downs 90,196 - 91 90,104 Provisions 2,654 - 2,208 447

Valuation at fair value of non-current assets held for sale 4,500 4,500

EBIT 145,308 - 6,480 151,787

Financial income 28,897 7,030 35,927 Financial charges - 34,456 - 1,986 - 36,442 Exchange rate gains (losses) -

Total FINANCIAL INCOME AND CHARGES -5,559 - 5,044 - 515

Income/expenses from equity investments 75,764 - 32,491 43,273

PROFIT BEFORE TAX 215,513 - - 20,967 194,546

Corporate income tax -61,238 - 3,686 - 64,924

NET PROFIT 154,275 - - 24,653 129,622

Earnings per share -basic 0.199 0.255 -diluted 0.199 0.255

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Intangible assets and goodwill

The main adjustment to intangible assets was the elimination of amortisation on start-up and expansion costs. As previously noted, based on IAS 38, certain capitalised costs reported under intangible assets pursuant to Italian accounting standards do not meet the requirements for capitalised costs under IAS/IFRS. The item was reduced by an amount of EUR 835,000 relating to the elimination of capitalised costs as a result of the merger with BAS Bergamo.

The reclassifications of intangible assets mainly concerned improvements to leased assets (EUR 1.89 million), which were deducted from intangible assets and recorded under tangible assets.

Goodwill was increased by EUR 61.69 million.

Of this adjustment, EUR 55.47 million was due to the reporting in the accounts of the merger of BAS into ASM according to IFRS 3 rules. Based on the share swap ratio resulting from BAS’ expert valuation, ASM launched a capital increase worth EUR 38,734,500 (equivalent to 38,734,500 shares with a nominal value of EUR 1). This capital increase was designated at fair value, taking into account the value of ASM shares at the acquisition date. Since the value of the shareholders’ equity in the BAS accounts on that date was EUR 46.76 million, the gross goodwill figure was EUR 51.84 million. This goodwill was adjusted to reconcile the BAS values with the values drawn from the accounting standards used by ASM. Net goodwill was EUR 55.47 million.

Most of the remaining adjustment to goodwill was due to the elimination of amortisation relating to the acquisition of ENEL’s grids.

As noted earlier, this goodwill is no longer to be amortised pursuant to IAS/IFRS, but is instead subject to an annual impairment test.

Tangible assets

The main adjustments to this item were as follows:

• elimination of accumulated depreciation for land capitalised with buildings (EUR 1.74 million) since, unlike Italian accounting standards, IAS/IFRS does not allow land to be depreciated. The value of land was obtained by taking into account the appraisals done during the transformation of ASM from a municipally-owned company to an SpA and from values obtained from subsequent appraisals and valuations. • decrease in the value of assets in the amount of EUR 3.75 million due to a change in the accounting treatment for regular maintenance reserves and the reserve for dismantling charges (see above for further details). • increase in the value of the landfill by EUR 6.39 million. As already indicated, under IAS/IFRS, environmental cleanup funds should be recorded with a balancing entry for the value of the assets. The effect on the profit and loss account is the reporting of depreciation charges instead of portions of service costs recorded as a debit to landfill closures.

Reclassifications involved an amount relating to improvements to leased assets, which, under IAS/IFRS, cannot be capitalised under intangible assets.

Equity investments

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 206

The adjustment concerned the valuation of the shareholding in Endesa. Under Italian accounting standards, this is valued at equity, while it is valued at cost pursuant to IAS/IFRS.

Receivables for deferred taxes and deferred tax reserve

These include the tax impact of the adjustments applied.

Inventories

EUR 1.34 million of the adjustment was due to the valuation of inventory at weighted average cost instead of LIFO, which is not permitted by IAS/IFRS.

Receivables from related parties

The adjustment of EUR 35,200 relates to the elimination of a receivable for dividends paid in 2006. Under Italian accounting standards, as explained above, the company books dividends according to the accruals principle, while under IAS/IFRS, they are only booked in the year in which the subsidiary’s shareholders’ meeting approves them.

Staff severance and pension reserves

The staff severance reserve was recalculated, with the assistance of external experts, using the actuarial and statistical approach required by IAS 19.

Reserve for risks and future liabilities

The decrease of EUR 7.05 million largely related to the change in accounting treatment of regular maintenance reserves and environmental cleanup reserves as noted above.

Bonds

The adjustment to this item (EUR 4.22 million) related to the use of the amortised cost method as described above.

Liabilities for landfills

The adjustment to this item was due to the application of IFRIC 1.

Shareholders' equity

Other than profits and the EUR 1.09 million reserve resulting from the first-time adoption of IAS/IFRS, the changes in shareholders’ equity were mainly as follows:

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 207

• EUR 54,930 for the fair value designation of the capital increase to fund the BAS merger (see note under goodwill); • For the remainder, the effects of adjustments relating to previous years.

Net debt

The impact of the transition on net debt is summarised in the table below.

Effects on net debt

Net debt under previous accounting standards - 692,337

Amortised cost of bond loan 4,223

Net debt under IAS/IFRS at 01/01/2005 - 688,114

Raw materials costs

The adjustments concerned the application of the weighted average cost criteria instead of LIFO to determine the value of inventories at the end of the period.

Service costs

Adjustments mainly concerned: • the elimination of service costs (due to amortisation) totalling EUR 4.89 million relating to post- closure costs for landfills, which, under IFRIC 1, are recorded as a reduction in the asset’s value rather than as service costs; • the allocation of costs for district heating substations totalling EUR 2.54 million booked as depreciation under Italian GAAP; • higher regular maintenance costs totalling EUR 667,000.

Personnel costs

An adjustment of EUR 3.48 million was made to personnel costs from the application of IAS 19. Based on this standard, the adjustment of the value of the staff severance fund is only partly considered to be a personnel cost since the revaluation component and actuarial gains and losses should be reflected in financial charges. Directors' remuneration is also allocated to this item.

Depreciation and amortisation

Depreciation and amortisation fell by a total of EUR 91,000 due primarily to the following:

• elimination of goodwill amortisation: EUR 3.11 million • elimination of amortisation on bond issuance costs: EUR 137,000 • elimination of the portion of land depreciation capitalised with buildings: EUR 252,000

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 208

• higher depreciation for the component analysis of assets subject to the Italian mechanism for regular maintenance reserves: EUR 895,000 • higher depreciation for the change in the accounting treatment used for post-closure landfill reserves: EUR 4.89 million (this item is the result of a reclassification from service costs). • elimination of depreciation for the district heating plants, now classified under service costs (EUR 2.54 million).

Financial income and charges

Financial income refers to the positive mark to market of derivative financial instruments posted to the profit and loss account in accordance with IAS 39. The negative adjustment on financial charges (EUR 1.99 million) mainly concerns the financial component related to the valuation of the staff severance fund (EUR 1.98 million).

Income and expenses from equity investments

The negative adjustment of EUR 32.49 million relates to the difference arising from the elimination of the revaluation of the Endesa stake, valued at equity in the parent company accounts (EUR 52.89 million), and the inclusion of the value of dividends approved and distributed by Endesa in 2005 (EUR 20.4 million).

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 209

ASM BRESCIA SPA VIA LAMARMORA, 230 - BRESCIA TAX CODE AND BRESCIA COMPANIES REGISTER NUMBER: 03125280176 BRESCIA REA NUMBER: 402664

REPORT OF THE BOARD OF AUDITORS TO THE SHAREHOLDERS' MEETING PURSUANT TO ART. 153 OF LEGISLATIVE DECREE 58 OF 24 FEBRUARY 1998

To the shareholders of the company ASM BRESCIA SPA

During the year ending 31 December 2006, the Board of Auditors carried out auditing activities in compliance with the law and with instructions from Consob. The Board of Auditors would like to report that:

- it monitored compliance with the law and the memorandum of association.

- every quarter (as required by art. 14 of the articles of association) it obtained from the Directors details of the company's activities during the period and financially significant transactions carried out by the company and its subsidiaries. It can therefore reasonably assert that all actions approved and implemented complied with the law and the company’s articles of association, and moreover that they were not imprudent or risky, did not create potential conflicts of interest, did not contravene the wishes of shareholders and did not jeopardise the company’s assets.

- within its remit, it examined and monitored the adequacy of the company’s organisational structure, compliance with the principles of proper business conduct and the appropriateness of the instructions issued by the company to its subsidiaries pursuant to art. 114 of legislative decree 58 of 24 February 1998, after examining information received from the heads of administration and meeting the external auditor to discuss any information of note. It has no observations to make in this regard.

- it examined and monitored the adequacy of the company’s internal auditing system and its administrative and accounting system, including the ability of the latter to correctly represent management actions, after obtaining information from the heads of the respective departments, examining company documents and analysing the results of the work carried out by the external auditor. It has no observations to make in this regard. During the year it met the head of the internal auditing department and the internal audit co-ordinator, who reported on the results of their audits.

- it monitored the procedures for implementing the corporate governance regulations set out in the company’s Code of Conduct for Listed Companies (July 2002 edition) drawn up by the Corporate Governance Committee (as recommended by Borsa Italiana), which the company has adopted. It confirmed that the Board of Directors has prepared a report explaining in detail the reasons for postponing the formal adoption of the Code of Conduct to 2007. It also ascertained that:

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 210

• the Appointments Committee was appointed by resolution of the Board of Directors on 10 May 2004, and met once in 2006 • the Remuneration Committee was appointed by resolution of the Board of Directors on 10 May 2004, and met twice in 2006 • the Internal Audit Committee, of which the Chairman of the Board of Auditors is a member, was appointed by resolution of the Board of Directors on 10 May 2004, and met on 13 February 2006, 6 March 2006, 14 March 2006, 1 June 2006 and 31 July 2006. At its meeting of 16 March 2007, it approved its report, to be submitted to the Board of Directors.

- it met each of the Boards of Auditors of the company’s subsidiaries to discuss the respective management and internal auditing systems, and the day-to-day operations of the subsidiaries.

- it held regular meetings with the external auditor PricewaterhouseCoopers SpA, pursuant to art. 150 of legislative decree 58 of 24 February 1998. There is nothing to report with regard to these meetings.

- it did not learn of any atypical or unusual transactions between the company and its subsidiaries or related parties. In its report on operations, the Board of Directors provided full and detailed information of ordinary and financially significant transactions between the company and its subsidiaries and affiliates, as well as details of the payments involved and how these were calculated. Please see the report on operations for further information.

- on 3 April 2007 the external auditor PricewaterhouseCoopers SpA issued its report, which contains no observations or requests for clarification.

- no reports of irregularities were received pursuant to art. 2408 of the Civil Code or submitted by third parties.

- it monitored the independence of the external auditor PricewaterhouseCoopers SpA, and verified compliance with laws and regulations in this regard.

- following the express declaration of the Directors, it noted that the external auditor PricewaterhouseCoopers SpA has no other role in the company.

- the company has no contracts with entities that have long-standing dealings with PricewaterhouseCoopers SpA.

- the external auditor PricewaterhouseCoopers SpA did not issue an opinion pursuant to art. 158 of legislative decree 58 of 24 February 1998 as this was not required.

- it ascertained that the Board of Directors, with a resolution dated 27 March 2006, established a register of persons with access to confidential information, effective from 1 April 2006, and appointed a person to oversee and update it.

- it ascertained that the Board of Directors, with a resolution dated 27 March 2006, approved the company’s Internal Dealing code.

- it ascertained that the Board of Directors, with a resolution dated 31 March 2006, approved the new text of the summary document of the Organisation, Management and Control Model required by legislative decree 231 of 8 June 2001 and the regulations governing the functioning of the Supervisory Committee, and that the Board asked its Chairman to allocate to the Supervisory Committee the resources needed to carry out the duties assigned to it.

- the Supervisory Committee did not inform the Board of Auditors of any material facts.

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 211

The auditing activities described above took place during 60 meetings of the Board of Auditors and after attendance at 18 meetings of the Board of Directors, pursuant to art. 149 of legislative decree 58 of 24 February 1998. An Executive Committee was not appointed.

Based on its auditing activities and information received from the external auditor, the Board of Auditors has noted no omissions and/or irregularities or any significant events requiring notification to the supervisory bodies or inclusion in this report.

With reference to the report on operations for the company and group, approved by the Board of Directors at its meeting on 16 March 2007 and submitted to the Board of Auditors for its opinion, following the auditing activities carried out, the Board of Auditors hereby states that it has verified: • that the report includes the obligatory content set out in art. 2428 of the Civil Code • that the information is complete and clear and confirms to the principles of truthfulness, accuracy and clarity as required by law.

The Board of Auditors notes that ASM Brescia SpA’s accounts for the year ending 31 December 2006 have, for the first time, been prepared using the International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB), pursuant to legislative decree 38 of 28 February 2005. It also notes that the effects of the adjustments resulting from the first-time application of these standards have been booked to a shareholders' equity reserve. The changes resulting from the application of the standards are described in detail in the notes to the accounts.

After examining the financial statements and accounts for the year ending 31 December 2006, the Board of Auditors, within its remit, would like to express its agreement with the Board of Directors’ proposal regarding the allocation of profit for the period.

Brescia, 3 April 2007

THE BOARD OF AUDITORS Giovanni Rizzardi (Chairman)

Ferruccio Barbi (Statutory Auditor)

Diego Rivetti (Statutory Auditor)

______Annual report and accounts to 31 December 2006 – ASM Brescia SpA 212

THE ASM GROUP

ACCOUNTING STATEMENTS AND NOTES TO THE ACCOUNTS

FOR THE PERIOD ENDING 31 December 2006

______Annual report and accounts to 31 December 2006 – ASM group 215

ASM GROUP

BALANCE SHEET

Ref ASSETS 31/12/2006 31/12/2005

1.1 Intangible assets 36,894,283 39,799,432 1.2 Goodwill 137,720,674 138,005,032 1.3 Tangible assets 1,478,891,453 1,351,169,345 1.4 Equity investments valued at equity 751,080,371 629,865,420 1.5 Other investments 20,375,813 20,496,569 1.6 Other financial assets 260,125 263,537 of which related parties 260,000 260,000 1.7 Assets for derivative valuations 568,965 7,447,327 1.8 Receivables for deferred taxes 51,212,431 26,342,053 1.9 Other assets 46,210,349 11,711,886 of which related parties 36,215,894 4,351,894 Total NON-CURRENT ASSETS 2,523,214,464 2,225,100,601

1.10 NON-CURRENT ASSETS HELD FOR SALE 1,265,580 1,440,000

1.11 Inventories 74,529,216 52,002,240 1.12 Receivables from customers 521,157,825 481,360,987 1.13 Trade receivables from affiliates 46,843,940 61,739,166 1.14 Financial receivables from affilaites 714,268 1,168,602 1.15 Receivables for current taxes 28,793,798 28,696,910 1.16 Miscellaneous receivables 56,415,086 49,877,047 1.17 Current financial assets 7,942 166,532 1.18 Assets for short-term derivatives valuation 4,033,893 - 1.19 Cash and cash equivalents 242,339,229 82,453,956 Total CURRENT ASSETS 974,835,197 757,465,440

Total ASSETS 3,499,315,241 2,984,006,041

______Annual report and accounts to 31 December 2006 – ASM group 216

ASM GROUP

Ref LIABILITIES 31/12/2006 31/12/2005

2.1 Share capital 774,305,358 774,305,358 2.2 Capital reserves 205,841,456 205,841,456 2.3 Other reserves 326,533,270 201,475,739 2.4 Derivatives valuation reserves -10,065,649 296,186 2.5 IFRS 1 reserve -6,673,835 472,042 Profit for the period 238,282,436 212,360,696 Total SHAREHOLDERS' EQUITY for GROUP 1,528,223,036 1,394,751,477

Minorities' shareholders' equity 6,284,838 13,700,046 Total SHAREHOLDERS' EQUITY 1,534,507,874 1,408,451,523

2.6 Staff severance fund and pension reserve 42,270,208 39,988,669 2.7 Deferred tax reserve 126,220,322 111,553,522 2.8 Provision for risks and future liabilities 30,307,393 16,495,248 2.9 Liabilities for derivative valuations 15,446,683 10,295,085 2.10 Bonds 593,685,284 495,776,950 2.11 Payables and other financial liabilities 340,713,382 215,372,074 2.12 Landfill liabilities 83,150,219 84,551,705 2.13 Long-term payables to affiliates 2,311,316 3,506,475 2.14 Other liabilities 86,913,310 82,930,583 Total NON-CURRENT LIABILITIES 1,321,018,117 1,060,470,311

2.15 Current financial payables 105,929,075 65,416,730 2.16 Liab. for short-term derivatives valuation 353,333 - 2.17 Payables to suppliers 282,407,052 254,345,904 2.18 Trade payables to affiliates 52,498,051 16,911,600 2.19 Financial payables to affiliates 2,604,050 5,251,453 2.20 Current tax payables 54,655,939 19,997,840 2.21 Miscellaneous payables 145,341,750 153,160,680 Total CURRENT LIABILITIES 643,789,250 515,084,207

Total SHAREHOLDERS' EQUITY AND LIABILITES 3,499,315,241 2,984,006,041

______Annual report and accounts to 31 December 2006 – ASM group 217

ASM GROUP

Ref PROFIT AND LOSS ACCOUNT 2006 2005

REVENUES 3.1 Revenues from sales and services 1,899,483,594 1,535,945,183 of which affiliates 82,044,119 123,208,115 3.2 Other revenues 152,360,860 136,422,720 of which affiliates 1,491,169 4,065,121 Total REVENUES 2,051,844,454 1,672,367,903

3.3 Cost of raw materials 1,164,177,194 907,249,825 of which affiliates 505,567,096 406,959,150 3.4 Service costs 349,477,779 272,204,321 of which affiliates 12,084,200 12,043,386 3.5 Personnel costs 119,583,646 115,734,208 of which affiliates 1,847,734 1,865,205 3.6 Other miscellaneous costs 37,452,428 38,442,809 of which affiliates 6,192,655 6,762,416 Total OPERATING COSTS 1,670,691,047 1,333,631,163

EBITDA 381,153,407 338,736,740

3.7 Depreciation, amortisation and write-downs 120,160,155 116,856,168 3.8 Provisions 16,565,658 988,202 Valuation at fair value of non-current assets 3.9 held for sale 174,420 12,501,097

EBIT 244,253,174 208,391,273

3.10 Financial income 9,140,313 36,532,074 of which affiliates 38,948 43,920 3.11 Financial charges -44,873,389 -39,101,871 of which affiliates -221,979 -231,919 Exchange rate losses 49,260 -312,177

Total FINANCIAL INCOME AND CHARGES -35,683,816 -2,881,974

3.12 Income/expenses from equity investments 118,724,897 89,919,510

PROFIT BEFORE TAX 327,294,255 295,428,809

3.13 Corporate income tax -89,015,912 -82,561,297

PROFIT INCLUDING MINORITIES' PORTION 238,278,343 212,867,512

Profit/loss: minorities 4,093 -506,816

NET PROFIT FOR THE GROUP 238,282,436 212,360,696

3.14 Earnings per share - basic 0.308 0.274 -diluted 0.308 0.274 ______Annual report and accounts to 31 December 2006 – ASM group 218

ASM GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AS OF 31 DECEMBER 2006

(EUR thousand) IFRS 1 reserve Reserve for the Reserve for valuation at fair derivatives Other Share premium value of capital Legal Restricted Consolidati Reserve for Other Profit for the Minorities' Share capital valuation reserves for Total reserve increase reserve reserve on reserve own shares reserves Listing period capital Description (cash flow first-time generated by expenses hedge) adoption of BAS IAS

Balance as of 31 December 2005 774,305 146,965 58,876 20,282 12,911 53 - 168,230 296 -13,578 14,050 212,361 13,700 1,408,451

Distribution of profits for 2005: - earnings carried forward 7,713 103,988 -111,701 - - ordinary dividend payout -81,302 -81,302 - extraordinary dividend payout -19,358 -19,358

Change in derivatives valued for cash flow hedge -10,362 -10,362

Purchase of own shares -326 -326

Partial reclassification of IFRS 1 reserve 320 -320 -

Change in basis of consolidation 4 4

Effects of first-time adoption of IAS/IFRS (consolidated companies) 12,104 -6,826 5,278

Profit for the period 238,282 238,282

Capital acquired by minorities 1,256 -7,419 -6,163

Earnings attributable to minorities 4 4

Balance as of 31 December 2006 774,305 146,965 58,876 27,995 12,911 53 - 326 285,902 -10,066 -13,578 6,904 238,282 6,285 1,534,508

______Annual report and accounts to 31 December 2006 – ASM group 219

ASM BRESCIA GROUP 31/12/2005 Cash flow statement to 31/12/06 (EUR thousand) sub-total total

A. Opening net debt (702,440) (511,307)

B. Cash flow generated by operations Net profit 238,282 Depreciation and amortisation 115,646 Valuation of assets at fair value 174 Change in staff severance fund 2,281 Net increase of other reserves 13,812 Income from equity investments (567) Adjustments to the value of investments (118,158) Change in medium- to long-term assets/liabilities (28,968) of which related parties (31,864) Tax for the period 89,016 Tax paid (71,060) Cash flow generated by operations before change in net working capital 240,458 (Increase)/decrease in receivables (92,129) of which related parties 14,895 Increase/(decrease) in payables 61,398 of which related parties 35,586 Change in net working capital (30,731) Total cash flow generated by operations 209,727 200,234

C. Cash flow generated by investments Investments in tangible and intangible assets (239,320) Net change in value of shareholdings 1,482 Total cash flow generated by investments (237,838) (282,381)

D. Cash flow generated by other assets/liabilities Dividends and distributioni of reserves (100,660) Dividends from shareholdings 35,767 Other consolidation changes (6,477) Total cash flow generated by other assets/liabilities (71,370) (49,225)

E. Total merger increases/(decreases) - (59,761)

F. Cash flow for the period (B+C+D+E) (99,481) (191,133)

G. Closing net debt (A+F) (801,921) (702,440)

Net financial debt - cash flow details and movement 31/12/2006 31/12/2005

1 Cash and short-term securities 242,339 82,454 Opening balance 82,454 Change 159,885 2 Current financial assets 8 166 Opening balance 166 Change (158) 3 Other financial receivables 260 264 Opening balance 264 Change (4) 4 Bonds (593,685) (495,777) Opening balance (495,777) New bond (97,491) Changes (417) 5 Payables to banks (435,449) (268,638) Opening balance (268,638) Changes (166,811) 6 Payables to other financial institutions (11,193) (12,151) Opening balance (12,151) Changes 958 7 Financial payables to controlling shareholder (3,506) (4,649) Opening balance (4,649) New loans - Repyaments 1,143 8 Financial payables to other related parties (695) (4,109) Opening balance (4,109) Changes 3,414

Total net debt (*) (801,921) (702,440) (*) Total net debt does not include accrued interest payable of EUR 16,766,000 ______Annual report and accounts to 31 December 2006 – ASM group 220

THE ASM GROUP

NOTES TO THE CONSOLIDATED ACCOUNTS

FOR THE PERIOD ENDING 31 December 2006

With the entry into force of Regulation 1606/2002, issued by the European Parliament and European Council in July 2002, companies whose securities are authorised for trading in regulated markets of member states of the European Union are required to prepare their consolidated accounts in accordance with the international accounting standards (IAS/IFRS) issued by the IASB (International Accounting Standards Board) if ratified by the EU and published in the Official Journal of the European Union (OJEC).

Thus, these consolidated accounts for the ASM Group at 31 December 2006 were prepared in accordance with the above accounting criteria.

It should also be noted that the requirement to adopt IAS/IFRS was confirmed in Italy under legislative decree 38 of 28 February 2005, which also extended the provisions contained in the above-mentioned EU regulation to other areas beyond those related to consolidated accounts of companies with securities authorised for trading in regulated markets.

These notes to accounts also provide the information specifically required by Consob Regulation 11971/99 as amended, as well as all supplementary information deemed necessary to provide a true and accurate representation of the group’s financial position regardless of whether the law specifically requires this.

These consolidated accounts have been fully audited by PricewaterhouseCoopers SpA in accordance with Consob regulations.

For ease of comparison, figures indicating the position at 31 December 2005 are also provided for items on the consolidated balance sheet and profit and loss account .

ACCOUNTING PRINCIPLES AND POLICIES

General principles

As already indicated, these consolidated accounts were prepared on the basis of the IAS/IFRS issued by the IASB and ratified by the European Union. The acronym IAS/IFRS here stands for International Accounting Standards and International Financial Reporting Standards, as supplemented by interpretations issued by the IFRIC, previously known as the SIC.

Below is a summary of the accounting principles used by the ASM group based on IAS/IFRS requirements.

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Presentation of financial statements

The financial statements were prepared in accordance with Consob resolution 15519/2006.

For the presentation of the balance sheet, the group has chosen to make a distinction between “current” and “non-current” items. Items in the profit and loss account are shown in single column format by nature. The cash flow statement is presented using the indirect method.

These statements provide relevant information on items in the group’s accounts. They also comply with the minimum content required by IAS 1. The financial statements used for these consolidated accounts are the same as those used for the accounts of the companies making up the ASM Group, with appropriate adjustments.

Basis and principles of consolidation

The basis of consolidation includes subsidiaries (over which the group exercises its control pursuant to IAS 27 or where the parent company has the power to determine the financial and operating policies of a company in such a way as to benefit from its operations), affiliates (over which the group is able to exercise significant influence pursuant to IAS 28) and joint ventures (i.e., financial activities subject to joint control pursuant to IAS 31).

The operating results of subsidiaries acquired or sold during the period are included in the consolidated profit and loss account from the actual acquisition date until the actual sale date. If necessary, adjustments are made to the accounts of subsidiaries to bring them into line with the accounting criteria used by the group.

The full amounts of the assets, liabilities, costs and revenues of individual group companies, which are consolidated on a line-by-line basis, are included in the consolidated accounting statements regardless of the percentage of the company owned, after the elimination of the book value of the related investments against the group’s share of the equity.

The stake of minority shareholders in the net assets of consolidated subsidiaries is reported separately from the group’s shareholders’ equity. This stake is determined on the basis of the percentage held by them in the fair values of assets and liabilities reported on the original acquisition date and in changes in shareholders’ equity after that date. Subsequently, losses attributable to minority shareholders in excess of their applicable share of shareholders’ equity are allocated to the group’s shareholders' equity unless minority shareholders have a binding obligation and are able to make further investments to cover losses.

All significant unrealised profits and losses resulting from transactions between companies included in the basis of consolidation are eliminated, as are all significant entries resulting in payables, receivables, costs and revenues between group companies. As in the case of other consolidation adjustments, these adjustments take into account the related deferred tax effect, if applicable.

A list of the companies included in the basis of consolidation as of 31 December 2006 is appended to this report.

Note that the draft accounts of consolidated companies at 31 December 2006, which were approved by their respective boards of directors, were used for the purposes of consolidation.

Business combinations

The purchase of subsidiaries is reported using the purchase method. Purchase cost is determined as the total of the current values, on the trade date, of the assets given, liabilities incurred or assumed and financial

______Annual report and accounts to 31 December 2006 – ASM group 222

instruments issued by the group in exchange for control in the company acquired, plus any costs that are directly applicable to the combination.

For the determination of the current value of identifiable assets, the costs associated with acquiring customer lists, where the company is able to monitor the future benefits resulting from such lists, are amortised as a function of the estimated useful life of the related contracts.

Goodwill related to the acquisition is posted as an asset and initially designated at cost, which is represented by the purchase cost less the group’s share of the current value of the identifiable assets, liabilities and potential liabilities posted. If, after calculating these values, the group’s share of the current value of the identifiable assets, liabilities and potential liabilities exceeds the purchase cost, this surplus is immediately posted to the profit and loss account. Minority interests in the company purchased are initially calculated as minorities’ share of the current value of the assets, liabilities and potential liabilities reported.

Valuation at cost is an alternative option in the event appropriate information is not available for fair value designation.

Investments in affiliates

An affiliate is a company over which the group is able to exercise significant influence, but not control or joint control, by participating in decisions on the financial and operating policies of the affiliate.

The operating results, assets and liabilities of affiliates are reported in the consolidated accounts using the equity method with the exception of those investments classified as held for sale (see below) or when their value is not significant, in which case they are carried at cost, if appropriate information is not available for applying the fair value methodology.

Based on this method, investments in affiliates are recorded in the balance sheet at cost adjusted for changes, occurring after the acquisition, in the net assets of the affiliates, minus any losses in value of the individual equity investments. Losses of affiliates that exceed the group’s stake in these companies are not recognised unless the group has assumed an obligation to cover these losses. Any surplus of the purchase cost over the group’s percentage of the current value of the identifiable assets, liabilities and potential liabilities of the affiliate on the purchase date is reported as goodwill. Goodwill is included in the investment's book value and is subject to impairment tests. If the purchase cost is lower than the group’s percentage of the fair value of the identifiable assets, liabilities and potential liabilities of the affiliate on the purchase date, the difference is credited to the profit and loss account in the period when the investment was acquired.

Investments in joint ventures

Agreements that involve the establishment of a separate entity in which each investor holds a stake are called joint ventures. The group reports joint ventures using the proportional consolidation method, pursuant to which the group’s shares of the assets, liabilities, costs and revenues of the joint venture companies are integrated, line by line, into the equivalent items in the consolidated accounts.

For transactions between a group company and a joint venture company, all unrealised profits and losses are eliminated to the extent of the group’s percentage stake in the joint venture unless unrealised losses serve as evidence of a reduction in the value of the asset transferred.

Non-current assets and liabilities

Intangible assets

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These assets are reported at purchase cost including any ancillary charges.

They are amortised on a straight-line basis over their remaining useful life. Concession fees are amortised on a straight-line basis over the life of the concession on the basis of the remaining useful life of plants managed under concession.

Regardless of amortisation already recorded, in the event there is a permanent loss in value, intangible assets are written down by the corresponding amount.

Goodwill

Goodwill resulting from the purchase of a subsidiary or joint venture is the purchase cost minus the group’s percentage of the fair value of the identifiable assets, liabilities and potential liabilities of the subsidiary or joint venture on the acquisition date. Goodwill is recorded as an asset and is reviewed annually to determine if there have been any losses in value, which are immediately posted to the profit and loss account and not subsequently written back.

If a subsidiary or joint venture is sold, the related unamortised portion of goodwill is included in the determination of the gain or loss from the disposal.

Goodwill resulting from acquisitions made before the IFRS transition date is maintained at values determined using Italian accounting standards on that date, and are subject to impairment tests on that date.

Tangible assets

Tangible assets are reported at their historical, purchase or manufacturing cost including any directly allocable ancillary costs that are necessary for installing the asset for the use for which it was purchased or manufactured. This cost is adjusted for any significant increases, resulting from current obligations, in the amount of the estimated cost of dismantling and removing the asset, and the cost of reclaiming the site where the asset is located. Assets consisting of several components of a significant value and with different useful lives, are recorded separately.

Assets are depreciated on a straight-line basis every year based on economic and technical rates determined in relation to the remaining useful life of the assets.

Depreciation rates are as follows (the different values for each of these classes of assets refer to the various sectors of activity):

Buildings: - Industrial buildings 2%-4% - Hydroelectric plant buildings 1.5%-3% - Temporary buildings 10%

Plant and machinery: - Hydroelectric plants 3.5% - Thermoelectric plants 7% - Gas reduction chambers 5% - WTE plant 7% - High- and medium-voltage power lines 2%-4%-5.5% - Receivers and substations 3.5%-7% - Power booths, low-voltage lines and 4%-7% - low-voltage lines 4% - lifting equipment 4% Chlorination and purification equipment 5%-8%

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- Sewer networks 2.5% - Fibre-optic networks 5% - Water, gas and district heating pipelines 2.50%-4%-6.70% - Bypasses and inlets 2.5-4% - Street lighting 4%-5% - Waste collection equipment - general 10% - Electricity metering equipment 5%-10%

Industrial and commercial equipment: - Special equipment relating to street cleaning 12% - Miscellaneous industrial equipment 10%-25% - Mobile phones 10%-20%

Other tangible assets: - Office furniture and electronic office equipment 10%-12%-20% - Transport vehicles 10%-12.5% - Automobiles 10%-12.50%-25% - Freely transferable assets on the basis of the lifetime of the concessions

Land is not depreciated since it has an unlimited useful life. An exception is made for land used for landfills, which, by their nature, are subject to physical deterioration over time.

Landfill sites are depreciated based on the proportion of the site that is filled.

Depreciation is reported starting at the moment when the asset is available for use or is potentially able to provide the economic benefits associated with it.

Regardless of depreciation already recorded, in the event that there is a permanent loss of value, tangible assets are written down by the corresponding amount.

The estimated costs for the closure and post-closure of landfill sites operated under concessions, which are incurred after they are full, are included in non-current liabilities as a balancing entry for the asset to which they are related. The reporting of the charge to the profit and loss account occurs through the depreciation of the tangible asset to which this charge relates.

Incremental and maintenance costs that produce a significant and tangible increase in production capacity or in the security of the assets or that extend the useful life of the assets, are capitalised and are applied as an increase to the asset for which these costs are incurred, and depreciated in relation to the useful remaining life of the assets to which they refer, which is redetermined based on the benefit provided by these investments.

Ordinary maintenance costs are recorded directly in the profit and loss account.

Leasehold improvements are classified as tangible assets based on the nature of the cost incurred. The depreciation period is the lower of the remaining useful life of the tangible asset and the contract term.

Lease contracts are classified as finance leases whenever the terms of the contract substantially transfer all risks and benefits of ownership to the lessee. All other leases are considered as operating leases.

Assets under finance leases are reported as group assets at their fair value on the contract date adjusted for ancillary charges on the contract date and any costs incurred for taking over the contract, or the present value of minimum lease payments due under the lease contract, whichever is lower. The corresponding liability to the lessor is included in the balance sheet under “debt and other financial liabilities.” Lease payments are broken down into principal and interest in order to arrive at a constant interest rate for the residual liability. Financial charges are directly allocated to the profit and loss account for the period.

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Costs related to lease payments under operating leases are reported in equal amounts based on the term of the contract. Benefits received, or to be received, or paid, or to be paid as an incentive for entering into operating leases are also reported in equal amounts based on the contract term.

Loss in value of tangible and intangible assets

At each annual or interim reporting date, the group reviews the book value of its tangible and intangible assets to determine if there is any sign that these assets have declined in value. If such signs exist, the recoverable amount of these assets is estimated in order to determine the amount of any write-down. When it is not possible to estimate the recoverable value of an individual asset, the group makes an estimate of the recoverable value of the cash flow-generating unit to which the asset belongs. Goodwill is verified annually and at any time there are signs of a potential loss in value, in order to determine whether there are actual losses in value.

The recoverable value is the higher of the fair value minus sales costs, and the usage value. When determining the usage value, future estimated cash flows are discounted to their present value using a rate, before taxes, that reflects current market valuations of the cash value and specific risks associated with the asset.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than the related book value, it is reduced to the lower recoverable value. A loss in value is immediately recorded in the profit and loss account.

When there is no further justification for maintaining a write-down, the book value of the asset (or cash- generating unit), with the exception of goodwill, is increased to the new value resulting from the estimate of its recoverable value, which is not to exceed the net book value that asset would have assumed if the write- down for the loss of value had not been applied. Any recovery in value is immediately allocated to the profit and loss account.

Financial assets

Financial assets are reported in the accounts on the basis of the trade date, and are initially valued at cost including any charges directly associated with the purchase. On subsequent reporting dates, the financial assets that the group intends, and is able, to hold to maturity (held-to-maturity securities) are reported at their amortised cost less write-downs applied to reflect a loss in value.

For those equity investments, which, on the basis of IAS 39 can be classified as available for sale, the fair value adjustment in subsequent periods is reflected directly in shareholders’ equity until they are sold or have declined in value. In this event, total profits or losses previously reported in shareholders’ equity are recorded in the profit and loss account for the period.

Losses in value on available-for-sale financial assets which have already been entered in the profit and loss account may not be written back to the profit and loss account.

Severance pay and retirement funds

Severance pay (TFR) is determined by using an actuarial methodology. The amount of benefits accrued during the period by employees is recorded in the profit and loss account under “personnel costs,” while the notional (financial) charge that the company would incur if it went to the market with a request for a loan in an amount equal to the TFR fund is allocated to financial income and charges. Actuarial profits and losses that reflect the effects of changes in the actuarial assumptions underlying the calculation are transferred to the profit and loss account.

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Reserve for risks and future liabilities

Reserves for risks and future liabilities include provisions resulting from current (legal, contractual or implicit) obligations for a past event, the fulfilment of which will probably require the use of funds totalling an amount that can be reliably estimated.

If the impact is significant, the reserves are reported at their present value.

Financial liabilities

Financial liabilities in the form of bonds are initially recorded at cost, corresponding to the fair value of the liability minus transaction costs incurred to obtain the financing. After the initial reporting, these liabilities are valued at amortised cost using the effective interest rate method.

Capital grants

Grants from the government and other public bodies made in accordance with the law are booked under other liabilities when there is legal certainty of the right to this grant. This certainty is assumed when the amount is drawn down. In order to include these grants in the results for the year, the portions applicable to individual financial years are credited to the profit and loss account under “other income” based on the useful life of the assets to which they refer.

Non-current assets classified as held for sale

Assets held for sale are those non-current assets for which the group believes the related value is recoverable mainly through their sale rather than their ongoing use. These balance sheet items are reported at the lower of their book value and fair value less sales costs (IFRS 5). If they are of a significant amount, they are reported in a special section of the balance sheet, while the related operating figures are reported in special accounts of the profit and loss account.

Current assets and liabilities

Inventories

Inventories are stated at the lower of market value and the purchase/manufacturing cost including directly allocable ancillary costs, minus any discounts and allowances. Cost is determined using the weighted average cost method. Inventories of obsolete or slow turnover goods are written down according to their use or sale potential. Work in progress is valued on the basis of contractual payments accrued with reasonable certainty.

Receivables and payables

Receivables are initially reported at fair value, represented by the present value of the amount to be collected. They are then valued at amortised cost and reduced for losses in value.

Cash and cash equivalents

These assets are reported at face value.

Derivatives

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Those transactions, which, in compliance with the group’s policies for managing the risk of fluctuating interest rates and electricity prices, are eligible for hedge accounting treatment, have been classified as derivatives used for hedging. All other derivatives are classified as "derivatives for trading purposes" even though they were created with the intent of managing risk exposure.

In particular, in the case of cash flow hedges, the portion of profits or losses on the hedging instrument that is considered effective must be recorded directly under shareholders’ equity; the ineffective portion of profits and losses must be recorded in the profit and loss account

With regard to financial instruments that are not used for hedging purposes, IAS 39 requires the differential against the contractual value to be reported in the profit and loss account.

Revenue and cost recording

Revenues and income, and costs and charges are recorded net of returns, rebates and bonuses, and net of taxes linked directly to the sale and/or provision of services. Contract work in progress is recorded on the basis of accrued contractual payments based on the progress of the work. Financial income and charges are recorded in the profit and loss account in accordance with the matching principle.

Dividends are reported at the time shareholders are entitled to receive payment, which normally corresponds to the date of the annual shareholders’ meeting that votes on the distribution of dividends.

Dividends received from affiliates are recorded as a reduction to the value of the equity investment (for those valued using the equity method).

Earnings per share

Earnings per share are determined in accordance with the provisions of IAS 33, on the basis of earnings payable to holders of the parent company’s ordinary shares and taking into account the weighted average of outstanding ordinary shares during the period (as a reminder, ASM has only issued ordinary shares). ASM has not issued any securities or other instruments that would result in diluted earnings per share differing from basic earnings per share.

Income taxes for the period

Income taxes for the period are the total of current and deferred taxes.

Current taxes are based on the taxable profit for the period. Taxable income differs from the profit reported in the profit and loss account since it excludes positive and negative components that are taxable or deductible in other periods, and it also excludes items that will never be taxable or deductible. The liability for current taxes is calculated using current rates or rates in effect on the annual reporting date.

Deferred taxes are those taxes that are expected to be paid or recovered on the temporary differences between the book value of assets and liabilities and the corresponding tax value used in the calculation of taxable income. Deferred tax liabilities are generally recorded for all temporary taxable differences, while deferred tax assets are reported to the extent it is deemed likely that there will be future taxable income that will allow the use of deductible temporary differences. The book value of deferred tax assets is reviewed on each reporting date and reduced to the extent it is no longer likely that there will be sufficient taxable income to allow for the full or partial recovery of these assets.

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Deferred assets and liabilities are not recorded if the temporary differences result from goodwill or the initial recording of other assets and liabilities involving transactions (with the exception of business combination transactions) that have no impact on reported or taxable income.

Deferred taxes are calculated on the basis of the tax rate that is expected to be in effect at the time the asset is sold or the liability settled. Deferred taxes are directly allocated to the profit and loss account with the exception of those related to items reported directly under shareholders’ equity, in which case the related deferred taxes are also allocated to shareholders’ equity.

Deferred tax assets and liabilities are offset when there is a legal right to offset current tax income and expenses, and when they are related to taxes due to the same tax authority, and the group intends to settle current tax assets and liabilities on a net basis.

Tax moratorium

With reference to the infraction procedure notice served on the Italian government in May 1999 by the European Commission in relation to tax relief made available to companies operating as local public utilities that are majority-owned by a public entity, and which adopted SpA (public limited company) status under law 142/90, on 2 August 1999 the Italian government stated in a letter to the Commission that, in particular, the measures referred to in the notice do not constitute state aid.

Based on memorandum IP/02/817 of 5 June 2002, the Commission decided that it did not accept this reply in full; specifically, the Commission considers that the opportunity to benefit from subsidised loans and exemptions from corporate income tax (tax moratorium) does constitute state aid. ASM may therefore have to pay, in whole or in part, the corporate income tax that would have applied without the tax relief, backdated to the start of operations (1 July 1998), and until the end of the moratorium period (31 December 1999).

However, in 2002 and 2003, the Italian government, the relevant trade association and the companies concerned filed an appeal against the Commission’s decision.

In February 2004, the Italian government asked the Court of Justice to suspend the proceedings initiated by the government against the Commission’s decision, in order to allow the pending proceeding to take place at the European Court of First Instance, with which the companies receiving the alleged aid filed appeals.

Note that law 62/2005 (“Provisions for the fulfilment of obligations deriving from Italy’s membership of the European Community – Community Law 2004”) came into force on 12 May 2005. Article 27 of this law, pending the ruling on the appeals lodged with the European Court of Justice, is aimed at regulating the procedure for recovering state aid in relation to the European tax moratorium period. Under this article, in its original form, within 60 days of the law coming into force (i.e. by 11 July 2005), the companies concerned had to submit a tax return for the period in which they benefited from the exemption regime (for ASM this period runs from 1 July 1998 to 31 December 1999), on a self-assessment basis, to the relevant regional tax collection office from 1 July 1998 to 31 December 1999), on a self-assessment basis of the taxes due. The financial authorities would then inform the company if there was any tax to pay, and how much, once the appeals procedure had been completed.

The ASM group companies concerned (ASM Brescia, on its own behalf and on behalf of BAS Bergamo, the company with which it recently merged, and ASVT), in compliance with the requirements of the aforementioned regulation, submitted a tax return for each of the periods covered by the tax moratorium.

BAS Bergamo (merged into ASM Brescia on 1 January 2005) and ASVT produced no taxable income in the period covered by the moratorium, and these companies are therefore unlikely to be liable for any tax.

The 2006 budget law (article 1, paragraph 132 of law 266 of 22 December 2005) substantially changed the original content of article 27 mentioned above, incorporating many of the comments of companies in the

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sector and trade associations, and specifying that the recovery procedure would be governed by an interministerial decree, and that authority for recovery would be granted to the interior ministry.

In February 2007, the government issued a decree (decree law10 of 15 February 2007, effective from 16 February 2007), stipulating in article 1 that recovery procedures should be determined according to new methods rather than those set out in article 27 of law 62/2005, as revised by the 2006 budget law.

Specifically, the new text again transfers the authority for recovery from the interior ministry to the tax office, which, on the basis of communications sent by local authorities and the tax returns submitted by the companies receiving aid, determines the taxes and related interest. Within ninety days of the above- mentioned decree coming into force, the tax office will give proper notice of the order to pay the amounts due. The companies receiving the communication will have 30 days to act. Regulations expressly provide that customary sanctions, deferral or administrative suspension of payments will not apply to such payments. The communication containing the order to pay may be contested before a tax committees. There is also a provision to suspend the orders as a precautionary measure, but only in the event of human error, a significant taxpayer error or an obvious calculation error. Lastly, the above-mentioned decree repealed paragraphs 2-6 of article 27 of law 62/2005, which had introduced several features to protect companies subject to the recovery procedure.

In ASM Brescia’s case, pending the outcome of the appeals at the Court of First Instance in Luxembourg, which were presented on its own behalf and on behalf of other sector companies and trade associations, European Commission decision 2003/293 of 5 July 2002 was deemed not applicable to ASM because of certain factors specific to its position: in the period under consideration, the services provided by ASM in the territories in which it operates were not yet subject to free competition on an open market. Furthermore, the tax periods covered by the moratorium (second half of 1998 and the whole of 1999) were subject to a standard calculation (for the purposes of the tax amnesty) pursuant to article 9 of law 289/2002, as properly notified to the European Commission. Any investigation is therefore precluded under the provisions of article 9, paragraph 9 of law 289/2002. Due in part to the above-mentioned points, ASM submitted tax returns for the applicable periods pursuant to article 27 of law 62/2005 reporting taxable income of zero.

These accounts contain no provision for this purpose since the directors believe that the case concerned falls under the definition of potential liabilities in IAS 37: on the basis of available information and the opinion of leading consultants, it is possible – rather than probable – that the tax relief may be withdrawn.

However, as a precaution, resolutions were approved at shareholders’ meetings in previous years not to distribute a portion of available reserves that accrued during the years covered by the tax moratorium (EUR 12.91 million) to shareholders until the infraction procedure is settled.

Tax consolidation scheme

ASM Brescia SpA and some ASM group companies opted to comply with the provisions of articles 117 et seq. of presidential decree 917/1986, as amended (national tax consolidation scheme).

As a result, ASM submits the group’s annual income tax return ( for companies included in consolidation) and pays the relevant corporate income tax (IRES).

Thus, the individual subsidiaries determine the balance of their tax position (taxes payable less advance tax payments) and transfer their taxable profit or tax loss to the parent company. which records a payable (or receivable) in relation to the subsidiaries.

Full tax disclosure

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By agreement with its shareholders ASM Brescia, AEM Milano and AMGA Genova (now IRIDE SpA), the affiliate Plurigas opted to use the full disclosure scheme set out at article 115 of presidential decree 917/1986 for corporate income tax (IRES) relating to the year.

As a result of applying this scheme, until 2005, ASM reported current and deferred taxes related to Plurigas's tax position in its accounts in proportion to the stake held in the company.

In 2006, however,, interpretation document 2 of the OIC (Italian accounting body) was approved in its final form. This document indicates that to achieve full disclosure, companies must report the results of their current and deferred tax positions in their accounts. Together with the other entities noted above that comply with the disclosure agreement, ASM opted to adopt the interpretation contained in the aforementioned principle starting this year, and determined the amount of receivables and payables relating to Plurigas’ deferred taxes that had been allocated in the accounts for the previous year, resulting in an overall insignificant impact on the profit and loss account.

The adoption of the full tax disclosure scheme will, inter alia, exempt shareholders from taxation on profits and reserves distributed in the years when this option applied.

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OTHER INFORMATION

Co-owned power plants (jointly controlled assets – IAS 31). ASM co-owns some power plants with other entities. The total values for assets and liabilities are recorded in the accounts based on the various agreements the company has entered into, in proportion to the company’s ownership in the co-owned plant: the company responsible for managing the plant debits and credits other co-owned assets on a proportional basis.

The company has the following relationships:

Plant Owners % of plant owned

Cassano d'Adda (MI) ASM Brescia SpA 25 thermoelectric plant AEM SpA – Milano 75

Ponti sul Mincio (MN) ASM Brescia SpA 45 thermoelectric plant AGSM SpA 45 Aziende Industriali Municipalizzate di Vicenza 5 Trentino Servizi SpA 5

Diesel Nord (BS) plant ASM Brescia SpA 94 Aziende Industriali Municipalizzate di Vicenza 6

Ponte Caffaro (BS) ASM Brescia SpA 16.25 plant Caffaro SpA 83.75

Share buy-back ASM’s shareholders’ meeting of 5 April 2006 approved a share buy-back programme involving a maximum of 15 million shares (1.937% of the share capital). This buy-back is mainly intended to accumulate shares that may be offered to groups prepared to sell stakes in utilities companies in exchange for ASM shares, and is authorised for a period of 18 months, and in any event, by the approval date of these accounts by the board of directors.

In 2006, ASM acquired on the Italian stock market 3,092,698 shares, worth EUR 9.40 million, at a weighted average price of EUR 3.04 per share (0.40% of the share capital). On 1 September 2006, 2,429,854 own shares were sold to some minority shareholders in subsidiary Valgas in exchange for shares they owned in this company, thereby increasing ASM’s stake from 74.14% to 99.53%. Note that as part of the contract to acquire the shares of minority shareholders in Valgas, a further 298,293 own shares were transferred in October.

At the end of the year, therefore, the residual number of own shares following these transactions was 364,551. The value of these shares was EUR 326,000, booked as a reduction to shareholders’ equity in a specific reserve, as required by IAS/IFRS.

In addition, in January 2007, a further 64 own shares were transferred in exchange for Valgas shares held by minority shareholders. With this purchase, ASM completed the acquisition of all Valgas capital. Again in January 2007, a further 180,371 own shares were transferred to allow for the purchase of all Sinergia capital. At 31 December 2006 ASM already had an 88.13% stake in this company.

To complete the buy-back transaction, and in light of further transactions, ASM proceeded with the purchase until the expiry of the period set for this transaction.

Distribution of dividends The shareholders’ meeting of 5 April 2006 approved the distribution of profits related to the accounts for 2005. Shareholders approved an ordinary dividend of 10.5 eurocents for each of the 774,305,358 ordinary shares with a nominal value of EUR 1. The ex-date was 2 May, with payment from 5 May 2006.

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The shareholders also approved an extraordinary dividend of 2.5 eurocents for each of the 774,305,358 ordinary shares with a nominal value of EUR 1. The ex-date for this dividend was set for 4 September 2006, with payment from 7 September.

Exemptions pursuant to paragraph 4 of article 2423 and article 5 of legislative decree 38/2005. No extraordinary situations occurred requiring exemptions to legal provisions relating to company accounts pursuant to paragraph 4 of article 2423, as indicated in paragraph 1 of article 5 of legislative decree 38/2005.

The figures provided in these notes are expressed in thousand euro, unless otherwise stated.

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BALANCE SHEET

For ease of comparison, figures indicating the position at 31 December 2005 are also provided.

NON-CURRENT ASSETS

Non-current assets and goodwill

Details of intangible (including goodwill) and tangible assets are set out in the appendix. For each item, the historical cost, the accumulated depreciation/amortisation, changes during the period and closing balances at the end of the period are given.

1.1 Intangible assets

The intangible assets position at 31 December 2006 is shown below.

31.12.06 31.12.05

Gross Accumulate Net value value d Net value amortisatio n Intellectual property rights 9,143 -6,691 2,452 2,441 Concessions, licences, trademarks, software and 25,427 -8,040 17,387 17,681 similar rights Intangible assets in course of acquisition and 150 - 150 152 payments on account Other 80,438 -63,533 16,905 19,525 115,158 -78,264 36,894 39,799

Intellectual property rights

This item includes software purchasing costs, which are amortised over three to five years.

The change in this item from the previous year was largely due to amortisation.

Concessions, licences, trademarks and similar rights

The cost of acquiring water supply, gas, water treatment and sewerage concessions from various local authorities in the provinces of Brescia and Bergamo is included under this item. These costs are amortised over the lifetime of the concession.

Intangible assets in course of acquisition and payments on account

Intangible assets in the course of acquisition relate almost entirely to software licences from Elsag for the use of the software needed to operate on Italy’s power exchange.

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Other

Other intangible assets (less accumulated amortisation) include:

31.12.06 31.12.05

Customer lists 15,724 18,000 Other small amounts 1,181 1,525 16,905 19,525

The amount shown for customer lists reflects the value of purchases by group companies of customer lists for which there is evidence that these companies are able to assess any future benefits derived from such lists. Thus, these amounts are amortised according to their estimated useful life.

The amounts relate to: • The amount paid by ASMEA (an ASM group sales company) for acquiring customers in previous periods (EUR 8.00 million). This includes EUR 7.22 million for customers of the company purchased from ENEL in 2003, relating to a portion of the grids, and customers in the city and province of Brescia; • The amount paid by Selene for the customer division of the former BOL (EUR 791,000); • The payment made by Tidonenergie in previous years for the acquisition of gas customers (EUR 479,000); • The gas customers acquired in previous years by BAS-Omniservizi (EUR 5.0 million); • The amount of EUR 1.50 million relating to integrated water services that the local authorities of Tavernole, Marcheno and Collio (in 2005) and Lumezzane (in 2006) contributed to ASVT following increases in the share capital of the latter company.

As noted above, in 2006 the only significant increase was for the valuation of the customers from the Lumezzane local authority. This valuation was made by an independent expert who assigned a value of EUR 1.09 million to these customers.

1.2 Goodwill

31.12.06 31.12.05

Goodwill 108,412 108,618 Consolidation differences 29,309 29,387 137,721 138,005

Goodwill mainly relates to: • ASM’s acquisition of the electricity distribution division from ENEL for EUR 45.70 million. This division, which was purchased in previous periods, represents a significant portion of the electrical grids in the province of Brescia. • the goodwill of EUR 55.47 million arising from the merger of BAS SpA with ASM. Note that since the share exchange ratio was set by the auditing firm appointed by the court of Brescia, in the previous period BAS launched a capital increase of 38,734,500 shares (nominal value: EUR 1). As required by IFRS 3, this capital increase was stated at fair value

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taking into account the market value of ASM shares on the date the controlling interest was acquired (EUR 2.52 per share on 29 December 2004). Since the net value of the shareholders’ equity in the BAS accounts was EUR 46.76 million for the purposes of the acquisition, the gross goodwill figure was EUR 51.84 million, taking into account the merger costs incurred by ASM. This goodwill was partially adjusted in the previous period to reconcile BAS values with the values drawn from the proper accounting standards used by the ASM group resulting in net goodwill of EUR 55.47 million; • the value of goodwill reported by CIGE following the mergers in 2004. On that occasion CIGE recorded goodwill relating to merger deficits at a historical cost of: EUR 1.09 million for the Tidone Gas merger; EUR 1.52 million for the Gastecnica Reggiana merger; EUR 919,000 for the Alfa Metano merger; EUR 3.10 million for the Gas Orobica merger. • EUR 320,000 relates to the acquisition made by CIGE in respect of the Pontecagnano local authority, reported in 1998 at EUR 801,000 and amortised until first time adoption of IAS/IFRS (the transition for CIGE occurred on 1 January 2004); • EUR 284,000 relates to the acquisition of the gas division of Angelo Gadda & C. and EUR 10,000 to another minor acquisition.

The decrease of EUR 206,000 reported in the current period was due to the partial write-down of the Angelo Gadda & C. division since assessments concluded that this goodwill was partially irrecoverable.

With regard to the current period, impairment tests conducted pursuant to IAS 36 did not result in any information that would indicate the values associated with the goodwill were irrecoverable with the exception of the goodwill associated with the Angelo Gadda & C. division, as already mentioned, , and thus, these values were not written down.

The consolidation difference refers to the positive difference between the book value of the equity investments and the corresponding portion of shareholders’ equity not attributable to the asset and liability items of the respective investments.

This item breaks down as follows:

31.12.06 31.12.05 Accumulated until the first adoption of Gross value IAS and subsequent Net value Net value impairment tests ITRADEPLACE SPA 1,422 - 1,422 - CIGE SPA 25,113 -1,683 23,430 23,430 ASSOENERGIA SPA 2,316 -1,500 816 2,316 ABRUZZOENERGIA SPA 2 - 2 2 TIDONENERGIE SRL 53 - 53 53 ERGON ENERGIA SRL 412 - 412 412 SOBER GAS SPA 3,174 - 3,174 3,174 32,492 -3,183 29,309 29,387 In the current period, Selene purchased the entire share capital of Intradeplace, which was subsequently fully consolidated into these accounts. Intradeplace is a company active in the e-procurement sector. In the current and prior years the company accumulated losses partly associated with the start-up phase. During the year Selene initiated efforts to strengthen the subsidiary with a new focus on strategic activities as well

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as other cost containment measures. On the basis of available information and the fact that the full acquisition took place in 2006 as permitted by IFRS 3, the entire difference between the value of the equity investment and the shareholders’ equity held was reported as a consolidation difference since at the time no asset or liability items were identified that required adjustment to fair value. Within 12 months of the acquisition, the required tests will be performed for allocations to the assets with the greatest value and for the analysis of any impairment.

In addition, during the year the group wrote down nearly all of the consolidation difference attributed to Assoenergia to reflect that company’s liquidation in February 2006.

Here too, impairment tests performed did not indicate any cases, other than those reported (Assoenergia), that required an adjustment to reported values.

1.3 Tangible assets

Tangible assets break down as follows.

31.12.06 31.12.05 Gross value Accumulated Net value Net value depreciation Land 19,458 - 19,458 16,789 Buildings 137,314 -29,863 107,451 105,039 Plant and machinery 1,557,799 -481,723 1,076,076 1,088,894 Industrial and commercial 3,167 8,833 -5,666 3,159 equipment Other tangible assets 73,778 -48,122 25,656 27,172 Landfill sites 48,563 -42,687 5,876 13,477 Freely transferable assets 83,857 -26,838 57,019 14,939 Tangible assets under construction - 184,188 184,188 81,700 and payments on account 2,113,790 -634,899 1,478,891 1,351,169

“Land” mainly refers to the land and other items relating to the WTE plant, the thermoelectric plants, the district heating/cooling division and the environmental services business. It also includes the value of land on which buildings are located.

“Buildings” refers to buildings and constructions.

“Plant and machinery” largely comprises transport lines, distribution grids, meters, conductors, gauges, station box instruments and machinery relating to thermoelectric plants and the WTE plant for power generation and district heating plants.

“Industrial and commercial equipment” chiefly includes operating assets relating to services and equipment that supplement the operating and functional capacity of plant and machinery.

The “other tangible assets” line mainly includes furnishings, vehicles and office equipment.

______Annual report and accounts to 31 December 2006 – ASM group 237

“Tangible assets under construction and payments on account” include plants under construction of EUR 175.81 million. This amount mainly relates to investments still being made at 31 December 2006 for the construction of the Gissi thermoelectric power plant (EUR 146.87 million), for the equalisation tank of the Verziano treatment plant (EUR 6.71 million), for the pre-treatment plant at the above-mentioned treatment plant (EUR 3.35 million), and for the development of broadband electronic communication lines (EUR 2.39 million). This item also included payments on account of EUR 8.38 million, which mainly relate to the connection of the Mincio thermoelectric plant to the 220 KV national grid (EUR 4.52 million), the costs of designing the Offlaga power plant (EUR 1.15 million) and the costs of designing the Cremona power plant (EUR 246,000).

“Landfills” includes the cost of the Montichiari landfill site, adjusted for closure and post-closure costs in accordance with the methodology set out in IFRIC 1. The changes in this landfill since 2005 were mainly due to depreciation.

“Freely transferable assets” relate chiefly to assets obtained following the acquisition of a company division by Angelo Gadda & C. Srl, gas plants in Seriate (acquired following the merger of BAS SpA into ASM Brescia), and gas plants located in Abruzzo and owned by the subsidiary CIGE SpA. The sharp increase over the previous period was due to a reclassification between "plants" and "freely transferable assets." Specifically, the gas grids underwent a thorough redevelopment as a result of which, the assets will be returned to the relevant authorities at the end of the concessions. This analysis was done when the gas division was transferred from ASM to CIGE.

Plant and machinery include EUR 8.48 million relating to the net value of leased assets (high- and very high- voltage grids), while buildings include EUR 1.1 million also relating to the net value of leased assets.

1.4 Equity investments valued at equity

Equity investments at 31 December 2006 comprised:

31.12.06 31.12.05 Affiliated companies 751,080 629,865 31.12.06 % owned Book value - Endesa Italia SpA 20.00 684,280 - Trentino Servizi SpA 14.48 50,502 - Ergosud SpA 50.00 14,325 - Sviluppo Turistico Lago d’Iseo SpA 23.88 421 - Coges SpA 32.39 496 - CBBO SpA 25.55 383 - Giudicarie Gas SpA 39.55 222 - Visano Soc. tratt. Reflui Scarl 40.00 10 - Cle Termoelettrica Mincio Srl 45.00 6 - Serio Energia Srl 40.00 400 - C’e’ Gas Srl 40.74 1 - Lombardia Gas Trader SpA 23.74 29

______Annual report and accounts to 31 December 2006 – ASM group 238

- Bergamo Servizi Srl 50.00 5 751,080

Endesa Italia. ASM owns 20% of Endesa Italia SpA, which during 2001 incorporated Elettrogen, the first genco sold off by ENEL. In the first half of 2005, ASM exercised an option purchased earlier thereby increasing its stake by 5.33% (to the current level of 20%). The price paid on that occasion included a premium of EUR 26.11 million over the portion of equity held. This value is deemed to be allocable to the higher value of the assets (power plants), which was also recognised at the time of the asset valuation performed in accordance with the revaluation done by the company solely for tax purposes in accordance with law 266 of 23 December 2005.

Given the use of the equity valuation method, the value of the shareholding at 31 December 2006 included a pro rata portion of the subsidiary’s results, which led to the posting of income from equity investments totalling EUR 116.05 million.

Dividends approved and received from the subsidiary in 2006 totalled EUR 35.2 million.

Trentino Servizi In 2001, ASM acquired 20% of Trentino Servizi SpA for EUR 51 million. ASM’s portion of shareholders’ equity for the Trentino Servizi group at the acquisition date was EUR 37.15 million. The difference of EUR 13.85 million represents the premium paid to take into account the strategic initiatives that the company intends to develop. The launch of these initiatives, which occurred later than originally planned, came in 2004 following the agreement reached between ENEL and the Autonomous Province of Trento regarding the acquisition of the entire electricity grid for the province of Trento on behalf of SET Srl, a subsidiary of Trentino Servizi. The premium is expected to be fully recoverable, as the company’s potential and strategic initiatives continue to exist. Following the transactions surrounding the merger of ASM Rovereto and SIT Trento into Trentino Servizi (which already held a controlling stake in those companies), ASM’s stake in Trentino Servizi fell from 20% to 14.79%. In 2004, a reserved capital increase without pre-emption rights was carried out for the purpose of facilitating the entry of a new shareholder. The capital increase was accomplished via the transfer of a business complex including power plants in the town of Ala. Following this transaction, ASM’s stake fell further to 14.48%. Since ASM’s influence continues to be significant, it was deemed appropriate to keep this company among its affiliated companies in light of the business agreements and relationships between shareholders.

In Trentino, a major reorganisation of its service companies is under way. Plans envisage combining Dolomiti Energia (hydroelectric power generation), SET (the former ENEL distribution grid) and several other small local entities with Trentino Servizi.

Given the use of the equity valuation method, the value of the shareholding at 31 December 2006 included a pro rata portion of the subsidiary’s results, which led to the posting of income from equity investments totalling EUR 1.27 million.

Dividends approved and received from the subsidiary in 2006 totalled EUR 911,000.

Other affiliates. During the year Eurosviluppo Elettrica SpA changed its name to Ergosud SpA. The current mission of this company, which is 50%-owned (the remainder is owned by Endesa), is to build a thermoelectric plant in Calabria. There was no change in this equity investment during the period.

In the previous year, affiliates also included Intradeplace SpA. In 2006, Selene purchased all of the company’s capital, and as a result, the company is now fully consolidated.

The investment in Sviluppo Turistico Lago d'Isea was written down by EUR 122,000 in application of the equity method . Similarly, the equity investment in Giudicarie was written down by EUR 150,000 for the same reason.

______Annual report and accounts to 31 December 2006 – ASM group 239

Lombardia Gas Trader was put into liquidation earlier this year.

Finally, ASM holds a 44.48% stake in Comuni Associati Valtrompia Gestioni, which is in liquidation, and 30% of Enerfin Srl, also in liquidation. The value of these equity investments was fully written down in previous periods, and thus does not appear in the above table.

1.5 Other holdings

31.12.06 31.12.05 Other companies 20,376 20,497 31.12.06 % owned Book value - Infracom SpA 1.60 7,068 - Immobiliare Fiera di Brescia SpA 9.20 5,532 - Autostrade Centro Padane SpA 1.63 1,386 - Fusio Srl 19 30 - AQM Srl 11.47 246 - Isfor 2000 SpA 4.94 153 - HERA SpA 0.01 423 - Cons. Innov. Tecnologiche Srl 10.00 100 - Autostrade Lombarde SpA 2.50 2,484 - Brescia Mobilità SpA 0.33 598 - Emit SpA 10.00 1,247 - Bergamo Energia SpA 5.00 248 - Ecoisola SpA 13.06 37 - Camuna Energia Srl 14.50 131 - Exe.Ge.SI SpA 17.81 178 - Stea SpA 19.00 57 - Arte Savona Progetto Srl 9.50 10 - A.T.C. S.I. SpA 13.06 14 - Ge.P.Im. Srl 9.03 1 - Fravt Srl 3.00 180 - Livo Srl 10.00 59 - Liro Srl 10.00 32 - Gardone 2002 SpA 4.70 24 (ACB Servizi Srl,Tre Valli SpA, Consorzio Leap ANCCP SpA, SIT SpA, GAL Garda Valsabbia Scarl, Secoval Srl, Alesa Srl, 138 Società di Progetto Brebemi SpA, Banca PMI, ATC SI SpA, ______Annual report and accounts to 31 December 2006 – ASM group 240

Arte Savona Progetto, Ge.P.Im. Srl, Cramer Scrl) 20,376

In 2006, the search for partners interested in purchasing the 0.5% stake in Earchimede held by ASM at 31 December 2005 was concluded successfully. As indicated in the accounts for the previous period, the sale price was EUR 1.04 million. This value, at which the ASM stake was reported in the accounts, reflected the portion of equity held in the company.

Following several increases in share capital, the value of the stake held in Immobiliare Fiera di Brescia increased during the year from EUR 5.12 million to EUR 5.53 million, and the value of the stake held in EMIT rose from EUR 943,000 to EUR 1.25 million. As part of the process of rationalising equity investments held by ASM, the minority interests in SAAB, Valcavallina Servizi and Codif were sold. The sales did not result in any capital losses since they were all sold at book value given their small amount.

As regards the attribution of a fair value to equity investments other than those in subsidiaries and affiliates, note that Hera is listed on the Italian stock market. At 29 December 2006, the value of the stake at closing was EUR 423,000 compared to a purchase price of EUR 195,000.

Furthermore, it is reasonable to assume that the book value of the stake in Infracom SpA is accurate in comparison with other acquisitions of shareholdings in 2005 that followed ASM’s purchase of a 1.6% interest in the company.

In respect of Immobiliare Fiera di Brescia, we report that this company has recently completed its start-up phase and is now preparing to become fully operational. The company Autostrade Lombarde, which is to build a new motorway between Brescia and Milan (BreBeMi), is also at this stage of development. For these companies the valuations that led to the investment being made remain unchanged pending confirmation of their acquisition values when their respective missions are completed.

For the remaining companies, whose value in terms of portion of equity held or value recorded in the accounts is not significant, an active market cannot be identified and there is no information available that can be used to determine the fair value of the investments in a reliable manner. The valuation of these equity investments thus remained unchanged, at cost.

______Annual report and accounts to 31 December 2006 – ASM group 241

1.6 Other financial assets

This item consists almost entirely of bonds issued by Sviluppo Turistico Lago d’Iseo (EUR 260,000) which, it is assumed, will be held until maturity.

Thus, assets with related parties totalled EUR 260,000 since Sviluppo Turistico Lago d’Iseo is an affiliate.

1.7 Assets for derivative valuations

At 31 December 2006, this item related chiefly to hedging instruments used by the group. As stated in the report on operations, the ASM group uses hedging strategies which are recorded in the accounts pursuant to IAS 39.

Assets for derivative valuations relate to contracts for differences on commodities (electricity) signed by ASM, which at year-end had a positive mark-to-market of EUR 543,000. These values were booked to the profit and loss account pursuant to the above-mentioned accounting standard.

In addition, the affiliate Plurigas reported EUR 9,000 for a cash flow hedge to hedge commodities (gas).

This item also included EUR 17,000 for an interest-rate collar signed by ASM for its variable-rate loans.

Further information required by law and the main international accounting standards on the financial derivatives held by the Group are appended to this report.

1.8 Receivables for deferred taxes

At 31 December 2006, the deferred tax position was as follows:

31.12.2006 31.12.2005

Deferred tax on provisions and reserves 16,013 9,378

Deferred tax on capital grants received 4,946 5,379

Deferred tax on plant write-downs 2,996 2,996

Deferred tax on write-downs in respect of meters 1,676 1,676

Deferred tax on taxation of goodwill 2,043 2,180

Deferred tax assets on taxation pursuant to article 102 bis 2,455 999 of the TUIR law Deferred tax assets on transfer of gas division to CIGE 10,600 -

Deferred tax assets on derivatives 4,303 -

Deferred tax assets on excess loan write-downs 418 1,343

Deferred tax assets on past losses 297 741

Deferred tax assets on write-downs of equity investments 218 437

______Annual report and accounts to 31 December 2006 – ASM group 242

Other minor items and consolidation effects 5,003 1,208

Deferred tax assets on Plurigas tax disclosure scheme 244 5

51,212 26,342

A summary of the information relating to these items is given below:

• The amount of prepaid tax on provisions and reserves totalled EUR 16.01 million. This relates to deferred tax assets recorded in respect of taxed reserves. Specifically, the reserves relate to stock obsolescence (please see the section on inventories for more details); the legal dispute with the local finance office (UTF); the INPS (Italian National Social Security) litigation, and other liability reserves (please see the section on reserves under liabilities for more details), and on the reserve for interest to the Autonomous Province of Trento (APT) in relation to Valgas, and starting this year, on the reserve for the litigation concerning AEEG resolution 248/04 (please see the section on reserves for more details). Note that the deferred tax credits in the provision for the INPS litigation, the taxed reserves for write-down provisions and the repayment of APT interest relate solely to corporate tax (IRES). The increase over the previous period is for new reserves created during the period.

• This item also includes EUR 4.95 million in deferred tax on capital grants. Several group companies have received capital grants from government and private agencies in relation to assets for which accelerated depreciation will be used for income reporting purposes. In accordance with tax regulations, these amounts are higher than those recorded in the profit and loss account, which merely states the economic and technical depreciation rate. In addition, these companies have capital grants obtained under contract with private entities. These grants, (which from a statutory point of view should be recorded in accordance with the economic and technical depreciation rate of the assets to which they refer), are considered as wholly taxable income in the year (article 85, paragraph 1, point g of presidential decree 917/86).

• This item also includes EUR 3.00 million in deferred tax on plant write-downs. This relates to write- downs on assets relating to the Ponti sul Mincio plant (deferred tax assets of EUR 2.64 million) and to the Cassano plant (deferred tax assets of 357,000) less a marginal increase of EUR 14,000 applied in 2005.

• This item also includes EUR 2.04 million in deferred tax assets calculated on the difference between the amount of amortisation recognised for reporting purposes and the amount allowed for tax purposes. Starting in the previous year, tax laws increased the period over which the deductibility of goodwill amortisation could be calculated from 10 to 18 years. This is the reason for the significant increase over the previous year.

• The 2006 budget law (law 266 of 22 December 2005) introduced the new article 102bis of the consolidated finance law (TUIR) which governs the tax deductibility of depreciation on tangible assets by companies operating in the distribution and transmission of electricity and gas. Among other things, this measure largely aligned key depreciation rates for tax purposes with rates specified in tables 1 and 2 of the Authority’s resolutions under the heading “conventional tariff duration for infrastructures” attached to resolution 166 of 29 July 2005 and resolution 170 of 29 September 2004 (which was extended with resolution 206 of 30 September 2005) for the transmission and distribution respectively of natural gas, and in appendix 1 of the technical report in resolution 5 of 30 January 2004 for the transmission and distribution of electricity under the heading “allowable invested capital and useful life of assets.” Deferred tax assets were reported on the amounts of depreciation allocated for reporting purposes in excess of the amount allowed for tax purposes.

______Annual report and accounts to 31 December 2006 – ASM group 243

• Deferred tax assets on past losses refer to provisions made by a company of the former BAS group for losses generated in previous periods. and in relation to which it is likely that taxable income will be produced that can be offset by such losses.

• Effective 1 October 2006, ASM transferred all its gas distribution business to CIGE. On the one hand, the transaction was based on the need to rationalise and reorganise the businesses of the companies comprising the ASM group, and on the other,, it was intended to fully implement the regulatory guidelines concerning the separation of the company’s gas distribution business (see legislative decree 164/2000, EU directives 54/03 and 55/03 and law 239/04). The division transferred was assessed by Antonio Porteri of the University of Brescia pursuant to the appointment order issued by the chief judge of the court of Brescia on 28 November 2005. On 17 July 2006, the expert delivered the assessment, which was notarised by Mario Mistretta in Brescia, to ASM. The division was valued at EUR 133.8 million, i.e. at a premium of EUR 28.5 million over the book value of shareholders’ equity of EUR 105.3 million as reported in the accounts to 31 December 2005. CIGE reported credits for deferred tax assets of EUR 10.60 million on this premium (at a rate of 37.25%), while ASM reported taxes payable of EUR 9.39 million (at a rate of 33% since for ASM this extraordinary transaction is not subject to IRAP [regional tax on manufacturing operations]). The difference between these two amounts was posted to the profit and loss account as the transaction was completed. On the other hand, since the difference in value was the result of an intra-group transfer, it was reversed in the consolidation process.

• Deferred tax assets on derivatives reflect the amount of taxes on derivatives reported under liabilities or shareholders’ equity pursuant to IAS 39. Specifically, these liabilities are considered to be non- deductible and subject to taxation. This amount reflects the deferred tax assets calculated on a cross currency swap entered into by ASM in 2006 on the euro-yen exchange rate following the issue of a thirty-year yen-denominated bond.

Deferred tax has been calculated using the theoretical tax rate (33% for IRES and 4.25% for IRAP).

1.9 Other assets

At 31 December 2006, other assets broke down as follows:

31.12.06 31.12.05 Costs incurred in converting users to gas and 5,163 4,607 district heating Management expenses for buildings owned by 2,856 1,464 third parties other 1,976 1,289 of which, amounts due from affiliates Amounts due from Ergosud for future share 36,216 4,352 capital increase/non-interest bearing loan 46,211 11,712

The costs incurred in converting users to district heating and gas include the residual value of the costs of converting traditional heating systems for connection to the district heating network, and the cost of converting plants for methane gas operation. These costs are allocated to the profit and loss account over a period of five years.

Management expenses for buildings owned by third parties refer to the expenses incurred over several years to upgrade third-party installations as required by heat service agreements signed by ASM and other group

______Annual report and accounts to 31 December 2006 – ASM group 244

companies. These expenses are allocated to the profit and loss account over the term of the agreements in proportion to the related revenues.

“Other” includes receivables for security deposits (EUR 1.58 million) and employee receivables, for the portion due after 31 December 2007 (EUR 344,000) and for expense reserves (EUR 52,000).

This item also includes receivables for the future capital increase for Ergosud, which is currently in start-up phase since it recently initiated the steps necessary for building a thermoelectric power plant in Calabria. Of the increase over year-end 2005, EUR 29.56 million was for advances to Ergosud for activities related to the construction of the Scandale power plant as noted above, and EUR 2.30 million was for contributions made to Ergosud for the future increase in share capital. Note that the amounts paid in respect of increases in share capital are recorded under this item where these remained outstanding at 31 December. On completion of capital increases, the corresponding amount is added to the value of the holding, and if necessary, the percentage owned is amended.

1.10 NON-CURRENT ASSETS HELD FOR SALE

In 2005, ASM launched a large-scale project to replace traditional electrical meters with new electronic meters. This decision was based on the need for technologically-advanced instruments to improve consumption measurement and provide greater synergies with the rest of the electricity chain. In its resolution 292/06, the AEEG recently determined that by 2011 all companies in the electricity sector must install electronic meters to replace traditional meters. ASM is the only Italian company, along with Acea and ENEL Distribuzione, that has already initiated this process, and made substantial progress towards completion. At 31 December 2006, about 206,000 traditional meters had been replaced, including 37,000 installed in 2006. Moreover, following the issue of the aforementioned resolution, the sales programme launched at the end of the previous year did not produce the outcome expected in terms of market response since initial expressions of interest did not lead to a positive outcome from sales negotiations except in the case of a small number of traditional meters.

ASM decided to initiate a search, in the second half of last year, for potential buyers of the traditional meters being replaced. Therefore, around 116,800 meters were warehoused pending sale. It should also be emphasised that at the beginning of 2007 an exchange agreement will come into effect with a leading supplier resulting in the exchange of about 36,000 meters for new electronic ones. In compliance with international accounting standards (IFRS 5), the parent company classified the meters to be sold in a specific section of the balance sheet, and valued them at the lower of their net book value and fair value, less expected sales costs. The fair value of the meters was determined using prices taken from list prices in the used meter market. Thus, of the EUR 1.27 million reported at 31 December 2006, EUR 682,000 was for the meters that ASM will provide in exchange to the supplier, and EUR 584,000 relates to the value of meters for which the sales programme was initiated; the latter amount was adjusted for the write-down made during the year to reflect the disappointing outcome of the sales programme.

______Annual report and accounts to 31 December 2006 – ASM group 245

CURRENT ASSETS

1.11 Inventories

Inventories break down as follows:

31.12.06 31.12.05 Gross Write-downs Net value Net value value Raw materials, supplies and 70,845 -4,988 65,857 46,133 consumables Contract work in progress 8,672 - 8,672 5,869 79,517 -4,988 74,529 52,002

Inventories largely consist of materials and equipment principally earmarked for the maintenance and running of operational plants (thus reflecting normal inventory requirements), and Plurigas gas stocks.

Contract work in progress relates to orders from third parties.

The inventory valuation has been adjusted to take into account materials with a long turnover time through the establishment of an obsolescence reserve.

The amount shown for inventories at 31 December 2006 includes a negative value of EUR 4.03 million for a derivative used by Plurigas to hedge the price of commodities. This derivative was valued using the fair value hedging methodology since the conditions required by IAS 39 were met. In particular, in terms of assets, the value of inventories was decreased by the amount noted above with an equivalent amount posted to “current financial assets.” On the profit and loss account, the cost of inventories was decreased, while the negative adjustment to inventory changes was increased, resulting in a neutral effect on overall raw material costs.

Receivables

1.12 Receivables from customers

This item relates to customer receivables, and is shown after write-down provisions as follows:

31.12.06 31.12.05

Customers 401,887 371,856 Unmetered customers 134,271 126,589 Less: Write-down reserve (receivables) -14,993 -12,444 Late payment provisions -7 -4 521,158 485,997

Receivables from customers relate to bills mainly issued in respect of the supply of electricity, gas, heat and water.

The increase in receivables was due to the expansion of the group’s operations.

______Annual report and accounts to 31 December 2006 – ASM group 246

For unmetered usage customers, the receivables listed relate to the bills issued in the first six months of the year, which were dispatched after the end of the period.

All receivables are due within one year.

1.13 Trade receivables from affiliated companies

31.12.06 31.12.05

Receivables from affiliated companies 35,474 46,090 Receivables from controlling shareholders 7,955 12,468 Receivables from other related parties 3,415 3,181 46,844 61,739

From affiliated companies

This item includes the portion of receivables (not eliminated) from companies consolidated proportionately.

Of this amount, EUR 26.27 million relates to Ergon Energia, primarily for electricity supply services, and EUR 250,000 to GeSI for miscellaneous services. EUR 298,000 originates from commercial transactions with Metamer (for methane gas distribution services), and EUR 1.10 million relates to Plurigas (tax disclosure scheme).

This item also includes a receivable of EUR 5.28 million from Endesa for providing services and supplying electricity and EUR 1.62 million for supplying gas to the affiliate C’è gas.

Remaining receivables from affiliates mainly apply to goods and services provided to Coges and other smaller affiliates.

From controlling shareholders

This item relates to receivables from the Brescia local authority for electricity, gas, water and heat services and supply, or urban regeneration programmes carried out under a memorandum of understanding signed by the local authority and the group. Please see the report on operations for further details.

31.12.06 31.12.05

Receivables in respect of fee for street lighting services – 2,386 2,282 second half Receivables for supplies 2,998 2,263 Receivables for additional waste handling services – second 139 207 half Receivables for accrued building management services 548 1,440 Receivables for 2004-2005 work at Marchesina irrigation - 1,004 ditch Receivables for work to extend the methane gas network - 496

______Annual report and accounts to 31 December 2006 – ASM group 247

Receivables for other goods and services 1,884 4,776 7,955 12,468

From other related parties

These relate to the Bergamo local authority, primarily for services and the supply of gas and water.

1.14 Financial receivables from affiliated companies

All financial receivables from affiliated companies relate to the un-eliminated portion of the positive cash balance in relation to GeSI Srl, which was consolidated proportionally.

1.15 Receivables for current taxes

This item breaks down as follows:

31.12.06 31.12.05 Receivables from public authorities: VAT receivables 16,756 22,032 Receivables in respect of advance staff severance 304 706 fund payments Receivables in respect of withholding tax (law 877 856 412) Receivables in respect of excise duty 2,719 2,762 Tax/withholding tax/corporate income tax (IRES) 7,110 823 credits Other miscellaneous receivables 559 566 Receivables from regional authorities for grants/excise duty/advance regional tax (IRAP) 469 952 28,794 28,697

1.16 Other receivables

At 31 December 2006, these receivables comprised:

31.12.06 31.12.05

Receivables from co-owners of Mincio and Cassano 35,654 32,432 power plants Advances to employees 345 309 Receivables in respect of fuel excise duty 109 238 Receivables from the CCSE for standardisation of 7,601 7,911

______Annual report and accounts to 31 December 2006 – ASM group 248

power distribution costs Receivables from the CSSE in respect of a credit 1,400 700 relating to the continuity of supply grant Receivables from CCSE for energy efficiency 2,882 - certificates Advances to suppliers 746 1,103 Insurance premiums and property tax/other 5,992 4,593 Other minor items 1,686 2,591 56,415 49,877

Other receivables totalled EUR 56.41 million at 31 December 2006. None of these receivables falls due in more than five years. This item increased by EUR 6.54 million compared with 31 December 2005.

Receivables from the Cassa Conguaglio del Settore Elettrico relate to the provisions for the equalisation of electricity charges introduced under AEEG resolution 5/04. Since some group companies are entitled to receive this income, a conservative amount was included in this period ending 31 December 2006, based on the accruals principle.

The receivable for continuity of supply represents the amount due from the AEEG for efficiency in limiting unscheduled interruptions to the electricity supply.

The receivable from the CCSE for energy efficiency certificates reflects the value of these certificates in relation to projects aimed at energy savings for which the AEEG successfully concluded testing and recognised the right to register for these certificates. These certificates are recorded at the prices set by the AEEG and paid to the company at the time of the periodic annulment procedures for certificates corresponding to the annual objectives that are set for distributors by the AEEG.

Receivables from co-owners were largely due to goods and services charged to other joint owners. With regard to the Mincio plant (co-owners: ASM Brescia SpA, AGSM Verona SpA, AIM Vicenza and Trentino Servizi), ASM covers the running costs (mostly fuel) and charges its co-owners the appropriate amount according to their share in the plant. This item also includes receivables from these parties in respect of the dispute regarding water usage fees, described under the section “other payables”.

Receivables from co-owners of the Mincio and Cassano plants break down as follows:

31.12.06 31.12.05

AGSM Verona 18,294 23,202

Trentino Servizi 2,878 2,606 AIM Vicenza 2,902 2,181

AEM Milano 11,580 4,443

35,654 32,432

1.17 Current financial assets

This item includes short-term government securities to the value of EUR 8,000.

1.18 Assets for short-term derivative valuations

______Annual report and accounts to 31 December 2006 – ASM group 249

As reported in the comments on inventories, this item includes EUR 4.03 million for a derivative contract entered into by Plurigas for commodities (gas). This derivative is valued using the methodology required by IAS 39 (fair value hedge). As more fully reported in the comments on inventories, there is no financial impact from this valuation.

1.19 Cash and cash equivalents

This item breaks down as follows:

31.12.06 31.12.05

Interest on bank and post office deposits 242,111 82,299 Cash and other negotiable instruments 228 155 242,339 82,454

The sharp increase in cash and cash equivalents is chiefly due to funding transactions carried out by the ASM group to support investments established in budgets and multi-year plans. Some of these investments, notably those connected with the construction of thermoelectric plants, have been partially deferred causing a delay of a few months in the original schedule.

Specifically, in light of the financial obligations that the construction of the thermoelectric plants would have required during the year, in 2006 ASM issued a new thirty-year yen-denominated bond to the value of EUR 98 million (see comments on bonds). The features of this bond (thirty-year bullet, fixed-rate bond) and interest rate trends made it advisable to issue the bond in 2006, even though the proceeds will not be allocated until the next year, in line with the slight deferral of planned investments.

Temporary cash and cash equivalent balances are invested in time deposits paying interest that is higher than normal market rates.

Shareholders’ equity

2.1 Share capital

The fully paid-up share capital totalled EUR 774.31 million. It consists of 774,305,358 ordinary shares, each with a nominal value of EUR 1. The parent company has not issued any preference or saving shares.

2.2 Capital reserve

This item includes the parent company’s share premium reserve of EUR 146.97 million which was also reported in the previous period.

It also includes EUR 58.88 million for the fair value designation of the capital increase carried out by ASM in 2005 to allow for the merger of BAS SpA into ASM. This reserve was created to reflect the booking at market value of the ASM shares issued following the merger with BAS. IFRS 3 requires the shares issued to be stated at the market value on the acquisition date (since ASM is a listed company) rather than at nominal value. In this case, 38,734,500 shares with a nominal value of EUR 1 were issued, with market value of EUR 2.52 per share on the date the controlling interest was acquired.

______Annual report and accounts to 31 December 2006 – ASM group 250

2.3 Other reserves

31.12.06 31.12.05

Legal reserve 27,995 20,282 Designated reserve 12,911 12,911 Reserve for own shares held -326 - Other undistributed reserves and earnings 285,900 227,106 Consolidation reserve 53 53 326,533 260,352

At 31 December 2006, the legal reserve stood at EUR 28 million and was established in accordance with the relevant provisions of the Italian civil code.

This reserve contains EUR 12.91 million earmarked by the shareholders’ meeting to cover the possible tax bill that may arise in the event of an adverse ruling emerging from the EU infraction procedure relating to the tax moratorium from which ASM benefited.

On 17 May 1999, the European Commission served an infraction procedure notice on the Italian government in relation to tax relief made available to companies operating as local public utilities which adopted SpA (public limited company) status under law 142/90.

The Italian authorities, to which the procedure was directed, presented their own observations to the Commission, in co-operation with the beneficiaries of the alleged aid, stating, in particular, that the measures referred to in the notice did not constitute state aid. At the end of the procedure, the Commission may decide that the tax relief regulations as a whole are unlawful or that they are incompatible with the European regulations on tax relief in respect of individual public services provided by companies.

In this case, the Commission could force the Italian government to recover the tax plus interest, although appeals may still be made to the competent authorities. The company may therefore have to pay, in whole or in part, the corporate income tax that would have applied without the tax relief, backdated to the start of operations (1 July 1998), until the end of the moratorium period (31 December 1999). As a precautionary measure, the shareholders’ meeting resolved that this reserve should not be distributable.

The reserve for own shares held represents the value of the remaining own shares acquired by the parent company as part of the share buy-back programme described above.

Other undistributed reserves and earnings comprise retained earnings accumulated since 31 December 1998 by the parent company and its consolidated subsidiaries. These reserves also reflected the impact of consolidation entries at 31 December 2006.

No subsidiary holds, or held during the year, any shares in the parent company

2.4 Derivative valuation reserve

The derivative valuation reserve includes:

• The valuation of the cross currency swap entered into in 2006 by the company in relation to the euro- yen exchange rate following the issue of the thirty-year yen-denominated bond and maturing on 10

______Annual report and accounts to 31 December 2006 – ASM group 251

August 2036. The mark-to-market valuation of this contract at 31 December 2006 was EUR -13.60 million, which, adjusted for the tax impact, totalled EUR 9.11 million. Pursuant to IAS 39, this derivative can be classified as a “cash flow hedge.” As a result, since the conditions were met for its valuation as a hedging instrument, the valuation was recorded directly in shareholders’ equity without passing through the profit and loss account; • The valuation of a Plurigas cash flow hedge to hedge commodities totalling EUR 190,000 (after the tax impact); • The valuation of a collar on the euro-Swiss franc exchange rate entered into by AbruzzoEnergia to hedge the exchange rate risk connected with the portion of the thermoelectric power plant invoiced by Alstom Switzerland in Swiss francs. At 31 December 2006, this derivative had a mark-to-market of EUR - 764,000 (after the tax impact).

2.5 Reserve for first-time adoption of IAS (IFRS1)

31.12.06 31.12.05

Listing expenses -13,578 -13,578 Other effects from the first-time adoption of IAS 6,904 14,050 -6,674 472

This reserve relates to the effects on the parent company of the first-time adoption of international accounting standards, and also reflects adjustments for the use of IAS/IFRS in the accounts of the subsidiaries from 2006.

Specifically, EUR 6.83 million of the change in 2006was due to an adjustment to shareholders’ equity reserves made by a company valued at equity. The reconciliation between the parent company’s shareholders’ equity and the group’s consolidated shareholders’ equity is provided in the report on operations.

2.6 Staff severance fund and pension reserve

31.12.06 31.12.05

Staff severance fund 42,270 39,976 Pension reserve - 13 42,270 39,989

The pension reserve totalling EUR 13,000 in 2005 came from the ENEL division acquired in 2003. This reserve was released in the current period.

Employee benefits break down as follows:

Value at 31 December 2005 39,976 Service costs 2,625 Interest costs 2,911

______Annual report and accounts to 31 December 2006 – ASM group 252

Employee benefits paid -3,403 Other minor changes 161 Value at 31 December 2006 42,270

The valuation of employee benefits was carried out by an independent expert using “projected unit credit method” criteria, and concerned almost all the companies and workforce of the ASM group. The valuation was based on the following:

• Discount rate: 4.25% • Inflation rate: 2% • Annual growth rate of staff severance fund: 3% • Mortality: ISTAT figures for 2000 • Incapacity: INPS statistics broken down by age and sex • Retirement age: as set out in Assicurazione Generale Obbligatoria (Italian national insurance) regulations • Frequency of advance payments: from 2% to 4.75%, depending on the company • Staff turnover: from 2% to 6.5%, depending on the company

Actuarial losses, which were posted directly to the profit and loss account, totalled about EUR 1.4 million.

With effect from 1 January 2007, the budget law and related implementation decrees introduced significant changes in the rules governing the staff severance fund, including the choice of the employee as to how his/her accruing fund will be invested. Specifically, employees may opt for the new staff severance funds to be invested in pre-selected retirement funds or maintained at the company (in which case the latter will make severance fund contributions to a treasury account set up at INPS). At present the interpretation uncertainties surrounding this recently enacted regulation, the potentially different interpretations of the determination of the accruing staff severance payments under IAS 19 and the resulting changes in actuarial calculations regarding accrued staff severance payments, as well as the inability to estimate the choices made by employees on the investment of accruing staff severance pay (for which employees have been given until next 30 June to decide) mean that any assumptions on the actuarial changes in the calculation of accrued staff severance pay at 31 December 2006 would be premature.

2.7 Deferred tax reserve

The components of this reserve and a breakdown of changes are shown below.

Value at Value at 31.12.05 Increases/ 31.12.06 decreases

Deferred tax reserve 111,554 14,666 126,220

______Annual report and accounts to 31 December 2006 – ASM group 253

The “deferred tax reserve” relates largely to provisions allocated in the statutory accounts to cover depreciation and amortisation deducted to obtain tax benefits when reporting income to tax authorities.

The increase over the previous year was almost entirely due to higher depreciation and amortisation reported in the parent company’s tax return compared to the previous year (EUR 66.40 million with an increase of EUR 14.83 million).

2.8 Reserve for risks and future liabilities

Changes in the reserve for risks and future liabilities are shown below.

Value at Value at 31.12.05 Increases Decreases 31.12.06

Tax risk provisions: - UTF (local tax office) dispute 4,042 1,135 - 5,177 - tax risks 98 300 -98 300 4,140 1,435 -98 5,477

Provisions for risks: - risks of energy equalisation - 10,000 - 10,000 payments - gas tariff risks - 2,000 - 2,000 - pursuant to law 336/70 67 0 -9 58 - risks associated with Plurigas 967 310 -608 669 - risks of litigation: AEEG - 2,040 - 2,040 resolution 310/06 - risks associated with potential 1,565 - - 1,565 increase in electricity purchasing and wheeling costs - risks associated with 3,622 239 - 3,861 contributions payable - risks associated with foreign 2,236 447 -2,108 575 markets - interest rate risk on PAT 174 - - 174 contributions - additional customer/agent 73 - -3 70 indemnities - disputes relating to former ENEL 18 - - 18 company - labour dispute at former BAS 331 - - 331 - risks associated with Premungas 231 - -58 173

______Annual report and accounts to 31 December 2006 – ASM group 254

- risks of establishment of water - 95 - 95 tariffs 9,284 15,131 -2,786 21,629 Provisions for future liabilities: - plant closure expenses 2,667 113 - 2,780 - environmental clean-up in respect of demolition of gas 404 17 - 421 turbine 3,071 130 - 3,201 16,495 16,696 -2,884 30,307

The provisions for the UTF (local finance office) dispute have been earmarked to cover the tax on methane gas consumption in respect of gas used to generate thermal energy supplied to the Brescia health authority. Specifically, in its first payment notice, the UTF asked the company to pay higher excise duties and did not recognise the subsidy for the industrial use of methane used by the Nord plant until 2000. ASM established a reserve, which at 31 December 2005 totalled EUR 4.04 million, and which is regularly increased for interest and late payment charges in anticipation of the conclusion of the legal procedure, which ASM won out in both the trial and appeal courts. The company is currently awaiting the decision of the court of cassation.

In 2006, the UTF issued another payment notice for the years 2001 to 2005. This notice totalled EUR 1.99 million and included a portion of interest for the first assessment that the company had already set aside in previous years. The company prudently created a provision for the higher amount of taxes contested, totalling EUR 1.14 million, pending the final outcome of the outstanding legal issue.

The tax risk reserve created this period totalled EUR 300,000 and was for the assessment of the risk associated with the inspection by the tax office in the first half of 2006 at the former BAS for the year 2003 (direct and indirect taxes). Since the former BAS was merged with ASM, any additional taxes assessed will have an impact on ASM’s accounts. The estimate reflects the projected conclusion of the dispute in light of observations made by tax experts, which the company is using to contest the assessment made.

In the first half of 2006, the company made provision for risks associated with disputes resulting from the possible application of AEEG resolutions 248/04 and 298/05 on gas prices. In 2005, resolution 248/04, which like 298/05 is intended to revise the indexing mechanisms for gas sales prices, was the subject of litigation filed by sales companies that are opposed to the AEEG measures. In the first half of 2006, the High Court heard the AEEG's appeal and found in favour of Hera Trading and against the other sales companies.

In 2006, the High Court met in a plenary session and confirmed, for the legal disputes that have been decided up to this point, that it would be impossible for the AEEG to initiate appeals in all cases in which it made a late appearance (as in the case of the ASM group companies). However, the High Court recognised the AEEG’s ability to issue new resolutions to normalise the matter of gas tariffs, which were already covered by resolution 248/04. In 2007, the AEEG issued resolution 12/07 in which it announced the introduction of a procedure aimed at adopting measures concerning criteria for updating the terms for supplying natural gas commencing 1 January 2005.

Pending the definitive conclusion of the administrative and legal procedures, and given the difficulties in quantifying potential liabilities, the risk relating to the conclusion of this dispute is considered to have increased compared to the assessment made at the end of 2005, and as a result, a provision of EUR 2 million was made in the period as a precautionary measure.

Provisions for estimated energy equalisation payments refer to possible equalisation payments that will have to be made to some users as regards their energy supply.

______Annual report and accounts to 31 December 2006 – ASM group 255

The reserve for the dispute over AEEG resolution 310/06 concerns a sanction received in December 2006 regarding the method for structuring gas tariffs in the area of switches (changes in sales companies). ASM believes the claims made by the Authority are unfounded, and an appeal before the TAR (regional administrative court) is already in progress. The company will take action in all appropriate jurisdictions to reverse the sanction, which it considers unfounded in its claims and inequitable in amount.

The provisions for potential higher electricity purchasing and wheeling costs relate to potential liabilities on the purchase/sale price of electricity relating to a subsidiary.

The provisions for risks associated with contributions payable relate to the claim made by the INPS (Italian social security agency) in respect of child benefit contributions (CUAF). In a letter sent to ASM Brescia SpA, dated 25 October 2002, the Brescia branch of the INPS confirmed that the reduction applied to CUAF and maternity contributions was not allowed thereby contradicting an earlier note issued by INPS. The company, in conjunction with other sector companies, and supported by the opinions of its legal team, intends to oppose any (to date, unquantifiable) demands from the INPS.

The provisions for risks associated with foreign markets relate to the full hedging of risks resulting from business in Argentina developed by the BAS group. Specifically, the former BAS held a 30% stake in Enerfin Srl, a company now in liquidation that controls a holding company incorporated in Argentina (HISA SA), which in turn controls two gas distribution companies in two Argentine provinces. Owing to the economic downturn in Argentina, the operating companies were not able to meet their original targets. In December, ASM, in agreement with other Enerfin shareholders, took on a pro-rata share of the debt that Enerfin had incurred with MCC, the company’s sole creditor. As a result, ASM used EUR 2.11 million, which had been set aside in previous years, to pay the portion of that loan that had already matured (EUR 1.15 million). In addition, financial liabilities totalling EUR 948,000 were allocated for maturing instalments of this loan, which will mature fully by the end of 2008. Finally, EUR 15,000 was used to pay the company’s smaller debts. The increase in the reserve was for litigation initiated by the former BAS with an Argentine supplier. For prudential reasons, and in the expectation that the legal procedure would continue, the reserve was adjusted during the period based on information obtained by our Argentine legal counsel.

The provision for former ENEL litigation relates to the business division acquired from ENEL SpA and did not change in 2006.

The provision for the labour dispute at the former BAS refers to a dispute against the company initiated by employees of the former BAS.

The provisions relating to Premungas are intended to cover the cost of adjusting some salary components of 13 gas service employees in accordance with the Federgasacqua national collective agreement of 4 April 1974.

The provision for plant closure expenses, which is also included in this item, was created to cover environmental clean-up expenses at the Mincio plant.

Over the last year, a new reserve has been established for environmental clean-up operations in respect of the demolition of the gas turbine in Mincio, as required by the agreement reached with the competent authorities. The provisions for plant closure expenses and those for environmental clean-up in respect of the demolition of the gas turbine were calculated in compliance with the method set out in IFRIC 1.

2.9 Liabilities for derivatives valuations

This item includes liabilities relating to derivative contracts that may generate a capital loss.

Liabilities for the fair value designation of derivatives include:

______Annual report and accounts to 31 December 2006 – ASM group 256

• EUR 13.6 million for the negative mark-to-market of a derivative entered into by ASM in relation to a euro-yen foreign exchange swap for the notional amount and interest with the bond issued in August 2006 as the underlying asset. The balancing entry for this derivative, less the related tax effect, is a shareholders’ equity reserve, in accordance with the cash flow hedge method set out in IAS 39; • EUR 188,000 for the negative fair value associated with derivatives contracts on electricity prices with differentiated rate regulation that could potentially generate a capital loss; • EUR 1514,000 for the negative mark-to-market valuation of a swap contract entered into by BAS Power to modify the interest rate structure from variable to fixed on an existing loan; • EUR 1.14 million for the negative mark-to-market for a euro-Swiss franc foreign exchange collar contract entered into by AbruzzoEnergia to cover the risk of foreign exchange fluctuations on the portion of the thermoelectric power plant under construction that the general contractor plans to have invoiced by its Swiss affiliate; • EUR 5,000 for the negative mark-to-market valuation of an interest rate swap entered into by BAS.Com.

2.10 Bonds

This item refers to two bond issues launched by ASM.

The first, issued on 28 May 2004, is listed on the Luxembourg market, and is worth EUR 500 million. The issue comprises 10-year bearer bonds with a nominal value of EUR 100,000 and a fixed coupon of 4.875%. The rate of return of 5% and value of EUR 496.2 million were calculated using the amortised cost method.

There are no specific covenants linked to the bond, apart from those relating to the insolvency of the issuer or the group’s main companies.

The second bond, issued on 10 August 2006 in a private placement, is worth EUR 98 million. This thirty-year bond is denominated in yen, as it was fully subscribed by the Japanese branch of a leading US insurance company. The bond carries a fixed coupon of 5.405%. The rate of return of 5.44% and value of EUR 97.49 million were calculated using the amortised cost method.

There are no specific covenants linked to this bond either, apart from those relating to the insolvency of the issuer or the group’s main companies.

2.11 Debt and other financial liabilities

This item includes the non-current portion of financial liabilities.

Due after 5 Total years

Loans 330,952 157,380 Payables to other financial 9,761 3,702 institutions 340,713 161,082

As of 31 December 2006, “loans” primarily consisted of loans from the EIB, IMI, Comit and Banco di Brescia.

“Payables to other financial institutions” includes EUR 7.6 million relating to payables in respect of the Retrasm, Aprica and Valgas leasing contracts (in accordance with the finance method set out in IAS 17), and funding

______Annual report and accounts to 31 December 2006 – ASM group 257

provided by the Lombardy region for new plant and equipment in the Polaveno (EUR 630,000) and Bergamo (EUR 397,000) areas, and for the separated waste collection facility in Buffalora (EUR 515,000).

2.12 Liabilities for landfills

Liabilities for post-closure landfill charges cover the total cost likely to be incurred in the future (as supported by independent expert reports) to limit the environmental impact of landfills operated by the ASM group, together with future costs associated with the post-closure management of such landfills. The period of such post-closure management is estimated at 50 years from the expected time of closure for each landfill, with the exception of the Aprica landfill, where, given the specific type of waste disposed (special non-hazardous waste), the post-closure management period was set at 30 years. This period has been determined on the basis of EU forecasts (as incorporated into Italian law), which envisage a minimum period of 30 years, together with technical evaluations supported by external expert reports. The portion of costs relating to the period was calculated based on the proportion of the site filled. The estimate of the closure and post-closure management costs has been reviewed by a specialist company that has issued a certificate confirming the accuracy of the amounts forecast by the parent company for the year end.

The amounts for landfill costs are shown in the following table:

Total % filled costs Castegnato: post-closure management 12,349 100 Buffalora: post-closure management 10,352 100 Calcinato: 1st/2nd tank post-closure management – 14,051 100 operational 1st/2nd tank post-closure management – 73 100 conversion fees Montichiari: equipping post-closure – preparation costs 2,058 91,46 post-closure – operating costs 25,690 91,46 “post-closure” – clean-up operations 10,542 91,46 Aprica landfill 8,035 100 Total 83,150

2.13 Long-term payables to affiliates

31.12.06 31.12.05 Payables to controlling shareholders Residual principal on water treatment and sewerage loans 1,220 2,102 Residual principal on Cassa Depositi e Prestiti loan 1,091 1,404 2,311 3,506

______Annual report and accounts to 31 December 2006 – ASM group 258

These payables include the non-current portion of the remaining principal of loans for sewerage and of the Cassa Depositi e Prestiti loan charged to the parent company by the Brescia local authority. The portion maturing beyond 5 years totalled EUR 154,000 (EUR 185,000 at 31 December 2005).

2.14 Other liabilities

This item breaks down as follows:

31.12.06 31.12.05 Deferred income from capital grants: - ASM network installations/extensions 19,353 23,926 - other ASM facilities 2,653 1,957 - Valgas installations 7,136 5,344 - GeSI installations 145 169 - BAS SII installations 1,038 661 - Sinergia installations 77 71 - CIGE installations 21,461 17,299 - Street lighting installations 5,291 4,427 - Azienda Servizi Valtrompia installations 874 - - Sobergas installations 209 - - Other group company installations 20 93 Deposits 15,482 15,516 Long-term advances from customers 2,171 2,120 Water usage concession fees 9,275 9,209 Local authority concession fees 1,237 1,611 Staff severance fund - Cassano 491 528 86,913 82,931

The item “deferred income from capital grants” includes network expansion grants paid by property developers for urbanisation projects, given the substantial investment required to extend the company’s service networks to these new developments, as well as amounts paid by customers for work on connecting to the group's network that was not yet complete at the end of the period.

Water usage concession fees are payable to the Mantua Territory Office and relate to tax payments on water used by the Mincio power station. In previous accounting periods, the parent company received a notice of payment for a total of EUR 6.07 million. The company has disputed the notice, as it believes it is not payable under the decree awarding the concession.

The payable is increased annually to incorporate accrued interest on the original amount requested.

CURRENT LIABILITIES

______Annual report and accounts to 31 December 2006 – ASM group 259

2.15 Current financial liabilities

This item includes short-term loans provided by several credit institutions as well as the current portion of loans and other loans provided to group companies. It is broken down as follows:

31.12.06

Current portion of loans 23,924 Short-term bank loans 80,573 Current payables to other financial institutions 1,432 105,929

2.16 Liabilities for short-term derivative valuations

This item totalled EUR 353,000 and relates to the impact of several derivatives on commodities entered into by Plurigas for the purposes of cash flow hedging.

2.17 Payables to suppliers

The total amount falls due in the next accounting period.

2.18 Trade payables to affiliates

31.12.06 31.12.05

Payables to affiliated companies 40,791 9,466 Payables to other related parties 2,877 183 Payables to controlling shareholders 8,831 7,262 52,499 16,911

Payables to affiliated companies included EUR 17.85 million for the un-eliminated portion of the payable to Plurigas for the purchase of gas based on the application of the proportional consolidation method. This item includes EUR 18,345 for the payable to Endesa for the purchase of electricity. The remaining payables primarily relate to amounts owed to the affiliates C’è Gas, Coges and CBBO for goods and services.

Of the payable to other related parties, EUR 1,975 relates to Bergamo Infrastrutture and EUR 902 to the Bergamo local authority.

______Annual report and accounts to 31 December 2006 – ASM group 260

Payables to controlling shareholders comprise short-term payables to the Brescia local authority, which broke down as follows at 31 December 2006:

31.12.06 31.12.05 Other payables: Concession fees 3,116 4,211 Network usage rental 1,433 1,388 Biomass usage 674 620 Other payables 3,608 1,043 8,831 7,262

The amounts under “concession fees” and “network usage rental” relate to fees for the electricity, gas and heating concessions, and rental for use of the water supply, sewerage and water treatment networks, payable by the parent company.

2.19 Financial payables to affiliates

31.12.06 31.12.05

Bergamo local authority 1,409 4,109 Brescia local authority 1,195 1,143 2,604 5,252

EUR 1.41 million (EUR 4.11 million at 31/12/2005) relates to a payable to the Bergamo local authority for the sale of grids in 2002. This liability carries interest at the 3-month Euribor rate (flat).

The payable to the Brescia local authority comprises short-term payables to the Brescia local authority which break down as follows, at 31 December 2006:

31.12.06 31.12.05

Residual principal on sewerage loans 882 851 Residual principal on Cassa Depositi e Prestiti 313 292 loan 1,195 1,143

______Annual report and accounts to 31 December 2006 – ASM group 261

2.20 Current tax payables

As of 31 December 2006, this item included:

31.12.06 31.12.05

VAT 1,292 990 Corporate income tax (IRES) 28,372 1,161 Government excise duty/carbon tax 3,566 640 Withholding tax payable on group and external staff 2,244 2,082 remuneration Surtax on electricity/sewage and water treatment due to province 12,214 7,845 Payables to local authorities in respect of sewerage and water 1,313 3,817 treatment Regional tax (IRAP) 5,485 3,255 Other taxes payable 170 208 54,656 19,998

2.20 Other payables

This item breaks down as follows:

31.12.06 31.12.05

Payments on account from customers 50,166 46,502 Payables to social security agencies 14,645 14,070 Short-term accrued liabilities and deferred income 19,888 18,525 Other payables 60,643 74,247 145,342 153,344

Payments on account from customers mainly relate to advance payments for consumption.

Payables to social security agencies mainly relate to payables to the Italian social security agency (INPS) for December 2006 salaries and wages.

______Annual report and accounts to 31 December 2006 – ASM group 262

A breakdown of accrued liabilities and deferred income at 31 December 2006 is shown below.

31.12.06 31.12.05 Accrued liabilities: Interest payable on bonds 16,567 14,491 Interest payable on loans 199 91 Insurance premiums 89 107 16,855 14,689 Deferred income: Other deferred income 3,033 3,836 3,033 3,836 Total accrued liabilities and deferred income 19,888 18,525

Accrued interest payable on bonds relates to net interest accrued at 31 December 2005.

At 31 December 2005, “other payables” broke down as follows:

31.12.06 31.12.05

Payables to co-owners of the Mincio and Cassano thermoelectric 12,822 27,312 plants Concession fees 997 1,228 Payables to employees 12,748 12,858 Payables relating to deferred income: fees relating to connection work not carried out 4,787 3,644 plant apportionment 2,336 1,706 other payables 3,485 7,796 Payables to electricity sector equalisation fund (CCSE) 5,265 5,393 Payables to GSE for accreditation certificates 8,010 6,622 Payables to the province in respect of landfill – WTE plant 3,349 1,834 Payables in respect of interest on deposits paid as guarantees 899 781 Other minor payables 5,945 5,073 60,643 74,247

The amount payable to the GRTN (EUR 6.62 million) relates to the mandatory requirement for green certification with effect from 2001. As stipulated by article 11 of legislative decree 79/99, companies that produce or import electricity from non-renewable sources are required to input energy from renewable sources on the basis of energy produced or imported from these non-renewable sources, pursuant to

______Annual report and accounts to 31 December 2006 – ASM group 263

legislative decree 387/03. The parent company and other group companies have therefore accounted for the cost of acquiring the green certificates, basing their figures on the indications set out in the GRTN guidelines.

Payables to the co-owners of the Mincio and Cassano thermoelectric plants totalled EUR 4.08 million (EUR 13.67 million at 31 December 2005) for AEM Milano, EUR 5.26 million (EUR 11.41 million at 31 December 2005) for AGSM Verona, EUR 1.8 million (EUR 1.02 million at 31 December 2005) for Trentino Servizi and EUR 1.69 million (EUR 1.34 million at 31 December 2005) for AIM di Vicenza.

The item “payables relating to deferred income” includes network expansion grants paid by property developers for substantial urbanisation investments relating to the expansion of the company’s service network, as well as amounts paid by customers for work on connection to the company’s network that was not yet complete when the accounts were prepared.

Commitments

This item includes: • sureties provided to other companies or entities totalling EUR 177.1 million (EUR 74.4 million in the previous period); • financial assets relate to third parties (EUR 70,000), unchanged from the previous period; • commitments in respect of assets leased from third parties of EUR 147.28 million (EUR 62.75 million in the previous period); • commitments to third parties of EUR 33.34 million, largely unchanged from the previous period.

Most of the increase over the previous period relates to the value of the leased water supply system of BAS S.I. (EUR 81.23 million), the WTE plant of BAS Power funded by a loan from Banca Opi (EUR 31.9 million), a surety provided to ENEL on behalf of ASM Energy to secure the electricity transmission contract (EUR 19million) and sureties in favour of the environment ministry to secure waste transport operations (EUR 10.28 million).

______Annual report and accounts to 31 December 2006 – ASM group 264

PROFIT AND LOSS ACCOUNT

For ease of comparison, figures indicating the position at 31 December 2005 are also provided.

3.1 Revenues from sales and services

Revenues from sales and services, broken down by sector, are shown below.

01.01.06 01.01.05 31.12.06 31.12.05 Revenues from sales: - Electricity 973,482 748,771 - Gas 525,529 434,337 - Water 40,395 40,783 - District heating 71,801 68,294 - District cooling 5,223 5,140 - Water treatment and sewerage 21,698 20,484 - Property management 23,921 22,563 - Street lighting . Brescia local authority fees 4,725 4,448 . Bergamo local authority fees 3,228 3,280 . other municipal fees 57 52 . operation of cemetery lighting 562 539 - Street cleaning . Brescia area waste collection/handling fees 21,638 21,378 . Bergamo waste collection/handling fees 12,830 12,252 . Valle Sabbia waste collection/handling fees 1,958 1,674 . Waste collection/handling fees for other local authorities 3,539 - . waste disposal to landfill and other installations 23,334 26,990 . waste disposal to waste-to-energy plant 35,043 27,669 . waste disposal to Bergamo bio-desiccator 4,384 2,507 . other revenues 24,741 23,791 Revenues from the provision of services: - Connection and repositioning of meters 16,895 13,938 - meter reading fees - 48 - electricity wheeling, balancing and transport charges 53,467 40,238 - Compensation for available production capacity/capacity 1,012 796 ______Annual report and accounts to 31 December 2006 – ASM group 265

payment to GRTN - Power exchange fee 12,235 3,083 - Gas transmission, dispatch fee 4,136 3,740 - Telephone/IT services 6,831 6,521 - On line sales and auction services 554 - - Other services provided 2,590 2,422 - Revenues in respect of energy efficiency certificates 2,882 - - Green certificates 793 207 1,899,483 1,535,945

The above revenues were generated primarily in Lombardy.

Revenues from sales and services provided to affiliated companies

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 of which, affiliate sales Ergon 2,527 71,742 Endesa 60,416 34,054 GeSI 350 351 Other related parties: Brescia local authority 10,653 10,538 Bergamo local authority 8,098 6,523 82,044 123,208

Revenues from Endesa are for the sale of electricity and related services. Revenues from the Brescia and Bergamo local authorities relate primarily to street lighting services and building management services.

As regards Ergon, the ASM group has greatly reduced sales of energy to these companies as compared with the previous year given the different supply channels used by the company in 2006.

______Annual report and accounts to 31 December 2006 – ASM group 266

3.2 Other revenues

“Other revenues” breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Changes in contract work in progress 2,760 1,614 Increase in non-current assets as a result of internal work 25,928 20,153 Other miscellaneous income 123,673 114,656 152,361 136,423

Increase in non-current assets as a result of internal work

The amount includes the cost of constructing internal installations, which has been capitalised in tangible non- current assets. This item comprises:

01.01.06 01.01.05 31.12.06 31.12.05

Stock utilised 15,379 10,241 In-house personnel 10,549 9,912 25,928 20,153

Other income

A breakdown of this item is shown below:

01.01.06 01.01.05 31.12.06 31.12.05

Miscellaneous 41,509 35,940 Contributions towards operating costs 82,164 78,716 123,673 114,656

______Annual report and accounts to 31 December 2006 – ASM group 267

The item “other” breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Fees for work on behalf of third parties 9,800 15,835 Ordinary contingent assets 19,195 8,878

Penalties charged to suppliers (work delays in the repowering of 44 2,382 the Mincio thermoelectric plant)/other

Other miscellaneous income 3,080 4,622 Miscellaneous refunds 3,860 1,054 Power service revenues 311 239 Late payment charges received 1,733 1,342 Sale of materials 1,781 587 Gains from the retirement of assets 584 488 Sale of kitchen induction units 816 513 Rental and lease income 305 -

41,509 35,940

Revenues from the sale of kitchen induction units relate to the sale of these appliances by a subsidiary to encourage energy savings.

The main component of contingent assets was EUR 3.17 million relating to price equalisation for the sale of power to the GRTN for 2004-2005. It also included EUR 3.13 million in revenues from connections applicable to 2005 and verified in 2006.

“Contributions towards operating costs” include:

01.01.06 01.01.05 31.12.06 31.12.05

CIP6 grant for electricity sold to GRTN 71,137 65,705 Annual portion of capital grants 4,209 4,036 CCSE grant for standardisation of electricity distribution costs 3,174 4,477 Green certificates grant 1,408 1,718 Other grants 2,236 2,780 82,164 78,716

______Annual report and accounts to 31 December 2006 – ASM group 268

The CIP6 grant for electricity sold relates to amounts received for the sale of electricity generated using renewable sources (primarily using the WTE plant for the municipal solid waste of Brescia and Bergamo). These contributions will be received for the first eight years of operation of the plants.

Other revenues from affiliates

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 of which, affiliate revenues: Ergon Energia 588 325 GeSI 140 40 of which, revenues from related parties - - Brescia local authority 727 3.698 Bergamo local authority 36 2 1,491 4,065

3.3 Raw materials costs

A breakdown of this item is shown below:

01.01.06 01.01.05 31.12.06 31.12.05

Raw materials 591,170 426,027 Electricity 544,879 370,603 Materials, spare parts and consumables 25,410 110,367 Stock materials and spare parts for investment 35,227 10,241 Change in inventories -32,509 -9,988 1,164,177 907,250

“Raw materials” consists of fuel purchased for thermoelectric plants and heat generation, methane gas for energy production for residential and industrial use, water and electricity.

“Raw materials” includes EUR 4.03 million for the effect of Plurigas’s fair value hedge used to hedge against fluctuations in its gas inventory prices. This cost incremental effect is matched with an identical amount recorded under changes in inventories in order to properly reflect the effects of the hedge in the profit and loss account.

______Annual report and accounts to 31 December 2006 – ASM group 269

Cost of raw materials purchased from affiliates

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 of which, from affiliates: Plurigas 143,696 139,527 Endesa 346,039 262,111 Ergon 15,832 5,321 505,567 406,959

Plurigas costs relate to the gas supplied by that company to ASM. The figures for Endesa and Plurigas mainly relate to electricity purchases.

3.4 Service costs

Service costs break down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Costs for use of third-party assets 14,817 16,829 Power transmission/balancing service 219,555 151,481 Works/maintenance 40,970 34,001 Miscellaneous professional services 23,562 24,431 Auditors’ fees 703 762 Waste disposal 20,627 17,895 Insurance and damages paid 7,217 6,340 Employee services 3,079 3,051 Works and services, Cassano plant personnel 1,463 1,491 Advertising, marketing and development 2,573 2,285 Security and cleaning 6,908 6,301 Communications and transport 8,004 7,337 349,478 272,204

The item "works/maintenance" mainly relates to works and maintenance undertaken during the period.

Costs for use of third-party assets include costs incurred for hire, rental and lease payments. Specifically, this item includes the leasing fees paid by ASM to the Brescia local authority in respect of its registered offices in Via Lamarmora, Brescia, and the fees for the use of plant and equipment paid to the Brescia and Bergamo local authorities (the latter through Bergamo Infrastrutture). ______Annual report and accounts to 31 December 2006 – ASM group 270

Cost of services provided by affiliates

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 of which, from affiliates: GeSI 206 165 Ergon 29 - of which, services from related parties: Brescia local authority 4,237 4,195 Bergamo local authority 1,503 2,284 Bergamo Infrastrutture 6,109 5,399 12,084 12,043

The costs relating to the Brescia local authority include the lease of the Via Lamarmora premises and the cost of using grids.

3.5 Personnel costs

This item includes expenses relating to personnel, directors, temporary staff and coordinated, ongoing contract work.

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Personnel costs 114,864 111,831 Directors’ remuneration 1,502 1,346 Co-ordinated full-time contract work/temporary staff 2,271 1,567 Other 947 990 119,584 115,734

Payroll costs related to affiliates

01.01.06 01.01.05 31.12.06 31.12.05

Recovery of costs in respect of group companies -89 -82 Senior managers’ and directors’ remuneration 1,936 1,947

______Annual report and accounts to 31 December 2006 – ASM group 271

1,847 1,865

In relation to the services provided to non-consolidated companies, the ASM group allocated EUR 89,000 to such companies for employed staff. Pursuant to international accounting standards, this amount was subtracted from total payroll costs.

This item includes EUR 1.94 million for the remuneration of directors, the Chief Operating Officer and senior managers with strategic responsibility at ASM (as specified by IAS 24).

3.6 Other miscellaneous expenses

This item includes:

01.01.06 01.01.05 31.12.06 31.12.05

Taxes and rentals 21,453 22,991 Losses on ordinary non-current asset disposals 1,730 2,640 Indirect taxes 1,360 1,464 Ordinary contingent liabilities 7,176 5,834 Ecotax on emissions 505 573 Other expenses 5,228 4,940 37,452 38,442

Indirect taxes include consumption taxes and stamp duty.

“Taxes and rentals” include:

01.01.06 01.01.05 31.12.06 31.12.05

Local authority concession fees for: - water 621 639 - water treatment and sewerage 930 787 - gas 3,568 4,202 - district heating 3,116 3,019 - other 483 549 WTE plant rental to provincial authority 2,384 2,324 WTE biomass fund 1,401 1,230 Montichiari landfill concession fees:

______Annual report and accounts to 31 December 2006 – ASM group 272

- fees to Montichiari local authority (monitoring) 2,192 2,212 - fees to provincial authorities 965 973 Trase landfill concession fees: - fees to Castenedolo local authority 50 1,152 - fees to provincial authorities - 89 Biogas concession fees - fees to Calcinato local authority 228 235 - fees to Montichiari local authority 164 348 Water usage concession fees: - fees to Cassano thermoelectric plant 456 319 - fees to Mincio thermoelectric plant 310 291 Public utilities tax 424 533 Service continuity improvement charge 1,886 1,924 Property tax and other taxes 2,275 2,165 21,453 22,991

Concession fees relating to the Brescia local authority have been established in accordance with the service agreement governing dealings with the controlling shareholder. The agreement was revised on 1 January 2003 resulting in a reduction in fees. Indirect taxes include consumption taxes and stamp duty. The reduction in concession fees paid to the Castenedolo local authority for the former Trase landfill was due to the closing of the landfill in the previous year.

Other miscellaneous expenses related to affiliates

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 of which, expenses related to affiliates Ergon 15 - Brescia local authority 6,178 6,762 6,193 6,762

Expenses related to the Brescia local authority include the assignment of certain grid services.

______Annual report and accounts to 31 December 2006 – ASM group 273

3.7 Depreciation, amortisation and write-downs

01.01.06 01.01.05 31.12.06 31.12.05

Amortisation of intangible assets 6,552 7,391 Depreciation of tangible assets 109,094 108,069 Write-downs 4,514 1,396 120,160 116,856

3.8 Provisions

These provisions comprise:

01.01.06 01.01.05 31.12.06 31.12.05 Provision for tax risks 300 - Provision for UTF (local finance office) dispute 1,135 240 Provision for risks of energy equalisation payments 10,000 - Provisions for gas tariff risks 2,000 - Provisions for litigation: AEEG resolution 310/06 2,040 - Risk provision for Plurigas 310 504 Provision for risks associated with child benefit 239 219 contributions (CUAF) Provision for risks associated with foreign markets 447 - Provisions for risks associated with the establishment 95 - of water tariffs Other provisions - 25 16,566 988

3.9 Fair value designation of non-current assets held for sale

As indicated in the balance sheet section on “non-current assets held for sale”, this item includes the financial impact of the fair value designation of traditional meters for which the group has set up a special sale programme.

______Annual report and accounts to 31 December 2006 – ASM group 274

3.10 Financial income

This item comprises:

01.01.06 01.01.05 31.12.06 31.12.05

Interest on bank and post office deposits 7,373 3,563 Fair value designation of derivatives - 7,030 Interest income and other miscellaneous income 809 455 Income from financial hedging transactions 892 25,484 Financial charges related to employee benefits 66 - 9,140 36,532

“Interest income and other miscellaneous income” mainly relates to interest from bank deposits and temporary liquidity.

The fair value designation of derivatives includes the financial impact of the derivatives held by group companies as hedging instruments, which are described in a special attachment. Specifically, the item includes the positive mark-to-market valuation of electricity contracts for difference entered into by ASM and ASM Energy.

Income from financial hedging transactions refers to the closing of a bond-related swap. More specifically, the unusually favourable trends in 10-year interest rates made it advisable to settle the swap transaction early, resulting in proceeds of EUR 31.59 million including EUR 25.48 million applicable to 2005.

Financial income from affiliates

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 of which, from affiliates: GeSI 39 36 Other small amounts - 8 39 44

______Annual report and accounts to 31 December 2006 – ASM group 275

3.11 Financial charges

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Interest payable on bonds 26,871 24,375 Interest payable on loans 12,971 7,922 Interest on short-term bank loans and current accounts 720 317 Other interest and financial charges 1,749 3,201 Interest on Cassano d’Adda and Mincio plant current 327 267 accounts Financial charges related to employee benefits 1,661 1,159 Financial charges associated with discounting the 131 125 environmental reserve Fair value designation of derivatives 14 1,675 Charges for financial hedging transactions 429 61 44,873 39,102

The increase in bond-related charges was due to the new thirty-year yen-denominated bond.

Financial charges from affiliates

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05 Other related parties: Bergamo local authority 100 89 Brescia local authority 122 143 222 232

______Annual report and accounts to 31 December 2006 – ASM group 276

3.12 Income and expenses from equity investments

This item breaks down as follows:

01.01.06 01.01.05 31.12.06 31.12.05

Dividends from equity investments 45 132 Other income from equity investments 522 3 Effect of valuation of companies at equity 118,517 90,478 119,084 90,613 Write-down of equity investments valued at equity -359 -693 Total 118,725 89,920

Dividends from equity investments relate to income generated from non-consolidated equity investments.

As already indicated in the section on equity investments, the revaluation of investments valued at equity relates to the valuation of Endesa Italia at EUR 116.05 million (compared to EUR 88.56 million in 2005), the valuation of Trentino Servizi at EUR 1.27 million, and to a lesser extent, to the positive impact from other affiliate holdings. Similarly, the write-down of equity investments mainly relate to Società Sviluppo Lago d’Iseo (EUR 122,000) and Giudicarie Gas (EUR 150,000).

3.11 Corporate income tax

01.01.06 01.01.05 31.12.06 31.12.05

Current taxes 100,501 65,983 Deferred taxes -11,485 16,578 89,016 82,561

The amount shown for current taxes relates to corporate income tax (IRES) and regional tax (IRAP) due for the period ending 31 December 2006.

The consolidated tax rate for 2006 was 27.20% (27.95% in 2005). The table below shows a reconciliation between the theoretical tax rate and the effective tax rate.

IRES Taxable Tax base

Theoretical tax (33%) 327,294 108,007 Income and expenses from equity investments 118,725 -39,179 Other minor adjustments 12,685 4,186

______Annual report and accounts to 31 December 2006 – ASM group 277

Total 73,014

IRAP Taxable Tax base Theoretical tax (4.25%) 327,294 13,910 Financial income and charges -35,684 1,517 Income and expenses from equity investments 118,725 -5,046 Personnel costs not relevant for IRAP purposes 119,584 5,082 Other minor adjustments 12,685 539 Total 16,002

Total tax (IRES + IRAP) 89,016 Total taxes recorded in the balance sheet 89,016

Other minor adjustments mainly relate to certain amortisation and depreciation amounts that are never deductible.

3.12 Earnings per share

Earnings per share was calculated in accordance with IAS 33 considering own shares held by the company in proportion to the period of the year when they were in circulation.

______Annual report and accounts to 31 December 2006 – ASM group 278

Appendices:

The appendices, which form an integral part of these notes to the accounts, comprise:

1) statement of changes to intangible assets to 31/12/2006;

2) statement of changes to tangible assets to 31/12/2006;

3) list of companies included in the basis of consolidation in the accounts to 31/12/2006 and list of affiliates;

4) unbundled accounts (AEEG resolution 310/2001);

5) report on Corporate Governance.

6) list of derivatives at 31 December 2006

7) basic accounting data of companies consolidated proportionally

8) basic accounting data of affiliated companies

9) basic balance sheet figures by individual business (segment information)

10) net financial position at 31 December 2006.

______Annual report and accounts to 31 December 2006 – ASM group 279

ASM GROUP - Appendix 1

STATEMENT OF CHANGES IN INTANGIBLE ASSETS FOR THE YEAR ENDING 31/12/2006

AMORTISATION INCREASES DUE TO SALES AND SALES AND AMORTISATION OPENING NET VALUE DISPOSALS (INITIAL DISPOSALS REVALUATIONS REVALUATIONS GROSS VALUE AMORTISATION AS NET VALUE AS INTANGIBLE ASSETS AS OF ACQUISITIONS ACQUISITIONS ELIMINATIONS ELIMINATIONS AND WRITE- BALANCE AS OF 31/12/2005 VALUE) (AMORTISATION) (INITIAL VALUE) (AMORTISATION) AS OF 31/12/06 OF 31/12/06 OF 31/12/06 31/12/05 (INITIAL VALUE) (INITIAL VALUE) (AMORTISATION) DOWNS

- SOFTWARE 8,293,695.48 5,852,650.42 2,441,045.06 - 2,674,745.24 - - 1,448,566.63 796,234.30 -377,000.00 -125,666.67 1,976,246.08 9,142,874.09 6,690,995.53 2,451,878.56 - INTELLECTUAL PROPERTY RIGHTS 8,293,695.48 5,852,650.42 2,441,045.06 - 2,674,745.24 - - 1,448,566.63 796,234.30 -377,000.00 -125,666.67 1,976,246.08 9,142,874.09 6,690,995.53 2,451,878.56

- CONCESSIONS 24,025,540.08 6,975,466.89 17,050,073.19 1,521,092.09 1,053,775.00 2,143,858.79 828,091.80 42,000.00 10,500.00 - - 1,422,529.63 24,414,548.38 7,559,404.72 16,855,143.66 - LICENCES 975,287.75 352,646.64 622,641.11 - 2,275.92 ------104,228.70 977,563.67 456,875.34 520,688.33 - TRADEMARKS, PATENTS AND SIMILAR RIGHT S 30,683.89 20,951.95 9,731.94 - 4,000.00 ------2,952.11 34,683.89 23,904.06 10,779.83 CONCESSIONS, LICENCES, TRADEMARKS AND 25,031,511.72 7,349,065.48 17,682,446.24 1,521,092.09 1,060,050.92 2,143,858.79 828,091.80 42,000.00 10,500.00 - - 1,529,710.44 25,426,795.94 8,040,184.12 17,386,611.82

- CUSTOMER LISTS 76,240,236.25 58,240,719.92 17,999,516.33 - 1,092,937.92 - - 1,105,071.51 331,521.30 - - 2,595,043.72 76,228,102.66 60,504,242.34 15,723,860.32 - OTHER EXPENSES 3,894,632.21 2,369,958.14 1,524,674.07 - - 2,537,609.12 2,270,625.49 107,805.21 107,805.21 2,960,827.31 2,307,501.41 450,991.83 4,210,045.19 3,028,112.68 1,181,932.51 OTHER INTANGIBLE ASSETS 80,134,868.46 60,610,678.06 19,524,190.40 - 1,092,937.92 2,537,609.12 2,270,625.49 1,212,876.72 439,326.51 2,960,827.31 2,307,501.41 3,046,035.55 80,438,147.85 63,532,355.02 16,905,792.83

INTANGIBLE ASSETS IN PROGRESS 151,750.00 - 151,750.00 - - - - 1,750.00 - - - - 150,000.00 - 150,000.00

TOTAL INTANGIBLE ASSETS 113,611,825.66 73,812,393.96 39,799,431.70 1,521,092.09 4,827,734.08 4,681,467.91 3,098,717.29 2,705,193.35 1,246,060.81 2,583,827.31 2,181,834.74 6,551,992.07 115,157,817.88 78,263,534.67 36,894,283.21

GOODWILL 109,199,458.25 581,564.12 108,617,894.13 284,145.79 - 591,286.04 118,257.20 - 108,892,318.00 480,304.92 108,412,013.08 CONSOLIDATION DIFFERENCES 29,386,746.37 1,777,392.00 - 1,855,478.00 29,308,660.37 TOTAL GOODWILL 109,199,458.25 581,564.12 138,004,640.50 2,061,537.79 - 591,286.04 118,257.20 - - - - 1,855,478.00 108,892,318.00 480,304.92 137,720,673.45

______Annual report and accounts to 31 December 2006 – ASM group 274

ASM GROUP - Appendix 2

STATEMENT OF CHANGES IN TANGIBLE ASSETS AND DEPRECIATION PROVISIONS FOR THE YEAR ENDING 31/12/2006

DEPRECIATION CONSOLIDATION - VALUATIONS DEPRECIATION CONSOLIDATION - INCREASES DUE TO ACQUISiTIONS FROM DECREASES DUE SALES AND NET VALUE ASSETS OPENING BALANCE PROVISIONS DEPRECIATION NET VALUE AS OF 31/12/05 ACQUISITIONS AT FAIR VALUE REVALUATIONS CLOSING BALANCE PROVISIONS INITIAL VALUE ACQUISITIONS CONSOLIDATION TO DISPOSALS ELIMINATIONS AS OF 31/12/06 AS OF 31/12/2005 PROVISIONS (WRITE-DOWNS) AS OF 31/12/06

- LAND AND NON-INDUSTRIAL BUILDINGS 10,579,465.21 - 147,773.65 - 10,431,691.56 2,237,000.00 29,700.00 - - 303,652.19 - -8,425.42 12,534,087.60 151,835.68 12,382,251.92 - PLANT EQUIPMENT 8,878,798.33 - - - 8,878,798.33 639,000.00 16,684.42 - - - - 88,567.13 9,623,049.88 - 9,623,049.88 - INDUSTRIAL BUILDINGS 129,102,212.12 - 26,052,917.12 89,483.00 102,959,812.00 557,708.61 1,803,443.55 - - 592,404.36 55,973.67 3,799,669.89 134,614,656.14 29,710,761.27 104,903,894.87 LAND AND BUILDINGS 148,560,475.66 - 26,200,690.77 89,483.00 122,270,301.89 3,433,708.61 1,849,827.97 - - 896,056.55 55,973.67 3,879,811.60 156,771,793.62 29,862,596.95 126,909,196.67

PLANT AND MACHINERY 1,495,751,742.62 23,244,496.64 422,892,384.37 7,170,459.43 1,088,933,395.46 44,988,916.75 67,408,729.13 7,349,496.55 -3,204,086.00 125,049,267.57 6,868,149.00 47,768,720.33 1,557,798,771.45 481,723,023.46 1,076,075,747.99

INDUSTRIAL AND COMMERCIAL EQUIPMEN 8,151,129.50 - 5,004,717.06 - 3,146,412.44 - 788,015.67 - - - 103,636.44 -2,141.32 8,833,367.41 5,665,989.50 3,167,377.91

- OFFICE MACHINERY AND FURNITURE 23,310,581.68 - 16,811,061.07 - 6,499,520.61 - 1,688,241.16 - - - 1,192,005.83 679,363.80 24,486,180.81 18,382,034.77 6,104,146.04 - VEHICLES 42,879,478.01 - 24,186,290.64 - 18,693,187.37 - 3,468,787.85 - - - 2,206,809.33 - 44,141,456.53 26,200,608.21 17,940,848.32 - COSTS ON THIRD-PARTY ASSETS 4,988,935.61 - 2,941,475.39 - 2,047,460.22 - 161,043.39 - - - - - 5,149,979.00 3,539,175.39 1,610,803.61 OTHER TANGIBLE ASSETS 71,178,995.30 - 43,938,827.10 - 27,240,168.20 - 5,318,072.40 - - - 3,398,815.16 679,363.80 73,777,616.34 48,121,818.37 25,655,797.97

- PLANTS UNDER CONSTRUCTION 79,589,643.91 - - - 79,589,643.91 - 137,464,961.90 11,741,562.00 - - 356,841.26 -52,082,194.54 176,357,132.01 - 176,357,132.01 - ADVANCES TO SUPPLIERS 2,110,223.91 - - - 2,110,223.91 - 5,720,236.52 - - - - - 7,830,460.43 - 7,830,460.43 PAYMENTS ON ACCOUNT AND ASSETS UN 81,699,867.82 - - - 81,699,867.82 - 143,185,198.42 11,741,562.00 - - 356,841.26 -52,082,194.54 184,187,592.44 - 184,187,592.44

LANDFILLS 48,553,345.48 - 35,076,741.71 - 13,476,603.77 - 183,382.03 - - - 174,000.00 - 48,562,727.51 42,686,552.58 5,876,174.93

FREELY TRANSFERABLE GOODS 43,984,316.92 - 29,045,342.20 - 14,938,974.72 45,638,470.55 1,115,868.18 - - 6,844,508.36 36,864.95 - 83,857,282.34 26,837,717.05 57,019,565.29

TOTAL TANGIBLE ASSETS 1,897,879,873.30 23,244,496.64 562,158,703.21 7,259,942.43 1,351,705,724.30 94,061,095.91 219,849,093.80 19,091,058.55 -3,204,086.00 132,789,832.48 10,994,280.48 243,559.87 2,113,789,151.11 634,897,697.91 1,478,891,453.20

CONSOLIDATION - VALUATIONS DECREASES DUE TO DEPRECIATION FROM CLOSING DEPRECIATION PROVISIONS OPENING BALANCE DEPRECIATION AT FAIR VALUE SALES AND ELIMINATIONS REVALUATIONS DEPRECIATION DISPOSALS CONSOLIDATION BALANCE PROVISIONS (WRITE-DOWNS)

- LAND AND NON-INDUSTRIAL BUILDINGS 147,773.65 - - - - - 4,062.03 - 151,835.68 - PLANT EQUIPMENT ------INDUSTRIAL BUILDINGS 26,052,917.12 89,483.00 - 101,740.79 14,712.81 185,582.66 3,448,455.09 50,777.00 29,710,761.27 LAND AND BUILDINGS 26,200,690.77 89,483.00 - 101,740.79 14,712.81 185,582.66 3,452,517.12 50,777.00 29,862,596.95

PLANT AND MACHINERY 422,892,384.37 7,170,459.43 -739,917.05 34,618,533.83 2,109,274.91 -189,201.73 84,606,276.14 3,230,996.94 481,723,023.46

INDUSTRIAL AND COMMERCIAL EQUIPMEN 5,004,717.06 - - - 78,292.34 -1,338.27 740,903.05 - 5,665,989.50

- OFFICE EQUIPMENT AND FURNITURE 16,811,061.07 - - - 917,484.65 125,014.09 2,363,444.26 - 18,382,034.77 - VEHICLES 24,186,290.64 - - - 1,759,596.80 - 3,773,914.37 - 26,200,608.21 - COSTS ON THIRD-PARTY ASSETS 2,941,475.39 - - - - - 597,700.00 - 3,539,175.39 OTHER TANGIBLE ASSETS 43,938,827.10 - - - 2,677,081.45 125,014.09 6,735,058.63 - 48,121,818.37

LANDFILLS 35,076,741.71 - - - - - 7,609,810.87 - 42,686,552.58

FREELY TRANSFERABLE GOODS 29,045,342.20 - - 4,874,970.33 - - 2,667,345.18 - 26,837,717.05

TOTAL DEPRECIATION RESERVE 562,158,703.21 7,259,942.43 -739,917.05 39,595,244.95 4,879,361.51 120,056.75 105,811,910.99 3,281,773.94 634,897,697.91

______Annual report and accounts to 31 December 2006 – ASM group 275

The ASM group Appendix 3

The basis of consolidation of the ASM group to 31 December 2006 includes the accounts of the companies listed in the table below.

% Included Share capital % direct indirect in basis of Consolidation at ownershi Registered ownershi consolida method company name 31.12.2006 p office p tion? ASM Brescia 774.305 Yes Line-by-line

Consolidated companies Aprica Studi Brescia 275 100.00 - Yes Line-by-line Valgas Nozza Vestone 9,960 99.99 - Yes Line-by-line (Bs) Sinergia Brescia 4,967 88.13 - Yes Line-by-line Retrasm Brescia 100 100.00 - Yes Line-by-line Ecofert S. Gervasio 1,808 47.00 1.62 Yes Line-by-line* (Bs) ASM Energy Brescia 1,000 100.00 - Yes Line-by-line ASVT Gardone V.T. 5,200 47.49 0.33 Yes Line-by-line* (Bs) Retragas Brescia 31,597 59.26 40.18 Yes Line-by-line CIGE Brescia 103,051 100.00 - Yes Line-by-line Assoenergia Brescia 126 97.76 - Yes Line-by-line Seasm Brescia 700 67.00 - Yes Line-by-line Montichiariambiente Brescia 1,500 80.00 - Yes Line-by-line AbruzzoEnergia San Salvo (Ch) 15,510 89.00 - Yes Line-by-line Cogas Brescia 120 100.00 - Yes Line-by-line BAS.Com Bergamo 3,700 100.00 - Yes Line-by-line BAS Servizi Idrici Bergamo 17,166 99.98 - Yes Line-by-line Integrati (SII) BAS International Bergamo 20 100.00 - Yes Line-by-line BAS- Omniservizi Bergamo 6,460 100.00 - Yes Line-by-line BAS- Power Bergamo 21,000 100.00 - Yes Line-by-line Sober Gas Bergamo 103 100.00 - Yes Line-by-line Aprica Brescia 2,500 98.97 - Yes Line-by-line ASMEA Brescia 22,497 100.00 - Yes Line-by-line Companies owned by ASMEA Tidonenergie Piacenza 500 - 100.00 Yes Line-by-line Selene Brescia 1,549 100.00 - Yes Line-by-line Companies owned by Selene Itradeplace Brescia 180 - 100.00 Yes Line-by-line

______Annual report and accounts to 31 December 2006 – ASM group 276

% Included Share capital % direct indirect in basis of Consolidation at ownershi Registered ownershi consolida method company name 31.12.2006 p office p tion? Companies consolidated proportionally GeSI Brescia 1,000 47.50 - Yes Proportional Metamer San Salvo (Ch) 650 50.00 - Yes Proportional Ergon Energia Brescia 600 50.00 - Yes Proportional Plurigas Milan 800 30.00 - Yes Proportional

* Ecofert and ASVT were consolidated on a line-by-line basis despite the lack of a majority of voting rights since the conditions set out in article 2359, paragraph 1, point 2 (dominant influence) have been met.

The basis of consolidation has changed since 31 December 2005, following:

• the removal of Energy Group Srl, wholly-owned by Aprica SpA until 31 December 2005, but sold in its entirety to third parties in February 2006.

• the inclusion of Itradeplace SpA, an e-procurement company wholly acquired by the ASM group in April 2006. The share capital is fully held by Selene SpA.

On 11 January ASM acquired a further 22.75% in AbruzzoEnergia, taking its shareholding to 89%. ASM also acquired an option to purchase another 6% in the company.

During the year, Distrasm Srl, a dormant company 100%-owned by ASM, changed its name to Montichiariambiente, and changed its status from an Srl (limited liability company) to an SpA (company limited by shares). A 20% stake in the company was also sold.

On 1 September 2006 ASM bought 25.39% of Valgas, thereby increasing its stake from 74.14% to 99.53%. On 13 December 2006 ASM bought a further stake of 0.47% in Valgas increasing its stake to 99.99%. In January 2007, the remaining 64 shares held by minority shareholders were purchased giving ASM the entire share capital of Valgas and enabling it to merge the company into ASM.

As a result, the group’s indirect stake in Retragas, in which Valgas has a 36.02% shareholding, has also changed.

Following the transfer of the Lumezzane (BS) water sector division to ASVT, the company proceeded with a capital increase reserved for the minority shareholder that provided the division concerned and launched a capital increase in cash underwritten solely by ASM. As a result of these transactions, the ASM group’s stake changed slightly from the previous period.

In 2006, the stakes held in Assoenergia and Sinergia also rose slightly.

ASM is the registered owner of all the shareholdings listed above.

Please refer to the report on operations for information regarding the structure of the ASM group.

______Annual report and accounts to 31 December 2006 – ASM group 277

Investments in affiliated companies valued at equity or at fair value/cost at 31 December 2006 are listed below.

% Included Share % direct indirect in basis of Valuation capital at ownershi Registered ownershi consolida method company name 31.12.2006 p office p tion? Endesa Italia Rome 700,810 20.00 - No Shareholde rs' equity Trentino Servizi Rovereto (Tn) 224,790 14.48 - No Shareholde rs' equity Coges S. Gervasio 1,100 2.01 30.38 No Shareholde (Bs) rs' equity Sviluppo Turistico Iseo (Bs) 2,122 23.88 - No Shareholde Lago d’Iseo rs' equity

CBBO Montichiari 723 - 25.55 No Shareholde (Bs) rs' equity Giudicarie Gas Tione (Tn) 477 39.55 No Shareholde rs' equity C’E’ Gas Cernusco sul 10 40.74 - No Shareholde Naviglio (Mi) rs' equity Serio Energia Concordia 1,000 40.00 - No Shareholde (Mo) rs' equity Ergosud Rome 100 50.00 - No Cost

Termoelettrica del Ponti s/Mincio 11 45.00 - No Cost Mincio plant (Mn) Visano Società Brescia 25 40.00 - No Cost Trattamento Rifiuti Scarl Comuni assoc. Gardone VT 588 44.48 - No Cost Valtrompia Gestioni - (Bs) in liquidation Lombardia Gas Trader Milan 20 23.74 - No Cost - in liquidation Bergamo Servizi Sarnico (Bg) 10 50.00 - No Cost Enerfin – in liquidation Concordia 2,500 30.00 - No Cost (Mo)

ASM is the registered owner of all the shareholdings listed above.

Notes relating to the main companies acquired, established or sold during the period ending 31 December 2006

In December Eurosviluppo Elettrica, a company engaged in the construction of a thermoelectric power plant in Calabria, changed its name to Ergosud.

Lombardia Gas Trader was put into liquidation earlier this year.

______Annual report and accounts to 31 December 2006 – ASM group 278

Appendix 4 (continued) Companies and significant shareholdings of ASM Brescia at 31 December 2006

ABRUZZOENERGIA SpA, registered office at Corso Garibaldi 71, San Salvo (CH). At 31 December 2006, it was 89%-owned by ASM with fully paid-up capital of EUR 15,510,000. ASM also has an option to purchase a further 6% of the company. The company is building a thermoelectric power plant in Gissi.

APRICA SpA, registered office at Via Lamarmora 230, Brescia. Aprica was formed on 29 July 1971, and is directly controlled by ASM, which holds a 98.97% stake. It has subscribed and paid-up share capital of EUR 2,500,000. Aprica operates in waste collection, transport, treatment, recovery and disposal.

APRICA STUDI Srl, registered office at Via Lamarmora 230, Brescia. The company was formed on 9 October 1979, and is wholly-owned by ASM (100%), with subscribed and paid-up share capital of EUR 275,000. Aprica Studi carries out studies, research and surveys, and offers consultancy, planning and technical assistance in the public services sector.

ASM ENERGY Srl, registered office at Via Lamarmora 230, Brescia. ASM Energy was formed on 22 November 2001, and is wholly-owned by ASM (100%). It has subscribed and paid-up share capital of EUR 1,000,000. The company trades and sells electricity and gas.

ASM ENERGIA E AMBIENTE Srl (ASMEA), registered office at Via Lamarmora 230, Brescia. ASMEA was formed on 29 March 1999. It is wholly-owned by ASM (100%) and has subscribed and paid-up share capital of EUR 22,497,000. The company sells electricity, gas, water, heat and cooling fluids, as well as providing integrated water and cemetery lighting services.

ASSOENERGIA SpA (in liquidation), registered office at Via Lamarmora 230, Brescia. Assoenergia SpA was acquired by ASM in 2004, and the latter had a 97.76% controlling interest at 31 December. The company sells electricity for the free market. It was put into liquidation in February 2006.

AZIENDA SERVIZI VALTROMPIA SpA, registered office at Via Matteotti 325, Gardone Val Trompia (BS). This company was formed on 30 July 1998. ASM owns 47.49% of its capital, and it has subscribed and paid- up share capital of EUR 5,200,000. The company operates in the area of public services such as integrated water service, gas distribution and the collection, recovery and disposal of waste in the Val Trompia local authority areas. Sinergia also has a 0.37% stake in ASVT.

BAS.COM SpA, registered office at Via Codussi 46, Bergamo. It is wholly-owned by ASM and has paid-up capital of EUR 3,700,000. It operates in the IT and telecommunications sectors, where its activities include the installation, maintenance and operation of grids and structured cabling.

BAS-OMNISERVIZI Srl registered office at Via Codussi 46, Bergamo. It is wholly-owned by ASM and has share capital of EUR 6,460,000. It sells gas in Bergamo and in the surrounding local authority areas in the province of Bergamo.

BAS-POWER Srl, registered office at Via Codussi 46, Bergamo. It is wholly-owned by ASM and has share capital of EUR 21,000,000. The company generates electricity through waste combustion.

BAS-SERVIZI IDRICI INTEGRATI Srl, registered office at Via Codussi 46, Bergamo. This company has share capital of EUR 17,166,000 and is 99.98%-owned by ASM. It operates the integrated water services for a large part of the province of Bergamo.

______Annual report and accounts to 31 December 2006 – ASM group 279

CIGE SpA, registered office at Via Lamarmora 230, Brescia. CIGE was acquired on 10 October 2003, and is wholly-owned by ASM (100%). It has share capital of EUR 103,050,800. CIGE operates in the area of gas distribution.

ECOFERT Srl, registered office at Via Industriale 5, San Gervasio Bresciano (BS). This company was formed on 23 February 1994. ASM owns a 47% stake in the company, which has subscribed and paid-up capital of EUR 1,808,000. Ecofert operates a composting plant in the San Gervasio Bresciano local authority area. ASM Brescia affiliate COGES also has a 5% stake in Ecofert.

ERGON ENERGIA Srl, registered office at Via Lamarmora 230, Brescia. The company was formed on 29 July 2003 and is 50%-controlled by ASM. It has subscribed and paid-up capital of EUR 600,000. The company sells electricity on the free market in Italy.

GESTIONE SERVIZI INTEGRATI Srl (GeSI), registered office at Via Lamarmora 230, Brescia. The company was formed on 4 February 2000, and is 47.5%-controlled by ASM, with subscribed and paid-up share capital of EUR 1,000,000. The company operates in real estate, engineering and service activities in the public and private sector.

ITRADEPLACE SpA, registered office at Via Lamarmora 230, Brescia. With effect from April 2006, the company was wholly-owned by Selene SpA and has share capital of EUR 180,000. The company’s main business is in the e-procurement sector.

METAMER Srl, registered office at Corso Garibaldi 71, San Salvo (Ch). The company was formed on 12 December 2002 after being spun off from Metanizzazione Meridionale Srl. ASM has a 50% stake in the company, which has share capital of EUR 650,000. The company operates in the gas sales business.

PLURIGAS SpA, registered office at Corso Porta Vittoria 4, Milan. The company was formed on 30 November 2000, and is controlled by ASM (30%), with subscribed and paid-up share capital of EUR 800,000. Plurigas imports, buys and sells gas.

RETI TRASMISSIONE ENERGIA ELETTRICA ASM Srl (RETRASM), registered office at Via Lamarmora 230, Brescia. The company was formed on 29 October 1999, and is wholly-owned by ASM (100%), with subscribed and paid-up share capital of EUR 100,000. The company carries out day-to-day maintenance operations and manages relations with the GRTN regarding its own high-voltage lines, which form part of the national grid.

RETRAGAS Srl, registered office at Via Lamarmora 230, Brescia. The company was formed on 13 June 2003 and is directly (59.26%) and indirectly (40.18%) controlled by ASM with subscribed and paid-up share capital of EUR 31,597,100. The company provides gas transport services on high- and medium-pressure grids.

SEASM Srl, registered office at Via Lamarmora 230, Brescia. The company was formed on 16 December 2002 for the purposes of building an electric power plant. ASM has a 67% stake in the company, which has share capital of EUR 700,000.

SELENE SpA, registered office at Via Lamarmora 230, Brescia. The company was formed on 8 June 1989 and is wholly-owned by ASM (100%). Selene has subscribed and paid-up share capital of EUR 1,549,371. It operates in the IT and telecommunications sectors, where its activities include the installation, maintenance and operation of networks, structured cabling and the design and supply of IT and computer systems.

______Annual report and accounts to 31 December 2006 – ASM group 280

SINERGIA SpA, registered office at Via Lamarmora 230, Brescia. Sinergia was formed on 8 October 1985 and is directly controlled by ASM (88.13%). The company has subscribed and paid-up share capital of EUR 4,967,466. It distributes gas in several local authority areas of Val Trompia.

SOBER GAS SpA, registered office at Via Codussi 46, Bergamo. The company distributes gas in part of the Bergamo province, has share capital of EUR 103,200, and is wholly-owned by ASM.

TIDONENERGIE Srl, registered office at Via Roma 48, Piacenza. The company was acquired on 30 September 2003, and is wholly-owned (100%) by ASMEA. It has share capital of EUR 500,000, and is active in the gas sales market.

VALGAS SpA, registered office at Via Reverberi 2, Vestone, Brescia. It was formed on 27 November 1984 and is directly controlled by ASM with a stake of 99.99% at 31 December 2006. The company has subscribed and paid-up share capital of EUR 9,960,310. It operates in public services management, including integrated water services, gas distribution, waste collection, recovery and disposal in the local authority areas of Val Sabbia.

______Annual report and accounts to 31 December 2006 – ASM group 281

Appendix 4 SHARED ELECTRICITY ELECTRICITY ELECTRICITY ELECTRICITY OPERATING CORPORATE CORPORATE NON- ELIMINATIONS AND ASM GROUP GENERATION TRANSMISSION DISTRIBUTION SALES GAS DISTRIBUTION GAS SALES OTHER ACTIVITIES FUNCTIONS SERVICES A-D SERVICES E-K ATTRIBUTABLE CONSOLIDATIONS TOTAL GROUP BALANCE SHEET ASSETS 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006

INTANGIBLE ASSETS 875,992.47 0.00 34,502.97 10,472,355.00 2,381,981.59 10,553,165.10 22,000,062.68 2,600.00 2,213,627.98 -11,640,004.58 36,894,283.21

Goodwill 9,600,000.00 45,701,903.19 7,230,029.95 10,000.00 55,470,079.94 -9,600,000.00 108,412,013.08 Consolidation difference 0.00 29,308,660.37 29,308,660.37 Total GOODWILL 9,600,000.00 0.00 45,701,903.19 0.00 7,230,029.95 0.00 10,000.00 0.00 55,470,079.94 0.00 19,708,660.37 137,720,673.45

TANGIBLE ASSETS 494,593,346.93 15,213,293.41 255,676,939.62 62,866.90 196,632,387.46 969,335.74 425,199,844.11 1,473,396.12 57,271,323.69 31,798,719.22 1,478,891,453.20 LONG-TERM INVESTMENTS Shareholdings valued at equity 916,870,302.80 -165,789,931.96 751,080,370.84 Shareholdings in subsidiaries 352,566,872.70 -352,566,872.70 0.00 Shareholdings in affiliates 564,303,430.10 186,776,940.74 751,080,370.84 Other equity investments 21,632,906.42 -1,257,093.75 20,375,812.67 Total LONG-TERM INVESTMENTS 938,503,209.22 -167,047,025.71 771,456,183.51

OTHER FINANCIAL ASSETS 31,101,436.59 -30,841,311.59 260,125.00

ASSETS FOR DERIVATIVE VALUATIONS 568,964.70 568,964.70

DEFERRED TAX ASSETS 6,638,736.20 63,017.04 2,520,086.86 943,180.65 18,362,846.00 2,561,232.83 8,003,145.55 9,469,002.87 2,651,183.25 51,212,431.25

OTHER ASSETS 674,811.92 3,298.15 44,873.67 65,672.29 307,926.88 20,272.55 9,058,397.38 36,751,873.43 -716,777.00 46,210,349.27

TOTAL NON-CURRENT ASSETS 512,925,549.52 15,279,608.60 303,978,306.31 11,544,074.84 226,922,664.93 14,612,756.92 472,529,305.99 1,006,553,720.91 114,955,031.61 970,173,610.51 -156,086,556.04 2,523,214,463.59

NON-CURRENT ASSETS HELD FOR SALE 1,265,580.00 1,265,580.00

INVENTORIES 1,072,629.52 110,107.64 1,731,144.73 44,751,524.49 13,382,281.34 246,955.81 13,234,572.32 74,529,215.85 RECEIVABLES OTHER THAN NON-CURRENT ASSETS Customers 55,839,489.26 3,538,128.51 -3,994,725.93 185,745,162.47 2,492,014.96 151,886,254.36 126,142,290.55 3,017,065.42 1,676,580.58 -5,184,435.32 521,157,824.86 Related parties 30,895,264.26 1,112,327.51 37,212,349.62 101,507,699.18 112,541,502.85 6,375,070.65 86,174,198.80 82,537,611.86 16,623,951.69 -427,421,768.07 47,558,208.35 Receivables for current taxes 564,478.32 400.27 93,137.39 15,009,793.38 277,667.61 9,073,300.31 523,766.35 3,251,254.14 0.00 28,793,797.77 Other 37,656,227.62 7,976.38 2,399,534.72 6,504,273.89 386,361.46 240,646.74 5,120,883.87 278,753.71 3,066,307.11 754,120.69 56,415,086.19 Total RECEIVABLES OTHER THAN NON-CURRENT ASSETS 124,955,459.46 4,658,832.67 35,710,295.80 308,766,928.92 115,697,546.88 167,575,272.06 217,961,139.57 89,084,685.13 21,366,839.38 0.00 -431,852,082.70 653,924,917.17 FINANCIAL ASSETS OTHER THAN NON-CURRENT ASSETS 4,041,835.23 4,041,835.23

CASH AT BANK AND IN HAND 242,339,228.66 242,339,228.66

TOTAL CURRENT ASSETS 116,377,206.10 4,883,647.70 -124,455,289.48 255,765,081.62 152,889,188.69 236,165,820.44 256,002,676.13 515,477,145.70 -6,418,197.29 246,381,063.89 -431,852,082.70 974,835,196.91 TOTAL ASSETS 629,302,755.62 20,163,256.30 179,523,016.83 267,309,156.46 379,811,853.62 250,778,577.36 728,531,982.12 1,522,030,866.61 109,802,414.32 1,216,554,674.40 -587,938,638.74 3,499,315,240.50

______Annual report and accounts to 31 December 2006 – ASM group 282

SHARED ELECTRICITY ELECTRICITY ELECTRICITY ELECTRICITY OPERATING CORPORATE CORPORATE NON- ELIMINATIONS AND ASM GROUP GENERATION TRANSMISSION DISTRIBUTION SALES GAS DISTRIBUTION GAS SALES OTHER ACTIVITIES FUNCTIONS SERVICES A-D SERVICES E-K ATTRIBUTABLE CONSOLIDATIONS TOTAL GROUP

LIABILITIES 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006

SHAREHOLDERS' EQUITY Share capital 1,027,235,605.00 -252,930,247.00 774,305,358.00 Share capital reserve 222,989,320.15 -17,147,863.74 205,841,456.41 Derivative valuation reserve -10,065,648.72 -10,065,648.72 Legal reserve 34,164,640.49 -6,169,324.63 27,995,315.86 IFRS1 reserve -2,568,647.89 -4,105,186.95 -6,673,834.84 Reserve for own shares held -326,238.27 -326,238.27 Other reserves 238,356,084.22 53,791,078.54 292,147,162.76 Consolidation reserve 0.00 52,529.00 52,529.00 Retained profit 0.00 7,889,142.37 7,889,142.37 Retained profit/loss carried forward -4,953,162.98 3,728,519.88 -1,224,643.10 Profit/loss for the year 174,818,305.76 63,464,130.11 238,282,435.87 TOTAL GROUP SHAREHOLDERS' EQUITY 1,679,650,257.76 -151,427,222.42 1,528,223,035.34

Minorities share capital and reserves 0.00 6,284,838.36 6,284,838.36 SHAREHOLDERS' EQUITY - GROUP AND MINORITIES 1,679,650,257.76 -145,142,384.06 1,534,507,873.70

RESERVE FOR RISKS AND FUTURE LIABILITIES Deferred tax reserve 43,067,621.26 764,342.37 14,025,158.62 3,020,850.28 1,522,805.74 46,556,074.82 93,615.50 5,507,319.65 11,662,533.35 126,220,321.59 Provisions for risks and future liabilities 3,201,164.96 18,474.00 1,618,451.48 14,214,088.19 668,513.70 5,345,253.31 101,955.73 5,139,492.00 30,307,393.37 TOTAL RESERVES FOR RISKS AND FUTURE LIABILITIES 46,268,786.22 764,342.37 14,043,632.62 1,618,451.48 17,234,938.47 2,191,319.44 51,901,328.13 195,571.23 10,646,811.65 0.00 11,662,533.35 156,527,714.96

STAFF SEVERANCE FUND AND PENSION RESERVES 2,515,449.52 26,327.91 3,424,481.17 41,831.03 3,415,713.04 87,354.09 16,012,768.70 5,833,022.27 10,913,260.58 42,270,208.31

LIABILITIES FOR DERIVATIVE VALUATIONS 1,843,211.70 4,915.24 13,598,556.00 15,446,682.94

LONG-TERM DEBT Bonds 593,685,284.25 593,685,284.25 Debt and other financial liabilities 341,633,932.14 -920,550.00 340,713,382.14 Liabilities for landfills 83,150,218.86 83,150,218.86 Long-term payables to related parties 2,573,331.92 1,220,219.24 1,091,096.65 -2,573,331.92 2,311,315.89 Other liabilities 10,746,189.34 5,082,287.01 5,659,044.04 15,106,207.96 9,772,655.98 27,272,908.34 609,213.20 12,664,804.00 86,913,309.87 Total LONG-TERM DEBT 150,756,986.41 9,584,041.92 5,082,287.01 5,659,044.04 15,301,943.21 14,700,376.95 113,867,378.09 782,650,531.30 0.00 935,319,216.39 9,170,922.08 1,106,773,511.01

TOTAL NON-CURRENT LIABILITIES 201,384,433.85 10,374,712.20 22,550,400.80 7,319,326.55 35,952,594.72 16,979,050.48 181,786,390.16 788,679,124.80 35,158,628.23 935,319,216.39 20,833,455.43 1,321,018,117.22

Current financial liabilities 106,282,408.30 106,282,408.30 Payables to suppliers 46,159,822.61 75,778.28 24,360,059.93 39,700,121.32 42,965,131.52 52,920,444.23 45,712,215.76 605,517.94 21,284,735.58 8,623,224.49 282,407,051.66 Short-term payables to related parties 2,640,905.71 5,847,411.70 6,517,332.54 139,772,116.46 67,280,672.88 89,258,310.93 85,996,668.15 110,517,345.69 16,812,689.49 -469,541,353.47 55,102,100.08 Current tax payables 255,073.87 32,808.58 5,908.69 4,085,924.93 1,413,610.89 2,321,692.78 12,220,892.32 34,320,027.03 54,655,939.09 Other payables 23,136,005.34 31,954.71 6,722,288.77 27,661,770.60 5,820,444.97 22,015,647.46 20,601,594.63 18,202,526.73 23,861,098.37 -2,711,581.13 145,341,750.45 TOTAL CURRENT LIABILITIES 81,651,518.05 6,865,561.27 37,605,589.93 242,294,406.28 117,541,189.52 205,769,428.50 165,441,810.80 188,290,931.90 61,958,523.44 106,282,408.30 -463,629,710.11 643,789,249.58 TOTAL LIABILITIES 629,302,755.62 20,163,256.30 179,523,016.83 267,309,156.46 379,811,853.62 250,778,577.36 728,531,982.12 1,522,030,866.61 109,802,414.32 2,721,251,882.45 -587,938,638.74 3,499,315,240.50

______Annual report and accounts to 31 December 2006 – ASM group 283

SHARED ELECTRICITY ELECTRICITY ELECTRICITY ELECTRICITY OPERATING CORPORATE CORPORATE NON- ELIMINATIONS AND ASM GROUP GENERATION TRANSMISSION DISTRIBUTION SALES GAS DISTRIBUTION GAS SALES OTHER ACTIVITIES FUNCTIONS SERVICES A-D SERVICES E-K ATTRIBUTABLE CONSOLIDATIONS TOTAL GROUP

PROFIT AND LOSS ACCOUNT 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006 2006

PRODUCTION VALUE Revenues from sales and services 675,608,462.67 4,528,586.00 146,410,893.46 880,776,855.48 487,873,014.67 595,404,262.56 482,613,185.18 877,759.35 708,082.13 -1,375,317,507.00 1,899,483,594.50 Change in contract work in progress 1,027,660.77 64,560.71 590,470.85 1,071,698.23 5,605.90 2,759,996.46 Increase in non-current assets for internal work 4,171,926.50 8,811,398.14 2,743,376.57 10,078,666.06 221.12 122,483.99 25,928,072.38 Other revenues and income 84,676,902.57 1,244,768.82 6,645,247.27 7,569,688.53 8,458,685.65 4,624,515.34 38,571,076.18 38,816,370.66 56,470,393.85 -123,404,858.37 123,672,790.50 TOTAL PRODUCTION VALUE 765,484,952.51 5,773,354.82 161,932,099.58 888,346,544.01 499,665,547.74 600,028,777.90 532,334,625.65 39,694,351.13 57,306,565.87 0.00 -1,498,722,365.37 2,051,844,453.84

PRODUCTION COSTS Raw materials 516,451,757.51 566.00 89,904,729.30 639,874,869.42 421,205,395.22 493,945,365.86 155,898,428.04 1,209,990.75 18,894,464.10 -1,173,208,372.53 1,164,177,193.67 Services 64,986,001.59 420,184.50 30,207,686.70 223,186,888.33 14,071,656.16 89,972,050.15 188,570,014.45 19,339,706.04 17,045,330.49 -313,138,746.09 334,660,772.32 Use of third-party assets 753,982.27 2,368,257.05 357,087.41 145,127.38 4,280,951.23 125,105.04 13,352,011.89 1,009,960.03 437,846.93 -8,013,321.44 14,817,007.79 Personnel costs 9,773,602.70 263,635.67 7,949,278.85 2,121,131.00 10,021,251.78 2,310,565.56 64,219,234.68 10,270,219.93 13,121,172.80 -466,446.88 119,583,646.09 Depreciation, amortisation and write-downs 35,750,439.82 832,095.77 14,277,003.92 3,311,522.69 14,388,541.86 3,819,473.96 40,308,137.59 846,238.63 7,040,798.42 0.00 -414,097.66 120,160,155.00 Amortisation of intangible assets 134,729.51 25,343.06 2,722,190.58 845,400.13 2,868,280.64 3,872,439.17 22,962.00 1,511,996.58 -5,451,349.60 6,551,992.07 Depreciation of tangible assets 35,540,710.31 832,095.77 14,251,660.86 14,332.11 13,508,141.73 21,193.32 35,988,698.42 126,276.63 5,528,801.84 3,281,773.94 109,093,684.93 Write-downs of other non-current assets 100,000.00 1,755,478.00 1,855,478.00 Write-downs of receivables included in current assets 75,000.00 575,000.00 35,000.00 930,000.00 447,000.00 597,000.00 2,659,000.00 Change in inventories of raw materials, supplies and consumables 0.00 Provisions 14,040,000.00 310,122.90 1,231,079.82 756,672.51 227,782.40 16,565,657.63 Valuation of assets held for sale at fair value 174,420.00 174,420.00 Other miscellaneous expenses 7,982,571.13 13,025.74 2,852,107.97 2,319,373.52 6,630,088.35 1,185,898.26 14,644,130.46 3,974,071.77 1,277,028.32 -3,425,867.76 37,452,427.76 TOTAL PRODUCTION COSTS 635,698,355.02 3,897,764.73 145,547,894.15 870,958,912.34 484,637,884.60 591,668,581.73 478,223,036.93 37,406,859.66 58,218,843.46 0.00 -1,498,666,852.36 1,807,591,280.26

Difference between production value and production costs 129,786,597.49 1,875,590.09 16,384,205.43 17,387,631.67 15,027,663.14 8,360,196.17 54,111,588.72 2,287,491.47 -912,277.59 0.00 -55,513.01 244,253,173.58 FINANCIAL INCOME AND EXPENSES Other financial income 26,362,596.49 -17,222,283.81 9,140,312.68 Interest and other financial charges -62,107,651.91 17,234,263.01 -44,873,388.90 Exchange rate gains/losses 49,259.98 49,259.98 TOTAL FINANCIAL INCOME AND EXPENSES -35,695,795.44 11,979.20 -35,683,816.24 REVALUATION OF FINANCIAL ASSETS Income from equity investments 69,518,620.31 49,565,093.55 119,083,713.86 Expenses from equity investments -2,460,735.81 2,101,919.00 -358,816.81 TOTAL REVALUATION OF FINANCIAL ASSETS 67,057,884.50 51,667,012.55 118,724,897.05 PRE-TAX PROFIT 275,670,775.65 51,623,478.74 327,294,254.39 Corporate income tax (current portion) -100,500,970.92 -100,500,970.92 Corporate income tax (deferred) -351,498.97 11,836,558.37 11,485,059.40

Net profit including minorities 174,818,305.76 63,460,037.11 238,278,342.87

Net profit - minorities 0.00 4,093.00 4,093.00 Group net profit 174,818,305.76 63,464,130.11 238,282,435.87

______Annual report and accounts to 31 December 2006 – ASM group 284

Appendix 5 REPORT ON CORPORATE GOVERNANCE 2006

The 2006 report fully describes the corporate governance model used at ASM SpA and in the ASM group, and provides an appropriate description of the specific methods for implementing the model chosen. The issues are developed on the basis of guidelines issued by the Italian stock exchange in February 2003, and joint guidelines issued in 2004 by Assonime and Emittenti Titoli SpA in accordance with the principles contained in the 2002 Code of Conduct for Listed Companies, which the company adopted in July 2002 at the time it was given authorisation for trading on the stock exchange.

CODE OF CONDUCT FOR LISTED COMPANIES 2006 As noted above, the report refers to the Code published in July 2002 and not the Code of Conduct revised in 2006. This option is given pursuant to Section IA, 2.6 of the instructions for the Italian stock market regulations. It was deemed appropriate to defer formal adoption of the new Code of Conduct to 2007 for the following reasons: (I) The company’s Board of Directors and Board of Auditors are being re-elected, and it was decided that it was not appropriate to bias the conduct of the next board. This would also allow the new boards to evaluate, assess and fully apply the recommendations, principles, criteria and intent of the new code and related comments; (II) From the various announcements appearing in newspapers and press releases issued by the company, the market is aware of the possibility of a merger with AEM Milano, which if implemented (at the moment the structure of the transaction has not been determined) would potentially lead to the formation of a new combined entity with a non-traditional system of management and control and a full reorganisation of the current corporate governance structure, and thus, a different projected application of the new Code to the specific system adopted.

Moreover, from a careful analysis of the content of the revised Code of Conduct, it can be confirmed that ASM’s has, in action and principle, already specifically applied the recommendations of the new Code, but has not formally adopted them for the reasons noted above.

LEGISLATIVE DECREE 6 OF 17 JANUARY 2006 AND SUBSEQUENT AMENDMENTS As already noted in the previous report for 2005, legislative decree 6 of 17 January 2003 (known as the Vietti law) came into effect on 1 January 2004 for the purpose of introducing “organic reform of the regulations governing companies with share capital and co-operatives” implementing Law 366 of 3 October 2001 and subsequent amendments. These laws made substantial reforms to the rules for companies with share capital and revised their content in response to the repeated calls for modernisation.

To comply with this requirement, ASM SpA’s extraordinary shareholders’ meeting revised the articles of association on 27 September 2004. For group companies it was also deemed appropriate to retain the “traditional model” of management, and to keep the duties of the Board of Auditors separate from the audit of the accounts. Therefore, the articles of association of the subsidiaries were amended, and the audit of the accounts was assigned to the external auditors for the entire ASM group in accordance with the Draghi and Vietti laws.

CHANGES TO THE ARTICLES OF ASSOCIATION PURSUANT TO LAW 262 OF 28 DECEMBER 2005 AND LEGISLATIVE DECREE 303 OF 29 DECEMBER 2006 Law 262 of 28 December 2005, aimed at protecting public savings and regulating financial markets, which came into force on 12 January 2006, and legislative decree 303 of 29 December 2006,which co-ordinates the consolidated law on banking and lending (TUB) and the consolidated law on financial intermediation (TUF) with Law 262 of 28 December 2005,requires that the companies subject to their provisions standardise their articles of association by 30 June 2007 (original deadline: 12 January 2007). Moreover, certain rules will be affected by Consob measures or regulations.

______Annual report and accounts to 31 December 2006 – ASM group 285

The changes required to be made to the company's articles of association as a result of the above- mentioned regulations largely concern the Board of Directors, the Board of Auditors and the senior manager responsible for drawing up the company's accounting statements. Pursuant to a directive of the extraordinary shareholders’ meeting of 5 April 2006, the company harmonised its articles of association with the revisions required by Law 262/2005 and introduced other small changes such as the creation of the abbreviation by which the company shall be known and the inclusion of the corporate object, as well as those aimed at rectifying the regulatory omission in the articles of association with regard to the replacement of directors before the expiry of their term in office. The revisions to the articles of association, which have been properly detailed and communicated in accordance with provisions on corporate disclosure, affected the following articles: 1 (Name); 4 (Object); 9 (Notice of Shareholders’ Meetings); 11 (Chairman and company Secretary); 13 (Board of Directors); 14 (Duties of Board of Directors); 21 (Supervisory Bodies); 23 (Accounts and Profits); 24 (Financial Instruments and Special Shares). Following the recent issue of legislative decree 303 of 29 December 2006,which came into force on 25 January 2007,regarding co-ordination with Law 262/2005, evaluations are being made as to whether it is necessary to make any other changes to bring the articles of association in line with the above-mentioned regulation by the deadline of 30 June 2007.

SHARE CAPITAL - SHARES The nominal value of the share capital is currently EUR 774,305,358.00 and is made up of 774,305,358 shares with a nominal value of EUR 1.00 each. The share capital consists solely of ordinary shares carrying voting rights at ordinary and extraordinary shareholders’ meetings. In accordance with the articles of association (article 6), no single shareholder, other than the Brescia local authority and/or any company it controls, may own the rights to, own or hold, for any purpose, a shareholding in excess of 5% of the share capital. The company is not aware of any agreements among shareholders concerning the company’s share capital. The company’s shareholders’ meeting on 5 April 2006 approved a share buy-back programme involving a maximum of 15 million shares (1.937% of share capital). This acquisition is mainly intended to accumulate shares to be offered in exchange for stakes in the company and was authorised for a period of 18 months. In 2006, ASM had acquired on the Italian stock market 3,092,698 shares, worth EUR 9.4 million, at a weighted average price of EUR 3.04 per share (0.4% of the share capital). At the end of 2006, ASM had 364,551 remaining shares worth EUR 326,000. In January 2007, a further 64 own shares were transferred in exchange for Valgas shares held by minority shareholders. With this purchase, ASM completed the acquisition of all Valgas capital. Also in January 2007, another 180,371 own shares were transferred in order to acquire the entire capital of Sinergia SpA.

BOARD OF DIRECTORS:ROLE AND COMPOSITION The Board of Directors in office was appointed by resolution of the shareholders’ meeting of 30 April 2004. It is made up of eight members to be re-elected at the time of the approval of the 2006 accounts. The current members are: Renzo Capra (Chairman), Bruno Barzellotti (Deputy Vice-Chairman), Giuseppe Facchetti (Vice-chairman) and directors: Maurizio Brunazzo, Alberto Clô (representing minorities), Giuseppe Onofri, Marco Vitale and Tiberio Lonati. The latter was appointed at the shareholders’ meeting of 5 April 2006 to represent minority interests and to replace Emilio Gnutti who resigned in December 2005.

The Board of Directors is vested with full powers for the management of the company, and for the implementation and achievement of the corporate objectives, except for those powers reserved by law and the company’s articles of association, and it plays a significant role in the company’s organisation.

In accordance with the law and the articles of association, the Board of Directors: - has the right to establish and close agencies, branches, representative offices, and sales and administrative offices both in Italy and abroad, and approve the relocation of the registered office in Italy; - appoints a Chairman if one has not been appointed by the shareholders’ meeting, and may appoint a Deputy Vice-Chairman from among its members to replace the Chairman if he/she is absent or unable to attend, and a Vice-Chairman to chair the shareholders’ meeting and board meeting if both are absent;

______Annual report and accounts to 31 December 2006 – ASM group 286

- has decision-making powers regarding: (I) mergers, in those cases indicated in articles 2505 and 2505 bis of the Italian civil code; (II) reductions in share capital if a shareholder exercises a right of redemption; (III) mandatory amendments to the articles of association to bring them into line with legal requirements; - may appoint, from among its members, one or more Chief Executive Officers and/or an executive committee, and establish their duties and powers within the parameters of article 2381 of the Italian civil code. examines reports submitted by delegated bodies on a regular basis, and in any event, at least quarterly, on activities carried out regarding the exercise of powers granted to such bodies, and may request additional reports at any other time; - may appoint a Chief Operating Officer; - may, from its membership, establish an Appointments Committee, Remuneration Committee and Internal Audit and Corporate Governance Committee, and set out the functions of each in accordance with the provisions of the Code of Conduct for Listed Companies.

- Notwithstanding the duties that may not be delegated by law, resolutions regarding the following matters are reserved for the Board of Directors and may not be delegated: • approval of the company’s strategic, business and financial plans, as well as the annual, long-term and corporate restructuring targets for the group as a whole; • monitoring of the general progress of operations, focusing on possible conflicts of interest, taking into account information provided by delegated bodies and the Internal Audit and Corporate Governance Committee; • verifying the appropriateness of the organisational, administrative and general accounting systems of the company and strategic subsidiaries established by delegated bodies, and especially with regard to the internal control system; • approval of a procedure for releasing documents and data on the company, especially with regard to price-sensitive information; • suspension or dismissal of the Chief Operating Officer; • establishment, after consultation with the Board of Auditors and Remuneration Committee, of the remuneration of Chief Executive Officers (if appointed), and of those who hold specific positions, and of the distribution of the total remuneration package for the individual members of the Board of Directors and Executive Committee (if appointed), in the event that this has not been approved at the shareholders’ meeting; • review and approval of dealings with related parties and review of those situations in which one or more directors have an interest on their own behalf, or on behalf of third parties; • mergers, under articles 2505 and 2505 bis of the Italian civil code, and revisions of the articles of association to comply with legal provisions; • appointment of the senior manager responsible for drawing up the company’s financial statements pursuant to article 154 bis of Legislative Decree 58 of 24 February 1998; • the allocation of charitable donations, which also help to forge stronger links with the area in which the company operates through annual contributions to the ASM Brescia Foundation and to philanthropic, non-profit, scientific and cultural organisations. These allocations will be voted on annually by the Board of Directors, and the relevant amounts will be disbursed and reported under expenses for the period up to a total not to exceed 2% of net profit for the previous period. The directors report regularly, and in any event, at least quarterly, to the internal auditors at meetings of the Board of Directors pursuant to article 150 of legislative decree 58/98 and article 14, clause d) of the articles of association, or directly at the request of the Board of Auditors, on the activities and the msot significant financial transactions undertaken by the company and its subsidiaries, in particular transactions involving a potential conflict of interests. Similarly, pursuant to article 14, clause a) of the articles of association, delegated bodies and the Chief Operating Officer shall, on a quarterly basis, submit to the Board of Directors and Board of Auditors a report on the most significant transactions and the activities carried out pursuant to powers granted to them.

______Annual report and accounts to 31 December 2006 – ASM group 287

The Board of Directors confirmed, by resolution on 5 May 2004, that the Chairman is vested with full powers to manage the company, with the exception of those otherwise assigned in accordance with the law or the articles of association, and those reserved for the Board of Directors as noted above. The Chairman therefore also carries out the function of Chief Executive Officer. In accordance with the articles of association, the Board of Directors is currently made up of eight members, including the Chairman, who are appointed for three years and are eligible for re-election at the end of their term of office. The articles of association also stipulate that the Brescia local authority may not, pursuant to article 2449 of the Italian civil code, appoint a number of directors exceeding three-fifths of the total number of board members to be elected (rounded up to the higher number). The Bergamo local authority has the right to appoint directly one member provided that it owns 3% or more of the share capital. For directors not appointed by the Brescia local authority, elections shall be based on lists in order to ensure the presence of two directors appointed by minority shareholders. Lists may be submitted by at least 500 shareholders or by shareholders who individually, or collectively, represent at least 0.50% of the share capital. These lists are to be made available to the public at the company’s registered office, and published in three national daily newspapers, including one financial newspaper, at least ten days prior to the shareholders’ meeting. Each shareholder may submit, or contribute to submitting, one list only. Shareholders participating in the same shareholders’ agreement may submit and vote on one list only. For lists to be eligible for consideration, they must be accompanied by a CV containing detailed information on the personal and professional profiles of candidates, the irrevocable acceptance of the appointment and the declaration that there are no reasons why the candidate should be ineligible and/or forfeit this position. Candidates may appear on one list only. The Brescia and Bergamo local authorities shall not submit any lists. The appointments of the directors nominated by the Brescia and Bergamo local authorities may be revoked, and they may be replaced at any time by the relevant local authority pursuant to article 2449 of the Italian civil code.

The composition of the current Board of Directors complies with the requirements of article 147 ter of the TUF and in paragraph 4 on the requirements of independence laid down for auditors in article 148, paragraph 3 of the TUF; pursuant to the articles of association, the current individuals who carry out management and directorship duties must also possess the requisites of trustworthiness set out in article 147quinquies of legislative decree 58/1998.

Directors shall carry out their duties in full knowledge of the facts with the objective of creating value for shareholders. With the exception of the Chairman, who has been delegated operational powers, the other board members must be non-executive directors, thereby ensuring, in terms of their number and authority, that their judgment will play a significant role in the Board’s decision-making process, and that they can bring strategic and technical knowledge to the discussions. The Board of Directors assessed the independence of the non-executive directors on 1 May 2004, 13 June 2005 and 19 April 2006 on the basis of information provided by the individuals concerned. In the current configuration of the board, all non-executive directors are deemed to be independent. They (I) have no direct or indirect control over the issuer or exercise significant influence over the issuer; (II) in the previous year had no significant professional, commercial or financial relationship with the company; (III) in the last three years were not employees of the company or subsidiaries; (IV) received no compensation in addition to the fees set for the company’s non-executive directors; (V) were not directors of the company for more than nine of the last twelve years; (VI) do not hold the position of executive director in another company in which the executive director of ASM holds a position as director; (VII) are not shareholders or directors of the auditing firm hired to audit ASM's accounts. The results of evaluations were regularly communicated in press releases to the market and in annual reports on corporate governance. Although independent decision making is an attribute of all executive and non-executive directors, the presence of directors who are deemed “independent” in the sense noted above, is an appropriate means for ensuring that the interests of all shareholders are safeguarded.

______Annual report and accounts to 31 December 2006 – ASM group 288

In 2006, ASM held 18 board meetings attended by nearly all directors and the Board of Auditors. In addition, 63 committee meetings were held (of the Internal Control, Risk, Supervisory, Compensation and Strategic Committees) as well as a shareholders’ meeting. For the purposes of proper disclosure, in 2006, 181 board meetings and 36 shareholders’ meetings were held throughout all the group's companies. As regards 2007, four ASM board meetings have been planned until the end of March. Another three board meetings and one shareholders’ meeting have been scheduled in 2007 and announced to the market for the approval of company results and the 2006 accounts. The articles of association stipulate that the Board of Directors should ordinarily meet monthly. The Chairman is responsible for co-ordinating the activities of the Board of Directors, including the convening of meetings and ensuring that directors are provided with all information necessary for the board to express opinions on matters submitted for its review. Furthermore, the Chairman verifies the enforcement of board resolutions, chairs shareholders’ meetings and is the company’s legal representative. Pursuant to the guidelines for preparing reports on corporate governance, the positions held by the directors in other companies listed in regulated domestic and foreign markets at financial, banking, insurance or other large companies are shown below: - Renzo Capra: Director at Banca Farnese; - Alberto Clô: Independent director at ENI SpA, Autostrade SpA, Italcementi SpA and De Longhi SpA; - Tiberio Lonati: Director at AIFA SpA, Banca Valori SpA, Hopa SpA and the Sorin Group; - Marco Vitale: Director at Banca Popolare di Milano, Bipiemme Gestioni SGR, Deutz AG, Ermenegildo Zegna Holditalia SpA, Etica SGR, Pictet International Capital Management, Pictet & C. SIM SpA, Recordati Industria Chimica e Farmaceutica SpA, Same Deutz Fahr SpA, Same Deutz Fahr Italia SpA and Vincenzo Zucchi SpA.

DIRECTORS’ REMUNERATION The Chairman and each board member receive fixed annual remuneration, approved in accordance with the articles of association. No stock option plans were approved for directors or employees. There was no additional remuneration for the Chief Executive Officer or Executive Committee, since neither was appointed.

HANDLING OF COMPANY INFORMATION – CONFIDENTIAL INFORMATION – “INSIDERS REGISTER” – “INTERNAL DEALING” On 29 November 2005, Consob approved the amendments and supplements to the Issuer Regulations and Market Regulations, introduced as a result of the amendments made to legislative decree 58/98, which was modified in response to the 2004 EU law to incorporate EU regulations on market abuse. Specifically, issuers listed on the stock market (as well as parties in a supervisory relationship with them and persons acting in their name or on their behalf), are required, from 1 April 2006, as stipulated by article 115 bis of the TUF, to prepare a register of persons with access to “confidential information” as defined at article 114, paragraph 1 of the TUF, according to the methods set out in the Issuer Regulations. The company is therefore required to put in place appropriate administrative support to create, maintain and update the above-mentioned Register, and to identify the employees that should be included. These arrangements give rise to the requirement to monitor the above-mentioned confidential information from when it is created until it is disclosed to the market, identifying each person in possession of the information. This requirement also relates to the obligation to report information to the market in a timely manner, in accordance with article 114, paragraph 1 of the TUF, and to prevent offences concerning the abuse of confidential information, taking into account the company’s responsibilities in the event that offences are committed in its name or to its advantage. ASM’s articles of association specify that the Board of Directors shall have sole authority to pass resolutions approving the procedure for the release of documents and information on the company, especially with regard to the above-mentioned information.

______Annual report and accounts to 31 December 2006 – ASM group 289

Note that, in accordance with article 6.1 of the Code of Conduct for Listed Companies of July 2002, the company adopted as early as July 2002 (and supplemented in June 2005) a procedure for the internal management and external release of documents and information on the company, especially with regard to price-sensitive information. Based on regulations introduced, on 27 March 2006 the Board of Directors approved the text of new regulations for handling confidential information and the creation of a group register of individuals who have access to such information, the procedure for managing the register of individuals who have access to confidential information and the procedure for preparing and disseminating the communications described in article 114 of the TUF and article 66 of the issuer regulations. Furthermore, in respect of internal dealing, with the introduction of the measures implementing the provisions of the new article 114, paragraph 7 of the TUF (from 1 April 2006) the Code of Conduct adopted by the company in December 2002, based on the regulations issued by Borsa Italiana, has been superseded. Specifically, pursuant to the new article 114, paragraph 7 of the TUF, any person carrying out management, supervisory or directorship duties at the company or any key subsidiary, and directors with regular access to confidential information and who have the authority to implement decisions that may affect the performance and future prospects of the listed issuer (and the key subsidiary), in addition to anyone holding a stake of at least 10% of the company’s share capital, or any other individual with control of the company, defined as “key individuals”, should report to Consob and publicly disclose any transactions involving shares issued by the issuer or any other financial instruments connected to them, carried out by them or by an intermediary. “Key subsidiary” means a subsidiary that is directly or indirectly controlled by a listed issuer, if the book value of the holding in the aforementioned subsidiary represents more than 50% of the balance sheet assets of the listed issuer as per the latest approved accounts. To implement the above-mentioned regulations, the company’s Board of Directors met on 27 March 2006 and approved the text of the Internal Dealing Regulations and the organisational procedure for internal dealing communications. All regulations are regularly accessible on the Group’s website and its intranet.

Internal committees

Management Committee The Board of Directors passed a resolution on 21 February 2004 to appoint a Strategic Development Committee (now called the Management Committee). This committee is chaired by ASM Chairman Renzo Capra, and comprises Deputy Vice-Chairman Bruno Barzellotti, Chief Operating Officer Elio Tomasoni and three Vice-Chief Operating Officers, Antonio Bonomo (deputises for chief operating officer), Leonardo Dabrassi and Paolo Rossetti. Lorenzo Peduzzi, Director of the Law Department and Corporate Secretary’s Office, acts as secretary. The Committee ordinarily meets every week and is the management body that represents the group’s senior management. The Committee’s objectives can be summarised as: - assessing initiatives of strategic importance - evaluating investments and monitoring their progress - determining guidelines for the implementation of the strategic plan and budget - monitoring the results (definitive figures) of the group’s individual business areas - analysing strategic development opportunities

In 2006, the committee held 36 meetings, all of which were properly minuted.

Risk Management Committee On 18 April 2005, the Board of Directors established a Risk Management Committee as part of its Energy Risk Management project. This committee usually meets monthly, and comprises: the Chairman, Deputy Vice-Chairman, Chief Operating Officer, Head of Energy Management, Head of Finance and Administration, Head of Management Control and Strategic Planning, Head of Sales and Marketing. The Risk Management Committee is the main management body in the area of management and control strategy, with responsibility for energy and financial risks; the composition, duties, responsibilities and functions of the committee are governed by the relevant regulations.

______Annual report and accounts to 31 December 2006 – ASM group 290

Furthermore, the Risk Management Committee has approved the “Risk Policies”, a document that establishes the parameters of application for the operating activities set out in the document, the risk factors present in the ASM group, the attitude to such factors, and the organisational model adopted, which specifies the roles involved in the risk management process. In 2006, when it was formed, the committee met 10 times, and all meetings were properly minuted.

Remuneration Committee The current Committee was appointed on 10 May 2004. Its members are: Giuseppe Onofri, Maurizio Brunazzo and Alberto Clô, all of whom are non-executive, independent directors. The Committee’s regulations were approved by the Board of Directors on 18 October 2002 and include the following provisions: - the committee is formed by resolution of the Board of Directors and comprises up to three directors, the majority of whom shall be non-executive directors; - the committee’s term shall coincide with the term in office of the Board of Directors; - the committee shall meet whenever the need arises; - the Chairman of the Board of Directors may participate in meetings provided that the discussion does not cover matters in which he may have an interest; - resolutions shall be passed by a majority of members in office, unless otherwise specified in internal regulations, and must be recorded in special minutes; - the committee makes proposals to the Board of Directors regarding remuneration for Chief Executive Officers and those holding special posts and, as directed by the Chairman of the Board of Directors, for the determination of remuneration criteria for the company’s senior management; - the committee is also responsible for making proposals to the Board of Directors on the adoption of stock option plans and the allocation of shares to Chief Executive Officers, if appointed, and for directors who hold special posts and senior management; - the committee may seek the advice of internal or external consultants to obtain information on market standards relating to remuneration policies.

The Committee met twice in 2006, and both meetings were properly minuted.

Internal audit system – Internal Audit and Corporate Governance Committee

For internal auditing purposes, the company has, for several years, had a system for verifying and monitoring the appropriateness of company procedures. In 2003, in light of the newly established framework for listed companies, and in order to comply with the guidelines contained in the Code of Conduct for Listed Companies, ASM reviewed its internal audit system (and that of its subsidiaries) with regard to the monitoring of the efficiency of company transactions, the applicability of financial information, compliance with laws and regulations, and the safeguarding of company assets. For these reasons, a project was launched to analyse, review and update internal and intra-company operational and inter-departmental procedures as part of the implementation of the internal audit system. In 2005, an external specialist company in the sector, with internal audit and corporate governance expertise was appointed to check: (I) compliance with official regulations relating to internal audit, corporate governance, management and co-ordination of group companies; (II) the correct assignment of powers and mandates at group level; (III) service contracts between ASM and individual group companies; (IV) service contracts between individual group companies; (V) the purchasing department (core and non-core items) ; (VI) the group’s risk management policies. The Board of Directors is responsible for the internal audit system including establishing guidelines for procedures, and ensuring that these are effective. With regard to the management and co-ordination of group companies, article 14 of ASM’s articles of association establishes that the company “is the controlling shareholder of certain companies pursuant to article 2359 of the Italian civil code, and holds the position of “parent company”, carrying out "joint strategic management functions” pursuant to article 2497 bis of the civil code”. Similarly, the articles of association of the group companies state that they are controlled by ASM, in accordance with article 2359 of the Italian civil code.

______Annual report and accounts to 31 December 2006 – ASM group 291

In relation to the above and the guidelines on central and uniform operating functions, corporate governance, industrial projects and the group’s financial results, and in order to ensure that common regulations were in place to govern the co-ordination of the activities of the parent company and group companies in the best interests of the group, on 8 November 2004, the ASM Board of Directors approved a set of “intra-group regulations”, which was revised on 27 February 2006 to better adapt the guidelines to the demands on the company that had emerged in the interim. This document was formally recognised by all group companies. As legal representative of the company, the Chairman has been granted specific powers for managing the company by the Board of Directors. To ensure that the company has the necessary organisational flexibility and efficiency, and within the scope of his powers, the Chairman has: • vested specific authorities and powers of attorney in the Chief Operating Officer and Vice-Chief Operating Officers; • delegated functional authority and powers of attorney to the company’s senior managers for the ordinary management of their relevant organisational area; • given signature powers in respect of operational issues to managers and staff working on organisational matters concerning the routine technical and administrative management of activities in their areas. With regard to safety, the legal representative of ASM, in his capacity as an employer, has granted specific powers of attorney to senior managers to oversee responsibilities and activities that fall under their remit. In addition, specific powers of attorney were granted to these individuals to oversee the planning and control of environmental problems in their areas. Each group company’s Board of Directors has vested specific powers in their Chairmen and Chief Executive Officers to carry out the operational management of the company, with the right to delegate certain signature powers to the managers and staff of organisational areas for matters of routine management. Chief Executive Officers have been given responsibility for safety and environmental matters. The Boards of Directors of subsidiaries are primarily made up of directors, senior managers and middle managers of the parent company. Specific powers were delegated to some ASM senior managers, and to certain senior managers of group companies, putting them in charge of personal data protection in their areas of responsibility. The Chief Executive Officers of group companies have been given powers to ensure that all obligations in relation to the protection of personal data under legislative decree 196/03 are met. They are therefore in charge of bringing data management in their areas of responsibility into line with legal requirements. Pursuant to legislative decree 196 of 30 June 2003, the planning document on security was brought up to date for all group companies.

______Annual report and accounts to 31 December 2006 – ASM group 292

The Internal Audit and Corporate Governance Committee The committee, set up in accordance with the Code of Conduct for Listed Companies, is made up of: Marco Vitale (Chairman), Alberto Clô and Giuseppe Onofri, all of whom are independent non-executive directors. Pursuant to the committee’s regulations, which were approved on 18 October 2002, the committee has consulting and advisory functions, to assist the Board of Directors in fulfilling its oversight responsibilities by monitoring the internal audit systems of the company and group. In particular, the Committee must: - assist the Board of Directors in setting guidelines and periodically monitoring the appropriateness and effective operation of the internal audit system; - review the work programme prepared by the Internal Audit Co-ordinator; - assess the appropriateness of the accounting standards used and their standardisation for the purposes of preparing consolidated accounts - assess the External Auditors’ application for the auditing appointment and the audit plan; - report to the Board of Directors at least every six months, and in any event, when attending the meetings to approve the annual and interim accounts, on work carried out and on the adequacy of the internal audit system; - perform any other duties assigned to it by the Board of Directors, specifically in relation to dealings with the external auditors.

The Chairman of the Board of Auditors (or another designated internal auditor) should attend meetings of the Committee, and the Chairman of the Board of Directors may also participate. In addition, the Board of Directors created the position of “Internal Audit Co-ordinator”. This person is affiliated with the internal audit area and reports on his/her activities directly to the Chairman, Internal Audit Committee and Board of Auditors. In 2006, the committee held five meetings, all of which were properly minuted. Also in 2006 joint meetings were held between the Internal Audit Committee, the ASM Board of Auditors and the Supervisory Committee, required under law 231, to assess the group’s internal audit system and its effectiveness.

Further concerning the audit and verification of the company and group regulations and procedures, some time ago the group set up departments responsible for mapping corporate processes and procedures, and controlling and monitoring their appropriateness in order to ensure that operational requirements comply with regulations and provide an appropriate level of operating efficiency. These departments are described below.

Organisational Analysis Department This department maps interdepartmental, operational, company and intra-company processes and procedures and provides information on them.

Legal Department and Company Secretary’s Office This office deals with legal issues concerning the group, manages and co-ordinates consultancy contracts and appointments, and supports external contractors in their dealings with claimants. Furthermore, in addition to all the duties carried out by the company Secretary for all group companies, this office verifies and monitors the formal and procedural validity of actions submitted for the approval of shareholders’ meetings, boards of directors, chairmen and chief executive officers, as appropriate, of all ASM group companies, and actions subject to the approval of the Chief Operating Officer of ASM. Lastly, this office formalises, co-ordinates and monitors delegated authority for operations, and signature powers in group companies, and co-ordinates, manages and implements privacy regulations.

Strategic Development Department In accordance with the guidelines set by the parent company's senior management, this department works with the managers of the different business areas to define the group’s strategic and business development plan, translating guidelines into action in order to achieve the group’s objectives, and monitoring and controlling operating performance and any divergence from the plan and preparing appropriate reports on a regular basis. ______Annual report and accounts to 31 December 2006 – ASM group 293

In addition, this department monitors, controls and manages the company’s relationship with the financial community, with the aim of providing assurance to analysts, investors and brokers as regards the quality of strategies being implemented..

Quality Control Department This office co-ordinates the activities necessary for obtaining and maintaining: • certification for the management systems in the areas of quality control, environmental protection and security, • EMAS registration, • accreditation of test laboratories,

• the monitoring system for CO2 emissions for ASM and group companies. The “Environment and New Projects” and “Work Safety and Environment” departments work together on implementing environmental and security systems in accordance with regulations and legislation. This also involves conducting regular audits and documentary inspections and providing support for improvement programmes. The activities performed are reflected in the certification of systems, accreditations, EMAS registrations and validation of CO2 monitoring data that the group has obtained and maintained. Below are details on results achieved at 31 December 2006.

ASM SPA

• Certificate no. CERT-00119-93-AQ-MIL-SINCERT issued on 13/12/2006, by Det Norske Veritas Italia Srl, renewing the certificate first issued on 27 October 1993, pursuant to UNI EN ISO 9001:2000, for all services provided, covering: Power, heat and cooling generation, and electricity and heat produced by cogeneration. the provision of the following distribution services: electricity distribution, distribution of heat via district heating, distribution of cooling via district cooling, thermal treatment of waste and refuse-derived fuels (RDF), waste treatment for the production of RDF and thermal management (heating and cooling) of buildings; management of “integrated water services” (water distribution, water catchment plant operation and maintenance, water purification and waste water treatment); street lighting; waste collection, transport and disposal (premises in Brescia only); cleaning of streets and other public areas (ASM premises in Brescia only). Design, construction and maintenance of: plants for power and heat generation (including by cogeneration), plants for the thermal treatment of waste and refuse-derived fuels, facilities supporting street cleaning services (landfills, environmental islands and technological platforms, waste treatment equipment), cooling systems, water purification plants, waste water treatment plants, street lighting grids and equipment, underground manufactured products for plants and the control of technology grids, on behalf of the Bergamo local authority, distribution grids and equipment for: electricity, district heating and cooling, water; sewage systems and plants; electricity plants, automated and remote-control equipment and telecommunications equipment to support the plants and infrastructure noted above; design, construction and ad hoc maintenance of decompression installations and gas distribution grids for residential and industrial use. Planning of waste collection and disposal services, and cleaning of streets and other public areas (ASM premises in Brescia only). Sales activities for integrated water services (for ASM Brescia SpA’s Bergamo premises only).

• Certificate no. CERT-005-1998-AE-MIL-SINCERT issued on 2 August 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 14001:2004 for the Lamarmora cogeneration plant, renewing the certificate first issued on 19 May 1998 with regard to: generation of power and heat for district heating by a cogeneration plant powered by gas, heavy fuel oil and coal.

• Registration no. I-000044 issued on 19 December 2006 pursuant to EC Regulation 761/2001 (EMAS) for the Lamarmora cogeneration plant, renewing the certificate first issued on 1 February 2001.

______Annual report and accounts to 31 December 2006 – ASM group 294

• Certificate no. CERT-1581-2006-AE-MIL-SINCERT issued on 3 April 2006 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 14001:2004 for the WTE plant in Brescia in accordance with UNI EN ISO 14001:2004 relating to: recovery of non-hazardous special waste and urban waste for the generation of electricity and heat for district heating.

• Certificate no. CERT-005-627-AE-MIL-SINCERT issued on 29 August 2006 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 14001:2004 for the Montichiari landfill site, renewing the certificate first issued on 25 June 2003 with regard to: landfill disposal of municipal solid waste and similar materials with recovery of biogas for power production; recovery of dredging mud. • Registration no. I - 000170 issued on 5 December 2003 pursuant to EC Regulation 761/2001 (EMAS) for the Montichiari landfill site. (in anticipation of registration for the three years from 2006 to 2008).

• Certificate no. CERT-998-2004-AE-MIL-SINCERT issued on 7 September 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 14001:2004 for the district heating grid, renewing the certificate first issued on 26 July 2004 with regard to: distribution of heat including the design, construction and management of the district heating grid.

• Registration no. I – 000305 issued on 14 April 2005 pursuant to EC Regulation 761/2001 (EMAS) for the district heating grid.

• Certificate no. EMS-1102 issued on 25 January 2006 by RINA SpA pursuant to UNI EN ISO 14001:2004 for the plants managed by Settore Impianti Bergamo at Via Goltara 23, Bergamo (renewing the certificate first issued on 3 October 2005) with regard to: the management of hazardous and non-hazardous waste in the treatment and recovery states at the WTE plant, and other own and third-party facilities.

• Certificate No. OHS-110 issued on 3 October 2005 by RINA SpA pursuant to OHSAS 18001:1999 for the plants managed by Settore Impianti Bergamo at Via Goltara 23, Bergamo with regard to: the management of hazardous and non-hazardous waste in the treatment and recovery stages at the WTE plant, and other own and third-party facilities.

ASM SPA – AGSM VERONA SPA: MINCIO PLANT

• Certificate no. CERT-16404-2005-AQ-MIL-SINCERT issued on 23 September 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 9001:2000 for the Ponti sul Mincio thermoelectric plant relating to the management of the Mincio thermoelectric plant: electricity generation and plant maintenance.

• Certificate no. CERT-381-2002-AE-MIL-SINCERT issued on 29 August 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 14001:2004 for the Ponti sul Minco thermoelectric plant, renewing the certificate first issued on 4 April 2002 with regard to electricity generation using gas.

• Registration no. I-000506 issued on 25 May 2006 pursuant to EC Regulation no. 761/2001 (EMAS) for the Ponti sul Mincio thermoelectric plant.

GROUP COMPANIES

Aprica SpA

• Certificate no. CERT-1310-2005-AE-MIL-SINCERT issued on 27 July 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 14001:2004 for the sites at Brescia, Castenedolo (BS) and Ceresara (MN) relating to the design, planning and provision of collection and transport services for hazardous and non-hazardous solid municipal and special waste; street cleaning and various environmental services; waste trading; the garaging and servicing of its vehicles.

• Certificate no. CERT-1309-2005-AE-MIL-SINCERT issued on 29 December 206 by Det Norske Veritas Italia Srl (renewing the certificate first issued on 27 July 2005) pursuant to UNI EN ISO 14001:2004 for the site at Castenedolo relating to: disposal and recovery of hazardous and non-hazardous municipal and special waste. Post-closure management of special non-hazardous waste landfill with recovery of bio gas for power generation.

APRICA STUDI SRL (structure managed separately by the company)

______Annual report and accounts to 31 December 2006 – ASM group 295

• Certificate no. CERT-04830-99-AQ-MIL-SINCERT issued on 29 December 2006 by Det Norske Veritas Italia Srl, renewing the certificate first issued on 11 August 1999, pursuant to UNI EN ISO 9001: 2000, relating to design and consultancy in respect of technological networks, public service works and plants. Works management.

BAS - OMNISERVIZI Srl

• Certificate no. 9013/03/S issued on 15 May 2005 by RINA SpA, renewing the certificate first issued on 23 June 2003, pursuant to UNI EN ISO 9001:2000 with regard to the sale of natural gas for residential and industrial use. (in the process of renewal)

BAS POWER Srl

• Certificate no. 10582/04 issued on 17 March 2004 by RINA SpA pursuant to UNI EN ISO 9001:2000, with regard to the design, construction and management of own and third-party plants for power and heat generation.

BAS – SERVIZI IDRICI INTEGRATI SpA

• Certificate no. 10122/03/S issued on 19 June 2006 by RINA SpA, renewing the certificate first issued on 30 December 2003, pursuant to UNI EN ISO 9001:2000 with regard to the design, installation and management of grids and plants for the use, distribution and recovery of water; sales activities, chemical and microbiological analysis, and before and after sales support for integrated water services.

• Accreditation certificate no. 0222 rev. 2 issued on 7 September 2005 by SINAL pursuant to UNI CEI EN ISO/IEC 17025:2005.

CIGE SpA – Abruzzo area

• Certificate no. CERT-1-17823-AQ-MIL-SINCERT issued on 16 October 2006 by Det Norske Veritas Italia Srl, renewing the certificate first issued on 5 May 2000, pursuant to UNI EN ISO 9001 relating to the design, construction and management of plants and gas distribution services via the grid.

GE.S.I. Srl

• Certificate no. CERT-15855-2005-AQ-MIL-SINCERT issued on 9 May 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 9001: 2000, relating to power and heat management services, third-party operation and maintenance (routine and ad hoc) of heating and cooling facilities; the design, construction and technological upgrading of heating and cooling facilities; the provision of global real estate services in the following areas: management and maintenance of electricity installations, plumbing, fire alarm systems and extinguishers, lifts, garden management and maintenance, and building services (caretaking, cleaning, porterage).

SOBERGAS SpA

• Certificate no. 11923-2003-AQ-MIL-SINCERT issued on 25 May 2006 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 9001:2000 (renewing the certificate first issued on 26 March 2003), relating to the design, construction and maintenance of grids and plants for gas distribution; building grids for the distribution of drinking water; and gas distribution.

SELENE SpA

• Certificate no. 16252-2005-AQ-MIL-SINCERT issued on 29 July 2005 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 9001:2000, relating to the design, construction and management of server farms with scheduling applications and automatic control of software processes for system applications; helpdesk services; facility management services for hardware and software services. planning, provision and management of contact centre services.

Valgas SpA

______Annual report and accounts to 31 December 2006 – ASM group 296

• Certificate no. CERT-14944-2004-AQ-MIL-SINCERT issued on 29 September 2004 by Det Norske Veritas Italia Srl pursuant to UNI EN ISO 9001:2000, relating to design of distribution networks for natural gas, LPG, drinking water and for waste water collection; distribution of natural gas and LPG; construction, maintenance and management of distribution grids and plants for natural gas, LPG, drinking water and for waste water collection and treatment; provision of integrated water services; construction, maintenance and management of thermal power plants; planning and provision of services for the collection and transport of municipal and similar waste materials and for cleaning of urban areas.

Work Safety Department This department is responsible for implementing safety policies, on the employer’s behalf, by formulating and preparing the necessary documentation, and for dealings with organisations in charge of auditing work safety and hygiene regulations.

Internal Audit Department This department is in charge of the ASM group audit function and performs regular and spot audits on formal and substantive compliance in the use of business, financial and human resources.

SUPERVISORY COMMITTEE – Legislative decree 231/2001 Legislative Decree 231/2001, which incorporates the “Regulation on the administrative liability of legal entities, companies and associations with or without legal personality,” resulted in the modification of Italian regulations on corporate liability in line with a number of international agreements already signed up to by the Italian government.

The Government (in its lawmaking function) thus abolished the principle according to which societas delinquere non potest (“companies cannot commit criminal acts”) and introducing, for all legal entities, administrative liability rules (in practice very similar to those applying to criminal liability) for a number of specific offences committed in the interest or to the advantage of a company, its employees or, as set out in article 5:

However, the decree set out specific exceptions from corporate administrative liability by stipulating that if offences are committed by individuals holding senior management positions, the company is not liable if: i an Organisation, Management and Control Model (hereinafter “the Model”) intended to prevent offences of the type committed had already been adopted and implemented prior to the offence in question; ii it has appointed an independent body to monitor and update the operation of, and compliance with, the Model and can demonstrate that compliance has been effectively monitored. iii it can prove that the employee who committed the offence fraudulently avoided the procedures set out in the Model.

If the offender is an employee occupying a subordinate position and an effective model is in place, the company will be liable only if the perpetration of the offence was made possible by non-compliance with management and supervision requirements (see paragraphs I and II of article 7).

The Model is not set in stone, but should be considered a dynamic system that enables the company to eliminate, by means of a precise and targeted implementation of the Model over time, any weaknesses that it was not possible to identify at its inception.

In discharging its duties, ASM has always placed considerable emphasis on ethical aspects in an attempt to always use the best methods for mitigating the impact from its activities by adhering to the provisions of the decree through the adoption of an in-house model on 19 December 2003.

At the same time, the Supervisory Committee (SC) was formed and charged with overseeing the application of and compliance with the Model, and ensuring that it is updated as necessary.

______Annual report and accounts to 31 December 2006 – ASM group 297

Since its creation, ASM’s SC has carried out its duties in compliance with the duties assigned to it and has made suggestions, after consulting with supervisory bodies, regarding the need to update the Model to reflect the development and growing complexity of the regulatory framework and organisational changes.

Accordingly, the internal auditing area, which provides support for the activities of the SC, was expanded. In addition, a law firm, with specific expertise in this area, was appointed to draft a new summary model document, which was later approved by the Board of Directors on 31 July 2006.

At the same time, the company decided to conduct a comprehensive analysis of the organisational structure of the Group as a whole with a view to updating the Models for both ASM and the subsidiaries that present the greatest areas of criticality to reflect recently introduced regulations and changes occurring within the group’s organisational structure since July 2006.

In this context, a leading consulting firm and a law firm were appointed to work with the SC to implement all risk assessment activities to ensure that the Model is properly updated.

The types, methods and purposes of the activities carried out by the SC with the assistance of external consultants since July 2006 can be summarised as follows: a) the completion of a full risk mapping covering ASM’s organisational and corporate structure; b) the implementation of an appropriate risk assessment aimed at providing a detailed analysis of existing control systems and identifying areas for improvement; c) recognition of the remaining key components of the Model that were not affected by risk assessment activities (SC, code of ethics, disciplinary system and staff training and communications); d) updating the summary document for the model and the protocols associated with the model (including the code of ethics and disciplinary system); e) preparation of the document, “Regulations and Duties of the Supervisory Committee” aimed at regulating those areas of the greatest concern to this body (including appointment and dismissal of members; term in office; duties and powers; responsibilities and code of conduct).

At its meeting on 12 February 2007, the Supervisory Committee came out in favour of ASM’s adoption of the new Model, including the related protocols and summary document. On 12 February 2007 ASM’s board formally approved and adopted all the above-mentioned documents. The documents are all available on the group’s website and intranet. In order to adapt the regulations to the group’s actual situation and the need for standardisation in group companies, the revision/implementation period for the Model was initiated for these companies taking into account their specific corporate structures. The Supervisory Committee, which, as noted above, currently is charged with overseeing the operation and efficacy of the Model, and ensuring that ASM and the group’s subsidiaries comply with it, is made up of two directors of the board of the parent company (Giuseppe Onofri, chairman, and Giuseppe Facchetti), a member of the parent company’s Board of Auditors (Diego Rivetti) and the head of the Internal Audit Department. Note that, pursuant to legislative decree 231/2001, the parent company retains responsibility in those cases where ASM acts as outsourcer for group companies by undertaking various activities (purchasing, personnel, IT, centralised treasury management, company secretary’s office, finance and accounting, insurance and claims, etc.) under service contracts. In 2006, the Supervisory Committee held nine meetings, which were properly minuted. All members were regular attendees at these meetings.

APPOINTMENTS COMMITTEE At present the committee is made up of Bruno Barzellotti and Giuseppe Onofri, both of whom are non- executive independent directors. The Appointments Committee’s rules were approved by the Board of Directors at its meeting on 18 October 2002 and stipulate that: - the committee shall be formed by resolution of the Board of Directors and consist of up to three directors, the majority of whom shall be non-executive directors; - the committee’s term shall coincide with the term in office of the Board of Directors;

______Annual report and accounts to 31 December 2006 – ASM group 298

- the committee shall meet whenever the need arises; - the Chairman of the Board of Directors may participate in meetings; - the committee submits nominations for potential directors to ASM’s Board of Directors, based on specific requirements relevant to the Company’s business and proposals from shareholders. The committee met once in 2006, and the meeting was properly minuted.

THE EXECUTIVE BOARD The current Chief Operating Officer is Elio Tomasoni, who was appointed by the ASM Board of Directors pursuant to articles 14 and 19 of the articles of association, and has been in office since 15 December 2001. The Chief Operating Officer attends Board meetings, but does not have voting rights. He/she is also a member of the Management Committee and Risk Committee. The Chairman has granted the Chief Operating Officer functional authorities and powers for corporate management purposes including those necessary for co-ordinating and guiding management activities, and overseeing company operations by implementing measures to ensure and improve efficiency, the quality of service and their organic development. The company’s organisational structure reports organisationally and functionally to the Chief Operating Officer, with the exception of the Strategic Development Department and Corporate Audit Department, which report to the Chairman. On 19 October 2004, the Board of Directors appointed Antonio Bonomo, Director of the Energy Department, the Deputy Chief Operating Officer. Currently senior executive management includes Deputy Chief Operating Officer Leonardo Dabrassi, the head of the Finance and Administration Department, and Paolo Rossetti, the head of the Strategic Development Department.

TRANSACTIONS WITH RELATED PARTIES To ensure compliance with legal and procedural standards in the management of transactions with related parties, ASM’s articles of association specifically indicate that the Board of Directors shall have sole authority to pass resolutions regarding situations that could involve a potential conflict of interests, and that consideration must be given to information received from the Internal Audit and Corporate Governance Committee. In addition, the Board of Directors has formally approved the “standards of conduct and guidelines for transactions with related parties” in line with the principles defined for such transactions in the Code of Conduct for Listed Companies and Consob recommendations.

INVESTOR RELATIONS From the time its shares were listed on the stock market, the Company has always taken an active role in ensuring that important company information is made available to its investors in a timely and simple manner to allow them to exercise their rights in an informed manner, and in establishing an ongoing dialogue with both private and institutional investors, in accordance with procedures. To this end, the Investor Relations Department was established, and a special section on the company’s website to provide easy access to accounts and periodic reports, share price performance, the articles of association and information on corporate governance and the code of ethics, as well all information that may be of interest to investors and the financial community in general. In addition, the company now holds regular meetings and conference calls with the financial community when it releases its quarterly results and to coincide with significant corporate events. As noted earlier, in March 2006 a special procedure was approved for preparing and distributing information and communications pursuant to article 114 of the TUF and article 66 of the Issuer Regulations.

BOARD OF AUDITORS The Board of Auditors was appointed at the shareholders’ meeting on 30 April 2004 and will remain in office until the approval of accounts for 2006. its current members are: Giovanni Rizzardi (chairman), Ferruccio Barbi Diego Rivetti (statutory auditors) Pierfranco Aiardi and Pierfrancesco Cuter (deputies); the Board is responsible for the supervisory duties specified in article 149, clause 1 of legislative decree 58/98. Pursuant to article 21 of the articles of association, the Brescia local authority may appoint up to two statutory auditors and one deputy Auditor. The shareholders’ meeting appoints the remaining internal auditors using the list voting mechanism indicated in article 148 of legislative decree 58/98, it being understood that the Brescia local authority shall not submit or vote on lists.

______Annual report and accounts to 31 December 2006 – ASM group 299

In accordance with the recommendations of the Code of Conduct for Listed Companies and pursuant to article 21 of the articles of association, to be eligible for consideration, the lists (which must be made available at the company’s registered office and published in three national daily newspapers, including one financial newspaper, at least ten days before the shareholders’ meeting) must be accompanied by candidates’ CVs, their irrevocable acceptance of the appointment and a declaration stating that there are no reasons why the candidate should be ineligible and/or forfeit this position. The internal auditors must meet the requirements of trustworthiness and professionalism established under article 148 of legislative decree 58/98. Pursuant to article 21 of the articles of association, before internal auditors accept their position, the administrative and control positions held by them in other companies must be notified to the shareholders’ meeting. The limitations on positions set in article 148 bis of legislative decree 58/98 shall apply. As noted earlier, in 2006 the Board of Directors held 18 meetings, which were also attended by the Board of Auditors. In addition, the Board of Auditors held 60 meetings in 2006. Pursuant to the guidelines for preparing reports on corporate governance, positions held by members of the Board of Auditors as director or statutory auditor at other companies listed in regulated Italian markets must be reported. These are as follows: Diego Rivetti, Chairman of the Board of Auditors at Marcolin SpA and Vemer Siber Group SpA.

EXTERNAL AUDITORS By resolution of the shareholders’ meeting on 27 September 2004, the external auditors, PricewaterhouseCoopers SpA, were assigned the following duties:

• the annual audit, pursuant to article 159 of legislative decree 58/1998, of the accounts of ASM SpA and the consolidated accounts of the ASM group for the financial years ending 31 December 2005, 2006 and 2007 • limited audits of the half-yearly reports for the period ending 30 June in 2005, 2006 and 2007, as recommended in Consob Communication 97001574 of 20 February 1997 • supplementary activities concerning the audit of balance sheets and profit and loss accounts grouped by business and sector in relation to AEEG Resolutions 310/01 and 311/01 • the performance of the duties and activities described in article 155 of legislative decree 58/98.

Pursuant to article 159 of legislative decree 58/98 as revised by legislative decree 303 of 29 December 2006, based on a substantiated recommendation made by the Board of Auditors at the next shareholders’ meeting for the approval of the 2006 accounts, an extension will be proposed for the current appointment of the auditing firm in order to adjust the term to the period of nine years specified in paragraph 4 of article 159 mentioned above. Similarly, other group companies that have a review under way in accordance with the Draghi law will propose similar measures to their shareholders’ meetings at the time the accounts for 2006 are approved.

APPLICATION OF INTERNATIONAL ACCOUNTING STANDARDS With the entry into force of Regulation 1606/2002, issued by the European Parliament and European Council in July 2002, companies whose securities are authorised for trading in regulated markets of member states of the European Union are required, starting in 2005, to prepare their consolidated accounts in accordance with the international accounting standards (IAS/IFRS) issued by the IASB (International Accounting Standards Board) if ratified by the EU and published in the Official Journal of the European Union (OJEC). Legislative decree 38/2005 extended to listed companies the requirement to use IAS/IFRS to prepare accounts from the year ending 31 December 2006, and also granted the option to draft according to IAS/IFRS all the accounts of companies included in the basis of consolidation from the same date ASM took advantage of this option .

SENIOR MANAGER RESPONSIBLE FOR DRAWING UP THE COMPANY’S ACCOUNTING STATEMENTS

______Annual report and accounts to 31 December 2006 – ASM group 300

In accordance with article 154 bis of legislative decree 58/98 and article 23 of the articles of association, on 19 April 2006 the Board of Directors passed a measure to appoint, subject to the opinion of the Board of Auditors, the senior manager responsible for drawing up the company’s accounting statements. This individual must meet the requirements and perform the duties indicated in article 154 bis as revised by legislative decree 303 of 29 December 2006.

MANAGEMENT AND CO-ORDINATION In accordance with legislative decree 6/03 on the reform of corporate law, ASM Brescia SpA has, for some time, incorporated the provisions of this decree in its articles of association. At the same time, all group companies revised their articles of association to bring them in line with the new corporate law.

In this connection, amendments were made to article 14 (“Duties of the Board of Directors") of the ASM articles of association to formalise the fact that ASM is “the controlling shareholder of other companies pursuant to article 2359 of the Italian civil code, and holds the position of parent company, carrying out ‘joint strategic management functions’ pursuant to article 2497 bis of the Italian civil code. In relation to this position, the company may maintain relationships with any group company for the exchange of goods and services provided there are ‘compensatory advantages.’ Pursuant to the limits and conditions of these activities, directors must not be in a conflict of interests position."

The companies for which ASM is the controlling shareholder, and at which it intends to carry out management and co-ordination duties, have been identified, and they have revised their articles of association accordingly and made the appropriate recording in the Register of Companies.

The parent company’s Board of Directors, to which the Code of Conduct has also assigned group-related organisational duties, is the collective body responsible for providing guidelines, at the recommendation of the Chairman, for the unit charged with the organisation and co-ordination of group companies. These guidelines are based on principles of proper corporate and business management and maintaining and ensuring improvements in profitability and the value of equity investments. These principles are to be followed in accordance with the provisions of laws, regulations and the articles of association and are aimed at ensuring that management and co-ordination activities are consistent with the interests of the whole group, and the organisation of the group is developed in accordance with legal provisions and national and EU guidelines including in the area of unbundling. Guidelines are implemented operationally as part of the co-ordination of group companies mentioned earlier, through directives issued by the parent company’s Chairman. As part of the parent company’s guidelines, and in keeping with civil law, full autonomy is also given to the directors of group companies to manage the company concerned and to carry out transactions to achieve the company purpose. Based on legal theory and case law, a company may be subject to management and co-ordination activities provided its administration (i.e. management, organisation and reporting) is subordinated to the guidelines of the dominant company, which issues such guidelines in directives and instructions that the company is required to follow.

In relation to the guidelines on central and uniform operating functions, corporate governance, business plans and the group’s financial results, and in order to ensure that common regulations were in place to govern the co-ordination of the activities of the parent company and group companies in the best interests of the group, a special regulation listed the management and co-ordination activities that ASM carries out for joint management and in the interest of the group. The regulation is implemented annually in the form of service contracts with services provided under market conditions and reviewed annually by the parties.

______Annual report and accounts to 31 December 2006 – ASM group 301

Appointment Executive Internal Audit Remuneration s committee, Committee, if Board of Directors Committee • Committee ♦ if applicable applicable ◊ non Number of other Position Members executive Independent **** *** **** *** **** *** **** *** **** executive positions**

Chairman Renzo Capra X 94.4 1

Chief executive “ “ “ Deputy Vice- Bruno Barzellotti X X 88.9 - X 100 Chairman Maurizio Director X X 88.9 - X 100 Brunazzo Director Alberto Clò** X X 83.3 4 X 20 X 100 Giuseppe Vice-chairman X X 100 - Facchetti (°) Director Tiberio Lonati* X X 85.7 4

Director Giuseppe Onofri X X 100 - X 100 X 100 X 100

Director Marco Vitale X X 61.1 11 X 100

• Summary of reasons why there is no committee or why its composition differs from that recommended by the code:

♦ Summary of reasons why there is no committee or why its composition differs from that recommended by the code:

◊ Summary of reasons why its composition differs from that recommended by the code:

______Annual report and accounts to 31 December 2006 – ASM group 302

TABLE 1: STRUCTURE OF BOARD OF DIRECTORS AND COMMITTEES

Number of meetings held during Boards of Internal Audit Remuneration Appointments Executive the relevant year : Directors: 18 Committee: 5 Committee: 2 Committee: 1 Committee: /

NOTE * An asterisk indicates whether the director was appointed from lists submitted by minority shareholders. ** This column indicates the number of positions as director or internal auditor that the individual concerned holds in other listed companies in regulated domestic and foreign markets at financial, banking and insurance companies or at large companies. The report on corporate governance gives a full description of the positions. *** An “X” in this column indicates that the board member is also a member of this committee. **** This column indicates the percentage participation of directors in board and committee meetings respectively. (°) Appointed by shareholders’ meeting on 5 April 2006.

______Annual report and accounts to 31 December 2006 – ASM group 303

TABLE 2: BOARD OF AUDITORS

Percentage participation in Position Members Number of other positions** meetings

Chairman Giovanni Rizzardi 100 ---

Statutory Auditor 100 --- Ferrucio Barbi

Statutory Auditor Diego Rivetti 100 2

Statutory Auditor ------

Statutory Auditor ------

Deputy Auditor Pierfrancesco Cuter ------

Deputy Auditor Pierfranco Aiardi ------

Number of meetings held during the relevant year : 60

Indicate the quorum required for lists to be submitted by minority shareholders and for the election of one or more statutory auditors (article 148 of the combined finance laws): 500 or more shareholders or shareholders who individually, or collectively, own at least 0.50% of share capital.

NOTE

* The asterisk indicates whether the internal auditor was appointed from lists submitted by minority shareholders. ** This column indicates the number of positions as director or internal auditor that the individual concerned holds in other listed companies in regulated domestic markets. The report on corporate governance gives a full description of the positions.

______Annual report and accounts to 31 December 2006 – ASM group 304

TABLE 3: OTHER PROVISIONS OF THE CODE OF CONDUCT

Summary of reasons for any deviations from related parties YES NO recommendations in the code Structure of delegated authority and transactions with

Has the board of directors delegated authority and set : X a) limits? X b) means by which authority may be exercised? X c) and frequency of disclosure of information? X Does the board have sole authority for reviewing and approving transactions with a specific economic, capital and financial significance X (including transactions with related parties)? Has the board set guidelines and criteria for identifying “significant” X transactions? Are the above guidelines and criteria described in the report? X Has the board set special procedures for reviewing and approving X transactions with related parties? Are the procedures for approving transactions with related parties X described in the report?

Procedures for the most recent

internal auditors Were director nominations deposited at least ten days in advance? X Were director nominations accompanied by detailed information? X Were director nominations accompanied by information that would appointment of directors and X qualify the individual as independent? Were internal auditor nominations deposited at least ten days in X advance? Were internal auditor nominations accompanied by detailed X information?

______Annual report and accounts to 31 December 2006 – ASM group 305

Shareholders’ meetings Has the company approved regulations for shareholders’ meetings? X Are the regulations attached to the report (or is it indicated where they On ASM’s website may be obtained or downloaded)?

Internal audit Has the company appointed internal audit co-ordinators? X Are the co-ordinators independent from reporting lines to managers in X operational areas? Organisational unit in charge of internal auditing (article 9.3 of the Auditing department code)

Investor relations Has the company appointed a head of investor relations? X What is the organisational unit and contact information (address, Tommaso Lavegas tel. 030 3554784 – fax 030 3554602 telephone number, fax number and e-mail address) of the head of e-mail: [email protected] investor relations?

______Annual report and accounts to 31 December 2006 – ASM group 306

List of derivative instruments - ASM group Appendix 6

INTEREST RATE RISK Company Description PurposeValid Notional value MTM value date From To

BAS Power SpA Step-up interest rate swap, from variable BS Power financing 30/06/02 31/12/11 16,250,000 -514,333 31/12/06 to fixed with KO

BAS Com SpA Step-up interest rate swap, from variable BAS COM financing 20/03/03 20/03/08 800,000 -4,915 31/12/06 to fixed

ASM Interest rate collar, with KO variable rate ASM 15/12/03 15/12/09 34,727,274 17,552 31/12/06 loans

EXCHANGE RATE RISK Company Description PurposeValid Notional value MTM value date From To Abruzzoenergia Collar on euro/Swiss franc exchange rate Contract with 03/03/06 30/06/08 95,922,000 CHF -1,140,761 31/12/06 Alstom

ASM Swap on euro/yen exchange rate, both for Aflac financing in 10/08/06 10/08/36 14,000,000,000 YEN -13,598,556 31/12/06 notional amount and interest yen vs 98,000,000 EURO

COMMODITY DERIVATIVE CONTRACTS Company Description PurposeValid Quantity/notional value MTM value date From To

ASM One way contracts for difference on the Power sales on 01/01/05 31/12/07 72 MW baseload (2006) 542,682 31/12/06 difference between the hourly single exchange 60 MW baseload (2007) national price (PUN) and a basket of fuels

ASM Two way contracts for difference on the Power sales on 01/01/07 31/12/07 50 MW baseload -188,118 31/12/06 difference between the hourly single exchange national price (PUN) and a strike price, either fixed or indexed to Brent

Plurigas* Contracts on stored gas n.d. n.d. n.d. n.d. 4,033,893 31/12/06

Plurigas* Contracts on stored gas n.d. n.d. n.d. n.d. -353,333 31/12/06

* amounts shown relate to Plurigas' share ______Annual report and accounts to 31 December 2006 – ASM group 307

ASM GROUP Appendix 7

KEY FIGURES OF CONSOLIDATED PROPORTIONALLYCOMPANIES

PLURIGAS ERGON METAMER GESI Description (30%) (50%) (50%) (47,5%)

Total Assets 98,358 77,197 3,123 3,607

Shareholders' equity 7,880 1,425 1,092 1,003

Total liabilities 90,478 75,772 2,031 2,604

Revenues 283,537 347,557 5,666 2,554

Production costs 278,507 346,005 5,618 2,063

EBITDA 5,030 1,552 48 491

Depreciation, amortisation, write- 28 190 12 144 downs and provisions

EBIT 5,002 1,362 36 347

NET PROFIT 3,001 510 59 225

______Annual report and accounts to 31 December 2006 – ASM group 308

ASM GROUP Appendix 8

SUMMARY OF KEY DATA FROM SUBSIDIARIES' LATEST ACCOUNTS AT 31 DECEMBER 2006

(EUR thousand) Balance sheet Profit and loss account Production Costs of Financial income Extraordinary income Name Location Assets Liabilities Net Tax Net profit value production and charges and charges

Affiliates

Bergamo Servizi Srl * Sarnico (BG) 189 (163) (26) 785 (733) - - (38) 14 C.B.B.O. SpA. (affiliate of Aprica SpA) * Ghedi (BS) 2,782 (1,282) (1,500) 3,386 (3,093) 9 - (137) 165 C'è Gas Srl. * Cernusco s/Naviglio (MI) 1,859 (1,849) (10) 1,134 (1,118) 1 - (4) 13 Coges SpA * S.Gervasio (BS) 9,920 (8,387) (1,533) 3,669 (3,531) 11 (4) (89) 56 Comuni Ass. Valtrompia Gestioni SpA * Gardone V.T. (BS) 211 (10) (201) - (3) - - - (3) in liquidation Cte Mincio Srl Ponti s/Mincio (MN) 7 - (7) - (4) - - - (4) Endesa Italia SpA Rome 5,074,416 (1,601,034) (3,473,382) 2,757,630 (2,164,579) (23,190) (10,793) (70,365) 488,703 Enerfin Srl - in liquidation * Concordia s/Secchia (MO) 1,893 (9,504) 7,611 - (126) (6,750) (50) - (6,926) Ergosud SpA * Rome 23,966 (6,107) (17,859) 10 (142) 4 - - (128) Giudicarie Gas SpA (affiliate of Valgas) ** Tione (TN) 515 (30) (485) - (47) 3 - - (44) Lombardia Gas Trader Srl * Milan 82 (17) (65) - (18) 1 - - (17) in liquidation Serio Energia Srl * Concordia s/Secchia (MO) 3,442 (2,402) (1,040) 986 (827) (75) - (31) 53 Sviluppo Turistico Lago d'Iseo SpA * Iseo (BS) 4,842 (3,079) (1,763) 1,063 (1,163) (69) (329) (13) (511) Trentino Servizi SpA * Rovereto (TN) 674,689 (370,491) (304,198) 307,729 (279,194) (754) 543 (13,551) 14,773 Visano Soc. Trattamento Reflui Scarl * Brescia 112 (86) (26) 190 (186) - (4) - -

* Figures relate to the accounts for the year ending 31 December 2005 ** Figures relate to the accounts for the year ending 31 December 2004

______Annual report and accounts to 31 December 2006 – ASM group 309

Appendix 9 ASM GROUP SEGMENT INFORMATION (BALANCE SHEET)

BALANCE SHEET OTHER BUSINESSES TOTAL ELEC. GEN. ELEC-GAS DIST. ELEC.-GAS SALES DIST. HEATING WATER ENVIRONMENT and CONSOLIDATIONS GROUP 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 31/12/2006 ASSETS

INTANGIBLE ASSETS 875,992.47 2,416,484.56 21,020,639.70 881,970.48 19,930,678.39 1,850.08 -8,233,332.47 36,894,283.21 GOODWILL 9,600,000.00 52,931,933.14 10,000.00 75,178,740.31 137,720,673.45 TANGIBLE ASSETS 494,593,346.93 479,095,721.03 1,037,083.04 162,880,293.66 199,548,124.52 41,321,412.90 100,415,471.12 1,478,891,453.20 LONG-TERM INVESTMENTS 2,007,493.05 500,000.00 5,917,069.47 763,031,620.99 771,456,183.51 OTHER FINANCIAL ASSETS 260,125.00 260,125.00 ASSETS FOR DERIVATIVE VALUATIONS 542,662.00 8,750.70 17,552.00 568,964.70 RECEIVABLES FOR DEFERRED TAXES 6,638,736.20 21,924,028.83 3,504,413.48 2,634,361.16 2,734,998.57 847,426.24 12,928,466.77 51,212,431.25 OTHER ASSETS 674,811.92 361,212.56 85,944.84 5,889,355.97 159,002.01 118,091.44 38,921,930.53 46,210,349.27

TOTAL NON-CURRENT ASSETS 512,925,549.52 558,736,873.17 26,156,831.76 172,295,981.27 222,372,803.49 48,205,850.13 982,520,574.25 2,523,214,463.59

NON-CURRENT ASSETS HELD FOR SALE 1,265,580.00 1,265,580.00

INVENTORIES 1,072,629.52 1,977,945.03 44,751,524.49 6,778,906.00 3,995,114.89 926,226.13 15,026,869.79 74,529,215.85 CURRENT RECEIVABLES 124,955,459.46 160,589,791.70 479,372,655.37 39,128,552.55 47,661,209.03 77,913,145.53 -275,695,896.47 653,924,917.17 CURRENT FINANCIAL ASSETS 4,033,893.30 7,941.93 4,041,835.23 CASH AT BANK AND IN HAND -9,650,882.88 -116,226,854.34 -8,108,104.72 23,103,102.02 -91,228,918.27 70,719,838.58 373,731,048.27 242,339,228.66

TOTAL CURRENT ASSETS 116,377,206.10 46,340,882.39 520,049,968.44 69,010,560.57 -39,572,594.35 149,559,210.24 114,335,543.52 976,100,776.91

TOTAL ASSETS 629,302,755.62 605,077,755.56 546,206,800.20 241,306,541.84 182,800,209.14 197,765,060.37 1,096,856,117.77 3,499,315,240.50

LIABILITIES

SHAREHOLDERS' EQUITY 346,266,803.72 364,476,705.41 46,541,381.73 181,382,606.88 103,636,788.17 62,273,157.14 429,930,430.65 1,534,507,873.70

PROVISIONS FOR RISKS AND FUTURE LIABIL. 46,268,786.22 33,805,541.78 3,809,770.92 28,335,186.63 16,555,151.69 4,860,687.24 22,892,590.48 156,527,714.96 STAFF SEVERANCE FUND 2,515,449.52 7,159,265.07 129,185.12 2,254,952.84 2,279,092.36 10,002,354.12 17,929,909.28 42,270,208.31 LIABILITIES FOR DERIVATIVE VALUATIONS 1,843,211.70 13,603,471.24 15,446,682.94 LONG-TERM PAYABLES 150,756,986.41 35,258,912.35 20,359,420.99 6,027,164.72 16,959,207.88 85,024,604.33 792,387,214.33 1,106,773,511.01

TOTAL NON-CURRENT LIABILITIES 201,384,433.85 76,223,719.20 24,298,377.03 36,617,304.19 35,793,451.93 99,887,645.69 846,813,185.33 1,321,018,117.22

CURRENT LIABILITIES 81,651,518.05 164,377,330.95 475,367,041.44 23,306,630.77 43,369,969.04 35,604,257.54 -179,887,498.21 643,789,249.58 TOTAL LIABILITIES 629,302,755.62 605,077,755.56 546,206,800.20 241,306,541.84 182,800,209.14 197,765,060.37 1,096,856,117.77 3,499,315,240.50

______Annual report and accounts to 31 December 2006 – ASM group 310

Appendix 10

NET DEBT AT 31 December 2006

(Data in EUR 000) 31.12.2006 31.12.2005

Cash and cash equivalents 242,339 82,454 Financial investments 8 166 Current bank liabilities (80,573) (39,500) Current portions of loans (23,924) (24,453) Current payables to other financial institutions (1,432) (1,465) Current payables to controlling shareholder (1,195) (1,143) Payables to other affiliated companies (695) (4,109) Total - short-term cash position 134,528 11,950

Long-term financial receivables 260 264 Bonds (593,685) (495,777) Medium- and long-term portions of loans (330,952) (204,685) Medium- and long-term payables to other (9,761) (10,686) financial institutions term Medium- and long-term payables to controlling (2,311) (3,506) shareholder

Total - medium and long-term debt (936,449) (714,390)

Net debt (801,921) (702,440)

Net debt rose from EUR 702.44 million at 31 December 2005 to EUR 801.92 million at 31 December 2006, an increase of EUR 99.48 million (+14.2%).

Specifically, the short-term cash position increased by EUR 122.58 million from 31 December 2005. This rise was chiefly due to the issue of a new EUR 98 million bond launched on 10 August and the draw-down of a number of instalments of an EIB loan temporarily allocated to cash and cash equivalents pending its use in the group’s investment programme. As indicated in the notes to the accounts, the limited time delay (from the end of 2006 to the beginning of 2007) in investments prevented the use of a part of the cash raised during the period.

As at 31 December 2006, medium- and long-term debt was up by EUR 222.06 million over 31 December 2005 (+31.1%). This was due to the new bond issue described above and the increase in loans taken out, particularly to finance work on the group’s new power plants (completion of repowering and construction of the Gissi plant).

Long-term financial receivables consisted exclusively of bonds issued by the affiliate Società Sviluppo Turistico Lago d’Iseo (EUR 260,000).

Payables to other financial institutions were largely related to the portion of debt under leasing contracts entered into by certain subsidiaries as well as loans provided by the region of Lombardy.

Payables to the controlling shareholder relate to residual instalments of loans and funding granted to the Brescia local authority by state bank Cassa Depositi e Prestiti, but undertaken by ASM. These loans are repaid directly by the local authority and recharged to ASM. ______Annual report and accounts to 31 December 2006 – ASM group 311

Payables to other related parties refer to a loan received by the former BAS from the Bergamo local authority. This loan was reduced in 2006 due to the repayment of EUR 2.7 million.

Net debt does not include an accrued interest expense of EUR 16.77 million at 31 December 2006.

______Annual report and accounts to 31 December 2006 – ASM group 312

ASM BRESCIA SPA VIA LAMARMORA, 230 - BRESCIA TAX CODE AND BRESCIA COMPANIES REGISTER NUMBER: 03125280176 BRESCIA REA NUMBER: 402664

REPORT OF THE BOARD OF AUDITORS TO THE SHAREHOLDERS' MEETING PURSUANT TO ART. 153 OF LEGISLATIVE DECREE 58 OF 24 FEBRUARY 1998

To the shareholders of the company ASM BRESCIA SPA

During the year ending 31 December 2006, the Board of Auditors carried out auditing activities in compliance with the law and with instructions from Consob. The Board of Auditors would like to report that:

- it monitored compliance with the law and the memorandum of association.

- every quarter (as required by art. 14 of the articles of association) it obtained from the Directors details of the company's activities during the period and financially significant transactions carried out by the company and its subsidiaries. It can therefore reasonably assert that all actions approved and implemented complied with the law and the company’s articles of association, and moreover that they were not imprudent or risky, did not create potential conflicts of interest, did not contravene the wishes of shareholders and did not jeopardise the company’s assets.

- within its remit, it examined and monitored the adequacy of the company’s organisational structure, compliance with the principles of proper business conduct and the appropriateness of the instructions issued by the company to its subsidiaries pursuant to art. 114 of legislative decree 58 of 24 February 1998, after examining information received from the heads of administration and meeting the external auditor to discuss any information of note. It has no observations to make in this regard.

- it examined and monitored the adequacy of the company’s internal auditing system and its administrative and accounting system, including the ability of the latter to correctly represent management actions, after obtaining information from the heads of the respective departments, examining company documents and analysing the results of the work carried out by the external auditor. It has no observations to make in this regard. During the year it met the head of the internal auditing department and the internal audit co-ordinator, who reported on the results of their audits.

______Annual report and accounts to 31 December 2006 – ASM group 313

- it monitored the procedures for implementing the corporate governance regulations set out in the company’s Code of Conduct for Listed Companies (July 2002 edition) drawn up by the Corporate Governance Committee (as recommended by Borsa Italiana), which the company has adopted. It confirmed that the Board of Directors has prepared a report explaining in detail the reasons for postponing the formal adoption of the Code of Conduct to 2007. It also ascertained that: • the Appointments Committee was appointed by resolution of the Board of Directors on 10 May 2004, and met once in 2006 • the Remuneration Committee was appointed by resolution of the Board of Directors on 10 May 2004, and met twice in 2006 • the Internal Audit Committee, of which the Chairman of the Board of Auditors is a member, was appointed by resolution of the Board of Directors on 10 May 2004, and met on 13 February 2006, 6 March 2006, 14 March 2006, 1 June 2006 and 31 July 2006. At its meeting of 16 March 2007, it approved its report, to be submitted to the Board of Directors.

- it met each of the Boards of Auditors of the company’s subsidiaries to discuss the respective management and internal auditing systems, and the day-to-day operations of the subsidiaries.

- it held regular meetings with the external auditor PricewaterhouseCoopers SpA, pursuant to art. 150 of legislative decree 58 of 24 February 1998. There is nothing to report with regard to these meetings.

- it did not learn of any atypical or unusual transactions between the company and its subsidiaries or related parties. In its report on operations, the Board of Directors provided full and detailed information of ordinary and financially significant transactions between the company and its subsidiaries and affiliates, as well as details of the payments involved and how these were calculated. Please see the report on operations for further information.

- on 3 April 2007 the external auditor PricewaterhouseCoopers SpA issued its report, which contains no observations or requests for clarification.

- no reports of irregularities were received pursuant to art. 2408 of the Civil Code or submitted by third parties.

- it monitored the independence of the external auditor PricewaterhouseCoopers SpA, and verified compliance with laws and regulations in this regard.

- following the express declaration of the Directors, it noted that the external auditor PricewaterhouseCoopers SpA has no other role in the company.

- the company has no contracts with entities that have long-standing dealings with PricewaterhouseCoopers SpA.

- the external auditor PricewaterhouseCoopers SpA did not issue an opinion pursuant to art. 158 of legislative decree 58 of 24 February 1998 as this was not required.

______Annual report and accounts to 31 December 2006 – ASM group 314

- it ascertained that the Board of Directors, with a resolution dated 27 March 2006, established a register of persons with access to confidential information, effective from 1 April 2006, and appointed a person to oversee and update it.

- it ascertained that the Board of Directors, with a resolution dated 27 March 2006, approved the company’s Internal Dealing code.

- it ascertained that the Board of Directors, with a resolution dated 31 March 2006, approved the new text of the summary document of the Organisation, Management and Control Model required by legislative decree 231 of 8 June 2001 and the regulations governing the functioning of the Supervisory Committee, and that the Board asked its Chairman to allocate to the Supervisory Committee the resources needed to carry out the duties assigned to it.

- the Supervisory Committee did not inform the Board of Auditors of any material facts.

The auditing activities described above took place during 60 meetings of the Board of Auditors and after attendance at 18 meetings of the Board of Directors, pursuant to art. 149 of legislative decree 58 of 24 February 1998. An Executive Committee was not appointed.

Based on its auditing activities and information received from the external auditor, the Board of Auditors has noted no omissions and/or irregularities or any significant events requiring notification to the supervisory bodies or inclusion in this report.

With reference to the report on operations for the company and group, approved by the Board of Directors at its meeting on 16 March 2007 and submitted to the Board of Auditors for its opinion, following the auditing activities carried out, the Board of Auditors hereby states that it has verified: • that the report includes the obligatory content set out in art. 2428 of the Civil Code • that the information is complete and clear and confirms to the principles of truthfulness, accuracy and clarity as required by law.

The Board of Auditors notes that ASM Brescia SpA’s accounts for the year ending 31 December 2006 have, for the first time, been prepared using the International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB), pursuant to legislative decree 38 of 28 February 2005. It also notes that the effects of the adjustments resulting from the first-time application of these standards have been booked to a shareholders' equity reserve. The changes resulting from the application of the standards are described in detail in the notes to the accounts.

After examining the financial statements and accounts for the year ending 31 December 2006, the Board of Auditors, within its remit, would like to express its agreement with the Board of Directors’ proposal regarding the allocation of profit for the period.

Brescia, 3 April 2007

THE BOARD OF AUDITORS Giovanni Rizzardi (Chairman)

Ferruccio Barbi (Statutory Auditor)

Diego Rivetti (Statutory Auditor)

______Annual report and accounts to 31 December 2006 – ASM group 315

Company contacts and financial calendar 2007

Communications and public relations

Alfredo Ghiroldi

Via Lamarmora, 230, 25124 Brescia

Telephone: 030/3554590 e-mail: [email protected]

Company secretary’s office Lorenzo Peduzzi

Via Lamarmora, 230, 25124 Brescia

Telephone: 030/3554206 e-mail: [email protected]

Investor relations

Tommaso Lavegas

Via Lamarmora, 230, 25124 Brescia

Telephone: 030/3554076 e-mail: [email protected]

Website: www.asm.it

Financial calendar 2007:

- Friday, 16 March: Board of directors’ meeting to approve ASM SpA’s accounts and the consolidated accounts of the ASM group to 31 December 2006

- Friday 20 April: shareholders’ meeting to approve ASM SpA accounts for the year ending 31 December 2006

- Friday 4 May, Meeting of the board of directors (to approve the quarterly report to 31 March 2007)

- Monday 10 September: board of directors’ meeting to approve the interim report for the six months ending 30 June 2007

- Monday 12 November: board of directors’ meeting to approve the report for the quarter ending 30 September 2007

______Annual report and accounts to 31 December 2006 – ASM group 316318