Annual Reports

at December 31, 2006

RCS MediaGroup S.p.A. Via San Marco, 21 – 20121 Share capital €762,019,500 – Company Register, Tax Code & VAT number 12086540155 Business Register number 1524326 LETTER TO SHAREHOLDERS

Dear Shareholders,

The Group reported positive results in 2006 in a macroeconomic scenario that showed some signs of recovery in the latter part of the year but with declining consumption.

The 8.6% growth in consolidated revenues, equal to €2,379.7 million, is testimony to the company’s and the staff ’s ability to adapt in a proactive and dynamic way to a fast paced and evolving market. This result is even more significant if we consider that the Group did not loose sight of its objectives – from the development of the publishing products to value creation - despite significant changes and innovations in terms of both organization and production.

Total revenues grew by 10.2%, well above the reference market average. In regard to publishing products - although add-on sales slowed down as predicted in both and – revenues for all our other products increased. and basically maintained their respective positions in terms of circulation and , contrary to the trend in the Spanish market, increased its circulation, confirming its position as the second largest Spanish and considerably closing the gap on the market leader.

The total revenues for and magazines increased, thanks also to continuous renewal of the title portfolio as well as the multi-media products. Integration of the Dada Group, who in the year that just ended reported excellent results thanks also to the strengthening of its international presence, continued successfully.

In 2006, in Italy, RCS further benefited from the positive effects of the advertising revenues attributable to the completion in 2005 of the full color Corriere della Sera project, the launch of the new afternoon free press title Corriere della Sera – Anteprima which was hugely successful with the general public and the magazines M and Corriere Enigmistica, in addition to the restyled “A” – Anna. In Spain the magazine Siete Leguas was restyled and the start-up of A Esfera dos Livros was completed in . The Group’s online sector reached an important agreement with Digital Bros and launched a new e-commerce site GazzaTown as well as the website casa.corriere.it.

The first part of 2007 featured the birth of Corriere Bologna, the start-up of La Gazzetta dello Sport’s full color project and the launch of the magazines Io Cucino in Italy and OKS Salud in Spain.

The latter part of the year also featured initiatives designed to promote the Group’s development in the multimedia sector through important endeavours in new areas of business as well as high quality products and development in foreign markets, confirming the previously announced interest in this development strategy. The acquisition of the Recoletos Group, in particular, will further consolidate RCS international presence, with foreign sales reaching an estimated 40% of total sales.

The strategic guidelines for the 2008-2010 three year business plan will be presented next July.

Thanks to the Group’s results and growth in 2006, we are confident that it will be possible to further strengthen and improve profitability in every area and country in 2007 while also developing all media channels and publishing products. These sound foundations will allow our titles to continue to operate as independent, respected publications rooted in our traditional values.

Looking at 2007, even with a somewhat prudent view of the macroeconomic context, at the moment we expect that we will be able to deliver operating results that show slight improvement over the year that just ended.

Piergaetano Marchetti

1 ANNUAL GENERAL MEETING

The shareholders are called to a general meeting to be held in ordinary and extraordinary session at 10.30 am on April 27, 2007 in first call, to be held in the company's offices in Via Balzan 9, Milan, and if necessary, on April 30, 2007 in second call, at the same time and place, to vote on the following:

Agenda Ordinary session 1. Financial statements at December 31, 2006; Directors' report on operations; Report by the Board of Statutory Auditors; Allocation of net income for the year; Bonus grant of treasury shares to shareholders. Related resolutions. 2. Appointment of new directors to the Board of Directors. Related resolutions. 3. Proposed authorization for buyback and disposal of treasury shares; consequent revocation of the shareholders' resolution dated April 27, 2006 relating to the authorization to buy back and dispose of treasury shares.

Extraordinary session 1. Grant of authority to the Board of Directors for a period of five years from the date of the related resolution: (i) pursuant to article 2443 of the Italian Civil Code, to increase share capital on a bonus basis and/or for cash, on one or more occasions, in a divisible manner and with a possible premium, by a maximum total amount of €200 million at par through the issue of ordinary and/or saving shares in the company to be granted and/or reserved under option to those so entitled; (ii) pursuant to article 2420-ter of the Italian Civil Code, to issue, on one or more occasions, bonds convertible into and/or with warrants to subscribe to ordinary and/or savings shares in the company, to be reserved under option to those so entitled, for a maximum total amount of €800 million, provided the individual issues do not exceed legal limits, and with the power to approve the corresponding increase in share capital servicing the conversion and/or exercise of warrants by a maximum total amount of €200 million at par; the maximum total amount of the capital increases for cash (including any premium) and the bond issues may not exceed €800 million; consequent amendment of article 5 of the company's by-laws. Related resolutions. 2. Proposed amendment of articles 11, 12, 14 and 20 of the company's by-laws and introduction of a new article 20 (Head of Financial Reporting), with a consequent renumbering of the subsequent articles and revision of the references to the renumbered articles contained in articles 6 and 10, also in compliance with the requirements of Law 262/2005 as amended by Decree 303/2006. Related resolutions.

Ordinary shareholders are entitled to take part in the meeting, in accordance with the law and the company's by-laws, provided the company has received the required certificate, issued by their respective intermediaries confirming their ownership of the shares, at its registered office at least two business days before the date set for the meeting. The documentation relating to the matters on the agenda and required by prevailing law will be filed within the prescribed deadlines at the company's registered office and at Borsa Italiana for viewing by the shareholders and the general public. The draft Company and Group Annual Reports (containing the related reports by the directors) will be filed in these places in compliance with article 82.2.b) of the Regulations approved by Consob Resolution 11971/1999 and subsequent amendments and additions thereto. Shareholders are entitled to obtain a copy of all this documentation. The draft Company and Group Annual Reports, containing the related reports by the directors, statutory auditors and the independent auditors, as well as reports by the directors on the individual items on the agenda will be available on the company's website at www.rcsmediagroup.it.

on behalf of the Board of Directors

Chairman Piergaetano Marchetti

2 Contents

Corporate officers 4 Group structure of RCS MediaGroup 7 Brief description of the group 8 Information about the shares 9 Consolidated financial highlights of RCS MediaGroup 11 Directors' report on group operations by RCS MediaGroup 12 Group performance in the fourth quarter 13 Group performance in year ended December 31, 2006 15 Segment performance 22 Significant events during the year 38 Significant subsequent events 40 Outlook for the current year 42 Treasury shares 42 Transactions with related parties 42 Management of financial risks 42 Security plan 42 Corporate governance 43 Consolidated financial statements 75 Consolidated income statement 76 Consolidated balance sheet 77 Consolidated cash flow statement 78 Statement of changes in consolidated capital and reserves 79 Explanatory notes 82

RCS MEDIAGROUP S.p.A. 148 Accounting standards used 149 Directors' report on parent company operations 150 Significant events during the year 153 Significant subsequent events 153 Outlook for the current year 153 Treasury shares 153 Transactions with related parties 153 Management of financial risks 153 Security plan 153 Equity investments held by directors and statutory auditors 154 Proposed resolutions 155 Parent company financial statements 157 Income statement 158 Balance sheet 159 Cash flow statement 160 Statement of changes in capital and reserves 161 Explanatory notes 162 Attachments 191 Report on the transition to IAS/IFRS 192 List of group equity investments 203 Exchange rates against the euro 208 Quarterly consolidated income statements 210 Tables attached to the financial statements of RCS MediaGroup S.p.A.: 212 Portfolio of equity investments at December 31, 2006 and their movements 213 List of "other equity investments" and "other securities" not recorded as fixed assets and their movements 216 Reclassified income statement for holding companies 217 Independendent auditor’s report 218 Report by the board of statutory auditors 221

3

CORPORATE OFFICERS

Honorary Chairman

Cesare Romiti

Board of Directors (Ø)

Piergaetano Marchetti (*) Chairman Gabriele Galateri di Genola Deputy Chairman Antonio Perricone (*) (°) (1) Chief Executive Officer Raffaele Agrusti Director Roberto Bertazzoni Director Claudio De Conto (2) Director Diego Della Valle Director John P. Elkann (*) Director Giorgio Fantoni Director Berardino Libonati Director Jonella Ligresti Director Paolo Merloni Director Andrea Moltrasio Director Renato Pagliaro (*) Director Corrado Passera Director Alessandro Pedersoli Director Carlo Pesenti (*) Director Virginio Rognoni (3) Director

(Ø) The current Board of Directors was appointed on April 27, 2006 to hold office for financial years 2006- 2007-2008 and therefore until the AGM called to approve the Annual Report for the last of these years. Among the directors appointed at this time were: Giangiacomo Nardozzi Tonielli, Vittorio Colao (who also held the offices of Chief Executive Officer & Chief Operating Officer) and Carlo Buora, all of whom subsequently vacated office further to resignations presented on August 31, September 12 and November 10, 2006 respectively. In addition, Franzo Grande Stevens, who nonetheless held office during 2006, has been suspended from office at the date of this report under an administrative penalty ordered by Consob (Italy's stock market regulator) pursuant to article 187-quater of Decree 58/1998.

(*) Member of the Executive Committee (°) Also holds the office of Chief Operating Officer (1) In office since September 12, 2006 (2) In office since December 15, 2006 (3) In office since November 13, 2006

Powers delegated by the Board of Directors

Without prejudice to internal observance of the rules of corporate governance adopted by the company, the Board of Directors has delegated:

4 • wide powers to the Chief Executive Officer & Chief Operating Officer for the conduct of the company's management, with limits on the size of financial commitments and/or risks that may be assumed for certain types of transaction;

• all powers of ordinary and extraordinary administration to the Executive Committee, except for those relating to the purchase and sale of majority equity investments in companies not controlled by the company, plus those reserved in law for the Board itself.

In addition, the Board has granted its Chairman with the same powers as the Chief Executive Officer & Chief Operating Officer, but to be exercised only when the latter is absent or unable, as well as joint authority with the Chief Executive Officer for certain limited types of transaction where the limit on the amount of the financial commitment and/or risk is still restricted but nonetheless higher than that permitted to the Chief Executive Officer acting on his own, and again only to be exercised in exceptional circumstances and cases of absolute necessity and urgency.

Board of Statutory Auditors (Ø)

Pietro Manzonetto Chairman Giorgio Silva Acting auditor Gianrenzo Cova Acting auditor Maurizio Bozzato Alternate auditor Cesare Gerla Alternate auditor Agostino Giorgi Alternate auditor

(Ø) The current Board of Statutory Auditors was appointed on April 27, 2006 to hold office for financial years 2006-2007-2008 and therefore until the AGM called to approve the Annual Report for the last of these years.

Independent auditors (Ø)

RECONTA ERNST & YOUNG S.p.A.

(Ø) In office until the AGM called to approve the Annual Report for 2008.

More information about the composition of the Board of Directors and Board of Statutory Auditors can be found in the "Corporate Governance" section of this report.

5

GROUP STRUCTURE OF RCS MEDIAGROUP

6

GROUP STRUCTURE OF RCS MEDIAGROUP

100% 100% 100% 98,99% 100% 44,24% 45%

7

BRIEF DESCRIPTION OF THE GROUP

The RCS Group operates in the media and publishing sectors, with , magazines, books, stations and online websites, and in advertising space management.

The RCS Group is market leader in Italy's newspaper publishing sector, with Corriere della Sera (the top national daily by distribution) and Gazzetta dello Sport (the top sports daily by distribution). The group also publishes City in the free press segment. In the magazines sector, the RCS Group publishes 8 weeklies (including Oggi, Anna and Il Mondo) and 22 monthlies (including Amica, Style Magazine and Dove). The RCS Group controls RCS Libri which publishes books through the publishing houses of Rizzoli, Fabbri, , BUR, Sonzogno, Marsilio, Coccinella, Adelphi and Skirà and which holds a 50% interest in R.L. Libri in partnership with the Longanesi group. It also has a presence in textbook publishing (mainly with Tramontana and Nuova Italia), in legal publishing (with La Tribuna), in handbooks and the partworks sector (in Italy and abroad, mainly through Fabbri). The group is also present in the sector with Play Radio, a national radio station, and CNR, a syndication of local radio stations, and in the online segment with the news information website www.corriere.it and the sports portal www.gazzetta.it. The RCS Group manages advertising space, mainly for its own titles, through RCS Pubblicità and its subsidiaries. In addition, the associated company IGP Decaux is leader in the outdoor advertising sector. The group has a 45% interest in M-dis, a joint venture with De Agostini and Hachette which is a leading distributor to the newsstand channel. Lastly, the acquisition of effective control of the Dada group from November 2005 has strengthened the group's presence in the internet segment.

The group has a major presence abroad. In Spain, the Unedisa group publishes El Mundo, the number two daily newspaper by distribution, and elmundo.es, Europe's leading Spanish language news information website, and owns the production house of El Mundo TV and an interest of around 27.7% in VEO TV, a joint venture with a digital terrestrial license. In France, the RCS Group owns the Flammarion group (the historic publishing house which mostly operates in the "Fiction and Non-fiction" segment). The RCS Group is also present in the United Kingdom, through GE Fabbri (the publisher of partworks in several international markets) and in the , through Rizzoli International and Universe.

The parent company is a public listed company on Italy's electronically-traded equities market, organized and run by Borsa Italiana S.p.A.. It is headquartered in Via San Marco 21, Milan, and has been listed as number 120865401155 in the Milan Company Register since March 6, 1997.

8 INFORMATION ABOUT THE SHARES

• SHARES

No. ordinary shares 732,669,457

No. savings shares 29,349,593

2006 2005 Capitalization (in €/million) 2,872.6 3,045.3 (at December 31)

• CHANGE IN PRICES AND VOLUMES (ordinary shares)

2006 2005 Max. price (€) 4.64 6.68 Mar-23 Aug-2 Min. price (€) 3.48 3.95 Aug-24 Nov-23 December average price (€) 3.76 4.13

Average volumes (million) 1.67 4.15 Max. volumes (million) 15.81 31.66 Mar-17 May-24 Min. volumes (million) 0.17 0.29 Dec-8 Dec-8

• SHAREHOLDER COMPOSITION

Market 14,664%

Other Shareholders * 17,666%

Shareholders' Treasury shares agreements ** 2,652% 65,018%

* interests of more than 2% ** of which 465,441,489 restricted under a shareholders' agreement (63.527% of the total)

9

• STOCK PERFORMANCE

Financial markets had a good year in 2006. At a global level, the emerging economies of , India and reported strong growth. Italy's S&P MIB index rose by 15.2% in 2006, in line with its European peers, while the Mib Media index added just 2.2%. After a good start to the year, thanks to its good financial results, the RCS MediaGroup stock closed the year 6.0% below its level at the end of 2005.

RCS MediaGroup performance versus principal indexes (rebasing 2 january 06)

MIdex S&P MIB DJ Euro Stoxx Media Mib Media Mibtel RCS ord RCS risp

160

150

140

130

120

110

100

90

80

06 06 06 06 06 -06 -06 - -06 v- pr- ic- en ag giu- go 2-a 2- 2-lug -no 2-d 2-g 02-feb-06 0 2-m 0 0 2-a 02-set-06 02-ott-06 0 0 02-mar-06 0 0 02 Source: Bloomberg Min. price (August 24): €3.48 – Max. price (March 23): €4.64 – December average price: €3.76

Trading in RCS MediaGroup stock

18.000.000 16.000.000 14.000.000 12.000.000 10.000.000 8.000.000 6.000.000 4.000.000 2.000.000 0

Source: Bloomberg Min. volume (December 8): 0.17 million – Max. volume (March 17): 15.81 million – Average volume: 1.67 million

10 CONSOLIDATED FINANCIAL HIGHLIGHTS OF RCS MEDIAGROUP

(1): Earnings before interest, tax, depreciation, amortization and impairment. (2): Indicator of financial structure, calculated as current and non-current financial payables less both cash and cash equivalents and current financial assets.

The Draft Company and Group Annual Reports were approved by the Board of Directors on March 16, 2007.

11 DIRECTORS' REPORT ON GROUP OPERATIONS BY RCS MEDIAGROUP

The Italian economy showed signs of recovering in 2006. Gross domestic product grew by 1.7% in the third quarter relative to the corresponding period in 2005. Investment was considerably higher (+5.6%), although third-quarter household consumption was down (-0.7%). Advertising expenditure rose by 2.6% on the prior year (Nielsen figures), primarily thanks to the press sector (+3.5%) within which magazines did particularly well (+6.0%); TV advertising grew by just 0.8%, underperforming the market as a whole. Internet advertising jumped by 44.2%, although the absolute amounts were still small. Circulation of Italian news information dailies was slightly higher partly thanks to an intensification of efforts by the principal publishers to support their titles; as from June the sports dailies started to buck the negative trend of past years, thanks to the boost provided by the FIFA World Cup, culminating in the Italian team's victory. The Audipress figures confirm that Gazzetta dello Sport is Italy's most widely read daily newspaper. The magazines market featured the launch of a large number of new titles, designed to combat falling sales by existing ones. The books market was stable, reporting an increase in value but a decrease in sales volumes. In Spain almost all the major newspapers suffered declining sales and circulation. Given this market context, the RCS Group managed to boost its sales by 8.6% on 2005. This increase benefited from the consolidation of the Dada group for the whole year, as well as from the growth in advertising revenues which at +10.1% was well above the market average. This improvement was achieved thanks to completion of the full-color project at Corriere della Sera, the excellent performance by Gazzetta dello Sport, partly as a result of Italy's success at the FIFA World Cup, the large increase at El Mundo, and the continuous process of revitalizing the magazine product portfolio. The last part of 2005 saw the launch of Style Magazine, the consolidation of the Segesta group's titles (Abitare, Case da Abitare, Costruire e Impianti), while in 2006 the RCS Group successfully relaunched Anna and launched other new magazines (M, a half-yearly men's fashion magazine, and Corriere Enigmistica). The group's radio station performed less positively on the advertising front. Revenues from the sale of publishing products were generally stable: although add-on sales slowed down as predicted, all other products managed to increase their sales, with Corriere della Sera and Gazzetta dello Sport retaining their respective market leadership and El Mundo going against the trend on the Spanish market by increasing its circulation and keeping a firm grip on its number two position while considerably closing the gap on the market leader. The more successful titles published by RCS Libri included the bestsellers Ascolta la mia voce (Listen to my voice) by S. Tamaro and Sono come il fiume che scorre (Like the flowing river: thoughts and reflections) by P. Coelho, both selling in excess of 300,000 copies, and in France La tragédie du Président (Tragedy of the president), which sold 400,000 copies. Lastly, the Dada group continued to be successfully integrated into the RCS Group, expanding the range of multimedia products and services on offer with encouraging and pleasing results, also from a financial point of view.

12 GROUP PERFORMANCE IN THE FOURTH QUARTER

Fourth-quarter net income pertaining to the RCS Group was €94.8 million in 2006, having increased by €55.1 million on the corresponding period the year before. This improvement reflected not only the good performance by all the group's businesses in the last quarter of the year, but also the capital gain of €26.4 million realized on the sale of part of the shares held in , as well as the line-by-line consolidation of Dada whose results were consolidated only for November and December in 2005.

Reference to 4th quarter 4th quarter (€/millions) consolidated 2006 % 2005 % Difference financial statements (4) A B A-B Net revenues 671,0 100,0 624,8 100,0 46,2 Distribution revenues I 370,4 55,2 362,4 58,0 8,0 Advertising revenues (1) I 241,7 36,0 221,8 35,5 19,9 Other publishing revenues (2) I 58,9 8,8 40,6 6,5 18,3 Operating costs II (437,6) 65,2 (406,0) 65,0 (31,6) Payroll costs III (106,6) 15,9 (117,2) 18,8 10,6 Impairment of receivables IV (1,0) 0,1 (4,7) 0,8 3,7 Increases in provisions for risks V (5,6) 0,8 (2,7) 0,4 (2,9) EBITDA (3) 120,2 17,9 94,2 15,1 26,0 Amortization of intangible assets VI (10,2) 1,5 (4,4) 0,7 (5,8) Depreciation of property, plant and equipment VII (9,8) 1,5 (9,5) 1,5 (0,3) Impairment of fixed assets VIII (5,3) 0,8 (3,6) 0,6 (1,7) EBIT 94,9 14,1 76,7 12,3 18,2 Net financial income (charges) IX (3,8) 0,6 3,4 0,5 (7,2) Income (charges) from financial assets/liabilities X 28,7 4,3 (4,2) 0,7 32,9 Share of income (losses) from investments XI valued using equity method 5,3 0,8 (0,9) 0,1 6,2 Earnings before tax 125,1 18,6 75,0 12,0 50,1 Income taxes XII (23,9) 3,6 (27,4) 4,4 3,5 Net income (loss) from continuing operations 101,2 15,1 47,6 7,6 53,6 Net income (loss) from discontinuing operations XIII 0,0 0,0 0,1 0,0 (0,1) Net income (loss) before minority interests 101,2 15,1 47,7 7,6 53,5 Net (income) loss pertaining to minority interests XIV (6,4) 1,0 (8,0) 1,3 1,6 Net income (loss) pertaining to the group 94,8 14,1 39,7 6,4 55,1

(1): Advertising revenues in 4th quarter 2006 consist of €168.9 million earned through the group broker RCS Pubblicità (of which €89.2 million by Newspapers Italy, €44.8 million by Magazines, €4.6 million by Broadcasting, €0.1 million by Books and €30.2 million by selling the space of other publishers) and €72.8 million earned directly from other publishers (of which €48 million by Newspapers Spain, €13.4 million by Blei, €11.3 million by Magazines, €3.1 million by Dada and €0.9 million by Broadcasting, less €3.9 million in intragroup eliminations). Advertising revenues in 4th quarter 2005 consisted of €162.2 million earned through the group broker RCS Pubblicità (of which €87.9 million by Newspapers Italy, €39.5 million by Magazines, €5.4 million by Broadcasting and €29.4 million by selling the space of other publishers) and €59.6 million earned directly from other publishers (of which €37.5 million by Newspapers Spain, €12.4 million by Blei and €12 million by Magazines, less €2.3 million in intragroup eliminations. (2): Other publishing revenues mostly refer to the revenues of the Dada group, revenues from the sale of film rights by Unedisa, revenues from the sale of royalties to third parties, revenues associated with sporting events, and revenues from the sale of customer lists and children's boxed sets by companies in the Sfera group. (3): Earnings before interest, tax, depreciation, amortization and impairment. (4): These references relate to the corresponding headings in the consolidated income statement.

Net revenues for the fourth quarter of 2006 amounted to €671 million compared with €624.8 million in the same period the year before. The increase of €46.2 million is mainly due to higher advertising revenues in Italy and abroad and the growth in other publishing revenues following the Dada group's international expansion and its line-by-line consolidation for the entire quarter relative to just two months in the fourth quarter of 2005.

13 Distribution revenues were also higher, reporting an increase of €8 million most of which from the Books segment thanks to increased sales of partworks, which, combined with the rise in circulation revenues reported by the Newspapers Spain business, more than made up for the drop in circulation revenues in the Magazines segment.

EBITDA amounted to €120.2 million, an increase of €26 million on the fourth quarter of 2005. Of this improvement, €21.7 million was attributable to the good last-quarter performance by all areas of the business, except for the Broadcasting segment, and €4.3 million to non-recurring income relating to sums received by the subsidiary GFT Usa upon the settlement of a dispute dating back to previous years. EBITDA represented 17.9% of net revenues, up from 15.1% in the fourth quarter of last year.

Fourth-quarter EBIT was €94.9 million compared with €76.7 million in the same quarter of last year. Fourth- quarter EBIT in 2006 reflected higher amortization charges for intangible assets, mostly as a result of the software investments made by the group's Corporate Functions and by Flammarion.

Revenues, EBITDA and EBIT in the fourth quarters of 2006 and 2005 are reported below by business segment:

(1) The Dada group's EBIT in 4th quarter 2006 includes €1.5 million in amortization charges for the goodwill arising on its acquisition, allocated to intangible assets.

Net income from financial assets and liabilities of €28.7 million compared with net charges of €4.2 million in the fourth quarter of 2005. This positive balance mostly reflected the capital gain of €26.4 million realized on the sale in the last quarter of 2006 of part of the shares held in Banca Intesa.

Fourth-quarter net income came to €94.8 million in 2006. This was €55.1 million higher than in fourth quarter of last year, reflecting the changes described above.

14 GROUP PERFORMANCE IN YEAR ENDED DECEMBER 31, 2006

Net income pertaining to the RCS Group was €219.5 million in 2006, having increased by €0.2 million on the prior year. This result reflects a positive performance by all the group's businesses, which in turn helped increase EBITDA despite the presence of €11.7 million in non-recurring charges mostly associated with top management changes involving the Chief Executive Officer and some of the group's other managers and lower grants towards the cost of paper (€6.8 million in 2006 versus €20.5 million in 2005). The results for 2006 also benefited from a full year's worth of consolidation of the Dada group, which was only consolidated for two months in 2005, namely November and December.

(1): Advertising revenues in the year ended December 31, 2006 consist of €560.4 million earned through the group broker RCS Pubblicità (of which €311 million by Newspapers Italy, €130 million by Magazines, €18.2 million by Broadcasting, €0.1 million by Books and €101.1 million by selling the space of other publishers) and €235.9 million earned directly by the publishers (of which €147.1 million by Newspapers Spain, €37.9 million by Magazines, €45.7 million by Blei, €7 million by Dada, €1.7 million by Broadcasting and €0.4 million by Books, less €3.9 million in intragroup eliminations). Advertising revenues in the year ended December 31, 2005 consisted of € 523.7 million earned through the group broker RCS Pubblicità (of which €295.6 million by Newspapers Italy, €111.5 million by Magazines, €20 million by Broadcasting and €96.6 million by selling the space of other publishers) and €198.7 million earned directly by the publishers (of which €123.4 million by Newspapers Spain, €34 million by Magazines, €41.8 million by Blei, €0.3 million by Dada, €0.1 million by Broadcasting and €-0.9 million by Books). (2): Other publishing revenues mostly refer to the revenues of the Dada group, revenues from the sale of film rights by Unedisa, revenues from the sale of royalties to third parties, revenues associated with sporting events, and revenues from the sale of customer lists and children's boxed sets by companies in the Sfera group. (3): Earnings before interest, tax, depreciation, amortization and impairment. (4): These references relate to the corresponding headings in the consolidated income statement.

Net revenues amounted to €2,379.7 million in 2006, an increase of €188.7 million on the year before, of which €99.9 million due to changes in the scope of consolidation following the line-by-line consolidation of the Dada group, Editrice Abitare Segesta and Pubblibaby. On a consistent comparative basis, there would nonetheless have been an increase of €88.8 million, mainly due to growth in advertising revenues, particularly in the Newspapers and Magazines segments, as well as in other revenues. Distribution revenues were €7.9 million higher, reflecting revenue growth in the Books and

15 Magazines segments, only partially offset by lower revenues in the Newspapers segment particularly due to a drop in add-on product sales. The individual business segments reported the following principal changes in net revenues relative to 2005: • An increase of €106.8 million in other publishing revenues, mainly due to the line-by-line consolidation of revenues from the Dada group helped by a major growth in its business (+€87.8 million) and from Pubblibaby (+€4.4 million). Revenues from the sale of film rights by Unedisa were also higher (+€6.1 million), as were those from sporting events (+€3.1 million) and those earned by the Magazines segment (+€4.3 million on a consistent comparative basis) mainly involving direct marketing activities. • An increase of €74 million in advertising revenues, fostered not only by the growth in the advertising market, but also by the success of initiatives promoted by the Newspapers Italy and Magazines segments. These included the introduction since July 2005 of full-color printing for Corriere della Sera and a color back page for Gazzetta dello Sport, and in the Magazines segment, the publication of more titles, including the half-yearly men's magazine M, Corriere Enigmistica and the special issue Amica Accessori, as well as the restyling of Anna, and in the free press division the publication of the special issues City Summer and City Winter. The higher advertising revenues reported by Gazzetta dello Sport also benefited from the collateral effects of major sporting events particularly in the months of June and July, like the FIFA World Cup ending in an Italian victory and helping sell over 2 million copies the day after the final. Advertising revenues were also higher at El Mundo. • An increase of €12.8 million in revenues by the Books segment, mostly due to the strong performance of the Foreign Partworks division (+€15.9 million), helped by the large number of new releases made over an ever wider geographical area, combined with the results achieved in the Education division, the Fiction and Non-Fiction division in Italy, and sales of illustrated books on the US market. Revenues at Flammarion were basically in line with those last year, despite the unfavourable market conditions in France, while sales by the Partworks Italy division reported a decrease of €12.2 million, reflecting the smaller number of new releases made during the year, and a general decline in sales in the face of a contracting market. • An increase of €9.5 million in magazine circulation revenues, largely thanks to the constant expansion of the add-on product range and changes to reinvigorate the portfolio involving the launch of new magazines (OK La salute prima di tutto, Style, Corriere Enigmistica, Anna, M) and the restyling of existing titles during 2005 (Oggi, Visto,Io Donna,Novella 2000 and Magazine). This increase is also explained by the change in the method of consolidation for Rizzoli Publishing Italia (formerly Darp) after obtaining its control upon termination of the joint venture with De Agostini in July 2005 (+€2.1 million), and by the line-by-line consolidation of Editrice Abitare Segesta, purchased in the last quarter of 2005 (+€1.3 million). • A decrease of €10.6 million in Italian newspaper circulation revenues, attributable to the decline in add- on product sales mostly as a result of market saturation. This decrease was only partly redressed by higher circulation revenues at Corriere della Sera and Gazzetta dello Sport, thanks to the price rise implemented in August 2005 and the generally stable circulation figures for Corriere della Sera and Gazzetta della Sport - also thanks to the benefits of the FIFA World Cup - despite the 10 days of strikes called by journalists particularly in the last part of the year. • A stationary performance by distribution revenues in the Newspapers Spain segment, which despite losing €10.9 million in add-on product sales, carried on increasing the circulation of El Mundo (+5%) in the face of a declining market (-3.1%).

EBITDA amounted to €278.4 million, reporting an increase of €15.5 million on 2005. This increase was the product of opposing factors, the more important ones of which were: • A good operating performance, ignoring non-recurring items, by some of the group's businesses, such as Newspapers, Magazines and Advertising, which reported an overall increase of €21.4 million on the year before, mainly thanks to margins earned on their higher advertising revenues. • The line-by-line consolidation in 2006 of the Dada group, Editrice Abitare Segesta and Pubblibaby, which contributed €16.6 million to the group's EBITDA, having added only €1.5 million in 2005 when the results of Editrice Abitare Segesta and Pubblibaby were consolidated for just the last quarter and those of the Dada group just for November and December. • The income of €4.3 million relating to sums received by GFT Usa upon the settlement of a dispute dating back to previous years.

16 • A decrease of €13.7 million in grants towards the cost of paper, which amounted to €6.8 million this year. • The recognition of €11.7 million in non-recurring charges, mostly associated with top management changes involving the company's Chief Executive Officer and certain other group managers. • The recognition of €3.6 million in costs for stock options in 2006 compared with the figure of €0.7 million reported the year before.

The segments that most contributed to the improvement in EBITDA, net of non-recurring items, were principally Newspapers and Magazines. As regards Newspapers Italy, the improvement in EBITDA amounted to €7.1 million, net of non-recurring items, and reflected not only higher advertising revenues, thanks to the full-color printing of Corriere della Sera and the larger number of color pages available in Gazzetta dello Sport, but also the maintenance of circulation figures in line with those reported in 2005, even if achieved by using a less profitable mix of distribution channels. These factors more than made up for the lower returns on products sold in conjunction with newspapers. The Newspapers Spain segment also reported an increase of €5.9 million in EBITDA thanks to higher advertising revenues for all the titles published by the Unedisa group, and to the rising circulation of El Mundo and its supplements, along with the growth in audiovisual activities. Lastly, the Magazines segment reported an improvement of €4.4 million, net of non-recurring items, reflecting a combination of higher advertising revenues from its women's magazines and good circulation figures. Lastly, the Broadcasting segment, unlike the group's other businesses, reported a negative EBITDA, reflecting the costs incurred to launch PlayRadio and to develop the press agency's multimedia sector, combined with lower-than-expected revenues, particularly for the CNR network.

Payroll costs were €21 million higher, reflecting €8.7 million in non-recurring charges for top management changes involving the Chief Executive Officer and certain other group managers, €14.9 million in additional costs following changes in the scope of consolidation and €2.9 million in extra costs chargeable to 2006 for the stock option plan involving the parent company's shares. If these additional costs are ignored, payroll costs would have been €5.5 million lower as a result of concluding the group's restructuring plan started in 2004 and continuing last year.

EBIT was €4.2 million lower than in 2005 at €213 million. In addition to the events discussed above, this result reflected higher amortization charges, mostly in relation to software licenses purchased by the Corporate Functions (€3.8 million), the allocation to intangible assets of part of the goodwill arising on the first-time consolidation of Dada and Editrice Abitare Segesta, in respect of internally generated software for Dada and the title Abitare for Editrice Abitare Segesta (€1.8 million) and investments in TV and authorship rights by Unedisa during 2006 (€1.9 million). Depreciation charges for property, plant and equipment were €5.9 million higher than in the prior year, mainly as a result of the plant and machinery for the full-color printing of Corriere della Sera entering service in July 2005. The goodwill of Flammarion was written down by €5.3 million as a result of periodic impairment testing. Lastly, the Dada group made a positive contribution of €9.3 to EBIT compared with €0.5 million in 2005 when its results were consolidated only for the months of November and December.

17 Revenues, EBITDA and EBIT are reported below by business segment:

(€/millions) Year ended Dec-31-2006 Year ended Dec-31-2005 % of % of % of % of Revenues EBITDA revenues EBIT revenues Revenues EBITDA revenues EBIT revenues Newspapers Italy 737,7 128,3 17% 111,3 15% 725,4 134,9 19% 124,6 17% Newspapers Spain 341,6 60,9 18% 49,9 15% 311,5 55,0 18% 43,1 14% Total Newspapers 1.079,3 189,2 18% 161,2 15% 1.036,9 189,9 18% 167,7 16% Books 721,4 64,2 9% 53,5 7% 708,6 63,0 9% 57,9 8% Magazines 335,0 26,3 8% 25,1 7% 293,5 25,8 9% 20,9 7% Broadcasting 26,5 (9,0) (34)% (15,6) (59)% 24,7 (4,9) (20)% (10,8) (44)% Advertising 608,1 8,5 1% 8,2 1% 565,5 5,6 1% 3,9 1% Dada 111,4 14,8 13% 9,3 8% 17,1 1,6 9% 0,5 3% Corporate Functions 58,9 (15,5) n.a (28,7) n.a 57,5 (18,1) n.a (27,0) n.a Other and eliminations (560,9) (0,1) 0% 0,0 0% (512,8) 0,0 0% 4,1 (1)% Consolidated total 2.379,7 278,4 12% 213,0 9% 2.191,0 262,9 12% 217,2 10%

(1) The Dada group's EBIT at December 31, 2006 includes €1.5 million in amortization charges for the goodwill arising on its acquisition, allocated to intangible assets.

The results of the individual business segments are discussed in the section on "Segment performance".

Net financial income amounted to €1.7 million compared with €2.2 million in 2005. The figure for 2006 reflects €5 million in gains arising on the partial sale of units in hedge funds managed by Duemme Sgr and €2.8 million in gains arising on the sale of Recoletos shares. Net financial income in 2006 also includes higher exchange losses, of which €1 million attributable to the Dada group's foreign companies.

Net income from financial assets and liabilities amounted to €70.5 million and included the capital gain realized by the parent company on the sale of part of its shares in Banca Intesa (€59.6 million), the capital gain realized by Dada on its sale of Planet Com (€2.2 million), and the capital gain realized by RCS International Magazines on the sale of Pegasus (€0.4 million). These increases were partially offset by writedowns to the investments in Poligrafici Editoriale (€1.1 million) and MB Venture Capital (€1.1 million). Dividends amounted to €10.1 million compared with €5.7 million in 2005, and included €9.6 million in amounts distributed by Banca Intesa (€4.6 million in 2005).

The share of income (losses) from investments valued using the equity method amounted to a positive €3.2 million (€0.6 million in 2005), most of which referred to the positive results reported by M-Dis (€2.8 million), IGPDecaux (€1.7 million) and Eurogravure (€0.8 million). These positive results were partially absorbed by the losses reported by certain associates, principally RBA Fabbri France (€0.9 million), GE Eaglemoss (€0.8 million) and some of the smaller companies in the Unedisa group (€1.1 million).

Income taxes for the year came to €53.8 million, compared with €62.4 million in 2005; they included €20.1 million in IRAP (Italy's regional business tax), €30.1 million in IRES (Italy's corporate income tax) and similar foreign taxes, while the remainder referred to the recognition and reversal of deferred tax assets and liabilities. The charges arising under the group tax election amounted to €8.8 million compared with €9.3 million the year before.

Breakdown of the average number of employees by region

The average number of employees in 2006 was 5,179 compared with 5,210 in the prior year. The decrease in average headcount relative to the year before reflects the conclusion in 2006 of the reorganization process in the segments of Newspapers Italy and Corporate Functions (-139 relative to 2005) as well as a reduction in staff in the Magazines segment. These reductions were partly offset by an increase in average headcount in the Newspapers Spain segment (+45 employees) and the Dada group (+68 employees), particularly as a result of the corporate acquisitions made in 2006.

18 The breakdown of the average number of employees by region is as follows:

Highlights from the balance sheet are summarized in the following table:

(5): These references relate to the corresponding headings in the consolidated balance sheet.

(6): The comparative amounts have been restated as required by IFRS 3 to reflect the allocation of part of the goodwill in Dada and all the goodwill in Editrice Abitare Segesta and the associated deferred tax liabilities.

The principal changes in the group's balance sheet since December 31, 2005 will now be discussed.

Net capital employed was €1,234.3 million at year end, having increased by €59.7 million since December 31, 2005. In detail, non-current assets were €1.1 million lower, net working capital €41.1 million higher and provisions for risks and charges, employee benefits and deferred tax liabilities €19.7 million lower.

The decrease in non-current assets is mostly explained by the following changes: • Intangible assets increased by €30.7 million, consisting of €67.8 million in investments, €0.9 million in changes in the scope of consolidation, €25.6 million in amortization charges, €9.2 million in reclassifications for equity transactions, €5.3 million in impairment losses and €2.1 million in other movements. The investments mostly referred to purchases of software user licenses by the Corporate Functions and the Flammarion group (€17.1 million), the recognition of goodwill arising on the increased interest in Editions d'Art Albert Skirà (€7.4 million) and Adelphi Edizioni (€1.4 million), the

19 goodwill arising on Dada's acquisition of foreign companies (€14.2 million) and the purchase of new broadcasting frequencies by RCS Broadcast (€4 million). In addition, goodwill of €9.2 million arising on the purchase of minority interests in Dada has been classified as a deduction from the group's equity since the purchase qualified as an equity transaction. The impairment losses of €5.3 million refer to the goodwill of Flammarion recognized as a result of performing the periodic impairment test. • Property, plant and equipment was €9.8 million higher than at December 31, 2005, reflecting €50.3 million in new investments, less €34.5 million in depreciation, €5.4 million in disposals and €0.6 million in other decreases. Most of the investments related to the advancement of Unedisa's full-color printing project for El Mundo (€19.8 million), the refurbishment work completed and to be completed by RCS Quotidiani on the property located in Via Solferino, Milan (€10.1 million), and the purchase of miscellaneous computer equipment by the Corporate Functions, Unedisa and Flammarion (€6.6 million). • Non-current financial assets decreased by €41.6 million, mostly as a result of selling part of the Banca Intesa shares (€107.1 million), as partially offset by the purchase of San Paolo-Imi shares (€53.8 million) and the revaluations of these investments to adjust their fair value to market (€28.7 million). Other non- current assets went down, primarily as a result of the partial sale of tax credits held by the subsidiary RCS Investimenti to group companies for settling the balance and advance payment of IRAP (€6 million) and as a result of RCS International Newspapers BV closing its restricted bank deposit (€3.3 million). Lastly, the change in the method of consolidating the Skirà group and Adelphi Edizioni, both consolidated on a line-by-line basis as from 2006, has involved reducing equity investments in associated companies by €5.5 million.

Net working capital was €233 million at year end (€191.9 million at December 31, 2005). In detail: • Inventories reported an increase of €14.5 million relative to December 31, 2005. This increase was mostly due to the growth of €19.2 million in finished products and work in progress in the Books segment, of which €8.3 million attributable to changes in the method of consolidating the Skirà group and Adelphi Edizioni and €7.5 million attributable to the subsidiary GE Fabbri as a result of major differences in its publishing and production programme relative to the prior year. The increase was partially absorbed by a decrease of €6.3 million in paper inventories held in the Magazines segment, due to the use of surplus supplies purchased the year before and to the establishment of new production timetables in 2006. • Trade receivables were €81.6 million higher at €680.8 million. Of this increase €35.4 million was due to the Newspapers Spain and Advertising segments, basically in relation to the increase in advertising revenues in 2006, even if collections times were shorter than in the year before, €11.8 million to the Newspapers Italy segment, €17.5 million to the Dada group and €6.9 million to the line-by-line consolidation of the Skirà group. • Trade payables were €46 million higher, mostly due to increases at the Dada group (€15.8 million), Unedisa (€9.9 million) and GE Fabbri (€8.1 million) and to the consolidation of the Skirà group (€9.5 million). • Other assets and liabilities were €9 million lower, mostly due to the reduction in tax credits used for the purposes of settling income tax (-€10.7 million), and to the increase in other payables after recognizing call options over minority interests in subsidiary companies. These changes were only partially offset by the increase in prepaid expenses including for insurance, most of which referred to the Dada group following the growth in its business and to the parent company but to a lesser extent.

Provisions for risks and charges and deferred taxes were €14.7 million lower. In fact, provisions for risks and charges decreased by €19.9 million, reflecting €32.5 million in utilizations, €8.5 million in new provisions, €0.7 million in increases for changes in the scope of consolidation and €3.4 million in other movements. The utilizations mostly refer to progress in the reorganization process, especially by the Newspapers segment, and to the settlement of disputes arising in prior years. The new provisions include €3.9 million for lawsuits emerging in 2006 and €2.5 million for reorganization costs, mostly in the Magazines and Advertising segments. Provisions for deferred tax liabilities increased by €5.2 million.

The net financial position reported net cash of €5.7 million at December 31, 2006, representing an improvement of €53.4 million on a year earlier. This change was due both to cash flow generated by the group's operating activities and to the cash generated from the sale of part of the Banca Intesa shares during the year. These receipts amply exceeded the dividends paid out to shareholders (€82.3 million), the purchase of shares in San Paolo-Imi (€53.8 million) and the investments carried out in the year. 20

The main cash flows are summarized below:

(€/millions) Dec-31-2006 Dec-31-2005

A) Total cash and cash equivalents generated by operating activities 162,4 218,1 B) Cash and cash equivalents generated (absorbed) by investing activities 14,7 (19,2) C) Cash and cash equivalents absorbed by financing activities (45,4) (85,7) Net increase (decrease) in cash and cash equivalents (A+B+C) 131,7 113,2 Opening cash and cash equivalents 119,9 6,7 Closing cash and cash equivalents 251,6 119,9 Increase (decrease) for the period 131,7 113,2

The main changes are described in more detail in the explanatory notes.

The following table reconciles the parent company's equity and net income with the corresponding consolidated amounts:

Dec-31-2006 Dec-31-2005 Equity Net income Equity Net income Parent company equity and net income 1.258,2 166,2 1.187,4 99,8

Deferred taxes provided on goodwill recognized on consolidation and on elimination of intragroup transactions (32,3) 1,5 (35,6) (1,1) Elimination of carrying amount of consolidated equity investments 65,8 51,1 36,0 112,3 Elimination of effects of transactions between consolidated companies (124,8) 0,7 (125,7) 8,3 Group equity and net income 1.166,9 219,5 1.062,1 219,3 Minority interests in equity and net income 73,2 15,1 64,8 10,7 Consolidated equity and net income 1.240,1 234,6 1.126,9 230,0

21

SEGMENT PERFORMANCE

NEWSPAPERS

Segment profile

The Newspaper segment comprises the RCS Group's newspaper publishing activities in Italy, with the titles Corriere della Sera and Gazzetta dello Sport, leaders in their respective segments of the national dailies market, and City in the free press sector, the related websites and the activities of RCS Sport, which organizes and runs the Giro d’Italia and other cycling races and sporting events. It operates in Spain through the subsidiary Unedisa, whose primary business is the publication of newspapers and whose secondary business that of magazines, books, audiovisual material and digital content for the internet. Unedisa publishes El Mundo del Siglo XXI, Spain's number two newspaper by circulation, and specialized magazines (Arte, Historia and Siete Leguas); it is also a leading internet operator with elmundo.es, its news information website; it has a presence in publishing with the publishing houses of La Esfera de los Libros and A Esfera dos Livros (Portugal) and in the production of news and entertainment programs for through the production house of El Mundo TV.

Financial highlights

4th quarter 4th quarter % Year ended Year ended % (€/millions) 2006 2005 change Dec-31-2006 Dec-31-2005 change

Circulation revenues (1) -Newspapers Italy 99,9 101,0 (1,1) 407,0 417,6 (2,5) -Newspapers Spain 49,3 46,8 5,3 169,7 169,4 0,2

Advertising revenues -Newspapers Italy 89,2 87,9 1,5 311,0 295,6 5,2 -Newspapers Spain 48,0 37,5 28,0 147,1 123,4 19,2

Other publishing revenues -Newspapers Italy 2,1 0,0 100,0 19,7 12,2 61,5 -Newspapers Spain 8,5 6,5 30,8 24,8 18,7 32,6

Total revenues from sales and services 297,0 279,7 6,2 1.079,3 1.036,9 4,1 (1) Of which add-on product sales by: -Corriere and Gazzetta 52,6 44,7 178,8 191,4 -Unedisa 18,1 20,7 59,2 70,1

4th quarter 4th quarter % Year ended Year ended % 2006 2005 change Dec-31-2006 Dec-31-2005 change -Newspapers Italy 33,9 33,0 2,7 128,3 134,9 (4,9) -Newspapers Spain 29,5 22,3 32,3 60,9 55,0 10,7 EBITDA 63,4 55,3 14,6 189,2 189,9 (0,4)

22 Newspapers Italy

Market trend

Italian newspaper circulation grew by 1.9% in 2006, benefiting from a number of important events in the country's social and political life, such as the FIFA World Cup over the summer, the general election in the spring and the Turin Winter Olympics at the start of the year. The circulation of national dailies grew but at a slower pace than the rest of the market (+1%). In view of a prospective decline witnessed and emerging from specialist surveys of nearly all comparable countries, the principal publishers undertook numerous initiatives to promote and support their titles, designed to maintain market share, as well as actions aimed at achieving multimedia synergies. The RCS Group also moved in this direction, taking many initiatives (see "Significant events during the year") and paying constant attention to product quality and synergies with the web. According to Audipress, Gazzetta dello Sport is still the most widely read paper in Italy, with over 3.6 million readers, while Corriere della Sera is displaying a few areas of concern requiring specific intervention.

Add-on products, sold in conjunction with newspapers, confirmed their position as a structural part of the sector's business. In order to counter the growing competition, publishers paid ever more attention to the quality and selection of the publications offered, in view of the increasingly crowded sales stands. The free press market was once again very active in 2006, with the entry of a new free title at the start of the year. The sector now boasts four information titles, with local editions in Italy's major cities, and a financial daily called 24 launched in the autumn of 2006. The advertising market continued its positive trend in 2006, growing by 1.7% on the prior year, with a good performance by national business color advertising and local business advertising, despite the ongoing crisis in the area of small ads and service advertising.

RCS performance

Segment revenues were 1.7% higher than the year before at €737.7 million. The increase of €12.3 million was down to advertising revenues, which were higher for nearly all the segment's products. Circulation revenues at Corriere della Sera and Gazzetta dello Sport were up despite 10 days of strikes by journalists; add-on product revenues were down. The decrease in EBITDA of €6.6 million (or 4.9%) on the prior year was attributable to the recognition of non-recurring items in 2006, amongst which lower grants towards the cost of paper (-€9.7 million on 2005) and other charges mainly associated with top management changes (€4 million). Ignoring these factors, segment EBITDA was €7.1 million higher than the year before, reflecting not only increased advertising revenues but also the maintenance of circulation figures in line with those reported in 2005, despite the lower margins from add-ons. The two titles maintained their leadership in their respective markets, even if Corriere della Sera did so using a less profitable mix of distribution channels. The circulation figures for Corriere della Sera confirmed their prior year level at some 673,000 copies on average per day (670,000 in 2005). Gazzetta dello Sport reported an average daily circulation of 384,000, marking a major reversal of the downward trend witnessed in 2005 and the early part of 2006. The excellent sales figures reported during the FIFA World Cup and the restyled format made a significant contribution to the achievement of these results. On the day of Monday, July 10 alone Gazzetta dello Sport sold more than two million copies. As for products sold in conjunction with the newspapers, it was not possible to achieve the same level of revenue and earnings as in 2005, despite the good level of sales reported by publications launched during the year. Add-on products reported a 6.6% drop in revenues, from €191.4 million in 2005 to €178.8 million in 2006, also accompanied by lower margins. Advertising revenues earned by titles in the Newspapers segment outperformed the market: those earned by Gazzetta dello Sport were particularly positive after making the most of a rich year of sporting events. Corriere della Sera boosted its advertising revenues by fully capitalizing on its full-color format, launched in July 2005. City reported an 8.6% rise in advertising revenues mainly thanks to growth in local advertising after extending its local presence in Lombardy and thanks to the results achieved by the Turin and Genoa editions, which both doubled their local advertising revenues.

23 The online sector witnessed a big increase in visitor numbers to the sites of corriere.it and gazzetta.it, whose average readership in December had increased by 61% and 44% respectively on a year earlier. Online advertising enjoyed a real boom with revenues growing by 58% on the year before, mainly thanks to business advertising (+78%). The websites added new contents and services (casa.corriere.it and trovocasa.it) and the chance to watch videos at the new media center, which gives users access to ever more integrated sources of information (audio and video items and digital interviews). The absolute value of these activities nonetheless continued to be small.

Fourth-quarter EBITDA amounted to €33.9 million, having increased by 2.7% on the same quarter in 2005. This excellent result was the product of higher advertising revenues and lower operating costs.

Newspapers Spain

Market trend

Spanish newspapers with a daily average circulation of more than 100,000 copies reported a 3.1% drop in circulation in 2006; despite this overall trend El Mundo continued to increase its circulation, which rose by 5% to a daily average of 330,000 copies. El Mundo boosted its sales on the newsstand by 6.4% on 2005, while the market as a whole contracted by 7%. Newspaper advertising revenues grew by 6.4%.

RCS performance

The results of operations in Spain were particularly positive. Revenues and EBITDA were both higher than the year before, at €30.1 million and €5.9 million respectively. These results partly reflected the 19.2% growth in advertising revenues, involving all the Unedisa group's media, particularly El Mundo and its website, the excellent circulation figures achieved by El Mundo, up 5% to 330,000 copies corresponding to a 6.4% growth in sales revenue, and its magazines, with excellent results for Yo Dona, combined with the growth in audiovisual activities and the development of book publishing in Spain and Portugal, involving 82 and 40 new titles respectively. The only area whose results were worse than in 2005 was that of add-ons, whose revenues fell by €10.9 million due to progressive market saturation. Elmundo.es confirmed its leadership among the Spanish language websites both nationally and globally. The figures for December reported a total of 264.7 million in pages viewed, 38.3 million visitors and 9 million individual users. A new website called suvivienda.es, devoted to the real estate market, has been active since June 15, with two million of its pages viewed in December. Gross advertising revenues from the internet grew by 68% as a whole compared with the prior year. The size of these activities nonetheless continued to be small.

The Unedisa Group reported an improvement of €7.2 million in fourth-quarter EBITDA relative to the same period in 2005, while its revenues grew by €15 million. Nearly all areas of the business contributed to this excellent result, after performing in line with or better than in the same period of 2005, with the sole exception of add-ons. The circulation and advertising figures by the daily newspaper, the internet sector and the success of the recent book launches particularly contributed to this improvement.

24 BOOKS

Segment profile

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

Financial highlights

The segment's total revenues came to €721.4 million, an increase of €12.8 million on the year before. Adelphi Edizioni was consolidated line-by-line during the year, adding €6.2 million to overall revenues, while the sale of Beaux Art in France caused revenues to fall by €2.5 million relative to the prior year. All areas of the business reported an improvement in their results. In addition, an agreement was reached towards the end of 2006 to purchase further shares in the Skirà group, which has now been consolidated line-by-line but only its balance sheet in 2006.

EBITDA increased by €1.2 million to €64.2 million. All areas of the business reported an improvement in their results, thanks to both higher revenues and the achievement of major savings in terms of operating costs.

Fourth-quarter revenues were €5.6 million higher than in the corresponding period of 2005 at €211.6 million; EBITDA was €35.2 million, an increase of €2.2 million on the fourth quarter of 2005 (€3.9 million ignoring the effect of advance launches). This improvement mostly came from the fiction and non-fiction sector in Italy and the United States, and from partworks sold abroad.

25 Fiction and Non-Fiction - Italy

Market trend

The Italian market for "adult and young adult" books sold through the bookstore channel reported a 1.5% increase in the value of sales but a 0.9% drop in volume. Book sales through the mass market channel are estimated to have grown by 8% in value. The breakdown of sales by price bracket, in the bookstore channel, shows good demand for books costing more than €15. In terms of the different types of book, sales of Italian fiction climbed by 23.2% in value, while sales of books for young adults rose by 11.4% in value; in contrast there was a drop in demand for both foreign fiction (-5.4%) and non-fiction (-3.4%).

RCS performance

The division's revenues were 1.4% higher at €137.7 million, reflecting a major increase in sales by the group's publishing houses through the bookstore and mass market channels (+5.6%) and in its distribution of books published by other publishers (+9.9%), as partly redressed by a contraction in income from ventures with the group's newspapers and revenues from the sale of rights abroad. In fact, the 2005 results had benefited from major contributions by the books by Pope John Paul II Memoria e Identità (Memory and Identity) and by Umberto Eco Storia della bellezza (History of Beauty). Among the more successful new releases in the year were: Ascolta la mia Voce (Listen to my voice) by S. Tamaro, Sono come il fiume che scorre (Like the flowing river: thoughts and reflections) by P. Coelho, A passo di gambero (At a prawn's pace: hot wars and media populism) by U. Eco, Mille balle blu (One thousand lies by Berlusconi) by Gomez-Travaglio and La luna fredda (The cold moon) and Sotto Terra (Shallow Graves) by J. Deaver, La scoperta dell’alba (The discovery of dawn) by W. Veltroni, Parlami d’amore (Tell me about love) by Muccino-Vangelista, Quello che non si doveva dire (Things not to be said) by E. Biagi - Mazzetti, Carne e Ossa (Bare Bones) by K. Reichs, and Mare delle verità (Sea of Truth) by A. De Carlo. In the book catalogue, continued success was enjoyed by Caos calmo (Calm chaos) by Veronesi which, after winning the 2006 Strega Prize, sold over 200,000 copies, and Eragon by C. Paolini, which benefited from the film released at Christmas. The Libri Oro collection has proved very successful, with excellent results for Undici Minuti (Eleven minutes) by P. Coelho, Eldest by C. Paolini and La dodicesima carta (The twelfth card) by J. Deaver.

Fiction and Non-Fiction - France

Market trend

The French market was in decline for the second year in a row (-1.5%) despite the large increase in published output (+8.5%). The downturn hit every distribution channel except large bookstores (+0.5%); sales were down in both hypermarkets (-2%) and small bookstores (-4%). Figures for the different kinds of books reveal stable demand for comic books, increased demand for young adult books, paperbacks and handbooks and lower demand for literature. The level of book returns also increased. Given this background, the group's publishing houses managed to achieve above-market revenue growth in all segments; Editions Flammarion did particularly well, especially in the literature segment.

26 RCS performance

The Flammarion group's revenues were in line with 2005 at €226.9 million. Some of the group's publishing houses reported a large increase in revenues, notably Editions Flammarion thanks to the literature segment and Casterman thanks to the success of new releases and its distribution activities, mostly attributable to the bestseller published by Actes Sud Ligne de faille (Fault line), winner of the "Femina" prize. Revenues from paperbacks published by J’ai lu and from textbooks published by Delagrave were both lower. Among the new books published in the year, the following were particularly successful: La tragédie du Président (Tragedy of the president) by F.O Giesbert, Rendez vous (Meeting place) by C. Angot, Comme le fleuve qui coule (Like the flowing river: thoughts and reflections) by P. Coelho, Savoir manger (Knowing how to eat) by J.M. Cohen in Editions Flammarion and Zahir by P. Coelho.

Partworks

Market trend

The Italian partworks market experienced a downturn in 2006 relative to the year before, with a 10.3% decrease in value and 14.8% decrease in quantity, mostly as a result of the impact on the market of works sold together with newspapers and magazines. This trend related to the value of both follow-ons (-8.5%) and new releases (-11.4%), even though the latter's number was largely the same (202 versus 207 in 2005). In this context, RCS had a 31.7% share of the market in Italy, continuing to be the number two player. The French market contracted by 3.8% in 2006 to a value of €280 million, principally due to saturation in the DVD film segment. The overall number of new releases and value of the UK market enjoyed another small rise, mainly thanks to the contribution of DVDs.

RCS performance

The division reported total revenues of €234.6 million in Italy and abroad, an increase of 1.6% on 2005. The Italian market reported a decrease in both the number of new releases and installments and the quantity of sales, particularly where new releases were concerned. The most successful products released in the year were Il grande cinema di Sordi (Albert Sordi films on DVD) in collaboration with RCS Periodici, I Legnanesi (theatre in local dialect on DVD), Orologi da donna (women's watches) and Boccali bavaresi (Bavarian tankards). The measures taken to counter the troubled market have resulted in good sales for both those products launched in the second half of the year and those released in January 2007, allowing us to be moderately optimistic about the sector's prospects in Italy. GE Fabbri launched a large number of new products in a growing number of countries (a total of 51 new releases in 18 countries), confirming the trend of the past two years. The launches in the UK and France generated particularly good results. The company’s revenues climbed by 4.8%. Among the most successful series released in the year were the X-Files DVD, Dr. Who DVD, Dora the Explorer DVD and James Bond Cars.

27 Education

Market trend

The textbooks market grew by 1.3% in value. The market share of the group's brands was also higher at 17.2%, up from 16.9% the year before.

RCS performance

The Education sector reported a total of €99.4 million in revenues; this was €4.8 million more than the year before, mostly due to the textbooks segment with better performance reported by both the group's publishers (+2%) and Oxford University Press (+10%). Sales of books for use in the different stages of schooling were generally stable in the primary sector (-0.5%%), while demand for lower and upper secondary school textbooks climbed by 5.4% and 4.2% respectively. Among the new books published in the year the following were particularly successful: Realtà e modelli (Reality and models) by Flaccavento-Romano (a mathematics book for lower secondary schools), Il quadrato magico (The magic square) by R. Zordan (an anthology for lower secondary schools), Entriamo in azienda 1 (A first look at business 1) by Astolfi, Rascioni & Ricci (economics for upper secondary schools). Sales of legal books also did well thanks to greater legislative activity in the year, while demand for reference books sunk back.

28 MAGAZINES

Segment profile

The Magazines segment comprises 30 weekly and monthly titles, published by RCS Periodici, Sfera Editore, Rizzoli Publishing and Editrice Abitare Segesta.

Financial highlights

(1) Advertising revenues in the year ended December 31, 2006 consist of €130 million earned through RCS Pubblicità (€111.5 million in 2005) and €37.9 million earned directly (€34 million in 2005).

(2) The figures at December 31, 2005 include the results of Editrice Abitare Segesta and Pubblibaby just for the two months of November and December.

Market tren d

The magazines market reported a 3.8% decline in volumes in 2006 and a 6.1% drop in value relative to the prior year. The absolute size of the market went from 944 million copies in 2005 to 908 million in 2006. Ignoring the effect of new entrants, the market contraction was even larger at 6.7%. The weekly magazines sector contracted by 3.7% in volume and 4.6% in value relative to 2005. The only segments that performed well were that of gossip, health and particularly women's celebrity magazines and newspaper supplements as a result of the larger number of such publications launched towards the end of 2005. As for monthly magazines, these contracted by an average of 20% in both quantity and value. The only sectors that reported a positive performance were astrology, health and crosswords and puzzles thanks to the first full year's worth of sales of publications launched last year. The advertising market grew by 2.6% in 2006, with an increase of 6% for magazines; excluding professional magazines, this increase would have been 7.6%.

RCS performance

Segment revenues and EBITDA were higher than in 2005, by €41.5 million and €0.5 million respectively. Excluding non-recurring items recognized in 2006, relating to €3.9 million in lower grants towards the cost of paper, EBITDA would have been €4.4 million higher than the year before. This result reflected the segment's positive performance on the advertising front, its continued expansion of the offer of add-on products and the first full year of consolidation of Pubblibaby, Bimbi in Fiera, Segesta and Rizzoli Publishing Italia, which were consolidated only for the last few months of 2005. These factors more than made up for the promotional costs of relaunching Anna, which delivered pleasing results both in terms of advertising revenues and reader satisfaction. Overall circulation by titles in the RCS Periodici portfolio was as expected, with a reduction in circulation through less profitable distribution channels, such as sales in conjunction with local newspapers or with other

29 RCS Group products, and a shift towards paid circulation both in terms of "base" copies and copies combined with add-ons. Work continued on streamlining the magazine portfolio with the launch of Corriere Enigmistica sold in conjunction with Corriere della Sera and with Oggi, and the relaunch of Anna in the women's weekly fashion segment.

Women's magazines continued to be the leading segment in the RCS portfolio in terms advertising revenue. As for the weeklies, Anna reported an excellent performance both in terms of advertising and circulation after being relaunched in May 2006; Io Donna maintained its market share, with a minimal reduction in the lead over its principal competitor. Among the women's monthlies, Amica confirmed its leadership over the competition. Oggi, leader in the important family segment, confirmed its leadership in terms of copies sold and considerably increased its add-on product promotions, producing a very positive payback. Among the men's monthly magazines Max reported a minimal reduction in circulation and excellent advertising figures, while the weekly Il Mondo boosted its circulation and especially its advertising revenues, continuing to be the top weekly business magazine. Brava Casa and Casa Amica, in the furnishings segment, confirmed their solid level of circulation and advertising revenues, helping confirm RCS as the principal publisher in the furnishings industry. This position was pursued by enhancing the titles of the subsidiary Editrice Abitare Segesta, the owner of four strongly positioned titles in this sector, particularly Abitare. Rizzoli Publishing Italia was very active in restyling its product portfolio: in addition to strengthening the travel segment with Dove, it launched I viaggi del Sole, as a joint venture with Il Sole 24 Ore, and closed down Gulliver. Style Magazine, launched in October 2005, confirmed its expectations by achieving excellent results both in terms of circulation and advertising. The subsidiary Sfera Editore carried on its success in the parenting segment where it continued to be the benchmark player, by expanding its range of publications and constantly seeking new effective ways of communicating with its target audience. Direct marketing activities also continued very successfully, both through the development of RCS Direct, a specialist list broker, and through the growth in direct sales of publications devoted to infancy and motherhood.

Fourth-quarter EBITDA was slightly higher than in 2005, which had also benefited from €2 million in grants towards the cost of paper, not repeated in 2006. If this factor is ignored, the segment's fourth-quarter figures would have improved by 12% thanks to higher advertising revenues and lower operating costs.

30 BROADCASTING

Segment profile

RCS Broadcast operates the following businesses: AGR, a news agency specializing in the production of news services for radio, television and new multimedia channels, the CNR network with over 5.9 million listeners and PlayRadio, the national commercial radio station launched in the last quarter of 2005.

Financial highlights

(1) Advertising revenues in the year ended December 31, 2006 consist of €18.2 million earned through RCS Pubblicità (€20 million in 2005) and €1.7 million earned directly (€0.1 million in 2005).

Market trend

According to the latest figures by Audiradio, the average number of listeners per day increased by 2.8%; the number of listeners to the RAI radio stations enjoyed particular growth mainly thanks to the "Fiorello" effect on Radio 2. After a very positive first quarter (+18% on 2005), radio advertising eased off, taking the increase at year end to 3.5% on a consistent comparative basis. In fact, the official Nielsen figure of +7.8% is not consistent with 2005 because the Italia 5 network joined the measurement base at the start of the year.

RCS performance

Revenues rose by 7.3% on 2005 to €26.5 million. In detail, news service revenues rose by over 40%, mostly thanks to growth in the production of multimedia videos, started during the course of last year. Advertising revenues were broadly in line with 2005, although reflecting the results of two opposing trends: (i) an increase of 25% by PlayRadio, which, thanks to the launch of the new format, reached new targets/advertisers and increased the number of messages broadcast by 20%; (ii) a decrease of 9% in advertising revenues by CNR, therefore underperforming the market in general. EBITDA was €4.1 million worse than in 2005, reporting a loss of €9 million, principally reflecting the costs incurred to launch PlayRadio and to develop the news agency's multimedia business, combined with lower- than-expected revenues particularly by the CNR network. The partnership initiatives described in "Significant events during the year" have been put forward as a way to achieve the critical mass needed to reach an acceptable level of profitability.

Fourth-quarter EBITDA was broadly in line with that in the same period of 2005.

31 ADVERTISING

Segment profile

RCS Pubblicità manages advertising space for the group's publications and controls Blei (an advertising broker for foreign media). RCS Pubblicità also owns the jointly controlled interest in the IGPDecaux Group, leader in the outdoor advertising sector, which has been consolidated using the equity method. The segment's revenues do not include (i) those from the parenting segment in which the publisher Sfera operates directly, (ii) those of certain magazines whose advertising placement is handled by PRS and (iii) Unedisa's advertising revenue since this is managed directly by the publisher itself.

Financial highlights

4th quarter 4th quarter % Year ended Year ended % (€/millions) 2006 2005 change Dec-31-2006 Dec-31-2005 change RCS Pubblicità S.p.A. 169,9 162,2 4,7 562,4 523,7 7,4 Blei S.p.A. 13,4 12,4 8,1 45,7 41,8 9,3

Total revenues from sales and services (1) 183,3 174,6 5,0 608,1 565,5 7,5

EBITDA 3,6 1,1 227,3 8,5 5,6 51,8

(1) The group's advertising revenues of €796.3 million in the year ended December 31, 2006 include €194.1 million in revenues earned directly by the publishers themselves (of which €147.1 million by Newspapers Spain, €37.9 million by Magazines, €7 million by Dada, €1.7 million by Broadcasting and €0.4 million by Books) and €3.9 million in intragroup eliminations. The group's advertising revenues amounted to €722.4 million in the year ended December 31, 2005, of which €156.9 million earned directly by the publishers themselves (of which €123.4 million by Newspapers Spain, €34 million by Magazines, €0.3 million by Dada, €-0.9 million by Books and €0.1 million by Broadcasting).

Market trend

The advertising market grew by 2.6% in 2006, with a slower second half for all the media especially television. TV advertising was 0.8% higher, thanks to the RAI networks, which benefited from the FIFA World Cup, while the Mediaset networks reported the same level of expenditure as the year before. Print media grew by 3.5%, with a major increase in the month of November. Newspaper advertising was 1.7% higher, reflecting a good performance by national and local business advertising, while small ads and service advertising continued their downward trend. Magazine advertising grew by 7.6%. Radio advertising reported an increase of 7.8%, partly due to the reporting of the Italia 5 network in the measurement base as from January 2006; ignoring the effect of this new entrant, growth for the year was 3.5%, with a wide gap between the large increase reported by the commercial networks and the small decrease by the RAI stations. Billboard advertising was marginally down on last year (-0.9%). Cinema advertising continued to be in trouble, decreasing by 8.2% on the prior year. As far as the different types of investor were concerned, the following sectors performed well: groceries, motoring and telecommunications; TV was the preferred medium by these latter two sectors at the expense of newspapers, which in contrast benefited from expenditure by the sectors of finance/insurance, distribution and professional services. All print media benefited from the growth in the consumer goods and apparel sectors.

RCS performance

Advertising revenues were 7.5% higher in 2005 than the year before, or €41.6 million in absolute terms. Revenues at RCS Pubblicità climbed by 7% (or +€36.7 million). Blei posted a 9.3% year-on-year increase, thanks to higher revenues from certain major customers and the good performance of TV media. Advertising revenues in the Newspapers segment outperformed the market as a whole, thanks to the completion of full-color printing at Corriere della Sera and the benefits of the first half's sporting events

32 enjoyed by Gazzetta dello Sport. City also boosted its advertising after its national network became fully operational and thanks to the publication of the special issues of City Summer and City Winter, in August and December respectively. Advertising revenues in the Magazines segment increased thanks to good performances by Io Donna, Il Mondo, Novella, Visto, Oggi and Sportweek. Style Magazine, launched in October 2005, and Anna, launched in its new format in May 2006, made a significant contribution to advertising revenue growth, as did the July launch of the half-yearly men's magazine M, devoted to fashion and lifestyle, and the October release of the special-issue Amica Accessori. As far as other media were concerned, radio advertising was down, while online advertising performed extremely well; the events sector benefited from the excellent level of revenue earned from the Giro d’Italia and the contract with Inter, terminating on June 30, 2006 and replaced by that with F.I.G.C. (Federazione Italiana Gioco Calcio - the Italian Football Association).

EBITDA was €2.9 million higher at €8.5 million (+51.8%), thanks to good performance by both RCS Pubblicità and Blei, despite the presence of €1.1 million in non-recurring charges in 2006 for top management changes.

Fourth-quarter revenues increased by 5%, with consequent benefits for segment EBITDA (+€2.5 million).

IGP

IGPDecaux is leader in the billboard, street furniture and transport advertising market. It was created from the partnership between RCS and the JCDecaux Group of France. Revenues were €10.3 million higher than the year before at €187.3 million (+5.8%). The transport sector grew by 3.9% on the prior year, thanks to the contribution of "high impact" transport advertising. The subway sector also performed well, both in Rome and Milan; as from the current year, the company has a contract for the advertising on the Turin subway as well. The airport sector also turned in a good set of results thanks to the return of certain institutional investors; in contrast, the "classic" sector was in decline due to fierce competition nationally from other media. The street furniture sector performed extremely well (+47.7%) thanks to the new contract in Turin, the installation of the new bus shelters in Milan, whose replacement has resulted in a significant increase in the net selling price, and to good results from the contract in Naples. The billboards sector experienced a downturn in 2006 (-15.3%). EBITDA was €13.8 million, reporting a decrease of €1.3 million on 2005.

33 DADA

Segment profile

Dada S.p.A. is one of the most important net companies in Italy. It is listed on the Italian Stock Exchange and heads up a group that is entirely dedicated to developing online business and services. Its main activities in this context are in the consumer market, involving PC software and mobile phone services, the business solutions market and the self-provisioning market.

Financial highlights

(1) The comparative figures for 2005 are not consistent with those for 2006 because the Dada Group was consolidated line-by-line only from November 2005.

The Dada group closed 2006 with consolidated revenues of €111.4 million, broken down by sector as follows: Consumer Division 80%, Business Services 10%, and Self Provisioning Services 10%. The process of international expansion, commencing in the second half of 2005, gathered considerable pace in 2006, involving an enlargement of the presence in certain foreign countries already infiltrated in 2005 and the start of Consumer activities in new countries. In this context a major contribution came from the US market, in which the Dada Group operates through its subsidiary Dada USA Inc.. Overseas revenues made an important contribution to the group's revenues, accounting for 40% of the total in the fourth quarter of 2006 compared with 15% in the same period of 2005. In fact, the process of internationalization was still in its initial stages during the corresponding period of last year and so its contribution to sales was still very marginal. As regards changes in the group's scope of consolidation in 2006, Nominalia SL, a company which registers internet domain names (acquired at the end of July) was consolidated for 5 months, UPOC Inc., a provider of value-added internet and mobile phone services on the US market (acquired at the end of August), was consolidated for 4 months, Tipic Inc. (acquired in October) was consolidated for three months and DADA Brasil (incorporated in July but operational only since December) was consolidated for just one month. These newly consolidated companies contributed a total of €2.8 million to the group's revenues in 2006. Overseas revenues accounted for 37% of the consolidated total for the entire year.

During the first half of 2006 RCS, with the technical and business support of Dada, launched the "RCS mobile" service, a package of information and customized entertainment services for mobile phones ("powered by" Dada), which has been very successful, conquering not only the "very young" target but also an adult user base. The service consists of providing entertainment and information from RCS Group titles such as Gazzetta dello Sport, Corriere della Sera, Astra, Novella and Max, in addition to the whole range of mobile entertainment present on Dadamobile. RCS mobile gives customers the opportunity to activate such information services and be informed in real time about sporting events, news and lifestyle, to download theme backgrounds and rings, all as part of an all-inclusive package.

EBITDA was a positive €14.8 million for 2006, representing a 13.3% margin on revenues. In the fourth quarter of 2006 alone EBITDA was a positive €4.5 million, representing a 14.4% margin on revenues. The improvement in the quarter's EBITDA relative to revenues is mainly due to the benefits of costs incurred in previous quarters for enlarging the user base.

34 In fact, a large part of service and other operating costs consists of expenses incurred for creating and strengthening the user base for subscriber services provided by the Consumer Division on both a national and international scale.

35 CORPORATE FUNCTIONS

Segment profile

Corporate functions provide services to group companies and are primarily concentrated in the parent company RCS MediaGroup and the centralized units of RCS Quotidiani. The segment also includes RCS Factor, a provider of factoring services, as well as GFT Net and RCS Investimenti. The parent company RCS Mediagroup also holds the interest in M-dis S.p.A., the company which handles newsstand distribution of the group's publications and those of third-party publishers.

Financial highlights

The segment's revenues relating to RCS MediaGroup and the RCS Quotidiani centralized units mostly consist of recharges made to group companies for services performed centrally. These services refer to ITC, accounting and administration, treasury and other functions such as procurement, planning, corporate and legal affairs and communication. Total revenues improved by €1.4 million compared with the prior year.

The segment reported a negative EBITDA of €15.5 million for the year, representing an improvement of €2.6 million on the prior year despite the presence of €6.6 million in charges associated with top management changes involving the Chief Executive Officer and other managers, as partially absorbed by €4.3 million in non-recurring income from receipts by the subsidiary GFT Usa in respect of disputes dating back to prior years. The improvement is largely attributable to the streamlining of certain important processes, combined with the pursuit of policies designed to cut overheads.

The Corporate Functions segment also includes the subsidiaries RCS Investimenti S.p.A. and GFT NET S.p.A.. In detail:

• RCS Investimenti manages its own liquidity on behalf of other group companies, mostly through an interest-bearing account with RCS MediaGroup; the net financial position at December 31, 2006 reported net cash of €33.9 million, compared with a balance of €27.7 million at the end of 2005. This increase was due to amounts received from group companies in respect of tax credits sold to them in prior years. The company's net capital employed of €5.9 million mostly consisted of prior year tax credits relating to IRES (Italian corporate income tax). Net income for the year of €0.5 million reflected the results of cash management.

• GFT NET continued the process of winding up its foreign companies in 2006. It reported €0.3 million in EBIT, after incurring certain operating costs. The net financial position at December 31, 2006 reported net cash of €4.2 million compared with net debt of €6.3 million a year earlier. The improvement was mostly attributable to the receipt of proceeds on the sale of 5% of GFT BV to RCS International Magazines BV (€6.4 million) and the refund of capital reserves by the subsidiary GFT Usa (€5.4 million).

36

Other relevant information for the parent company

Some of RCS MediaGroup S.p.A.'s more significant financial results for 2006 are discussed below:

• Net financial income increased by €6.7 million to €15.7 million. Most of the increase was attributable to €5 million in gains arising on the sale of hedge funds managed by Duemme Sgr and to €2.1 million in higher interest income on bank deposits made as a result of the parent company's greater liquidity.

• Net income from financial assets of €148.2 million increased by €64.8 million from €83.4 million in the prior year. This amount includes €96.1 million in dividends from group companies (€47.6 million in 2005) and €59.6 million in capital gains realized on the sale of 23,900,000 shares in Banca Intesa in the second half of the year, and writedowns to fair value of investments in RCS Broadcast (€6.4 million) and Poligrafici Editoriale (€1.1 million).

• Income taxes reported €25 million in income, recognized as a result of making a group tax election, and referring to the period's tax losses that were offset or offsettable against taxable income of companies that have made the group tax election.

M-DIS DISTRIBUZIONE MEDIA

M-dis Distribuzione Media S.p.A. distributes publishing and non-publishing products (phone cards and online mobile phone recharge cards) to the newsstand channel and to other authorized resellers. The company's portfolio includes not only the products of its shareholders (RCS, De Agostini, Hachette-Rusconi) but also those of numerous third-party publishers, as well as the recent additions of the newspapers La Stampa (since May 2006) and Il Sole 24 Ore (since July 2006), from whom the business unit dealing with distribution was acquired. The company relies on its subsidiaries Milano Press S.r.l. for distribution in Milan and its hinterland, ge-dis S.r.l. for distribution in the Genoa area (in joint venture with S.E.P, the publisher of the newspaper II Secolo XIX) and since May 2006, to-dis S.r.l. for distribution in the Turin area (in joint venture with L'Editrice La Stampa). M-dis also owns an interest in Trento Press Service S.r.l. for distribution in the city and province of Trento. In December 2006 the company purchased a 30% interest in Pieroni Distribuzione S.r.l., a national distributor of specialist publishing products. In addition, the company entered into an agreement, effective January 1, 2007, with A.S.E. S.r.l., the principal supplier of logistics services to the distributor in Milan, to purchase 30% of its share capital. The company's consolidated revenues for 2006 came to €470 million (€369.1 million in 2005), while net income amounted to €6.3 million, of which the RCS share was around €2.8 million. The major growth in revenues was mostly attributable to the steady rise in non-publishing business, which, relative to the same period in 2005, featured a big increase in online recharge cards for mobile phones thanks to the larger number of sales terminals. Revenues from the distribution of publishing products were slightly higher than the year before, mainly as a result of add-on products sold with La Stampa and Il Sole 24 Ore, as well as steady demand for picture cards, which helped make up for lower sales of Partworks.

37 SIGNIFICANT EVENTS DURING THE YEAR

The more significant events during the year are discussed below:

• During the first quarter of the year, RCS MediaGroup purchased 483,227 shares in Dada S.p.A. (corresponding to around 3% of its share capital), taking its total interest to 44.24%. Of these shares, 142,061 were conferred on February 24, 2006 on the shareholders' agreement between RCS and some of the Dada shareholders with managerial positions in the company. This agreement falls under the legal requirements for public disclosure. RCS conferred a further 145,224 shares on the agreement on April 5, 2006.

• On April 27, 2006 RCS MediaGroup shareholders voted in ordinary meeting: - to approve, together with the financial statements for 2005, the distribution of a dividend of €0.13 to each of the savings shares and €0.11 to each of the outstanding ordinary shares (for a total of €82 ,271,762.61), payable from May 25, 2006, and the allocation of the remaining €41,628,066.39 of 2005 net income to retained earnings; - to appoint a new Board of Directors, which will remain in office for three financial years (2006-2007- 2008), as follows: Raffaele Agrusti, Roberto Bertazzoni, Carlo Buora, Vittorio Colao, Diego Della Valle, John P. Elkann, Giorgio Fantoni (independent director), Gabriele Galateri di Genola, Franzo Grande Stevens, Berardino Libonati, Jonella Ligresti, Piergaetano Marchetti, Paolo Merloni, Andrea Moltrasio (independent director), Giangiacomo Nardozzi Tonielli, Renato Pagliaro, Corrado Passera, Alessandro Pedersoli (independent director), Carlo Pesenti; - to appoint, for the same three-year term, the new Board of Statutory Auditors as follows: Pietro Manzonetto (Chairman), Giorgio Silva and Gianrenzo Cova (acting statutory auditors), Cesare Gerla, Agostino Giorgi and Maurizio Bozzatto (alternate statutory auditors); - to extend the length of the audit engagement of Reconta Ernst & Young S.p.A. to the years 2006- 2007-2008, changing and updating the terms; - to renew the authorization for the Board of Directors to buy and sell treasury shares. The Board of Directors of RCS MediaGroup, meeting after the AGM, confirmed Piergaetano Marchetti as Chairman, Gabriele Galateri di Genola as Deputy Chairman and Vittorio Colao as Chief Executive Officer. The Board also appointed the Executive Committee, confirming its outgoing members: Piergaetano Marchetti, as Chairman, Vittorio Colao, John P. Elkann, Renato Pagliaro and Carlo Pesenti. The Board also appointed a new Internal Control Committee (nominating its members as Raffaele Agrusti, in the position of Chairman, Alessandro Pedersoli and Andrea Moltrasio) and a new Group Compensation Committee (appointing its members as Piergaetano Marchetti, in the position of Chairman, Giorgio Fantoni, Andrea Moltrasio, Renato Pagliaro and Alessandro Pedersoli).

• On July 14, 2006 the Board of Directors of RCS MediaGroup decided, under the existing stock option plan, to grant six employees of RCS group companies a total of 744,662 stock options to subscribe to a similar quantity of new-issue ordinary shares at a price of €3.990 each, corresponding to the average official price of the company's ordinary shares during the period between June 14, 2006 and July 14, 2006.

• On August 4, 2006 Register.it S.p.A., a wholly-owned subsidiary of Dada, completed a deal to buy Nominalia S.L., Spain's principal provider of professional internet services. The total consideration of €5.2 million was payable in three installments.

• On August 5, 2006 Dada USA Inc. (formerly Dada Mobile Inc.), a Dada subsidiary, completed a deal to buy Upoc Networks Inc., a US provider of community, internet and mobile phone services, for the sum of approximately €5.7 million.

• On September 11, 2006 further to the vacation of office by Vittorio Colao, the Chief Executive Officer, and Aldo Bisio, the Chief Operating Officer of the Newspapers Italy segment and a director of RCS

38 Quotidiani, the Board of Directors of RCS Quotidiani co-opted Antonio Perricone and Giorgio Valerio as company directors, nominating them as Chief Executive Officer and Chief Operating Officer respectively of the company's Newspapers business.

• On September 12, 2006 the Board of Directors of RCS MediaGroup formally nominated Antonio Perricone as the company's Chief Executive Officer, as well as Chief Operating Officer and a member of the Executive Committee; this followed on from Vittorio Colao's resignation (tendered on July 20, 2006 but effective from September 12, 2006) from all offices held in RCS MediaGroup and the co-opting of Antonio Perricone as a director on July 27, 2006 with the function of Chief Executive Officer.

• On October 12, 2006 Dada USA Inc. completed the deal to buy Tipic Inc., a leading international player in the blog community segment, for the sum of €4.5 million.

• On November 13, 2006 the Board of Directors of RCS MediaGroup voted to acquire 51% of the share capital in Digicast S.p.A from the company Digifin S.p.A.. Digicast S.p.A. manages a number of theme channels, currently primarily distributed through the Sky platform, that include Jimmy, Caccia e Pesca, Sailing Channel and Planet. The purchase consideration of €16.3 million (before adjustments based on the balance sheet and income statement at December 31, 2006) is payable upon execution of the sale and is accompanied by "call" and "put" options on the entire share capital to be exercised, unless shareholder differences cause the operation to be anticipated, in 2010 at an exercise price based on 2009 sales, with a minimum based on the purchase consideration for the original 51% interest. The antitrust authorities authorized this acquisition on February 19, 2007.

• On November 13, 2006 the Board of Directors also voted to grant approximately 70 employees of the company and the group - including the Chief Executive Officer in his capacity as Chief Operating Officer - a total of 14,274,763 stock options to subscribe to the same number of new-issue ordinary shares (corresponding to approximately 1.95% of existing ordinary share capital) at a price of €3.616 each. This grant supplemented the tranche already granted earlier in 2006 (on July 14), and completed performance of the Stock Option Plan authorized by the shareholders on April 29, 2005. The Plan Regulations were amended to extend the vesting period end date for the options granted in 2006 from June 15, 2009 to three years from the grant date. Based on the Regulations - the main terms of which were already announced on November 11, 2005 - the options may be exercised three years after the expiration of the related vesting period during pre-determined periods up until June 15, 2013 subject to the achievement of certain cumulative performance goals in terms of consolidated earnings per share in the three-year period 2005-2007 as contained in the Strategic Plan approved by the Board of Directors in December 2004. Lastly, certain beneficiaries, such as the Chief Executive Officer, must comply with certain obligations to re-invest part of the gain made on the sale of the company's shares following the exercise of these options and, unless prior authorization is obtained from the Board, there will also be a limit on the transferability of these shares, once acquired, until the end of the second year following the expiration of the vesting period, meaning until November 13, 2011.

• The Board of Directors also resolved on November 13, 2006 to move the registered office of RCS MediaGroup S.p.A. from Via Rizzoli 2, Milan to Via San Marco 21, Milan as from December 1, 2006.

• The Board of Directors of RCS MediaGroup also voted on November 13, 2006 to transform Gazzetta dello Sport into a full-color newspaper by the first half of 2008, except for currently unforeseeable events and as approved by the Board of Directors of RCS Quotidiani on November 9, 2006. Amongst other things, this transformation will involve changing the paper's format and increasing the number of its pages. The investments needed for this operation will amount to approximately €65 million over a three-year period, primarily for printing presses, related technical equipment and building works. It was also resolved to extend the lease of the Gazzetta dello Sport title (due to expire in 2015) until 2040.

• On December 12, 2006 RCS Libri increased the equity interest held through the subsidiary RCS International Books BV in Editions d'Art Albert Skirà SA (the parent of the publishing group active in Italy and abroad primarily in the art books sector with sales of €16 million in 2005) from the level of 39 24% to 48%, for the sum of €4.2 million. In 2010 RCS and the sellers will have the right to exercise "call" and "put" options over an additional 12% of share capital, at an exercise price based on the company's current valuation, and as from 2012, an additional "call" and "put" option over the remaining 40%.

• During the second half of 2006 a total of 23,900,000 shares in Banca Intesa were sold on the market for €125.9 million, realizing a capital gain of €59.6 million. During the fourth quarter of the year a total of 3,169,000 shares in San Paolo-Imi were purchased for €53.8 million.

• On December 15, 2006 the Board of Directors of RCS MediaGroup approved the making of agreements with a leading financial intermediary involving a call option and matching put option for the counterparty over 160,000 ordinary shares in Dada S.p.A,, corresponding to around 1% of share capital, to be exercised by November 30, 2008. The exercise price of €16.55 was determined on the basis of the price at the date of signing the agreements.

• On December 15, 2006 the Board of Directors also co-opted Claudio De Conto as a director to replace Carlo Buora, who had resigned, and confirmed that Virginio Rognoni, co-opted on November 13, 2006, met the requirements to qualify as an independent director, as set out in the Corporate Governance Code for Listed Companies adopted by RCS.

• On December 21, 2006 RCS MediaGroup, which owns PlayRadio, announced that, as part of its multimedia drive and consolidation of its radio broadcasting activities, it had signed a non-binding letter of intent with the shareholders of Finelco S.p.A. to examine the possibility of a strategic, business partnership involving the integration of their respective activities in the radio broadcasting sector, which would position the two groups among the larger broadcasters in the country.

SIGNIFICANT SUBSEQUENT EVENTS

• On January 16, 2007 RCS Editori S.p.A., a company controlled by RCS Quotidiani S.p.A., transformed itself from a public into a private limited company, changed its name to Editoriale Corriere di Bologna S.r.l. and transferred its registered office to Bologna. An increase in share capital from €100,000 up to €1,002,000 against cash payment was approved on the same date. After completing this increase, RCS Quotidiani held around 50.05% of the company's share capital with the rest in the hands of third parties. On January 30, 2007 Editoriale Corriere di Bologna S.r.l. started publishing Corriere di Bologna, a daily newspaper sold in conjunction with Corriere della Sera.

• On February 7, 2007 the Board of Directors of RCS MediaGroup confirmed its stated intent of pursuing growth opportunities on international markets by approving the presentation of an offer to buy all the shares in Recoletos Grupo de Comunicaciòn, an unlisted holding company of the eponymous Spanish publishing group with interests in the sectors of print, radio, television and the internet. The offer was approved by the Board of Directors of Recoletos, which confirmed the acceptance by a large majority of the company's shareholders, with the remaining shareholders accepting on February 14, 2007. The Recoletos group has been valued at €1.1 billion, from which will be deducted its net debt as established upon completing due diligence. Qué!, a free press title currently published by the Recoletos group, will be excluded from the acquisition. The validity of the offer and the transaction are subject to the satisfaction of certain conditions, amongst which, the satisfactory outcome of due diligence, the definition of contractual accords with all the shareholders by the end of the exclusive period (currently set at March 31, 2007) and the obtaining of the required authorizations, including from the antitrust authorities. Once these conditions have been satisfied, the transaction will be completed as soon as possible, hopefully by the end of April. RCS MediaGroup intends to finance the transaction using its own resources and credit facilities already at its disposition. The Recoletos group is present in Spain's print sector with the dailies , a sports paper, and Expansiòn, a financial paper, both of which leaders in their respective segments, with the magazines Telva and Actualidad Economica and other important titles; it also owns 27.7% of Veo Television, a

40 Spanish television company in which Unedisa holds a matching interest. The Recoletos group had estimated revenues and EBITDA, excluding Qué!, of around €304 million and €79.5 million respectively in 2006. This deal, if completed, will create a leading publishing group in Spain's national daily newspaper sector, both in terms of circulation and readership: the pro-forma revenues and EBITDA in 2006 from the combined Spanish activities of Unedisa (publisher of El Mundo, the number two Spanish newspaper and 96% owned by the RCS Group) and Recoletos – excluding Qué! – would be €646 million and €141 million respectively. In terms of the entire RCS Group as far as 2006 is concerned, its pro- forma revenues and EBITDA would be €2,688 million (of which around 40% from abroad) and €347 million respectively (calculated as the sum of the pro-forma figures of Recoletos and the consolidated ones of RCS MediaGroup).

• On February 15, 2007 a partnership was formed between RCS Digital S.p.A., controlled by RCS Quotidiani S.p.A., as the majority shareholder with 51%, and the company Game Media Networks, controlled by Digital Bros, a company listed on the TechStar segment of the Italian Stock Exchange, to develop publishing activities and the marketing of games on the internet and for mobile phones and through e-commerce. The new company formed for this purpose is called RCS DB Games, which intends to create Italy's first website specializing in games and entertainment.

• The early part of the year has seen the start of a project to achieve compliance with Law 262 of December 28, 2005 (the Investor Protection Law), as amended by Decree 303 of December 29, 2006, which has introduced new provisions for protecting investors and governing financial markets, with particular attention to rules concerning financial reporting by groups, as required by article 154-bis of Decree 58/1998.

• On March 13, 2007 RCS MediaGroup placed 195,942 shares in Dada S.p.A. in the existing shareholders' agreement between RCS and some of Dada's shareholders also with management responsibility in this company. All 7,063,568 of the shares in Dada S.p.A. currently held by RCS, representing some 43.88% of its share capital, have now been placed in the shareholders' agreement.

• On March 14, 2007 in execution of commitments made in 2001, RCS Pubblicità S.p.A. signed an agreement to purchase 49% of Blei S.p.A. for €25.2 million, giving it sole ownership of this company.

41 OUTLOOK FOR THE CURRENT YEAR

Newspaper circulation figures have been in line with forecast in the early part of 2007, while both advertising revenues and products sold together with newspapers have performed well. Newspaper circulation revenues are in line with expectations. Revenues in the Books segment have done well, improving their performance on last year's. In a highly competitive, shrinking market, magazine circulation and advertising revenues are in line with current year forecasts. The Dada group continues to perform well, confirming its solid position on its particular market while carrying on its strategy of international expansion. All the group's businesses continue to pay great attention to cost saving and process optimization. Based on the information currently available and provided there are no currently unforeseeable events and despite promotional costs for initiatives by Corriere della Sera, we expect this year's operating results to be slightly higher than in 2006.

TREASURY SHARES

Details of the movements in treasury shares can be found in the report on operations by the parent company RCS MediaGroup S.p.A..

TRANSACTIONS WITH RELATED PARTIES

Details of related-party transactions can be found in the notes to the financial statements.

MANAGEMENT OF FINANCIAL RISKS

The group's objectives and policies regarding financial risk management, including its hedging policy and exposure to credit, price, liquidity and cash flow risks, are discussed in detail in the notes to the financial statements.

SECURITY PLAN

In compliance with the provisions of Decree 196/2003 ( the "Personal data protection code"), it is reported that the RCS Group has drawn up a Security Plan, which will be updated within the legal term of March 31, 2007.

42 CORPORATE GOVERNANCE

The present chapter includes a description of the information included in the Corporate Governance report - as required by Section IA.2.6 of the Instructions to the Regulations of Markets Organized and Managed by Borsa Italiana S.p.A and as part of the Shareholders’ Meeting convened to approve the full year 2006 financial statements – related to the Company’s system of corporate governance and its compliance with the recommendations contained in the March 2006 edition of the Code on Corporate Governance issued by Borsa Italiana S.p.A. (henceforth known as the "Code"). The report will therefore refer to the principles and application guidelines adopted by the Company (specifying in brackets the references to the corresponding articles in the Code), which of its recommendations have been adopted during 2006 or nonetheless at the approval date of this report (that coincides with the approval of the present Directors’ Report on Operations) and which will be adopted in 2007, as well the reasons why certain recommendations have either been adopted partially or not at all.

I. ROLE OF THE BOARD OF DIRECTORS

PRINCIPLES

1. (1.P.1.) The Company shall be governed by a Board of Directors that meets at regular intervals, and which organizes itself and operates in such a way as to ensure that its duties are conducted both effectively and efficiently.

2. (1.P.2.) The directors shall behave and pass resolutions autonomously and in full knowledge of the facts, in pursuit of the priority goal of creating value for the shareholders. Consistent with this goal, the directors shall also take account of the directives and policies defined for the group to which the Company belongs, as well as the benefits arising from the membership of such group.

APPLICATION GUIDELINES

i) (1.C.1.) In discharging its primary responsibility of determining and pursuing the strategic goals of the Company and Group it currently heads and in addition to those duties falling to it under the by-laws and those that nonetheless may not be legally delegated, the Board of Directors is also, if appropriate, by way of internal limitation relative to the delegated powers to be exercised in respect of third parties, the exclusive body which: a) examines and approves the Company's strategic, operational and financial plans and the corporate structure of the Group it heads; b) evaluates the adequacy of the organizational, administrative and accounting structure of the Company and its strategic subsidiaries, as established by the executive officers, particularly with regard to the internal control system and the management of conflicts of interest; c) delegates and revokes powers to the Chief Executive Officer(s) and to the Executive Committee, if established, and to the Chief Operating Officer(s), specifying the limits on such powers and how they shall be exercised, in compliance with relevant laws and the Company's by-laws; it also determines the frequency, in any case at least once every three months, with which such delegated (or executive) bodies shall report to the Board on the activities performed in the exercise of the powers delegated to them; d) determines, after examining the proposals of the Group Compensation Committee and consulting the Board of Statutory Auditors, the remuneration of the executive directors and of those directors who have been appointed to hold particular office and, if the shareholders' meeting has not already done so, it allocates the Board's overall remuneration to its individual members;

43 e) evaluates the Company's general performance, paying particular attention to the information received from the executive bodies, and periodically comparing the results achieved with those planned; f) examines and gives prior approval to transactions carried out by the Company and its subsidiaries that are of strategic significance or have a significant impact on the Company's operating performance, capital structure and financial position, paying particular attention to transactions in which one or more directors has an interest on their own account or on account of third parties and, in more general terms, to transactions involving related parties; to this end, the Board establishes general guidelines for identifying those transactions which might have a significant impact; g) evaluates, at least once a year, the size, composition and performance of the Board of Directors and its sub-committees, eventually identifying new professional figures whose presence on the Board is considered to be appropriate; h) provides information, in the corporate governance report, on the application of Article I of the Code and, in particular, on the number of meetings of the Board of Directors and of the Executive Committee, if any, held during the financial year, plus the related attendance record of each director in percentage terms.

ii) (1.C.2.) The directors shall accept the directorship when they believe that they can devote the necessary time to the diligent performance of their duties, also taking into account the number of other appointments as a director or statutory auditor held in other companies listed on regulated markets (in Italy or abroad) and in financial, banking, insurance or other large companies. On the basis of the information received from the directors, the Board shall record an annual basis the appointments as a director or statutory auditor held by the directors in the aforementioned companies and disclose details thereof in the corporate governance report.

iii) (1.C.3.) The Board shall issue guidelines regarding the maximum number of other appointments as a director or statutory auditor in those companies listed above which may be considered compatible with an effective performance of a director's duties. To this end, the Board shall identify the general criteria, differentiating them according to the commitment entailed by each role (executive, non-executive or independent director), as well as the nature and size of the companies in which the appointments are held, plus whether or not such companies are members of the Group headed by the Company.

iv) (1.C.4.) If, for organizational purposes, the shareholders' meeting authorizes, on a general, upfront basis, exceptions to the non-compete provisions contained in article 2390 of the Italian Civil Code, then the Board of Directors shall evaluate each such case, reporting any critical ones at the next shareholders' meeting. To this end, each director shall inform the Board, upon accepting his/her appointment, of any activities exercised in competition with the Company and its subsidiaries and of any subsequent significant changes in this status.

********** When adopting these application guidelines, the Board of Directors has stated that:

- with reference to guideline i):

- a strategic subsidiary for the purposes of point b) shall be defined as any subsidiary in law, with the exception, however, of those companies listed on regulated markets (including foreign markets) and, in particular, those companies (and their subsidiaries) not subject to supervision and management by the Company, (i) which is directly controlled by the Company and has its main business in the publishing sector and/or the communications sector in general and is also under the obligation to have its financial statements audited pursuant to article 165 of Decree 58/1998, or ii) which has been identified as such by the Company's Chief Executive Officer by virtue of the materiality of its operating results, capital structure and financial position, or which, by virtue of its characteristics and type of business, plays an important role within the Group headed by the Company; this definition does not apply to those

44 companies with autonomy of management and not subject to the Company's direction and co- ordination, which are listed on regulated markets (in Italy or abroad) or any of their subsidiaries;

- regarding point f), the Board shall adopt internal guidelines for the conduct and performance of significant transactions (as well as procedures for the conduct and performance of transactions with related parties or those in which a director has an interest), which contain the general criteria for identifying them, details of which are given in the corporate governance report;

- when discharging their duties, the directors shall examine the information received from the executive bodies, seeking all clarifications, explanations or additions from the same that are considered necessary or appropriate for the Board to make a full and fair assessment of the facts being brought before it. The Chairman of the Board of Directors shall endeavour to ensure that the information and documents needed for decision-making purposes are provided to members of the Board, in the most adequate and timely manner possible. The Board of Directors may request the Chief Executive Officer and senior managers of the Company and of companies belonging to the Group it heads to attend board meetings to provide due explanations on the matters being discussed.

- with reference to guideline iv):

- when performing this evaluation of the existence of critical situations, the Board of Directors shall take account of the information previously provided to the shareholders' meeting at the time of adopting the resolution authorizing exceptions to the non-compete provision contained in article 2390 of the Italian Civil Code and of the relevant situations subsequently arising or nonetheless regarded as not sufficiently known to shareholders.

**********

As regards implementation of the principles and related application guidelines set out above, the Board of Directors:

- has examined and approved the budget of the Company and the Group for financial year 2007, having approved a three-year strategic plan in the past, which covered 2006; - has approved, in some cases referring to and confirming resolutions already adopted in the past: i) the Company's overall system of governance, specifically involving the process of delegating powers and functions, including the establishment of board committees, the same relevant internal rules adopted in compliance with the Code, the instructions contained in internal procedures on significant transactions, transactions with related parties and those in which a director has an interest, which apply regardless of the powers delegated to the Executive Committee and to individual directors; ii) the corporate structure of the Group headed by the Company (which carries out direction and co-ordination activities in respect of most of its subsidiaries); - has evaluated the adequacy of the organizational, administrative and general accounting structure of the Company and its strategic subsidiaries, as described above, with particular reference to the internal control system and management of conflicts of interest, expressing a positive opinion on it and the organization of these structures; such a conclusion was reached not only on the basis of the principal internal policies and procedures, many of which drawn from the Group's Ethical Code and Organizational, Management and Control Model under Decree 231/2001, directly approved by the same Board and distributed internally under the responsibility of the Chief Executive Officer & Chief Operating Officer, and also applied by the subsidiaries, but also on the basis of the evaluation of the internal control system carried out by the Internal Control Committee, in turn referring to evaluations performed by the Officer responsible for internal control and the system's administrators both within the Company and its strategic subsidiaries; - has delegated management powers and the Company’s representation to the Chief Executive Officer & Chief Operating Officer and to the Executive Committee, and to its Chairman basically only in the event that the Chief Executive Officer & Chief Operating Officer is absent or otherwise unable (more details can be found in the comments on Article II of the Code below). The Board has also established, in line with existing practice, that the executive bodies must report to it once every three months on their activities carried out in

45 the exercise of the powers delegated to them (under the existing by-laws the Board of Directors and the Board of Statutory Auditors must nonetheless be briefed on a timely basis and at least once a quarter on the work of the directors, the Company's general performance and outlook and on the transactions carried out by the Company or its subsidiaries that are nonetheless regarded as significant by virtue of their size or characteristics, and particularly those in which any director has an interest on his own account or that of third parties); - has determined, having examined proposals by the Group Compensation Committee and obtained the consent of the Board of Statutory Auditors, the remuneration of the Chief Executive Officer & Chief Operating Officer and its Chairman, as well as allocating to individual members the overall remuneration voted to the Board by the shareholders at the time of its appointment; - has evaluated the general performance of the Company and the Group, paying particular attention to the information received from the executive bodies, and comparing the results achieved with those planned; - has examined and given prior approval to transactions that are of strategic importance carried out by the Company and its subsidiaries (except for those subsidiaries listed on regulated markets and, in particular, not subject to supervision and management by the Company or its subsidiaries), to those transactions with a significant impact on the Company's operating performance, capital structure and financial position, as well as transactions with affiliated parties, paying particular attention to transactions in which one or more directors has an interest on their own account or on account of third parties and to transactions involving related parties in general. To this end, the Board has adopted new procedures for the conduct and performance of such significant transactions, which contain general guidelines on how to identify them. These guidelines define significant transactions as those transactions to be carried out (including through the making of binding preliminary agreements or master agreements) by the Company or one of its subsidiaries with any party and which fall into the following categories: a) mergers or spin-offs in relation to which at least one of the following ratios, if applicable, is equal to or greater than 15%: - total assets of the company potentially to be absorbed (or merged) or the assets potentially being spun off/total assets of the Company (as reported in its latest consolidated financial statements) - earnings before tax and extraordinary items of the company potentially to be absorbed (or merged) or the assets potentially being spun off/earnings before tax and extraordinary items of the Company (as reported in its latest consolidated financial statements) - total equity of the company potentially being absorbed (or merged) or of the business unit potentially being spun off/total equity of the Company (as reported in its latest consolidated financial statements), or in any case mergers between listed companies either through absorption or union of a listed company with an unlisted company; b) disposals or acquisitions, in any form, of equity interests, businesses, business units, fixed and other assets, including real estate, if the total value of each transaction exceeds €100 million; c) investments in fixed assets if the total value of each transaction exceeds €100 million; d) property lets (or sub-lets) or rentals (or sub-rentals) of businesses or business units lasting for more than nine years or if the total value of each transaction exceeds €100 million; e) settlements of disputes, in or out of court, in excess of €50 million per transaction; f) grants of loans or guarantees in excess of €50 million per transaction, if in favour of or in the interest of the Company and/or in the interest and/or in the favour of companies (or other parties) directly or indirectly controlled by the Company, or grants of loans or guarantees in excess of €10 million per transaction, if in favour of or in the interest of third parties; g) acceptance of loans, mortgages or any debt security, in any form and so also against the issue of financial instruments, if the total amount of each transaction exceeds €100 million or is of such an amount that the overall amount of the Company's consolidated borrowing position will exceed the figure of €1 billion by more than 5% as a result of the new loans or debt; h) sale and purchase agreements or supply agreements, in any form, for movable assets or the performance of work or services, not relating to investments in fixed assets, if the amount of each transaction exceeds €100 million or if the agreement has a term of more than 5 years; 46

- has carried out a preliminary evaluation of the size, composition and performance of the Board itself and its committees, based on the number of members and their characteristics and experience, on the Company's activities also in relation to its exercise of direction and co-ordination over its subsidiaries, and on the procedures and speed of operation of such collective bodies; the Board has expressed a positive opinion as a result of this work but intends carrying out a fuller, more structured review in 2007 although it does not currently see the need to adopt a policy on the professional figures whose presence on the Board might be considered appropriate; - intends to adopt a policy during 2007 on the maximum number of other appointments as a director or statutory auditor in companies listed on regulated markets (in Italy or abroad) and in financial, banking, insurance or other large companies that may be regarded as being compatible with an effective performance of their duties by a director of the Company, identifying general criteria tailored according to the commitment entailed by each role (ie. executive, non-executive or independent director) and also according to the nature and size of the companies in which the appointments are held, and whether or not such companies are members of the Group headed by the Company; - is of the opinion - being in the presence of a general, prior shareholder authorization of the exception to the non-compete provisions contained in article 2390 of the Italian Civil Code adopted at the time of appointing the entire serving Board on April 27, 2006 - that there are no critical issues requiring disclosure at the earliest next shareholders' meeting. In addition, during board meetings directors have examined the information received from the executive bodies, seeking all clarifications, explanations or additions from the same that were considered necessary or appropriate for them to make a full and fair assessment of the facts being brought before them. The Chairman of the Board of Directors has endeavoured to ensure that the information and documents needed for decision- making purposes have been provided to members of the Board in the most adequate and timely manner possible. At the Board's request or with its consent, senior managers of the Company and its subsidiaries have attended board meetings in order to provide due details on the matters being discussed. The Board of Directors and Executive Committee met 8 and 4 times respectively in 2006, with an average attendance by their members in office at the time of the meeting of approximately 79% and 90% respectively. At the end of 2006 (like at date of this report), the Board of Directors had the following members: Piergaetano Marchetti, Gabriele Galateri di Genola, Antonio Perricone, Raffaele Agrusti, Roberto Bertazzoni, Claudio De Conto, Diego Della Valle, John P. Elkann, Giorgio Fantoni, Franzo Grande Stevens, Berardino Libonati, Jonella Ligresti, Paolo Merloni, Andrea Moltrasio, Corrado Passera, Renato Pagliaro, Alessandro Pedersoli, Carlo Pesenti and Virginio Rognoni, details of whose attendance at board and committee meetings can be found in the tables at the end of this report. Other members serving on the Board for only a part of the year were as follows: Carlo Buora (up until November 10, 2006, attending 4 out of the 6 board meetings held until that date, representing a 66.67% attendance), Cesare Geronzi (up until April 27, 2006 but remaining suspended from office after receiving a court order on February 21, 2006 which temporarily banned him from holding management office in legal entities and other enterprises for two months, and who attended none of the board meetings during his period in office in 2006), Giangiacomo Nardozzi Tonielli (up until August 31, 2006, attending 4 out of the 5 board meetings held until that date, representing an 80% attendance), Umberto Quadrino (up until April 27, 2006, who did not attend the one meeting held until that date) and Vittorio Colao (up until September 12, 2006, attending all 6 of the board meetings held until that date and all 3 meetings of the Executive Committee, representing a 100% attendance during his term in office).

Based on the information provided by the persons concerned, the Board has recorded the other appointments held by the directors as a director or statutory auditor in other companies listed on regulated markets (in Italy or abroad) and in financial, banking, insurance or other large companies. At the end of 2006, such appointments held by directors in office at that date were as follows:

Piergaetano Marchetti: Chairman of the Board of Directors of RCS Quotidiani S.p.A., Director and Member of the Executive Committee of Assicurazioni Generali S.p.A., Director of Flammarion S.A., Director of Unidad Editorial S.A.;

47

Gabriele Galateri di Genola: Chairman of the Board of Directors of S.p.A., Deputy Chairman of the Board of Directors of Assicurazioni Generali S.p.A., Director of Banca Esperia S.p.A., Director of Banca CRS S.p.A., Member of the Central Advisory Board of Commerzbank A.G., Director of Italmobiliare S.p.A., Chairman of the Board of Directors of Istituto Italiano di Tecnologia, Chairman of the Board of Directors of Istituto Europeo di Oncologia S.r.l., Chairman of the Board of Directors of Centro Cardiologico Monzino S.r.l., Director and Member of Supervisory Committee of San Faustin N.V., Director of Utet S.p.A., Director and Member of Appointments Committee of Accor S.A., Director of & C. S.p.A., Director of Sifalberghi S.r.l., Director of Fiera di Genova S.p.A.;

Antonio Perricone: Chief Executive Officer of RCS Quotidiani S.p.A., Director of m-dis S.p.A., Director of Istituto Europeo di Oncologia S.r.l., Director of Unidad Editorial S.A., Director of Flammarion S.A.;

Raffaele Agrusti: Chairman of the Board of Directors of La Venezia Assicurazioni S.p.A., Chairman of the Board of Directors of Generali Servizi S.p.A., Chairman of the Board of Directors of Gruppo Generali Liquidazioni S.p.A., Deputy Chairman of the Board of Directors of Banca Popolare FriulAdria, Director of Premuda S.p.A., Member of Supervisory Committee of Carnica Assicurazioni S.p.A., Director of Toro Assicurazioni S.p.A.;

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

Claudio De Conto: Director of Emittenti Titoli S.p.A., Director of Pirelli & C. Ambiente S.p.A., Chairman of the Board of Directors of Pirelli Broadband Solutions S.p.A., Director of Pirelli Labs S.p.A., Director of Pirelli Servizi Finanziari S.p.A., Director of Pirelli Tyre S.p.A.;

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

John P. Elkann: Deputy Chairman of the Board of Directors of FIAT S.p.A., Chairman of the Board of Directors of Itedi S.p.A., Unlimited Partner and Deputy Chairman of the Board of Directors of Giovanni Agnelli e C. S.a.p.az., Deputy Chairman of the Board of Directors of IFIL S.p.A., Director of IFI S.p.A., Director of Editrice La Stampa S.p.A., Director of Group;

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

Berardino Libonati: Chairman of the Board of Directors of Banca di Roma S.p.A., Director of Mediobanca S.p.A., Director of Pirelli & C. S.p.A., Director of ESI Edizioni Scientifiche Italiane S.p.A., Director of Nomisma S.p.A.;

Jonella Ligresti: Director of Finadin S.p.A., Chairman of the Board of Directors of Fondiaria-SAI S.p.A., Deputy Chairman of the Board of Directors of Gilli S.r.l., Director of Mediobanca S.p.A., Director of Milano Assicurazioni S.p.A., Deputy Chairman of the Board of Directors of Premafin Finanziaria HP S.p.A., Chairman of the Board of Directors of SAI Holding Italia S.p.A.;

Paolo Merloni: Chief Executive Officer of Merloni Termosanitari S.p.A., Chief Executive Officer of Merloni Finanziaria S.p.A., Director of Merloni Finanziaria International S.p.A., Director of Merloni Invest S.p.A., Director of Fintes S.r.l., Chairman of the Board of Directors of MTS Group Center S.A.;

Andrea Moltrasio: Director of Banca Popolare di Bergamo S.p.A., Director of BPU Banche Popolari Unite

48 S.c.p.A.;

Renato Pagliaro: Director of Telecom Italia S.p.A., Director of Compass S.p.A., Director of Selmabipiemme Leasing S.p.A., Director of Burgo Group S.p.A., Director of Cofactor S.p.A., Acting auditor of Istituto Europeo di Oncologia S.r.l.;

Corrado Passera: Chief Executive Officer of Intesa SanPaolo S.p.A., Director of Crédit Agricole S.A., Director of Bocconi University;

Alessandro Pedersoli: Director of Banche Popolari Unite S.c.p.A., Director of EFFE 2005 Finanziaria Feltrinelli S.p.A., Director of Assicurazioni Generali S.p.A.;

Carlo Pesenti: Director of Ciments Francais S.A., Director of Banche Popolari Unite S.c.p.A., Chief Executive Officer and Member of Executive Committee of S.p.A., Director and Member of Executive Committee as well as Chief Operating Officer of Italmobiliare S.p.A., Director of Mediobanca S.p.A., Director and Member of the Executive Committee of Unicredito Italiano S.p.A.; while Giorgio Fantoni and Virginio Rognoni do not hold any other appointments.

II. COMPOSITION OF THE BOARD OF DIRECTORS

PRINCIPLES

1. (2.P.1.) The Board of Directors shall be made up of executive and non-executive directors.

2. (2.P.2.) Non-executive directors shall bring their specific expertise to board discussions and contribute to the taking of balanced decisions paying particular attention to the areas where conflicts of interest may exist.

3. (3.P.3.) The number, expertise, authority and time availability of non-executive directors shall be such as to ensure that their judgement may carry a significant weight in influencing the board's decisions.

4. (4.P.4.) It is advisable to avoid the concentration of corporate offices in one single individual.

5. (5.P.5.) If the Board of Directors has delegated operational powers to its Chairman, it shall disclose adequate information in the corporate governance report on the reasons for such an organizational decision.

APPLICATION GUIDELINES

i) (2.C.1.) The following are treated as executive directors: a) the directors holding the office of chief executive officer in the Company or a strategic subsidiary, including the related chairmen if these have been granted individual operational powers or if they play a specific role in the definition of business strategies; b) the directors vested with management duties in the Company or in one of its strategic subsidiaries, or in any parent company or other parent entity, when such position also concerns the Company; c) the directors who are members of the Company's Executive Committee, if no Chief Executive Officer has been appointed or if the participation in the Executive Committee, taking into account the frequency of the meetings and the scope of the relevant resolutions, effectively entails the systematic involvement of its members in the Company's day-to-day management.

49 ii) (2.C.2.) Directors are required to know the duties and responsibilities carried by their office. The Chairman of the Board of Directors shall organize the work of the Board of Directors and act as a liaison between the executive and non-executive directors. In addition, if it is necessary to learn more about subjects presented to board meetings and its sub-committees, then the Chairman shall see that, for the purposes of performing their role effectively, directors participate in initiatives aimed at increasing their knowledge of such matters and their impact on the business, also having regard to the relevant regulatory framework. iii) (2.C.3.) If the Chairman of the Board of Directors is the company's chief executive officer, or if the office of Chairman is covered by the person controlling the Company, the Board shall designate a lead independent director, who represents a point of reference and co-ordination for the requests and contributions of non- executive directors and, in particular, those who are independent as defined in Article III of the Code. The lead independent director shall carry out this function by working in collaboration with the Chairman of the Board of Directors.

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When adopting these application guidelines, the Board of Directors has also stated that:

- with reference to points a) and b) of guideline i):

- a strategic subsidiary shall be defined, for the purposes indicated therein, in accordance with the related criteria already specified in guideline i) of the Code's Article I, as well as any other subsidiary that is listed on regulated markets (in Italy or abroad);

- the granting of powers only in urgent cases to directors not in possession of operational authority is not enough, on its own, to cause them to be classified as executive directors, unless such powers are actually exercised with considerable frequency;

- shareholders are recommended, at the time of appointing the Board of Directors, to assess the number, experience and personal characteristics of the candidates relative to the size of the Company and the Group it heads and the complexity and specific features of its business sector, and the proposed size of the Board itself;

- with reference to guideline ii):

- for the purposes of avoiding a duplication of information and efforts in board and committee meetings, the Chairman shall decide the need for any additional information on the basis of that already received during such meetings:

- with reference to guideline iii):

- the lead independent director, if appointed, shall work with the Chairman of the Board of Directors in order to ensure that the directors receive full and timely information and has the power, amongst others, to call, independently or at the request of other directors, specific meetings of just the independent directors to discuss the matters considered of interest regarding the operation of the Board of Directors or the Company itself.

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As regards implementation of the principles and related application guidelines set out above, taking into account the offices, powers and duties attributed within the Company and its strategic subsidiaries, as defined above, as well as the frequency of meetings of the Executive Committee and the subject of its related resolutions, the Board considers that: - the Chief Executive Officer (& Chief Operating Officer), Antonio Perricone, is the only executive director;

50 - the remaining directors, including the Chairman of the Board of Directors, are all non-executive.

For the sake of efficient, flexible management of the business, especially in terms of representing the Company before third parties, and nonetheless with the rules of corporate governance as adopted by the Company being observed internally, the Board of Directors has granted:

- the Chief Executive Officer & Chief Operating Officer with responsibility for the company's overall management and for the direction and co-ordination of the relevant subsidiaries, wide powers for the conduct of the company's management with limits on the size of financial commitments and/or risks that may be taken on for certain types of transaction;

- the Executive Committee all the powers of ordinary and extraordinary administration, except for those relating to the purchase and sale of majority equity investments in companies not controlled by the Company as defined by article 93 of Decree 58/1998, and those reserved in law for the Board of Directors, nonetheless explicitly excluding, for internal purposes, those activities reserved by the Code, in the form adopted by the Company, and by the internal procedures governing the conduct and performance of significant transactions, transactions with related parties or in which a director has an interest. The Executive Committee usually carries out examinations and reviews in preparation for the subsequent presentation to the Board of Directors of actual financial results and balance sheets, budgets and long-term plans, significant transactions that the Committee's chairman or Chief Executive Officer decides to bring to the attention of the Committee itself, again in preparation for a subsequent board resolution.

The Board has charged its Chairman with the task of monitoring and co-ordinating the Company's governance and of working with the Chief Executive Officer on certain matters. It has also granted the Chairman the same powers as the Chief Executive Officer & Chief Operating Officer, to be exercised only when the latter is absent or otherwise unable, and, jointly with the Chief Executive Officer, only those powers relating to the purchase or sale of equity investments or businesses and the execution of business and property rental agreements (lasting less than nine years), with a value in the range of €10-20 million. It is clear that these powers are solely for the purpose of dealing with situations of particular urgency or extreme need. In keeping with this purpose, the Chairman has limited himself to exercising these powers only in exceptional circumstances, of absolute necessity and urgency, when the other persons so empowered are irremediably absent or unable. With regard to independent directors, discussed in Article III below, the Board has decided not to appoint a lead independent director because the circumstances specified by the Code do not apply.

51 III. INDEPENDENT DIRECTORS

PRINCIPLES

1. (3.P.1.) An adequate number of non-executive directors shall be independent, in the sense that they do not maintain, nor have recently maintained, directly or indirectly, any business relationships with the Company or persons linked to it, of such a significance as to influence their independence of judgement.

2. (3.P.2.) The directors' independence shall be periodically assessed by the Board of Directors. The results of the assessments by the Board shall be communicated to the market.

APPLICATION GUIDELINES i) (3.C.1./3.C.2.) The Board of Directors shall evaluate the independence of its non-executive members, placing more emphasis on substance rather than the form and bearing in mind that a director is usually not regarded as being independent in the following circumstances: a) if he/she controls, directly or indirectly, the Company also through companies under their control, trustees or through a third party, or is able to exercise a significant influence over the Company, or participates in a shareholders' agreement under which one or more persons may exercise control or significant influence over the Company or - bearing in the mind the scope and contents of this article, or the purpose of ensuring a sufficient number of directors without relationships that might influence their independence of judgement even potentially - in a shareholders' agreement that, although not representing one of the above cases, carries consultation obligations and through which its participants, or their parent companies, directly or indirectly hold an interest in the Company's ordinary share capital that, if the agreement's obligations were to relate to voting rights at the Company's ordinary shareholders' meetings, would allow them to have control or a significant influence over the Company in a legal sense (henceforth known as a "shareholders' consultation agreement"); b) if he/she is, or has been in the preceding three financial years, a top representative of the Company, of a strategic subsidiary, as defined in Article II, or of a company under the same control as the Company, or of a company or entity which, including jointly with others through a shareholders' agreement, controls the Company or is able to exercise over the same a significant influence in a legal sense, or which takes part in a "shareholders' consultation agreement", or of a company controlled by such a company or entity; c) if he/she has, or had in the preceding financial year, directly or indirectly (e.g. through companies under their control or companies of which he/she is a top representative, or in the capacity as partner of a professional firm or of a consulting company) a significant commercial, financial or professional relationship or, in certain cases, other types of relationship (but not ones of courtesy): - with the Company, one of its subsidiaries, or any of its top representatives; - with a party who, jointly with others through a shareholders' agreement, controls the Company, or exercises a significant influence over it or takes part in a "shareholders' consultation agreement", or with a company controlled by such party, or - in the case of a company or an entity - with the related top representatives; or is, or has been in the preceding three financial years, an employee of one of the aforementioned parties; d) if he/she receives, or has received in the preceding three financial years, from the Company or one of its subsidiaries or parent companies, or from a participant in a "shareholders' consultation agreement", or from a company controlled by such a party, significant additional remuneration apart from the "fixed" fee as a non- executive director of the Company, including participation in performance-related incentive schemes, including equity-settled ones; e) if he/she has been a director of the Company for more than nine years in the last twelve years; f) if he/she is an executive director of another company in which one of the Company's executive directors is a director; g) if he/she is a shareholder or director of a company or entity belonging to the same network as the firm appointed to audit the Company's financial statements; h) if he/she is a close relative of a person fitting the description contained in any of the above points.

52 The "top representatives" of a company or an entity mean: the chairman, the legal representative, the chairman of the board of directors, the executive directors and the top management of the company or entity concerned;

ii) (3.C.3.) The number and experience of independent directors shall be adequate in relation to the size of the Board and the Company's activity; moreover, their number must be such as to enable the creation of sub- committees within the Board, in accordance with the Code's recommendations. If the Company is subject to direction and co-ordination by third parties or is legally controlled by a party operating, directly or through other subsidiaries, in the same business sector or in related sectors, the composition of the Company's Board of Directors shall be such as to ensure adequate autonomy of management and, therefore, to pursue as a priority the goal of creating value for the Company's shareholders.

iii) (3.C.4.) After the appointment of a director who qualifies himself/herself as independent, the Board of Directors shall review at least once a year, on the basis of the information provided by the same director or, nonetheless available to the Company, those relationships which could be or appear to be such as to jeopardize the independence of judgement of such director. The Board of Directors shall notify the result of its evaluations, by issuing a press release to the market at the time of a director's appointment and, subsequently in the corporate governance report, specifying, with adequate reasons, whether any criteria have been adopted that differ from those contained in the Code, with the exception of those instances involving a newly nominated director when Board of Directors has already published its reasoning for said nomination as part of the most recent corporate governance report.

iv) (3.C.5) The Board of Statutory Auditors shall verify, as part of its legally required duties, the correct application of the assessment criteria and procedures adopted by the Board for evaluating the independence of its members. The result of such controls shall be notified to the market in the corporate governance report or in the report of the statutory auditors to the shareholders' meeting.

v) (3.C.6.) The independent directors shall meet at least once a year without the presence of the other directors.

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When adopting these application guidelines, the Board of Directors has also stated that:

- with reference to guideline i):

- the "network" of the firm appointed to audit the financial statements shall refer to the legal definition, or in its absence or as an adjunct, the definition contained in the document entitled "Independence principles for external auditors" issued by the Italian Accounting Profession;

- a "significant" commercial, financial or professional relationship or, in certain cases, other types of relationship (like in point g), means a relationship of a significance such as to influence the independence of judgement of a director of the Company in discharging his/her duties, making an evaluation in this regard that takes account of both the related absolute amounts and the significance to the general position, particularly the financial one, of the person concerned or those associated with him, without prejudice to the Board's option to lay down a specific definition of significance for the purposes of making such evaluation;

- a "close relative" (like in point h) means a parent, child, spouse unless legally separated, common-law spouse of the person concerned and other relatives who live together with the latter.

53 Furthermore, still in relation to the criteria contained in guideline i) above, the Board has established that, in addition to the cases contained in the Code, a director is usually not regarded as independent in the event of participating, or having relationships with a participant, in a shareholders' agreement under which one or more parties may not only exercise control or a significant influence over the Company but also in a shareholders' agreement containing consultation obligations and through which its participants, or their controlling companies, directly or indirectly hold an interest in the Company's ordinary share capital that, if the agreement's obligations were to relate to voting rights at the Company's ordinary shareholders' meetings, would allow them to have control or a significant influence over the Company in a legal sense;

- with reference to guideline ii):

- for the purposes envisaged herein and without prejudice to the provisions of law and the by-laws regarding the appointment and qualifications of directors, the Board invites shareholders to present proposals and adopt resolutions that allow the above criteria to be observed, as well as complying itself in the event of any resolutions that are adopted under article 2386.1 of the Italian Civil Code;

With reference to guideline iii), it has been decided, in order to avoid duplicating information, that when the Board of Directors reports the results of its evaluation of the independence of a new director, the required press release does not have to repeat the reasons for adopting criteria that differ from those specified in the Code, in other words from those already adopted by the Board of Directors if these have already been published as part of the most recent corporate governance report.

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As regards implementation of the principles and related application guidelines set out above, the Board of Directors has approved a set of procedures on how to check the information needed to evaluate a director's independence, based on the information provided by the persons concerned and available to the Company, and has also applied such procedures, as a result of which and of the principles and guidelines adopted, the directors Giorgio Fantoni, Andrea Moltrasio, Alessandro Pedersoli and Virginio Rognoni all qualify as independent. The Board of Statutory Auditors has also carried out its required review, not reporting any matters in relation to the Board of Directors' decisions and assessments in this regard.

In addition, there is also a requirement that at least the first meeting of the independent directors be held in 2007.

IV. MANAGEMENT OF CORPORATE INFORMATION

PRINCIPLES

1. (4.P.1.) The directors and statutory auditors are required to treat the documents and information acquired in the performance of their duties as confidential and to comply with the procedures adopted by the Company for the internal management of such documents and information and their disclosure to third parties.

54 APPLICATION GUIDELINES i) (4.C.1.) The Chief Executive Officer, acting in agreement with the Chairman of the Board of Directors on the basis of the latter's role and functions, shall ensure that confidential information is correctly handled; to this end they shall propose to the Board of Directors that procedures be adopted for the internal management and disclosure to third parties of information concerning the Company and its subsidiaries, with special reference to price-sensitive information as defined in law; such procedures shall be designed, amongst others, to avoid the publication of information on a selective basis (meaning information that might be disclosed prematurely in respect of certain parties, inappropriately, incompletely or inadequately).

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When adopting this principle and related application guidelines, the Board has established that the correct handling of corporate information is ensured by the Chief Executive Officer, acting in agreement with the Chairman of the Board of Directors in light of the position held by the latter, if, like at present, the latter has a duty to supervise and monitor the Company's corporate governance.

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As regards implementation of the above, the Board of Directors has adopted a set of procedures for managing and disclosing confidential and price-sensitive corporate information, which have updated the existing rules. These procedures comply with relevant legal requirements and define responsibilities, operating procedures and activities involving the management and disclosure of such information about the Company and the Group, with particular reference to "price-sensitive" information, whose publication must be previously authorized by the Company's Chief Executive Officer, acting in agreement with the Chairman of the Board of Directors.

In detail, these procedures, which concern directors, statutory auditors and employees of the Company and of any company it controls (except for a listed subsidiary or its subsidiaries, in which case a similar procedure to that adopted shall apply), also place an obligation on all recipients of confidential information learned in the course of their duties, office or appointment: (i) not to publish it, with its only permitted use being for the purposes of the normal discharge of such duties, office or appointment and only allowed to be disclosed to others during such discharge if such recipients also give an undertaking of confidentiality and (ii) in general, to treat the information in question by adopting every due precaution so that any disclosure of the same takes place without prejudice to its strictly confidential nature, until such time as this information enters the public domain in accordance with the same procedures.

In addition, insofar as these procedures are linked to the internal management of corporate information and disclosures to the market to be made by the Company, the Board has adopted not only a set of procedures for the creation and maintenance of the register of persons with access to price-sensitive information, required by article 115-bis of Decree 58/1998 and related implementation instructions, but also rules on dealing in shares or related financial instruments issued by the Company or its subsidiaries, as required by article 114.7 of Decree 58/1998 and related implementation instructions.

V. INTERNAL COMMITTEES OF THE BOARD OF DIRECTORS

PRINCIPLES

1. (5.P.1.) The Board of Directors shall establish from among its members one or more committees to act in an advisory and consultative capacity, as specified in Article VI, and if necessary, in Articles VII and VIII.

55

APPLICATION GUIDELINES i) (5.C.1.) The establishment and operation of such sub-committees of the Board of Directors shall meet the following criteria: a) committees shall be made up of at least three members, unless the Board of Directors itself has no more than five members, in which case committees may comprise just two directors, provided that they are both independent, as defined by the Code in the form adopted by the Company; b) the duties of individual committees shall be established in the resolution that creates them and may be supplemented or amended by subsequent resolution of the Board of Directors; c) minutes shall be drafted for the meetings of each committee; d) in the performance of their duties and functions, the committees have the right to access the necessary company information and functions, and to use the services of external consultants, in accordance with the procedures established by the Board of Directors. The Company shall provide the committees with adequate financial resources for the performance of their duties, within the limits of the budget approved by the Board; e) persons who are not members of a committee may attend its meetings upon invitation of the same, with reference to individual items on the agenda, or on a permanent basis, based on the position held within the Company, with an obligation to leave such meetings if so requested; f) the Company shall provide adequate information, in the corporate governance report, on the establishment and composition of committees, the contents of the mandate entrusted to them and the activity actually performed during the financial year, specifying the number of meetings held and the related attendance record of each member in percentage terms.

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When adopting this principle and related application guidelines, the Board of Directors has stated that:

- if the Board itself has no more than five members, committees may comprise just two directors, provided that they are both independent, as defined in the Code in the form adopted by the Company; this is purely for reasons of consistency, given that the Company has adopted stricter independence criteria than those in the Code; - has decided that the extension of permanent invitations to non-committee members to partake in meetings and not just for individual items on the agenda (as envisaged by the related Code guideline) is compatible with the efficient conduct of such meetings, taking account of the position held by such persons within the Company and their obligation to leave such meetings if so requested; - has decided, as things stand, not to adopt the option allowed by the Code (in point c) of guideline 5.C.1) for functions to be distributed differently between committees, the number of which may be fewer than that envisaged by the Code.

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As regards implementation of the principle and related application guidelines set out above, the Board of Directors has updated the rules of procedure for the Internal Control Committee and the Group Compensation Committee (the first consisting of three members and the second of five members), which contain details of their related duties and rules of operation. Amongst others, these rules of procedure require meetings to be minuted and allow each committee to access the company information and functions needed for them to discharge their duties and to use the services of outside consultants, if considered necessary and using the financial resources provided by the Board of Directors. The Board has determined such financial resources for each committee although in the event of need or urgency the Chief Executive Officer, acting in agreement with the Chairman of the Board of Directors, is authorized to provide the resources required if for justified reasons. The Board has also allowed committees to use outside consultants, after informing the

56 Chief Executive Officer and the Chairman of the Board of Directors, when it is considered inappropriate or not possible to use the structures of the Company or those belonging to its subsidiaries.

Details of the composition and activities actually established by the Board of Directors for each committee can be found in Articles VII and VIII below.

VI. APPOINTMENT OF DIRECTORS

PRINCIPLES

1. (6.P.1.) The appointment of directors shall take place on the basis of a transparent process. This process shall ensure, inter alia, timely adequate information on the personal characteristics and professional qualifications of the candidates.

2. (6.P.2.) Taking account of the Company's ownership structure and the persons previously proposed as independent directors, the Board of Directors shall evaluate whether to establish from among its members an appointments committee consisting of a majority of independent directors. Such a committee shall act in an advisory and consultative capacity in relation to nominations of new independent directors and the evaluation of the size and composition of the Board itself and the presence therein of any professional figures that might be deemed appropriate.

APPLICATION GUIDELINES i) (6.C.1.) The lists of candidates for the office of director, accompanied by comprehensive information on the personal details and professional qualifications of the candidates, accompanied by any statements of their eligibility to qualify as independent directors in the sense of the Code as adopted by the Company, shall be filed at the Company's registered office at least fifteen days before the date fixed for the shareholders' meeting. The lists, accompanied by the candidates' details, shall be promptly published on the Company's website. ii) (6.C.2.) Without prejudice to the relevant provisions of law and the by-laws concerning the appointment, qualifications and replacement of directors, the Board Appointments Committee, when established, may be vested with one or more of the following functions: a) to present the Board of Directors with proposed candidates for the office of director in the case envisaged by article 2386.1 of the Italian Civil Code, in the event of having to replace an independent director; b) to designate candidates for the office of independent director for submission to the Company's shareholders, taking into account any recommendations in this regard received from shareholders; c) to express opinions to the Board of Directors as to the size and composition of the same as well as, possibly, the professional figures whose presence on the Board is deemed to be desirable. If the Board of Directors decides not to establish an Appointments Committee, again with the provisions mentioned above still holding good: a) the Chairman of the Board of Directors, provided he qualifies as a non-executive director, shall be responsible for presenting the Board with the names of candidates for the office of director, in the case of appointments falling under article 2386.1 of the Italian Civil Code involving the replacement of independent director, and for presenting recommendations to the Board on its size and composition and possibly on the professional figures, whose presence on the Board is deemed to be appropriate, in both cases after the Chairman has carried out due evaluations and reviews, including through consultation with the serving independent directors and b) the Board, acting in conjunction with its Chairman and in compliance with applicable provisions of law and the by-laws, shall draw up, if deemed appropriate, a list of candidates for the office of independent director for presentation to the shareholders' meeting, taking into account any recommendations received in this regard from shareholders.

57 **********

When adopting these principles and related application guidelines, the Board has decided in respect of Principle 2 that any duties of such a Committee shall be in line with those indicated in the Code, and has established general parameters on which to base the required evaluation by the Board itself of the need or otherwise to establish an Appointments Committee and, with regard to the application guideline in point ii) to establish general rules in the event that this evaluation leads to the decision not to establish such a committee.

When adopting the application guideline in point i), the Board has stated that, while the provisions of law and by-laws relating to the appointment of directors still apply, it would like the above recommendations to be observed when calling shareholders' meetings and with regard to the additional documentation to be presented before such meetings.

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As regards implementation of the principles and related application guidelines set out above, the Board has carried out the prescribed evaluation and concluded that it is not necessary to establish an Appointments Committee, based on the Company's current ownership structure and the persons already proposed as independent directors in the past. The Chairman, a non-executive director, has carried out the activities involving the presentation of names to the Board for co-option as directors, in the circumstances envisaged by article 2386.1 of the Italian Civil Code, while the Board has decided that it is not necessary to present the shareholders' meeting with any list of proposed candidates for the office of director.

VII. REMUNERATION OF DIRECTORS AND TOP MANAGEMENT

PRINCIPLES

1. (7.P.1./7.P.2.) The Board acknowledges that the remuneration of directors shall be set at a sufficient level to attract, retain and motivate directors with the professional skills needed to manage the Company successfully and that the remuneration of executive directors shall be structured in such a way as to align their interests with the pursuit of the priority goal of creating medium/long-term value for the shareholders.

2. (7.P.3./7.C.3) The Board of Directors shall establish a remuneration committee (known as the "Group Compensation Committee"), made up of non-executive directors, the majority of whom are independent, which: – shall present the Board with proposals on the remuneration of the Chief Executive Officer(s) and other directors holding particular office, monitoring application of the decisions adopted by the Board itself; – shall periodically evaluate the criteria adopted for the remuneration of managers with strategic or nonetheless significant responsibility, controls their application on the basis of the information provided by the Chief Executive Officer(s) and submits general recommendations on this topic to the Board of Directors.

APPLICATION GUIDELINES i) (7.C.1) Although all relevant resolutions adopted by the Company's shareholders in this area shall still hold good, a significant part of the remuneration of executive directors and managers with strategic or nonetheless significant responsibility shall be linked to the Company's economic results and/or to the achievement of specific goals set in advance by the Board of Directors or, in the case of the aforementioned top managers, by the Chief Executive Officer. ii) (7.C.2.) Although all relevant resolutions adopted by the Company's shareholders shall still hold good, the Board shall acknowledge that the remuneration of non-executive directors is proportional to the commitment

58 required of them, taking into account their possible membership of one or more committees. Their remuneration shall not - except for an insignificant portion thereof - be linked to the Company's economic results. Non-executive directors shall not be beneficiaries of equity-based incentive schemes, unless this is justifiably decided by the shareholders' meeting. iii) (7.C.3) No director shall be present in meetings of the Group Compensation Committee when proposals concerning his/her own remuneration are being discussed and decided for submission to the Board of Directors.

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When adopting the Code's principles and application guidelines, as clear from the above, the Board has formally adopted some of the Code's own provisions using the same wording contained therein, and has stated, for the sake of standardization and operational flexibility, that a director must absent himself only from that part of each meeting of the Group Compensation Committee which discusses proposals concerning his own remuneration, and not the entire such meeting. It has also stated, in relation to this Committee, that, as part of its duties, it shall present the Board of Directors with proposals specifically regarding that part of remuneration linked to the Company's economic results, providing recommendations on the associated targets and assessment criteria, in order to correctly align the remuneration of the Chief Executive Officer(s) and managers with strategic or nonetheless significant responsibility with the medium/long-term interests of shareholders and with the goals set for the Company and the Group by the Board of Directors. Average market remuneration for similar positions should also be considered when setting the level of remuneration, but without ignoring suitable parameters linked to the Company's performance. With particular reference to the use of stock options and other incentive schemes based on shares (or other financial instruments), the Group Compensation Committee shall present the Board with its recommendations on their use and all the relevant technical issues associated with their structuring and application. It shall present the Board with proposals on incentive schemes thought to be most appropriate and monitor the evolution and application over time of the plans approved by the shareholders' meeting at the recommendation of the competent governing bodies.

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As regards implementation of the principles and related application guidelines set out above,

- the Board of Directors has:

- determined the remuneration of the Company's Chief Executive Officer & Chief Operating Officer, as recommended by the Group Compensation Committee whose meetings were attended, upon invitation, by members of the Board of Statutory Auditors, and having obtained the latter's positive opinion thereon; - divided up the overall annual remuneration set for the entire Board by the shareholders' meeting on April 27, 2006, between individual directors, in particular those not vested with special office; - formed a new Group Compensation Committee, after a new Board of Directors was appointed on April 27, 2006, consisting of five non-executive directors, the majority of whom independent, as defined by the Code's Article III, namely Piergaetano Marchetti, its chairman, Renato Pagliaro, and the independent directors Giorgio Fantoni, Andrea Moltrasio and Alessandro Pedersoli. The Board subsequently amended the Committee's duties to comply with the new recommendations contained in the Code, adopted by the Company as specified above; - allocated stock options - in accordance with the recommendations presented by the Group Compensation Committee and in execution of the plan approved by the Board of Directors on November 11, 2005 under the authority bestowed by the shareholders' meeting held on April 29, 2005 - to key employees of the Company and its subsidiaries, including the Chief Executive Officer in his role as Chief Operating Officer;

59 - the Group Compensation Committee has:

- carried out the preparatory work resulting in the recommendations made above, with the Chairman, who sits on this Committee, or the Chief Executive Officer, who attends as a permanent invitee, absenting themselves whenever the Committee discussed proposals concerning their respective emoluments for presentation to the Board of Directors; - periodically reviewed the criteria adopted for the remuneration of top management of the Company and its subsidiaries, monitoring their application on the basis of information received from the Chief Executive Officer and presenting associated recommendations to the Board, mostly in relation to the use of stock options or alternative methods of remuneration and retention; - monitored the decisions already adopted by the Board concerning the remuneration of the Chief Executive Officer & Chief Operating Officer, instructing and assessing the subsequent stages of application.

The attached tables contain details of the number of meetings held by the Group Compensation Committee, whose members included Franzo Grande Stevens and Diego Della Valle up until April 27, 2006, and of the attendance record of each of its members.

VIII. INTERNAL CONTROL SYSTEM

PRINCIPLES

1. (8.P.1.) The internal control system is the set of rules, procedures and organizational structures aimed at allowing the business to be run in a sound and correct fashion consistent with its established goals, by adequately identifying, measuring, managing and monitoring the principal risks.

2. (8.P.2.) An effective internal control system helps to safeguard the Company's assets, and to guarantee the efficiency and effectiveness of its business transactions, the reliability of its financial information, and its compliance with laws and regulations.

3. (8.P.3.) The Board of Directors shall evaluate the adequacy of the internal control system with respect to the business's characteristics.

4. (8.P.4.) The Board of Directors shall ensure that its evaluations and decisions relating to the internal control system, the approval of the annual and half-yearly financial reports and the relationships between the Company and the external auditing firm are supported by adequate preliminary activity. To this end, the Board of Directors shall establish an internal control committee, made up of non-executive directors, the majority of whom are independent. If the Company is controlled by another listed company, the internal control committee shall be made up exclusively of independent directors. At least one member of the committee must have adequate experience of accounting and finance, to be assessed by the Board of Directors at the time of his/her appointment.

APPLICATION GUIDELINES i) (8.C.1.) The Board of Directors, with the assistance of the Internal Control Committee, shall: a) define the guidelines of the internal control system, so that the main risks facing the Company and its subsidiaries are correctly identified (with the exception of and in full respect of the independent responsibilities of those companies listed on regulated markets and, more specifically, not subject to supervision and management by the Company), as well as adequately measured, managed and monitored, determining, moreover, the criteria for determining whether such risks are compatible with sound and correct management of the business;

60 b) identify an executive director (usually, one of the chief executives) for supervising the functionality of the internal control system; c) evaluate, at least on an annual basis, the adequacy, effectiveness and actual functioning of the internal control system; d) describe, in the corporate governance report, the essential features of the internal control system, expressing its opinion on the overall adequacy of the same. In addition, at the recommendation of the executive director in charge of supervising the functionality of the internal control system and after consulting the Internal Control Committee, the Board of Directors shall appoint and revoke one or more persons to be responsible for internal control and define their remuneration in line with company policy. ii) (8.C.2.) The Board of Directors shall exercise its functions relating to the internal control system taking into due consideration benchmark models and best practices existing on national and international markets. Particular attention shall be devoted to the organization and management models adopted pursuant to Decree 231 of June 8, 2001. iii) (8.C.3.) The Internal Control Committee, which acts in a consultative and advisory capacity to the Board of Directors, shall also assist the Board in discharging the latter's duties set out in guideline i) above, and in detail it shall: a) evaluate together with the head of financial reporting and the external auditors, the correct utilization of the accounting principles and their consistency for the purposes of preparing the consolidated financial statements; b) at the request of the executive director so charged, it expresses opinions on specific matters relating to the identification of the principal business risks as well as the design, implementation and management of the internal control system; c) examine the work programme prepared by the Officer responsible for internal control as well as the periodic reports prepared by such person; d) evaluate the proposals submitted by the external auditing firm for obtaining the related appointment, as well as the work programme prepared for the audit and the results described in the report and any letter of recommendations; e) monitor the effectiveness of the audit of the accounts; f) discharge any additional duties that are assigned to it by the Board of Directors in relation to the performance of related-party transactions, as specified in Article IX of the Code; g) report to the Board of Directors, at least once every six months on the occasion of the approval of the annual and half-yearly financial reports, on the activities carried out and on the adequacy of the internal control system. (in discharging the duties described in points d) and e) the Committee shall liaise and co-ordinate with the Board of Statutory Auditors, without prejudice to the latter's activities and prerogatives laid down in law.) iv) (8.C.4.) The Chairman of the Board of Statutory Auditors or another statutory auditor designated by him shall attend meetings of the Internal Control Committee. v) (8.C.5.) The executive director responsible for supervising the functionality of the internal control system, shall: a) identify the main business risks, taking into account the characteristics of the activities performed by the Company and its subsidiaries, and submit them periodically to the review of the Board of Directors; b) implement the guidelines defined by the Board of Directors, by designing, implementing and managing the internal control system, and monitoring its overall adequacy, effectiveness and efficiency; moreover, this director shall oversee changes to such system to reflect changes in operating conditions and in the legislative and regulatory framework; c) present the Board of Directors with proposals on the appointment, revocation and remuneration of the Officer responsible for internal control. vi) (8.C.6.) The Officer responsible for internal control shall: a) ensure that the internal control system is always adequate, fully operating and effective;

61 b) not be responsible for any operational areas of the business and shall not report hierarchically to any head of operational departments, including the administration and finance department; c) have direct access to all the information needed to discharge his/her duties; d) have adequate resources for performing the functions assigned to him/her; e) report on his/her work to the Internal Control Committee and the Board of Statutory Auditors, as well as to the executive director responsible for supervising the functionality of the internal control system. In detail, he/she shall report on how risks are managed, as well as on the observance of plans defined for their reduction, and express his/her opinion of the ability of the internal control system to achieve an acceptable level of overall risk. vii) (8.C.7.)The Company shall establish an internal audit function. The Officer responsible for internal control shall usually be the same as the person in charge of the internal audit function.

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When adopting the above principles and application guidelines,

1. the Board of Directors has:

- re-established the Internal Control Committee, on the occasion of reappointing the Board on April 27, 2006, consisting of three non-executive directors, the majority of whom independent as required by the Code's Article III. The Board subsequently amended the Committee's duties to comply with the new recommendations contained in the Code, adopted by the Company as specified above and considered that at least one of its three members (Raffaele Agrusti, as chairman, Andrea Moltrasio and Alessandro Pedersoli) has adequate experience of accounting and finance; - defined the guidelines of the internal control system, in relation to which it has approved a project to be carried out in 2007 to update the mapping of risks facing the Company and the Group, also for the purpose of better defining the criteria for determining whether such risks are compatible with sound and correct management of the business; - identified the Chief Executive Officer, the sole executive director, as the executive director responsible for supervising the functionality of the internal control system; - evaluated positively the overall adequacy, effectiveness and actual functioning of the Company's internal control system, whose key features are based, not only on the recommendations contained in the Code, and the provisions therein, but also on the requirements contained, provided or recalled in the Group's Ethical Code, which sets out the standards of conduct adopted by the Company and the Group, and in the Organizational, Management and Control Model required by Decree 231/2001. This model, also adopted by the Company's subsidiaries, was extensively revised during 2006, particularly in relation to the recent introduction of new laws concerning corporate crimes and crimes associated with market abuse. Furthermore, it was decided to set up a Supervisory Board, which has held office since May 1, 2006. It consists of one director from the Internal Control Committee (Raffaele Agrusti), one acting auditor with the position of chairman (Giorgio Silva) and the Company's Head of Internal Audit. The Supervisory Board has approved rules for its procedure and a work programme. It is also required to report periodically, or more often if urgent, to the Board of Directors, the Internal Control Committee and the Board of Statutory Auditors on the results of its activities; - confirmed, at the recommendation of the Chief Executive Officer and having consulted the Internal Control Committee, the Head of the Company's Internal Audit Department as the Officer responsible for internal control, and also reviewed and confirmed the latter's remuneration in compliance with company policy; as required, this Officer is not responsible for any operational areas of the business, nor does he report hierarchically to any head of operational departments, including the administration and finance department; furthermore, he has direct access to all the information needed to discharge his duties and has adequate resources for performing the functions assigned to him;

2. the Internal Control Committee has acted in a consultative and advisory capacity to the Board of Directors with regard to the Board's duties concerning the internal control system set out above, and it has specifically:

62

- examined the work programme prepared by the Officer responsible for internal control as well as the periodic reports issued by this person; - evaluated the proposal submitted by the external auditing firm for the purposes of the extension of their engagement, as approved by the shareholders on April 27, 2006, as well as the work programme prepared for the audit of the accounts; - examined in advance of its presentation to the Board of Directors the updated edition of the Organizational, Management and Control Model, as well as the new procedures for significant transactions, transactions with related parties and those in which a director has an interest, as discussed in Article IX; - monitored the effectiveness of the audit of the accounts and its results, encountering representatives of the external auditing firm during its own meetings, which were also attended by the chairman or another member of the Board of Statutory Auditors so designated by its chairman, and evaluated the correct utilization of the accounting principles and their consistency for the purposes of preparing the consolidated financial statements; - reported to the Board of Directors, at least once every six months on the occasion of the approval of the annual and half-yearly financial reports, on the activities carried out and on the adequacy of the internal control system.

The Committee also has plans in the rest of 2007 to carry out a further review of the results presented in the audit report and any letter of recommendations issued by the external auditors.

Furthermore the Chief Executive Officer, in his role as executive director responsible for supervising the functionality of the internal control system, has, with the assistance of the Officer responsible for internal control, discharged the duties listed in points a) and b) of guideline v) above. As regards the Officer responsible for internal control, he has reported on his work regarding the internal control system to the Internal Control Committee, the Board of Statutory Auditors and to the Chief Executive Officer. He has specifically reported on the procedures used for managing risks, as well as on the observance of plans for their reduction, and has expressed his opinion on the ability of the internal control system to achieve an acceptable level of overall risk, also basing his assessment on reports received from the persons (the internal administrators of the internal control system) charged by the Company and its principal subsidiaries to interface with the Officer responsible for internal control particularly in relation to co-ordinating the process of evaluating the system in general and of identifying risks, and to reviewing the work of line management and the related tests.

Lastly, it is reported that, having applied the principle that the Officer responsible for internal control is the same person as the head of the Company's Internal Audit Department, and hence an employee, the Board has not adopted the option allowed by the Code whereby, under specific conditions, it is possible to outsource internal auditing and therefore also the position responsible for the internal control system.

The attached tables contain details of the number of meetings held by the Internal Control Committee - whose members included Giangiacomo Nardozzi Tonielli up until April 27, 2006 and who attended the one meeting held until that date - and of the attendance record of each of its members, specifying that all the meetings were nonetheless attended by either the Chairman of the Board of Statutory Auditors or another acting auditor designated by him.

63 IX. DIRECTORS' INTERESTS AND TRANSACTIONS WITH RELATED PARTIES

PRINCIPLES

1. (9.P.1.) The Board of Directors shall adopt measures aimed at ensuring that the transactions in which a director has an interest, on his/her own account or that of third parties, and transactions carried out with related parties - defined in accordance with IAS 24 (Related Party Disclosures) as adopted by the European Union in article 6 of EC Regulation 1606/2002 - are performed in a transparent manner and meet the criteria of substantial and procedural fairness.

APPLICATION GUIDELINES i) (9.C.1.) The Board of Directors shall, after consulting with the Internal Control Committee, establish procedures for approving and executing transactions undertaken by the Company, or its subsidiaries, with related parties. It shall specifically define the criteria for identifying those transactions which must be approved after consulting with the Internal Control Committee and/or with the assistance of independent experts. ii) (9.C.2.) The Board of Directors shall adopt operating solutions suitable for facilitating the identification and adequate management of those situations in which a director has an interest on his/her own behalf or that of third parties.

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When adopting this principle and related application guidelines, the Board of Directors has not only identified IAS 24 (also referred to by Consob in its own regulations) as the point of reference for the purposes of defining the Company's related parties, but has also established a set of internal procedures which, amongst others, include general details on how such transactions shall be approved and executed, based on principles of substantial and procedural fairness and of transparency in respect of the Company's governing bodies, with the related involvement of the Internal Control Committee and/or independent experts. Such guidelines also define the criteria for identifying related-party transactions requiring the prior approval of the Board of Directors. There are also internal procedures for properly managing situations in which a director has an interest on his/her own account or that of third parties, which establish, notwithstanding the declaration of an interest at the time of adopting the related resolution in accordance with law, that such a situation is immediately disclosed to the Board of Directors and the Board of Statutory Auditors and that the director in question shall not take part in the discussion of this matter and related decision, unless the Board of Directors decides that his participation in the discussion and related decision is more appropriate, also taking account of the actual circumstances.

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In implementation of the above, the Board of Directors, after consulting the Internal Control Committee and obtaining its positive opinion, approved a new set of procedures, updating and expanding the existing guidelines in this regard, for significant transactions, transactions with related parties and those in which a director has an interest with regard to the Company, or to or through companies under its control. Regardless of the vesting of management powers or powers to represent the company in directors vested with particular offices or in the Executive Committee, these internal procedures require that the following types of related- party transaction shall be decided by the Board of Directors alone:

(I) those that are not ordinary in terms of their purpose, transfer price, method and timing such that they may affect the Company's net worth or the completeness and accuracy of its accounting and other information, with the presumption that this category of transaction includes mergers, spin-offs,

64 disposals or acquisitions of a size that would require the preparation of a prospectus or information circular, under articles 70 and 71 of Consob Regulation 11971/1999*1; or

(II) a) those nonetheless fall into the following categories: i) mergers or spin-offs in relation to which at least one of the following ratios, if applicable, is equal to or greater than 10%: - total assets of the company potentially to be absorbed (or merged) or the assets potentially being spun off/total assets of the Company (as reported in its latest consolidated financial statements); - earnings before tax and extraordinary items of the company potentially to be absorbed (or merged) or the assets potentially being spun off/earnings before tax and extraordinary items of the Company (as reported in its latest consolidated financial statements); - total equity of the company potentially being absorbed (or merged) or of the business unit potentially being spun off/total equity of the Company (as reported in its latest consolidated financial statements); ii) disposals or acquisitions, in any form, of equity interests, businesses, business units, fixed and other assets, including real estate, if the total value of each transaction exceeds €50 million; iii) investments in fixed assets if the total value of each transaction exceeds €100 million; iv) property lets (or sub-lets) or rentals (or sub-rentals) of businesses or business units, including those lasting for more than nine years, or if the total value of each transaction exceeds €50 million; v) settlements of disputes, in or out of court, if the value of each transaction exceeds €25 million; vi) grants of loans or guarantees in excess of €50 million per transaction, if in favour of or in the interest of the Company and/or in the interest and/or in the favour of companies (or other parties) directly or indirectly controlled by the Company, or grants of loans or guarantees in excess of €10 million per transaction, if in favour of or in the interest of another related party; vii) acceptance of loans, mortgages or debt securities in general, in any form and so also against the issue of financial instruments, in excess of €50 million per transaction; viii) sale and purchase agreements or supply agreements in any form for movable assets or the performance of work or services, not relating to investments in fixed assets, if the amount of each transaction exceeds €50 million or if the agreement has a term of more than 3 years;

b) those classified as any other type of transaction, with a value in excess of €20 million per transaction, except for those intragroup transactions - falling under categories a) and b) above - which are not atypical, unusual or performed under non-standard terms and conditions; or

* Meaning: 1. Mergers and spin-offs in relation to which one of the following ratios is equal to or greater than 25%: a - total assets of the company being absorbed (or merged) or the assets being spun off/total assets of RCS (as reported in its latest consolidated financial statements, if prepared); b - earnings before tax and extraordinary items of the company being absorbed (or merged) or the assets being spun off/earnings before tax and extraordinary items of RCS (as reported in its latest consolidated financial statements, if prepared); c - total equity of the company being absorbed (or merged) or of the business unit being spun off/total equity of RCS (as reported in its latest consolidated financial statements, if prepared);

2. Acquisitions and disposals of businesses or business units in relation to which one of the following ratios is equal to or greater than 25%. a – price of the company (or business unit or assets) acquired (or sold)/RCS average capitalization in the last six months; b – earnings before tax and extraordinary items of the company (or business unit) acquired (or sold)/earnings before tax and extraordinary items of RCS (as reported in its latest consolidated financial statements, if prepared); c – total equity of the company (or business unit) acquired (or sold)/total equity of RCS (as reported in its latest consolidated financial statements, if prepared).

65 (III) even if intragroup, those that are nonetheless atypical, unusual and/or performed under non-standard terms and conditions.

In such cases the executive bodies shall provide the Board of Directors with adequate, prior information on the nature of the related-party relationship, the conditions, particularly the economic ones, the method and timing of such transactions, the evaluation process adopted, the interest and the reasons underlying the transaction, including in relation to established strategies, as well as any risks, including future ones, for the Company and its subsidiaries and any more general implications for their business.

Furthermore: - in the case of transactions falling into the categories specified in paragraphs I) and II) points i), ii), vi) and vii) and paragraph III), unless the required opinions have been already issued by one or more independent experts who have no conflicts of interest and possess the recognized professional skills and expertise, these transactions shall be presented to the Internal Control Committee for it to express a prior opinion accordingly (possibly with the assistance of such independent experts and/or recommending their use to the Board), which it will then present to the Board of Directors, having given prior notice thereof to the Chairman of Board of Directors and the Chief Executive Officer; - even independently of the review and opinion of the Internal Control Committee, in the case of transactions considered to fall into category (I), as well as any other transaction whose nature, value or other characteristics make this appropriate or necessary, the Board of Directors shall be assisted by one or more experts with the characteristics described above in evaluating the economic and/or technical and/or financial and/or legal terms and conditions of the transaction and its performance. Lastly, related-party transactions not falling into the above cases, and hence not requiring the prior approval of the Board of Directors, shall be periodically reported to the Board by the executive bodies with reference to the type of related-party relationship, the conditions, particularly the economic ones, the method and timing of such transactions, the evaluation process adopted, the interest and reasons underlying the transaction, including in relation to established strategies, as well as any risks, including future ones, for the Company and its subsidiaries and any more general implications for their business.

X. STATUTORY AUDITORS

PRINCIPLES

1. (10.P.1) The appointment of statutory auditors shall take place on the basis of a transparent process. This process shall ensure, inter alia, the timely disclosure of adequate information on the candidates’ personal details and professional qualifications.

2. (10.P.2) The statutory auditors shall act on an autonomous, independent basis, including with regard to the shareholders who elected them.

3. (10.P.3) The Company shall adopt suitable measures to ensure effective discharge of the duties falling to the Board of Statutory Auditors.

APPLICATION GUIDELINES i) (10.C.1.) Without prejudice to the applicable provisions of law and the by-laws, the lists of candidates for the office of statutory auditor, accompanied by detailed information on the personal characteristics and professional qualifications of the candidates, shall be filed at the Company's registered office at least fifteen

66 days before the date fixed for the shareholders' meeting. The candidate lists for the office of statutory auditor, accompanied by the candidates' details, shall be promptly published on the Company's website. ii) (10.C.2) Without prejudice to the related provisions of law and the by-laws, the statutory auditors shall be chosen from persons who may be classified as independent also on the basis of the criteria contained in Article III of this Code with reference to the directors. The Board of Statutory Auditors shall check its compliance with these independence criteria after it is appointed and subsequently on an annual basis, with the results of such review presented in the corporate governance report. iii) (10.C.3) The statutory auditors shall accept their appointment if they believe that they can devote the necessary time to the diligent performance of their duties. iv) (10.C.4) A statutory auditor who has an interest, either directly or on behalf of third parties, in a specific company transaction, shall promptly and comprehensively inform the other statutory auditors and the Chairman of the Board of Directors, or his deputy, of the nature, terms, origin and extent of his/her interest. v) (10.C.5) The Board of Statutory Auditors shall monitor the independence of the external auditing firm, verifying both the observance of related legal and regulatory provisions, and the nature and extent of services other than the audit of the accounts provided to the Company and its subsidiaries by the same auditing firm and the entities belonging to its network. vi) (10.C.6.) As part of their activities, the statutory auditors may request that the Internal Audit Department performs tests on specific areas of the Company's operations or its transactions. vii) (10.C.7.) Without prejudice to the attendance of the Chairman of the Board of Statutory Auditors at meetings of the Internal Control Committee, or of other such statutory auditor designated by him, the Board of Statutory Auditors and the Internal Control Committee, at the initiative of their respective chairmen, shall exchange relevant information on a timely basis for the discharge of their respective duties.

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When adopting these application guidelines, it was stated: - with reference to guideline i), that, while the provisions of law and the by-laws relating to the appointment of the Board of Statutory Auditors still apply, the above recommendations should be considered at the time of calling the related shareholders' meetings and with regard to the additional documentation to be presented before such meetings, with an invitation that such recommendations be observed; - with reference to guideline ii), that the Board of Statutory Auditors has adopted the same evaluation criteria for independence as that required for members of the Board of Directors, considering such criteria suitable for the related purpose in regard to its own members; - with reference to guideline iv), that the required disclosure shall occur if the existence of an interest can be reasonably identified by a statutory auditor and so is an interest in relation to transactions of which he becomes aware by virtue of information received prior to or before a meeting of the Board of Directors or Executive Committee; accordingly, such an interest is usually disclosed either in writing before meetings of the Board of Directors or Executive Committee or during such meetings themselves; - with reference to guideline v), that the network of the appointed auditing firm refers to the definition already provided in relation to application guideline i) contained in the Code's Article III.

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When implementing these application guidelines:

- on the occasion of reappointing the Board of Statutory Auditors at the shareholders' meeting of April 27, 2006, the Board of Directors, although not having yet formally adopted the latest edition of the Code, invited shareholders to take account of its recommendations concerning the prior filing of candidate names and the independence requirements contained therein;

67 - the Board of Statutory Auditors has carried out the checks and activities envisaged by application guidelines v) and vii).

The Board of Statutory Auditors has also checked the observance by its members of the same independence criteria adopted in Article III for the directors, concluding in the affirmative.

For the sake of completeness, it is reported that the Company's by-laws, in force in 2006 and still at the date of this report, require that lists of candidates for the office of statutory auditor may be presented by shareholders who, on their own or together with others, possess shares representing at least 3% of the share capital with voting rights at ordinary meetings. Such lists may not contain the names of candidates who already hold office as statutory auditors in five other listed companies, other than the Company's parent and subsidiary companies. These lists must be lodged at the Company's registered office at least ten days before the date fixed for the shareholders' meeting in first call.

The Board of Statutory Auditors currently in office was appointed from April 27, 2006 until the shareholders' meeting called to approve the financial statements for the year ended December 31, 2008. It was appointed upon presentation of a single list and its members are: Pietro Manzonetto, Chairman, Gianrenzo Cova and Giorgio Silva, as acting statutory auditors, and Cesare Gerla, Agostino Giorgi and Maurizio Bozzato, as alternate statutory auditors. The Board of Statutory Auditors (since April 27, 2006 consisting of Gianrenzo Cova, chairman, Flavio Arcidiacono and Clemente Rebecchini, all of whom had attended the three meetings of the Board of Statutory Auditors held until that date) attended, with all (in nearly every case) or some of its members, the eight meetings of the Board of Directors and the four meetings of the Executive Committee held during 2006. The statutory auditors in office at December 31, 2006 hold the following appointments as a director or statutory auditor in other listed companies: Pietro Manzonetto: Director of Banca Popolare Italiana and Chairman of the Board of Statutory Auditors of Cir S.p.A.; Giorgio Silva: Acting auditor of ENI S.p.A. and Acting auditor of Luxottica Group S.p.A. (and for completeness, Alternate auditor of Autogrill S.p.A.). The attached tables contain details of the number of meetings held by the Board of Statutory Auditors and of the attendance record of each of its serving members.

XI. RELATIONS WITH THE SHAREHOLDERS

PRINCIPLES

1. (11.P.1) The Board of Directors shall take initiatives aimed at fostering the broadest possible participation of the shareholders in the shareholders' meetings and at facilitating the exercise of shareholder rights.

2. (11.P.2.) The Board of Directors shall endeavour to develop a continuous dialogue with the shareholders based on an understanding of their reciprocal roles.

APPLICATION GUIDELINES i) (11.C.1.) The Board of Directors shall endeavour to ensure that information concerning the Company that is relevant for its shareholders is provided on a timely basis and is easy to access, so as to allow shareholders to exercise their rights in an informed manner. To such purpose, the Company shall establish a specific section on its website that may be easily identified and accessed, in which, in compliance with legal rules and related procedures on the management and disclosure of corporate information adopted under Article IV above, the aforementioned information is made available, with particular reference to the procedures required for the participation and, in the case of specific established procedures, for the exercise of voting rights at every shareholders' meetings, as well as the documentation relating to items on the agenda of such meetings, including the lists of candidates for the positions of director and statutory auditor with details of the relevant personal characteristics and professional qualifications filed at the Company's registered office.

68 ii) (11.C.2.)The Board of Directors shall ensure that one or more persons is identified as responsible for handling the relationships with both institutional and other shareholders and shall evaluate from time to time whether it would be advisable to establish one or more company offices for such function, to be discharged nonetheless in compliance with applicable laws and related procedures for managing corporate information adopted in accordance with Article IV of the Code. iii) (11.C.3.) The Board of Directors shall use its best efforts, bearing in mind the need to plan and complete the related preparatory activities, to reduce the restrictions and requirements, which make it difficult and expensive for shareholders to participate in meetings and exercise their voting rights. iv) (11.C.4.) As a rule and except for forcible impediment, all the directors shall usually attend shareholders' meetings. Shareholders' meetings shall also be an opportunity for providing shareholders with information on the Company, in compliance with the legal provisions on price-sensitive information and the related procedures for managing corporate information adopted in accordance with Article IV of the Code. More specifically, the Board of Directors, usually through its Chairman and/or the Chief Executive Officer, shall report to the shareholders' meeting on the activity performed and planned and shall endeavour to ensure that the shareholders receive adequate information on the facts needed for them to take decisions in an informed manner. v) (11.C.5.) Bearing in mind the conduct of previous shareholders' meetings, the Board of Directors shall periodically assess whether to present for shareholder approval a set of rules governing the orderly and effective conduct of their meetings, while guaranteeing the right of each shareholder to speak on the matters on the agenda. If such a set of rules is drawn up, their contents may include instructions as to how long each speaker may have the floor, the order in which they may speak, the voting procedures, the reports by the directors and statutory auditors, and the powers of the chairman, including to settle or prevent the occurrence of conflicts during the meeting. Even in the absence of a set of rules for shareholders' meetings, without prejudice to his powers under law and the company's by-laws, the meeting's chairman nonetheless ensures that meetings are conducted in strict observance of shareholder rights, and also in a spirit of mutual respect between shareholders involving a balanced moderation of their rights with an orderly conduct of their decision-making function. Furthermore, in such a case the chairman has the power to decide procedures at each meeting, that in view of its nature and the number and breadth of the matters to be discussed, he intends to apply in order to ensure that the meeting is conducted in an orderly, calm and positive fashion. vi) (11.C.6.) In the event of a significant change in the Company's market capitalization and/or composition of its shareholders, the Board of Directors shall assess whether to submit proposals to the shareholders' meeting to amend the by-laws in relation to the minimum percentage required for exercising the actions and rights serving to protect minority interests.

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When adopting these application guidelines: - with reference to guidelines i), ii) and iv), a number of clarifications have been made regarding compliance, when carrying out the related activities, with the procedures adopted in accordance with Article IV as well as with legal requirements; in relation to guideline iv), it has been clarified that the reporting to shareholders' meeting is usually done by the Chairman or the Chief Executive Officer and that all the directors are required to attend, except for forcible impediment.

It is also reported that: - with reference to guideline iii), the Board of Directors shall take those actions designed to facilitate shareholders' participation in meetings and their exercise of voting rights, to the extent possible and bearing in mind the need to plan and complete the related preparatory activities, on the basis of a balanced tempering with the organizational needs of the related internal activities, whose adequate discharge will benefit the Company and hence the shareholders themselves;

69 - with reference to guideline v), this is not entirely in line with what the Code recommends, since the Board does not intend proposing that shareholders adopt a set of rules governing the conduct of their meetings (for which a number of suggested contents are listed in the comments to the Code's related article). Instead it intends to carry out a periodic review of this matter, also bearing in mind the conduct of previous shareholders' meetings. This is because the need has never arisen in the past to adopt such rules, with the Chairman, also thanks to his prerogatives under law and the by-laws, having always seen that such meetings were conducted not only in a spirit of general participation and strict respect for shareholder rights, but also in a spirit of mutual respect between shareholders involving a balanced moderation of their rights with their decision-making function. On this basis, it has been stated that, even in the absence of a set of rules governing the conduct of shareholders' meetings, the meeting's chairman shall nonetheless endeavour to ensure respect for the above principles, having the power to inform each meeting of the rules he intends to adopt for its conduct in order to ensure that it runs in an orderly, calm and positive fashion.

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When implementing these application guidelines:

- with reference to guideline i), the Board of Directors has charged the Chief Executive Officer with seeing that the Company's website meets the specified requirements, taking any steps that might be required; - with reference to guideline ii), the Board has acknowledged that the Company's organizational structure already contains both an Investor Relations office, responsible for dealing with institutional investors, and a Corporate Affairs office, whose duties include looking after relationships with shareholders in general; - with reference to guideline iii), the Board of Directors considers that there are no circumstances necessitating particular initiatives, bearing in mind the related internal organizational needs already discussed. The Board of Directors has nonetheless decided to hold the shareholders' meeting called to approve the financial statements for 2006 at its new head office, in the centre of Milan and so easily reachable. The notice of the meeting not only contained the contact details of the Company's Corporate Affairs Department for those wishing to obtain additional information on how to take part, but also stated that the pre-meeting documentation will be made available at the Company's registered office and market management company, as well on the website, within the required deadline;

- with reference to guideline iv), members of the Board of Directors have acknowledged the adopted guideline, assuring their presence at shareholders' meetings, except for forcible indisposition; - with reference to guideline v), the Board of Directors has decided, after reviewing the particular contents, that it is not necessary at present to propose that shareholders adopt a set of rules governing their meetings; - with reference to guideline vi), although the Board of Directors is not aware of any changes in the composition of the Company's shareholders such as would require amending the by-laws, it has reviewed the provisions of Law 265/2005, as amended by Decree 303/2006, and has decided to submit to the shareholders' meeting called to approve the financial statements for 2006 a proposal to amend the by-laws involving the introduction of a minimum 2.5% level for the ownership of ordinary share capital, without prejudice to the lower level established by law, for the purposes of presenting lists of candidates for nominations to the Board of Directors and the Board of Statutory Auditors.

70 SUMMARY TABLES

STRUCTURE OF THE BOARD OF DIRECTORS AND COMMITTEES (Ø) Board Internal Group Appointments Executive Board of Directors Control Compensation Committee Committee Committee Committee (◊) Number of Non- Office Members Executive Independent **** other *** **** *** **** *** **** executive appoint- ments ** Piergaetano Chairman X 100 4 X 100 X 100 Marchetti Gabriele Deputy Chairman Galateri di Genola X 100 15

Chief Executive Antonio 5 X 100 X 100 Officer Perricone (1) Raffaele 7 Director X 87.50 X 100 Agrusti Roberto 5 Director X 100 Bertazzoni Claudio 6 Director X 100 De Conto (2) Diego 9 Director X 75 X 100 Della Valle (3) John P. 7 Director X 50 X 75 Elkann Giorgio - Director X X 62.50 X 100 Fantoni Franzo Grande 7 Director X 87.50 X 100 Stevens (3) Berardino 5 Director X 71.43 Libonati (4) Jonella Director X 50 7 Ligresti Paolo Director X 100 6 Merloni Andrea Director X X 85.71 2 X 100 X 100 Moltrasio (4) Renato Director X 87.50 6 X 100 X 100 Pagliaro Corrado Director X 37.50 3 Passera Alessandro Director X X 75 3 X 100 X 100 Pedersoli (5) Carlo Director X 87.50 6 X 75 Pesenti Virginio Director X X 100 - Rognoni (7)

Board Number of meetings held in year Board of Directors: 7 Internal Group Appointments Executive Control Compensation Committee: 0 Committee: Committee: Committee: 5 4 4

(◊) The Board deemed it currently unnecessary to set up this committee in view of the standing of the candidates usually proposed for the office of independent director.

NOTES (Ø) Composition at December 31, 2006 and at March 16, 2006, the date of approving the Corporate Governance Report. * The asterisk indicates whether the director was nominated through lists presented by the minority. ** This column indicates the number of other appointments as a director (regardless of any special offices held or membership of the same company's executive committee) or statutory auditor held by this person in other listed companies in Italy or abroad and in financial, banking, insurance or other large companies, as declared by the persons concerned. The Corporate Governance Report provides full details of these appointments. *** These columns indicate with an "X" the director's membership of the each sub-committee of the Board of Directors. **** These columns indicate the director's attendance record in percentage terms at meetings of the Board and of each of the Committees held over the period that they were in office in 2006. In the case of directors appointed or retiring from office or from a committee during the year, the respective note contains details of the number of meetings held in the reference period and the individual director's attendance record. (1) Appointed with effect from September 12, 2006 as a director (by being co-opted), as Chief Executive Officer and a member of the Executive Committee. (2) Co-opted as a director on December 15, 2006. (3) Member of the Group Compensation Committee up until April 27, 2006. This committee had held 2 meetings up until that date. (4) Appointed as a director on April 27, 2006. (5) Appointed on April 27, 2006 as a director and member of the Internal Control Committee and Group Compensation Committee. Since that date there were 7 meetings of the Board of Directors, 3 meetings of the Internal Control Committee, and 5 meetings of the Group Compensation Committee. (6) Appointed on April 27, 2006 as a member of the Group Compensation Committee. The Group Compensation Committee held 5 meetings since that date. (7) Appointed as a director (by being co-opted) on November 13, 2006. The Board of Directors held one meeting since that date. 71 BOARD OF STATUTORY AUDITORS

Attendance at Number of other Office Members Board meetings % appointments** Chairman Pietro Manzonetto (a) 100 2 Acting auditor Giorgio Silva (a) 100 2 Acting auditor Gianrenzo Cova (b) 100 - Alternate auditor Maurizio Bozzato - - Alternate auditor Agostino Giorgi - - Alternate auditor Cesare Gerla - - Number of meetings held in year: 8 Indicate the quorum required for minorities to present lists for the election of one or more acting auditors (pursuant to art. 148 of Decree 58/1998): 3%

NOTES **This column indicates the number of other appointments as a director or acting statutory auditor held by this person in other listed companies in Italy. The Corporate Governance Report provides full details of these appointments. (a) In office since April 27, 2006. The Board of Statutory Auditors held 5 meetings since that date. (b) In office as Chairman of the Board of Statutory Auditors up until April 27, 2006 (at which point the Board of Statutory Auditors had met 3 times) and re-elected as an acting auditor from this same date.

72 OTHER REQUIREMENTS OF THE CODE OF CONDUCT Summary of reasons for any departure from YES NO the Code's recommendations System of delegating powers and monitoring related- party transactions Has the Board of Directors delegated powers, establishing their: a) limits X b) manner of exercise X c) and frequency of reporting? X Has the Board of Directors reserved for itself the examination and approval of transactions with a significant impact on the company's income statement, balance sheet and financial situation (including related-party X transactions)? Has the Board of Directors established guidelines and principles for identifying "significant" transactions? X Are the guidelines and principles referred to above described in the report? X Has the Board of Directors established specific procedures for examining and approving related-party transactions? X Are the procedures for approving related-party transactions described in the report? X

Conduct of the most recent appointment of directors and statutory auditors Were the names of candidates for the office of director filed at least ten days in advance? X Were the nominations for the office of director accompanied by comprehensive information? X Were the nominations for the office of director accompanied by an indication of whether they met the requirements for qualifying as independent directors? X Were the names of candidates for the office of statutory auditor filed at least ten days in advance? X Were the nominations for the office of statutory auditor accompanied by comprehensive information? X

Shareholders' meetings Has the company approved a set of rules for shareholders' X Based on the conduct of previous shareholders' meetings? meetings, the Board does not consider it necessary to recommend the adoption of an associated set of regulations. Without prejudice to his powers under law and the company's by-laws, the meeting's chairman is responsible for ensuring that they are conducted not only in a spirit of general participation and strict respect for shareholder rights, but also in a spirit of mutual respect between shareholders involving a balanced moderation of their rights with their decision-making function. Are the rules annexed to the report (or is it specified where they may be obtained/downloaded)? X

Internal control Has the company appointed the persons responsible for X internal control? Are the persons appointed hierarchically not responsible to persons in charge of operational areas of the business? X Department in charge of internal control (pursuant to article The Officer responsible for internal control is the Head of the Internal 9.3 of the Code) Audit Department who uses this department to carry out his duties and works towards their discharge with the assistance of an internal administrator of the system itself.

Investor relations Has the company appointed someone to be responsible for X investor relations? Department and references of person responsible for Investor Relations Manager: Federica De Medici investor relations (address/tel/fax/e-mail) Via San Marco, 21 – 20121 Milan Tel. 02/2584.5508 – Fax 02/2584.5490 e-mail: [email protected]

73

CONSOLIDATED FINANCIAL STATEMENTS

75

Consolidated income statement (*)

4th quarter Year ended Dec-31

(€/millions) Notes 2006 2005 2006 2005 I Revenues from sales and services 12 671,0 624,8 2.379,7 2.191,0 II Increase in assets built internally 14 1,3 0,4 3,5 0,4

Changes in inventories of work in progress, finished II and semi-finished products 36 0,5 (6,6) 11,2 0,6 II Raw materials and services consumed 15 (446,2) (422,9) (1.687,4) (1.542,6) III Payroll costs 16 (106,6) (117,2) (420,4) (399,4) II Other operating revenues and income 17 27,1 32,7 62,7 73,5 II Other operating expenses 18 (20,3) (9,6) (51,1) (42,4) V Increases in provisions 42 (5,6) (2,7) (7,6) (4,2) IV Impairment of trade and other receivables 19 (1,0) (4,8) (12,2) (14,0) VI Amortization of intangible assets 20 (10,2) (4,4) (25,6) (15,4) VII Depreciation of property, plant and equipment 20 (9,8) (9,5) (34,5) (25,8) VIII Impairment of fixed assets 20 (5,3) (3,6) (5,3) (4,5) EBIT 94,9 76,7 213,0 217,2 IX Financial income 21 5,4 6,9 22,8 19,6 IX Financial charges 22 (9,2) (3,5) (21,1) (17,4) Other income (charges) from financial X assets/liabilities 23 28,7 (4,2) 70,5 72,4 Share of income (losses) from investments valued XI using equity method 24 5,3 (0,9) 3,2 0,6 Earnings before tax 125,1 75,0 288,4 292,4 XII Income taxes 25 (23,9) (27,4) (53,8) (62,4) Net income (loss) from continuing operations 101,2 47,6 234,6 230,0 XIII Net income (loss) from discontinuing operations 0,0 0,1 0,0 0,0 Net income (loss) before minority interests 101,2 47,7 234,6 230,0 XIV Net (income) loss pertaining to minority interests 26 (6,4) (8,0) (15,1) (10,7) Net income (loss) pertaining to the group 94,8 39,7 219,5 219,3

Basic earnings per share 27 0,30 0,30 Diluted earnings per share 27 0,30 0,30

(*) In accordance with Consob Resolution 15519 of July 27, 2006, the effects of transactions with related parties and of non-recurring income and charges on the consolidated income statement are reported in the specific income statement format presented on a subsequent page and are described in detail in notes 13 and 28 respectively.

The notes form an integral part of this report.

76

Consolidated balance sheet (*)

(€/millions) Notes Dec-31-2006 Dec-31-2005

ASSETS XVI Property, plant and equipment 29 370,0 360,2 XV Intangible assets 30 482,8 452,1 XVII Investments in associated companies and joint ventures 31 72,3 78,1 XVII Available-for-sale financial assets 32 221,1 248,5 XXVII Financial assets recognized for derivatives 33 1,3 1,0 XVII Non-current financial receivables 34 12,8 16,2 XVII Other non-current assets 35 13,1 23,2 XVII Deferred tax assets 25 77,9 72,8 Total non-current assets 1.251,3 1.252,1 XVIII Inventories 36 162,1 147,6 XIX Trade receivables 37 680,8 599,2 XXI Other current receivables and assets 38 182,1 164,1 XXI Current tax assets 25 75,1 83,0 XXVII Financial assets recognized for derivatives 33 0,3 0,2 XXVII Current financial receivables 39 66,1 130,6 XXVII Cash and cash equivalents 39 259,8 154,4 Total current assets 1.426,3 1.279,2 Non-current assets held for sale 0,0 0,0 TOTAL ASSETS 2.677,6 2.531,3 EQUITY AND LIABILITIES XXIV Share capital 40 762,0 762,0 XXIV Other equity instruments 40 4,2 0,7 XXIV Treasury shares 40 (61,7) (61,7) XXIV Reserves 40 145,0 184,2 XXIV Earnings (losses) carried forward 97,9 (42,4) XXIV Net income (loss) for the year 219,5 219,3 Total group consolidated equity 1.166,9 1.062,1 XXIV Minority interests in capital and reserves 26 73,2 64,8 Total 1.240,1 1.126,9 XXV Non-current financial payables 39 260,5 242,3 XXV Financial liabilities recognized for derivatives 33 0,0 0,5 XXIII Provisions for employee benefits 41 104,1 109,0 XXII Provisions for risks and charges 42 40,4 59,9 XXII Deferred tax liabilities 25 73,6 68,5 XXI Other non-current liabilities 43 22,4 11,9 Total non-current liabilities 501,0 492,1 XXVI Bank loans and overdrafts 39 8,3 34,6 XXVI Current financial payables 39 52,8 55,7 XXVI Financial liabilities recognized for derivatives 33 0,2 0,9 XXI Current tax liabilities 25 13,5 15,3 XX Trade payables 44 620,8 574,8 XXII Current portion of provisions for risks and charges 42 30,6 31,0 XXI Other current payables and liabilities 45 210,3 200,0 Total current liabilities 936,5 912,3 Liabilities associated with assets held for sale 0,0 0,0 TOTAL EQUITY AND LIABILITIES 2.677,6 2.531,3

(*) In accordance with Consob Resolution 15519 of July 27, 2006, the effects of transactions with related parties on the consolidated balance sheet are reported in the specific balance sheet format presented on a subsequent page and are described in detail in note 13.

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Consolidated cash flow statement

(€/millions) Notes Dec-31-2006 Dec-31-2005

A) Cash flows from operating activities Net income (loss) pertaining to the group and minority interests 234,6 230,0 Amortization and depreciation 20 65,4 45,7 (Gains) losses and other non-monetary items 46 (70,6) (73,7) Impairment (revaluation) of equity investments 47 1,9 7,3 Grant of stock options 48 3,6 0,7 - of which to related parties 13 0,9 0,2 Net financial income (charges) including dividend income 21-22-23 (11,8) (7,9) - of which with related parties 13 (1,1) 0,0 Increase (decrease) in provisions 49 (27,0) (21,3) Increase (decrease) in deferred tax liabilities/assets recognized in income statement 25 3,7 8,0 Changes in working capital 50 (37,3) 29,3 - of which with related parties 13 (25,1) 33,3 Total 162,4 218,1 B) Cash flows from investing activities Purchase of equity investments (net of dividends received) 51 (64,0) (87,6) Purchase of property, plant and equipment and intangible assets 52 (76,7) (99,9) Purchase/sale of other non-current financial assets 34-35 13,5 (12,5) Proceeds from sale of equity investments 53 129,9 175,4 Proceeds from sale of property, plant and equipment and intangible assets 54 11,2 1,9 Other changes 0,8 3,5 Total 14,7 (19,2) Free cash flow (A+B) 177,1 198,9 C) Cash flows from financing activities Net change in financial payables and other financial assets 55 40,9 (70,9) - of which with related parties 13 3,3 (15,8) Net interest received/paid 56 3,9 1,7 - of which with related parties (1,1) 0,6 Dividends paid 40 (82,3) (30,0) Change in equity reserves 57 (8,0) 13,5 Total (45,4) (85,7) Net increase (decrease) in cash and cash equivalents (A+B+C) 131,7 113,2 Opening cash and cash equivalents 119,9 6,7 Closing cash and cash equivalents 251,6 119,9 Increase (decrease) for the period 131,7 113,2

RECONCILIATION OF CASH AND CASH EQUIVALENTS (€/millions)

Opening cash and cash equivalents consist of: 119,9 6,7 Cash and cash equivalents 154,4 30,2 Current bank loans and overdrafts (34,5) (23,5) Closing cash and cash equivalents consist of: 251,6 119,9 Cash and cash equivalents 259,8 154,4 Current bank loans and overdrafts (8,2) (34,5) Increase (decrease) for the period 131,7 113,2

78

Statement of changes in consolidated capital and reserves

79

Consolidated income statement pursuant to Consob Resolution 15519 of July 27, 2006

Year ended Dec-31

(€/millions) Notes 2006 2005 I Revenues from sales and services 12 2.379,7 2.191,0 - of which with related parties 13 579,8 594,0 II Increase in assets built internally 14 3,5 0,4 Changes in inventories of work in progress, finished and II semi-finished products 36 11,2 0,6 II Raw materials and services consumed 15 (1.687,4) (1.542,6) - of which with related parties 13 (125,6) (100,3) - of which non-recurring 28 (1,0) III Payroll costs 16 (420,4) (399,4) - of which with related parties 13 (17,7) (1,4) - of which non-recurring 28 (8,7) II Other operating revenues and income 17 62,7 73,5 - of which with related parties 13 4,9 0,0 - of which non-recurring 28 11,1 23,0 II Other operating expenses 18 (51,1) (42,4) - of which non-recurring 28 (2,0) V Increases in provisions 42 (7,6) (4,2) IV Impairment of trade and other receivables 19 (12,2) (14,0) VI Amortization of intangible assets 20 (25,6) (15,4) VII Depreciation of property, plant and equipment 20 (34,5) (25,8) VIII Impairment of fixed assets 20 (5,3) (4,5) EBIT 213,0 217,2 IX Financial income 21 22,8 19,6 - of which non-recurring 28 5,0 2,8 IX Financial charges 22 (21,1) (17,4) - of which with related parties 13 (1,1) Other income (charges) from financial assets/liabilities X 23 70,5 72,4 - of which non-recurring 28 61,8 72,7 Share of income (losses) from investments valued using XI equity method 24 3,2 0,6 Earnings before tax 288,4 292,4 XII Income taxes 25 (53,8) (62,4)

Net income (loss) from continuing operations 234,6 230,0 XIII Net income (loss) from discontinuing operations 0,0 0,0 Net income (loss) before minority interests 234,6 230,0 Net (income) loss pertaining to minority interests XIV 26 (15,1) (10,7) Net income (loss) pertaining to the group 219,5 219,3

Basic earnings per share 27 0,30 0,30 Diluted earnings per share 27 0,30 0,30

80

Consolidated balance sheet pursuant to Consob Resolution 15519 of July 27, (€/millions) Notes Dec-31-2006 Dec-31-2005

ASSETS XVI Property, plant and equipment 29 370,0 360,2 XV Intangible assets 30 482,8 452,1 XVII Investments in associated companies and joint ventures 31 72,3 78,1 XVII Available-for-sale financial assets 32 221,1 248,5 XXVII Financial assets recognized for derivatives 33 1,3 1,0 XVII Non-current financial receivables 34 12,8 16,2 XVII Other non-current assets 35 13,1 23,2 XVII Deferred tax assets 25 77,9 72,8 Total non-current assets 1.251,3 1.252,1 XVIII Inventories 36 162,1 147,6 XIX Trade receivables 37 680,8 599,2 - of which with related parties 13 50,5 33,3 XXI Other current receivables and assets 38 182,1 164,1 XXI Current tax assets 25 75,1 83,0 XXVII Financial assets recognized for derivatives 33 0,3 0,2 XXVII Current financial receivables 39 66,1 130,6 - of which with related parties 13 2,3 3,2 XXVII Cash and cash equivalents 39 259,8 154,4 Total current assets 1.426,3 1.279,2 Non-current assets held for sale 0,0 0,0 TOTAL ASSETS 2.677,6 2.531,3 EQUITY AND LIABILITIES XXIV Share capital 40 762,0 762,0 XXIV Other equity instruments 40 4,2 0,7 - of which with related parties 13 1,1 0,2 XXIV Treasury shares 40 (61,7) (61,7) XXIV Reserves 40 145,0 184,2 XXIV Earnings (losses) carried forward 97,9 (42,4) XXIV Net income (loss) for the year 219,5 219,3 Total group consolidated equity 1.166,9 1.062,1 XXIV Minority interests in capital and reserves 26 73,2 64,8 Total 1.240,1 1.126,9 XXV Non-current financial payables 39 260,5 242,3 XXV Financial liabilities recognized for derivatives 33 0,0 0,5 XXIII Provisions for employee benefits 41 104,1 109,0 XXII Provisions for risks and charges 42 40,4 59,9 XXII Deferred tax liabilities 25 73,6 68,5 XXI Other non-current liabilities 43 22,4 11,9 Total non-current liabilities 501,0 492,1 XXVI Bank loans and overdrafts 39 8,3 34,6 XXVI Current financial payables 39 52,8 55,7 - of which with related parties 13 29,4 27,0 XXVI Financial liabilities recognized for derivatives 33 0,2 0,9 XXI Current tax liabilities 25 13,5 15,3 XX Trade payables 44 620,8 574,8 - of which with related parties 13 32,4 40,3 XXII Current portion of provisions for risks and charges 42 30,6 31,0 XXI Other current payables and liabilities 45 210,3 200,0 Total current liabilities 936,5 912,3 Liabilities associated with assets held for sale 0,0 0,0 2006 TOTAL EQUITY AND LIABILITIES 2.677,6 2.531,3

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EXPLANATORY NOTES

82

FORM, CONTENT AND OTHER INFORMATION ON THE FINANCIAL STATEMENTS

1. Corporate information

RCS MediaGroup S.p.A. is incorporated and domiciled in Milan, with its registered office at 21, Via San Marco. The consolidated financial statements of RCS MediaGroup for the year ended December 31, 2006 were approved by the Board of Directors on March 16, 2007 and also authorized for publication. The group's principal activities are described in note 12 "Segment information".

2. Form and content

The consolidated financial statements of the RCS Group have been drawn up in accordance with International Financial Reporting Standards (IFRS). They comprise the financial statements of RCS MediaGroup S.p.A. and its subsidiaries. As from 2006 all consolidated companies have adopted international financial reporting and accounting standards, except for a few smaller Italian companies and the foreign companies. All the financial statements of the subsidiaries and the parent company, or the balance sheets and income statements restated for IAS/IFRS purposes, have been approved by the respective Boards of Directors. The comparative figures have been restated to reflect completion in 2006 of the process of applying the purchase method of accounting to the acquisitions carried out in 2005 of the Dada group and Editrice Abitare Segesta. The consolidated financial statements have been audited by Reconta Ernst & Young.

The presentation currency of these consolidated financial statements is the euro, which is used as the functional currency by most of the group's companies. Unless otherwise specified, all amounts are stated in millions of euro.

3. Reporting formats

The RCS Group has adopted: • the balance sheet format in which assets and liabilities are separately classified as current and non- current; • the income statement format in which costs are classified by nature; • the cash flow statement using the indirect method, whereby net income for the year is adjusted for the effects of non-monetary items, of any deferral or provision of past or future operating receipts or payments and revenues or costs associated with cash flows from investing or financing activities. With reference to Consob Resolution 15519 of July 27, 2006, significant transactions with related parties and non-recurring items have been highlighted in a separate balance sheet and income statement.

4. Changes in the scope of consolidation

The changes in the scope of consolidation since December 31, 2005 refer to investments mostly in the multimedia sector and to a lesser extent in the books sector. Most of the company liquidations and disposals carried out in the year were designed to streamline the Group's corporate structure, as part of the wider goal of reducing overhead costs.

In detail:

• The following companies have been consolidated on a line-by-line basis:

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- Unedisa Telecomunicaciones Baleares S.a.; - GE Fabbri Editions Bulgaria Ltd; - Adelphi Edizioni S.p.A.; - Dada Brasil Serviços de Tecnologia Ltda; - Cotei S.L.; - Nominalia S.L.; - Upoc Networks Inc.; - Unedisa Telecomunicaciones de Levante S.a.; - Unidad de Producciòn de Andalucìa S.a.; - Tipic Inc.; - Sfera Direct S.L.; - Edition d’Art Albert Skirà S.A.; • The following companies have been consolidated using the equity method: - To-dis S.r.l.; - Livres Diffusion Sas; - Media Dada Science and Development Co.; - Register Iberia S.L.. • The following companies previously consolidated line-by-line or using the equity method have left the scope of consolidation: - Partedit S.a. wound up - GFT Germany GmbH wound up - Fabbri Praha S.r.o. wound up - Euclide Active Training S.r.l. wound up - Arlaban Inversiones S.L. sold - Planet Com S.p.A. sold • The following companies were merged during the period: - Editions Flammarion S.a.s. into Flammarion S.a.; - Sfera Web S.r.l. into Sfera Editore S.p.A.; - Rizzoli Larousse S.p.A. into RCS Libri S.p.A.; - HdP BV, GFT International BV and RCS International Communications NV into RCS International Magazines BV; - Business Engineering S.r.l. into Altair S.r.l., which changed its name to Business Engineering S.r.l.

5. Consolidation methods

Subsidiary companies are consolidated on a line-by-line basis as from their acquisition date, meaning the date on which the group obtains control, and cease to be consolidated on the date on which control is transferred outside of the group. Control is defined as the parent company's power to govern the financial and operating policies of a subsidiary so as to obtain benefits from its activities. The income and expenses of the subsidiaries acquired or sold during the period are included in the consolidated income statement from the effective acquisition date, or until the effective disposal date.

Companies under joint control with other shareholders and associated companies or those nonetheless over which the group has a significant influence have been consolidated using the equity method.

The accounting policies adopted are uniform for all the companies included in the consolidation and the related financial statements are all prepared with reference to the date of December 31, 2006.

The principal procedures used for line-by-line consolidation are listed below:

• The acquisition of subsidiaries is accounted for using the purchase method, whereby the acquiree's identifiable assets, liabilities and contingent liabilities, which meet the recognition criteria specified by IFRS 3, are recognized at their fair value at the acquisition date. Deferred taxes are therefore recognized on adjustments to carrying amounts to bring them into line with fair value.

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• The very complexity of applying the purchase method means that the standard provides for an initial, provisional calculation of the fair value of the assets, liabilities and contingent liabilities acquired, such as to allow initial recognition of the transaction in the consolidated financial statements at the end of the year in which the business combination took place. Such initial accounting must be completed and adjusted within twelve months of the acquisition date and as from the acquisition date itself.

• Goodwill is recognized as the difference between the acquisition cost, including directly attributable expenses, and the group's interest in the fair value of the assets and liabilities acquired. It is recorded in the consolidated financial statements on the basis of an initial, provisional measurement by the end of the year in which the combination was finalized. Having finalized the fair value of assets, liabilities and contingent liabilities, any excess of the group's share of their net fair value over the cost of the business combination shall be immediately credited to the income statement. Goodwill is regularly reviewed to check its recoverability through the future cash flows generated by the underlying investment. Minority interests in the acquiree are initially measured in proportion to their share of the fair value of the assets, liabilities and contingent liabilities recognized.

• The purchase method has been used for: − the purchase of minority interests in investments already under the group's control. In this case any goodwill is deducted directly from equity in accordance with the entity control method; − acquisitions carried out before the IAS/IFRS transition date, for which the value of goodwill has been retained at the amounts resulting from the application of Italian GAAP and tested periodically for impairment.

• Profits and losses arising from transactions between subsidiaries that have not yet been realized outside the group are eliminated, as are receivables, payables, costs and revenues between consolidated companies when the amounts concerned are material.

• Dividends paid by consolidated companies are eliminated from the income statement and added to prior year retained earnings if, and to the extent which, they have been drawn from the latter.

• Minority interests in capital and reserves and in net income (loss) for the period are shown separately in the balance sheet and the income statement.

• Companies held for sale and which are highly likely to be sold in the next twelve months have been classified in accordance with the provisions of IFRS 5. This means that, whereas formerly they would have been consolidated on a line-by-line basis, the related non-current assets have been classified in a separate line item called "Non-current assets held for sale" and the related liabilities have been recorded in a separate line item on the liabilities side of the balance sheet. Such companies' results are shown in the income statement as "Net income (loss) from discontinuing operations".

With reference to transactions with companies accounted for using the equity method, unrealized gains and losses are eliminated to the extent of the group's interest in the associated company, unless the unrealized losses present evidence that the asset transferred is impaired.

The financial statements of foreign subsidiaries expressed in currencies other than the euro are translated into euro on consolidation, using the year-end rate for the balance sheet and the average rate for the year for the income statement. The resulting translation differences are recorded in a separate equity reserve known as the "translation reserve".

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6. Accounting policies

The consolidated financial statements have been prepared in compliance with International Financial Reporting Standards (IFRS), adopting the general measurement basis of historical cost. The following items have been measured at fair value:

• derivatives, • available-for-sale financial instruments, • held-for-trading financial instruments.

This section summarizes the more important accounting policies adopted by the RCS Group:

Revenues

Revenues are recognized on an accrual basis when their value can be reliably measured and the associated consideration is likely to be collected. Specifically: • revenues from the sale of goods are recognized when ownership changes hands, generally considered to be on the date of shipment for books and partworks and on the issue date for newspapers; • revenues from the sale of advertising space and magazines are booked according to the issue date of the publications concerned, with magazines shown net of a reasonable estimate for returns; • revenues from services are recognized by reference to the stage of completion of the transaction at the balance sheet date; • royalties are booked on an accrual basis, as defined in the respective contracts; • interest is recognized as financial income on an accrual basis; • dividends are recognized on the date the dividend is declared.

Costs

Costs and other operating expenses are recognized when they are incurred under the accrual basis of accounting, and when they do not produce future economic benefits, meaning that they do not meet the conditions for being recorded as assets in the balance sheet. Payroll costs include benefits received in the form of share-based remuneration.

Government grants

Government grants are recognized when there is reasonable assurance that they will be received and that all the conditions attaching to them are satisfied.

Financial income and charges

Financial income and charges are recorded in the income statement on a time proportion basis using the applicable effective rate.

Income taxes

Income taxes are calculated on the basis of laws in effect in the different countries where group companies operate. In detail, the calculation takes account of the more significant tax adjustments and, in the case of companies subject to group income tax in Italy, the credit arising on tax losses that have been offset and may be offset against taxable income. Deferred tax assets and liabilities are recognized on temporary differences between the asset and liability figures used in the consolidation and the corresponding figures in the companies' statutory financial statements that are applicable for tax purposes.

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Deferred tax assets are recorded only if is likely that the company will have sufficient taxable income to use them. Deferred tax liabilities are booked for all taxable temporary differences unless these liabilities arise on the initial recognition of goodwill.

Earnings per share

Basic earnings per share are calculated by dividing the group's net income for the period attributable to the ordinary shares by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by taking into account, when calculating the number of outstanding shares, the potential dilutive effect arising from the allocation of treasury shares to the beneficiaries of stock option plans that have already vested and for which no capital increase is planned.

Property, plant and equipment

Items of property, plant and equipment are reported at historical cost if purchased separately or at fair value at the acquisition date if purchased through a business combination, and are systematically depreciated over their remaining useful lives. Land and assets held for sale are classified separately under non-current assets held for sale and no longer depreciated, but adjusted to their fair value if the latter is less than book value. Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets; assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset's effective use during the year. Improvement expenditure is added to the value of the assets concerned only when it is clearly separable and identifiable and can be recovered through expected future economic benefits. Ordinary maintenance costs are charged to the income statement in the year in which they are incurred. Any dismantling costs are estimated and added to the cost of the asset, with a corresponding credit recognized in a provision for dismantling charges. They are then depreciated over the remaining useful life of the asset concerned. The effects on the balance sheet, cash flow statement and income statement of assets acquired under finance lease are recorded in compliance with IAS 17. This standard requires such assets to be booked at cost among assets owned by the company and depreciated on the same basis as other property, plant and equipment. The principal portion of lease installments is deducted from the associated payable recognized on the liabilities side of the balance sheet, while the related interest included in installments is recognized on an accrual basis as a financial charge in the income statement. This policy is also applied to leased assets that meet the specific conditions laid down by IAS 17, the more important ones of which are as follows: • the present value of future lease installments envisaged in the contract is higher than or equal to the fair value of the asset itself; • the duration of the lease contract is basically the same as that of the useful life of the asset itself. The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Any associated gains or losses (calculated as the difference between the net disposal proceeds and the carrying amount of the item) are included in the income statement in the year of such derecognition. Items of property, plant and equipment are periodically reviewed to identify any impairment losses as described in the paragraph on "Impairment of assets".

Intangible assets

These are recorded at purchase cost if purchased separately or capitalized at fair value at the acquisition date if purchased through a business combination. The group does not capitalize research costs. Intangible assets generated internally as a result of developing the group's products are capitalized only if all the following conditions are met: • the asset is identifiable; • it is probable that the asset developed will generate future economic benefits; • the costs of developing the asset can be measured reliably.

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Such intangible assets are amortized on a straight-line basis over their related useful lives. If internally generated assets cannot be recognized in the balance sheet, the development costs are expensed to income in the period incurred. Intangible assets with a finite useful life are systematically amortized on a straight-line basis over that life. Goodwill and intangible assets with an indefinite useful live are not amortized but periodically tested for impairment, as described in the paragraph on "Impairment of assets". If the discounted expected cash flows do not allow the initial investment to be recovered, the value of the asset is written down accordingly. If goodwill is allocated to an intangible asset with a finite life upon first-time consolidation of an equity investment in accordance with IFRS 3, it is amortized. If goodwill is allocated to intangible assets with an indefinite life, it is not amortized but periodically tested for impairment, as required by IAS 36. Advertising costs, start-up and expansion costs, research costs, internally-generated trademarks and publishing titles are not capitalized.

Business combinations and goodwill

Business combinations are accounted for by applying the purchase method. This requires recognizing at fair value the acquiree's identifiable assets (including previously unrecognized intangible assets) and identifiable liabilities (including contingent liabilities and excluding those for future reorganizations). Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business combination over the group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities. For the purpose of consistent review, goodwill acquired in a business combination is allocated, at the acquisition date, to the group's individual cash-generating units, or groups of cash-generating units expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the group are assigned to those units or groups of units. Each unit or groups or units to which the goodwill is allocated: • represents the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets; and • is not larger than a segment based on either the group's primary or secondary segment reporting format determined in accordance with IAS 14 - Segment Reporting. If goodwill has been allocated to a cash-generating unit (or groups of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in such circumstances is measured on the basis of the relative values of the operation sold and the portion of the cash-generating unit retained. If the disposal relates to a subsidiary company, the difference between the disposal price and the net assets, plus cumulative exchange differences and unamortized goodwill is recognized in the income statement.

Impairment of assets

IAS 36 requires impairment testing to be carried out for property, plant and equipment, intangible assets and equity investments whenever there are any signs that they may be impaired. In the case of goodwill and other intangible assets with an indefinite useful life or assets not available for use, this test must be carried out at least once a year. The recoverability of the values recorded is tested by comparing the book value with the higher of the net selling price, if an active market exists, and the asset's value in use. The value in use is defined as the present value of estimated future cash flows expected to arise from the continuing use of an asset, or from its cash generating unit, and from its disposal at the end of its useful life. The cash generating units have been identified in keeping with the group's organizational structure and business, as groups of like assets that generate cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.

Investments in associated companies and joint ventures

Investments in associated companies and joint ventures are valued using the equity method, whereby the investment is recorded at purchase cost and adjusted thereafter for the post-acquisition change in the investor's share of the company's equity. If the losses of an associate, plus any long-term receivables forming

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part of the group's net investment, exceed the group's interest in the same, these are not recognized unless the group has incurred an obligation to cover such losses. The income statement reflects the investor's share of the associate's net income or loss, reported in the line item "Share of income (losses) from investments valued using equity method". Goodwill is represented by the positive difference between the purchase cost and the group's share of the fair value of the associate's identifiable assets, liabilities and contingent liabilities at the acquisition date. Such goodwill is included in the carrying amount of the investment and is periodically tested for impairment. Any excess of the group's share of the fair value of the associate's assets, liabilities and contingent liabilities at the acquisition date over the cost of the investment is credited to income for the period as soon as the process of applying the purchase method has been completed, ie. within twelve months of the acquisition date. If an associated company or joint venture makes any adjustments directly to their equity, the group recognizes its related share in equity and reports such a change in the statement of changes in capital and reserves.

Available-for-sale financial assets

The group's non-current financial assets consist of investments in companies in which the interest held is less than 20%. They are valued as "available-for-sale" assets, meaning they are recorded in the financial statements at market value, which coincides with purchase cost on the date of initial acquisition. The cost is subsequently adjusted to market value, with changes reflected in a corresponding equity reserve. This equity reserve is used when the asset is sold and forms part of the calculation of the related gain/loss. It is also used to absorb any negative adjustments to fair value; once the reserve has been used up, any additional negative adjustments, representing an impairment loss, will be recorded in the income statement. If such additional negative adjustment represents a market fluctuation, it is reflected in the equity accounts. In the case of investments in listed companies, market value is taken as their quoted price at period end. Other equity investments are valued using the Discounted Cash Flow method, and are recorded at cost only if no long-term business plans are available.

Inventories

Inventories are valued at the lower of purchase or production cost and their estimated realizable value as deduced from market trends. The purchase cost of raw materials is calculated using the weighted average cost method, while the FIFO method is used for finished products. Inventories are adjusted to their net realizable value by taking into account market prices, selling prices under normal business conditions, and technical and commercial obsolescence. The resulting provisions are deducted directly from the cost of inventories. Product returns in the "partworks" sector are recorded at zero when they re-enter inventory, with any benefits arising from their resale recognized only once they are sold. Finished products comprising books are adjusted at each balance sheet date for the estimated value of returns on a consistent basis with the estimated adjustment to trade receivables.

Trade and other receivables

Receivables are recorded at their estimated realizable value by means of the provision for doubtful accounts, which is directly deducted from their gross value. The realizable value of trade receivables also takes account of projected product returns in subsequent periods. If the terms of payment are longer than normal market ones and the receivable does not earn interest, there is an implicit financial component in the amount recognized in the balance sheet which must therefore be discounted to present value by debiting the discount to the income statement. The financial income is recognized on an accrual basis over the term of the receivable among "Financial income and charges". Receivables expressed in foreign currencies are translated at period-end exchange rates, and the gains or losses from their conversion are charged to the income statement.

Derivatives

Derivatives consist of assets and liabilities recorded at their fair value.

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Derivatives are classified as hedging instruments when their relationship with the hedged item is formally documented (hedge accounting) and the hedge effectiveness is high (effectiveness test). Transactions which, in compliance with the group's risk management policies, meet the requirements of the relevant accounting standard are classified as hedging transactions; other transactions are classified as trading transactions, even if they are carried out with the intent of managing exposure to risks. Fair value hedges, which hedge the exposure to changes in the fair value of the item being hedged, are recorded at fair value with any gains/losses recognized in the income statement. Changes in the fair value of cash flow hedges, which hedge the exposure to changes in cash flow for the items hedged, are initially recorded in equity and subsequently booked to the income statement, in keeping with the effects of the transaction being hedged. Changes in the fair value of derivatives that do not satisfy the criteria for being treated as hedging derivatives are recorded in the income statement.

Financial receivables

Current financial assets include held-for-trading assets. Such assets are initially recognized at cost and subsequently measured at fair value with changes recognized in the income statement as "Financial income" or "Financial charges". This heading also includes held-to-maturity investments, carried in the balance sheet at amortized cost.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, bank and post office sight deposits and investments in securities carried out as part of the treasury management function which have a short-term maturity, are highly liquid and subject to an insignificant risk of changing value. They are stated at face value. For the purposes of the consolidated cash flow statement, cash and cash equivalents are represented by cash and cash equivalents as defined above, less bank overdrafts.

Financial payables

Loans and borrowings are initially recognized at cost, corresponding to the fair value of the sum received less any additional costs for its arrangement. After initial measurement, loans and borrowings are valued using the amortized cost method.

Treasury shares

Treasury shares are recorded as a deduction from equity. The original cost of the treasury shares and the income arising on any subsequent sales are reported as movements in equity.

Provisions for employee benefits

The provision for employee termination indemnities and the defined-benefit retirement plans reported by Unedisa and Flammarion are recorded at the actuarial value of the group's effective liability to all employees, determined by applying existing statutory and regulatory provisions. The actuarial valuation, based on financial and demographic assumptions, is carried out by outside professional actuaries. The actuarial gains and losses are recorded in the income statement.

Provisions for risks and charges

The provisions for risks and charges relate to certain or probable liabilities of a specific nature whose amount and/or timing is unknown. Provisions are recognized when (i) an enterprise has a present obligation, deriving from a past event, (ii) it is probable that an outflow of resources will be required to settle the obligation and (iii) a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the expenditure that the group would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party at that time. The estimate implicitly reflects a financial component associated with the assumption that the obligation will be settled in

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the long term. If this component is material and the date of paying the obligation may be reliably estimated, the provision is therefore discounted to its present value; the increase in the provision associated with the passage of time by the financial component is recorded in the income statement under "Financial charges". If the liability relates to property, plant and equipment (eg. site dismantling and restoration), the provision is recognized as the other side of the increase in value of the asset to which it refers: the cost is recognized in the income statement through the process of depreciating the related asset.

Trade and other payables

Payables are booked at face value. If the terms of payment are longer than normal market ones and the payable does not carry interest, there is an implicit financial component in the amount recognized in the balance sheet. It is therefore discounted to present value by booking the discount to income, which is recognized on an accrual basis over the term of the payable among the financial items. Payables expressed in foreign currencies are translated at period-end exchange rates, and the gains or losses from their conversion are charged to the income statement.

Assets and liabilities held for sale

Assets and liabilities held for sale include non-current assets (or disposal groups) and the associated liabilities that the group intends to sell on the basis of a specific plan. These balances are valued at the lower of the net book value at which these assets and liabilities were recorded and their fair value less any foreseeable disposal costs. Any losses arising from this valuation are reported in "Net income (loss) from discontinuing operations".

Share-based remuneration plans

The group gives additional benefits to certain employees holding key positions in the form of stock option plans which are classified as equity-settled since they involve the physical delivery of shares. Under IFRS 2 (Share-based payment) stock options for employees are measured at their fair value on the grant date, determined using the binomial model. This model takes account of all the option's characteristics (life of the option, strike price and vesting conditions etc.), as well as the value of the underlying shares on the grant date and the expected volatility of these shares. If the right to exercise the option is exercisable after the end of a vesting period and after satisfying specific performance conditions, the overall cost of the options is recognized evenly over this period in a specific line item known as "Other equity instruments", with the matching entry going to "Payroll costs" in the income statement. At the end of each year the fair value of options determined in the past is not revised; instead, the estimated number of options that will vest up until their expiry is updated. The changes in this estimate are recorded as an adjustment to "Other equity instruments" with the matching entry going to "Payroll costs" in the income statement. When the options expire the amount recorded in the equity account is reclassified as follows: the portion of equity relating to exercised options is reclassified to the "Share premium reserve", while the portion relating to unexercised options is reclassified to "Carried forward earnings (losses)".

Translation of foreign currency items

The consolidated financial statements are presented in euro, being the functional and presentation currency adopted by the parent company. Each company within the group decides its own functional currency, which is used to record the contents of their individual financial statements. Foreign currency transactions are recorded, on initial recognition in the functional currency, at the exchange rate between the functional currency and the foreign currency at the date of the transaction. Foreign currency monetary assets and liabilities are retranslated into the functional currency using the exchange rate at the balance sheet date. All exchange differences are recognized in the income statement, except for differences arising from foreign currency loans taken out to fund a net investment in a foreign operation, which are recognized directly in equity until the net investment is sold, at which point the cumulative exchange differences deferred in equity

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are recognized in the income statement. The income taxes and tax credits attributable to exchange differences on these loans are also recorded directly in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. At the balance sheet date, the assets and liabilities of subsidiaries who adopt a foreign currency are translated into the presentation currency of the group's consolidated financial statements using the closing rate at that date, while their income statements are translated using the average rate for the year. The resulting exchange differences are recognized as a separate component of equity. On disposal of a foreign operation, the cumulative amount of the exchange differences deferred in equity relating to that foreign operation are recognized in the income statement.

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7. Changes in international accounting standards

The accounting standards adopted are the same as those in the prior year except for the following new and revised IFRS and IFRIC. The adoption of these revised standards and interpretations has not affected the group's financial statements, although some of them have involved making additional disclosures.

IFRS 6 Exploration for and evaluation of mineral resources This standard is not applicable to the group's business.

IFRIC 4 Determining whether an arrangement contains a lease The group has adopted IFRIC 4 with effect from January 1, 2006, which provides guidelines on establishing whether an arrangement contains a lease which must then be treated in accordance with the accounting policies for leases. This change in accounting policy has not had a significant impact on the group at either December 31, 2006 or December 31, 2005.

IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds This standard is not applicable to the group's business.

IFRIC 6 Liabilities arising from participating in a specific market – Waste electrical and electronic equipment This standard is not applicable to the group's business.

Amendments

IAS 19 Employee benefits The group has adopted the revisions to IAS 19 with effect from January 1, 2006 as a result of which it has expanded its disclosures relating to changes in the assets and liabilities associated with defined benefit plans, as well as the assumptions regarding the costs involved in such plans. The revision of the accounting standard has involved introducing additional disclosures for the years ended December 31, 2006 and 2005, but has not had any impact in terms of recognition and measurement because the group has not adopted the new option allowing actuarial gains and losses to be recognized in an equity reserve.

IAS 21 (revised) The effects of changes in foreign exchange rates The revision is not applicable to the group's business.

IAS 39 Fair value option IAS 39 has been revised to restrict the use the option to designate any financial asset or financial liability as one to be measured at fair value through profit or loss. The group has not used this option in the past and so the revision has not had any effect on its financial statements.

IAS 39 Hedging of highly probable forecast intragroup transactions IAS 39 has been revised to allow the currency risk associated with a highly probable forecast intragroup transaction to qualify as a hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the company entering into that transaction and the currency risk will affect the consolidated income statement. Since the group currently does not have any outstanding transactions of this kind, the revision has not had any effect on its financial statements.

IAS 39 Financial instruments: recognition and measurement and IFRS 4. Amendments for financial guarantee contracts The revision is not applicable to the group's business.

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8. IFRS and IFRIC interpretations not yet in force

The group has not adopted the following IFRS and IFRIC Interpretations which have been published but are not yet in force:

IFRS 7 Financial instruments: disclosures This standard requires the group to provide disclosures in its financial statements such that they enable users to evaluate the significance of financial instruments for the group's financial position and performance and the nature and extent of risks arising from such financial instruments.

IFRIC 7 Applying the restatement approach under IAS 29 - Financial reporting in hyperinflationary economies This standard is not applicable to the group's business.

IFRIC 8 Scope of IFRS 2 The interpretation clarifies certain aspects of IFRS 2 (share-based payment).

Amendments

IAS 1 Presentation of financial statements This amendment requires the group to provide additional disclosures that will enable users of the financial statements to evaluate the group's objectives, policies and processes for managing capital.

The group is still reviewing the effects of these interpretations and expects that their adoption will not impact the financial statements when they are implemented during the course of 2007.

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9. Main decisions when applying accounting standards and key sources of estimation uncertainty

Main decisions taken when applying the accounting standards For the purposes of testing the impairment of fixed assets, future cash flows have been estimated using the most recent business plans approved by the respective Boards of Directors, as updated to take account of actual figures and subsequent budgets, also approved by the same Boards of Directors. In the absence of subsequent events and circumstances such as to undermine the reliability of such plans, management considers that they represent the best estimate of future cash flow.

Key sources of estimation uncertainty The preparation of the consolidated financial statements and explanatory notes has required using estimates and assumptions both for determining the carrying amounts of some assets and liabilities and for measuring contingent assets and liabilities. Actual events might not fully confirm the estimates. The principal estimates refer to the provisions for risks and charges, the estimate of returns in the Books segment, the provisions for doubtful accounts and other writedown provisions, particularly for inventories, to depreciation and amortization, employee benefits and deferred taxes. The estimates and assumptions are periodically reviewed and the effects of any changes recorded in the income statement. For reasons strictly associated with technical-production obsolescence, during the year the group changed the previously estimated useful economic lives of certain plant and machinery used for printing Gazzetta dello Sport. Detailed information can be found in note 20, as required by IAS 8.

The key assumptions regarding the future and other sources of estimation uncertainty at the balance sheet date which might cause material changes in reported carrying amounts within the next financial year, basically refer to the process of measuring impairment losses for goodwill. In order to determine whether there is evidence that goodwill is impaired, it is necessary to estimate the value in use of the cash generating unit (CGU) to which the goodwill has been allocated. Value in use is calculated by estimating the cash flows that the company expects to derive from the CGU, and by determining an appropriate discount rate. More details can be found in note 30.

10. Management of financial risks

The RCS Group is exposed to a variety of financial risks: market risks (interest rate risk, price risk and to a lesser extent currency risk), liquidity risk and credit risk. After a formal process of review and approval, the group uses different types of derivative to manage its exposure to interest rate and currency risk; the types of contract currently in existence are: interest rate swaps, interest rate caps and forward foreign exchange contracts. Derivatives are used solely for hedging purposes. Even if a financial instrument has been designated for hedging purposes, whenever it fails to satisfy the formal conditions of the hedge effectiveness test required by IAS, it will be classified as held-for-trading.

Interest rate risk The RCS Group generally contracts its medium/long-term debt at a floating rate of interest. The exposure to the risk of undesired fluctuations in interest rates is hedged by taking out interest rate swaps (IRS) and interest rate caps. These are classified as cash flow hedges. IRS transform the floating rate into a fixed one through the periodic swap, with the financial counterparty, of the difference between the fixed rate interest (swap rate) and floating rate interest, both calculated on the notional contractual amount. In the case of interest rate caps, only if the interest rate rises above the contractual one, does the financial counterparty pay the RCS Group the difference between the contractual rate and the market floating rate in such a way as to bring the group's financial cost back to its contractual level. At December 31, 2006 75% of loans and borrowings, including finance leases, were at a contractually fixed rate, or transformed to such via IRS, or hedged by interest rate caps (compared with 66% at December 31, 2005).

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Currency risk Although the RCS Group has an important international presence, it does not have a large exposure to (transactional and financial) currency risk since the euro is the functional currency of its principal areas of business and is the currency in which most of its business is conducted. The exposure to currency risk mainly refers to certain items purchased and sold and loans and borrowings in the following currencies: US dollars, British pounds and to a lesser extent Canadian dollars and Swiss francs. Positions of significance are hedged using derivatives, specifically forward foreign exchange purchase or sale contracts and currency swaps. The hedge may refer to firm commitments, or to highly probable forecast transactions. Bearing in mind the seasonal nature of the business, extended terms of payment and the period covered by the budget, in some cases the hedge covers periods of up to twenty-four months.

The exposure to currency risk for net investments in a foreign entity is not hedged.

Liquidity risk The group manages its liquidity risk by investing surplus cash in short-term transactions (usually lasting between one and three months) or those which are easily and quickly unwound such as money-market instruments. A total of €750 million in revolving committed credit lines lasting between seven and eleven years have been arranged with a number of banks. Drawdowns of short-term credit lines generally cover only a minimal part of the capital employed.

Credit risk The group's exposure to credit risk refers to trade and financial receivables. The RCS Group does not have any areas of particularly significant risk where its trade receivables are concerned. The policies adopted are consistent with the decision to control the investment in credit, in accordance with the established financial goals and commercial strategies. The operational procedures limit the sale of products or services to customers without an adequate credit record or collateral guarantees. As far as financial receivables are concerned, investments of surplus cash and derivative transactions are carried out solely with highly reputable banking counterparties, for maximum amounts that are set internally for each individual counterparty.

Price risk The group is exposed to fluctuations in the price of paper, being the principal raw material used for its output. The group manages this risk through agreements with major Italian and foreign suppliers that set quantities and prices and last for the maximum duration currently allowed by the market of up to about one year. The group has never used hedging derivatives for this purpose, in keeping with the practice generally adopted by Italy's main players: this strategy is mostly associated with the limited liquidity of these derivatives both in terms of counterparties and maturities. The group is also exposed to fluctuations in the price of listed financial investments.

The fair value of derivatives, which are generally over-the-counter, is calculated using the standard valuation methods based on market conditions reported at the balance sheet date.

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11. Business combinations and acquisitions of minority interests

Acquisition of Dada

During 2005 the group purchased 26.3% of the voting shares in Dada S.p.A., a listed company based in Florence and specialist provider of web services. During 2006 the group measured all the assets and liabilities recognized at the acquisition date at their fair value, involving a consequent recalculation of the goodwill arising on the first-time consolidation after acquisition. The following table reports the fair value of the assets and liabilities contained in the Dada group's balance sheet at the acquisition date:

In application of IFRS 3, RCS has recorded the fair value of a software program generated internally by DADA, inclusive of updated customer lists. This separable and identifiable asset includes integrated, specific technological architecture, processes for optimizing the commercial relationship with customers and managing payments, data and information comprising the reference database, and specific commercial and marketing know-how. The valuation of this intangible asset was carried out by independent experts using a method widely accepted in both the theory and practice, which is particularly prudent and cautious, based on an earnings approach relating to income generated by customer relationships. The fair value of this intangible asset was set at €4.5 million, and will be amortized over three years, in keeping with the assumptions underlying its valuation. A deferred tax liability of €1.1 million has been recognized in respect of this intangible asset, while the goodwill provisionally recorded at the acquisition date as €54.9 million has been finally valued at €51.5 million (-€3.4 million).

During 2006 the group acquired an additional 2.6% of the voting rights in Dada S.p.A., taking its total interest to 44.24%. The sum paid for this acquisition was €8 million in cash. The difference of €6.9 million between the minority interest acquired in capital and reserves and the price paid has been recognized in equity as an equity transaction.

In December RCS entered into an agreement with a leading financial intermediary involving a call option and matching put option for the counterparty over Dada shares corresponding to approximately 1% of its share capital, to be exercised by November 30, 2008. As a result, a payable of €2.9 million has been recorded for the put option, compared with a book value of the net assets acquired of €0.6 million. The difference of €2.3 million between the put option payable and the book value of the interest acquired has been recognized in equity as an equity transaction.

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Acquisition of Editrice Abitare Segesta

On October 18, 2005 the group purchased 100% of the voting shares in Editrice Abitare Segesta S.p.A., a company based in Milan specializing in magazine publishing in the furnishings and architecture segment. During 2006 the group measured all the assets and liabilities recognized at the acquisition date at their fair value, involving a consequent recalculation of the goodwill arising on the first-time consolidation after acquisition. The following table reports the fair value of the assets and liabilities contained in the balance sheet of Editrice Abitare Segesta at the acquisition date:

In application of IFRS 3, RCS has recorded a fair value for the Abitare title insofar as this is an intangible asset with a finite useful life and separable from the company's other assets. The valuation of €11.6 million is the result of discounting the cash flows of the cash generating unit, relating to the activities of "Abitare", as derived from the three-year business plan (2007-2009), approved by the company's Board of Directors. The value of the title was not previously recognized in the company's balance sheet. A deferred tax liability of €2.7 million has been recognized in respect of the title's recorded value. The goodwill of €8.4 million initially recognized on a provisional basis has now been cancelled.

The useful life of the Abitare title has been estimated at 30 years, based on considerations relating to: • the title's undisputed market leadership; • the estimated life of 20 years for the RCS Group's "historic" mass market magazines, as extended to take account of the strong barriers to entry in Abitare's particular segment. As a result, the title is being amortized over 30 years.

The assumptions underlying the Discounted Cash Flow (DCF) used for valuing the title are as follows: • future cash flows were discounted using a post-tax discount rate over a period of 30 years, corresponding to the title's useful life; • the discount rate used reflects the weighted average cost of capital (WACC) consisting of the weighted average of the cost of debt and the return on risk-free assets plus a premium for market risk. This rate is 7.57% post-tax; • future cash flows have been prudently assumed to have zero growth; in fact, throughout the period from the end of the three year planning period, the cash flows have been assumed to be the same as in the last year of the plan (ie. 2009) and so with no growth at all.

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Acquisition of Editions d’Art Albert Skirà

On December 12, 2006 RCS International Books BV entered into an agreement with Societé du Livre SA for the purchase of another 24% of Edition d’Art Albert Skirà. In 2010 RCS and the sellers will have the right to exercise call and put options respectively over an additional 12% of share capital, at an exercise price based on the company's current valuation, and as from 2012, an additional call and put option over the remaining 40%.

Since the purchase agreement was made at the end of 2006, just the Skirà group's balance sheet has been consolidated line-by-line in 2006.

The following table reports the fair value of the assets and liabilities acquired:

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Acquisition of Adelphi

In June 2006 RCS purchased another 10% of Adelphi Edizioni S.p.A., taking its total interest to 58% meaning that this company is now consolidated line-by-line.

Acquisition of Nominalia S.A.

On August 4, 2006 the Dada subsidiary Register.it S.p.A. completed an agreement to acquire 100% of Nominalia S.L. This acquisition will take place in three different stages. At the first closing, on August 4, Register.it obtained 66.8% of Cotei S.L.- a holding company whose sole asset is a 75% interest in Nominalia, meaning that it acquired 50.1% of Nominalia for a total outlay of €2.8 million, of which €2.2 million paid in cash and the remainder in three equal quarterly installments. The following table reports the fair value of the assets and liabilities of Cotei/Nominalia at the acquisition date:

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Acquisition of UPOC Networks Inc.

On August 5, 2006 the Dada subsidiary Dada USA Inc. formalized an agreement to acquire Upoc Networks Inc., an established provider on the US market of value-added services for the internet and mobile phones. The acquisition of Upoc involved Dada USA Inc. paying cash consideration of USD 7 million (approximately €5.7 million) drawn from the Dada group's existing cash balances and settled in a single installment at the time of transferring the shares representing the equivalent of over 90% of ordinary capital, with the remaining shares transferred at a later date in 2006.

The following table reports the fair value of the assets and liabilities of Upoc Networks Inc. at the acquisition date:

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Acquisition of Tipic Inc.

On October 12, 2006 the Dada subsidiary Dada USA Inc. formalized an agreement to acquire 100% of Tipic Inc.. This acquisition involved the payment of cash consideration of €4.5 million, of which 35% settled on the acquisition date and the balance payable 12 months later.

The fair value of the asset and liabilities of Tipic Inc. at the acquisition date is immaterial. The following table nonetheless reports the goodwill arising from the acquisition and details of how the consideration is being settled:

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Between their date of acquisition and the group's year end, the companies purchased contributed the following net results to the group's consolidated income statement:

(*) Just the balance sheet of the Skirà group has been consolidated at December 31, 2006.

12. Segment information

In application of IAS 14, segment information will now be provided using the primary and secondary reporting formats. RCS has adopted the primary reporting format by business segment, defined as a distinguishable component of the group that is engaged in providing a group of related products and services, and that is subject to risks and returns that are different from those of the group's other business segments. The accounting policies under which segment figures are reported in the notes are consistent with those adopted for preparing the consolidated financial statements. The secondary reporting format, required by IAS 14, is by geographical area; this format reports revenues by geographical location of business for each region whose revenues represent at least 10% of the total. Although the criteria contained in IAS 14 have not been met for identifying a separate segment for the Dada group in 2006, RCS has nonetheless decided to present this group’s results separately for the sake of more complete, representative segment reporting.

Transactions between the different segments mostly refer to the exchange of goods, the provision of services and the provision and obtaining of funding. All such transactions are conducted on an arm's length basis, according to the standard of the goods and services provided.

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Primary reporting format by business segment

4th quarter

(€/millions) Corporate Eliminations/ 4th quarter 2006 Newspapers Books Magazines Broadcasting Advertising Dada (1) Functions adjustments TOTAL Distribution revenues 149,2 198,6 29,3 1,6 1,0 (9,3) 370,4 Advertising revenues 137,2 0,1 56,1 5,5 181,5 3,2 0,0 (141,9) 241,7 Other publishing revenues 10,6 12,9 9,2 0,0 1,8 28,1 13,7 (17,4) 58,9 Total segment revenues 297,0 211,6 94,6 7,1 183,3 31,3 14,7 (168,6) 671,0 Intersegment revenues (92,4) (6,1) (47,5) (4,8) (3,1) (1,2) (13,5) Net revenues 204,6 205,5 47,1 2,3 180,2 30,1 1,2 671,0 Segment EBITDA 54,6 27,8 16,1 (5,2) 3,3 1,7 (3,4) 94,9 Financial income (charges) (3,8) Other income and charges from financial assets and liabilities 28,7 - of which dividends from long- term equity investments( ) 0,0 investments valued using equity method 0,1 3,5 2,2 5,3 Earnings before tax 125,1 Income taxes (23,9) Net income (loss) before minority interests 101,2 Net (income) loss pertaining to minority interests (6,4) Net income pertaining to the group 94,8

(€/millions) Corporate Eliminations/ 4th quarter 2005 Newspapers Books Magazines Broadcasting Advertising Functions (2) adjustments TOTAL Distribution revenues 147,8 187,7 33,3 1,5 0,8 (8,7) 362,4 Advertising revenues 125,4 0,8 51,5 4,6 174,0 0,3 (134,8) 221,8 Other publishing revenues 6,5 11,8 8,3 0,0 0,6 31,1 (17,7) 40,6 Total segment revenues 279,7 200,3 93,1 6,1 174,6 32,2 (161,2) 624,8 Intersegment revenues (90,5) (9,3) (43,1) (4,5) (1,1) (12,7) Net revenues 189,2 191,0 50,0 1,6 173,5 19,5 624,8 Segment EBITDA 47,3 30,9 14,8 (2,1) (0,5) (11,6) (2,1) 76,7 Financial income (charges) 3,4 Other income and charges from financial assets and liabilities (4,2) - of which dividends from long- term equity investments() 0,7 0,7 investments valued using equity method (4,5) (1,3) 5,5 (0,9) (0,2) (0,9) Earnings before tax 75,0 Income taxes (27,3) Net income (loss) before minority interests 47,7 Net (income) loss pertaining to minority interests (8,0) Net income pertaining to the group 39,7

(1) The Dada group's EBIT in 4th quarter 2006 includes €1.5 million in amortization charges for the goodwill arising on its acquisition, allocated to intangible assets. (2) The Dada group was classified among the Corporate Functions at December 31, 2005.

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Year ended December 31

(1) The Dada group's EBIT at December 31, 2006 includes €1.5 million in amortization charges for the goodwill arising on its acquisition, allocated to intangible assets. (2) The Dada group was classified among the Corporate Functions at December 31, 2005.

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(1) Dada's assets include the goodwill arising on its first-time consolidation (€55 million), part of which allocated to other intangible assets during 2006, the associated deferred tax liabilities and intragroup eliminations relating to trade receivables.

(2) As from December 31, 2006 the primary reporting format no longer includes the provision for employee termination indemnities accrued and paid in the period (€3.4 million) under the "Increase in provisions for employee benefits".

(3) As from December 31, 2006 the primary reporting format presents investments on a cash-accounting basis, ie. those that were paid for in the period.

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Secondary reporting format by geographical area

4° trimestre

(in milioni di euro) Elisioni / 4° trimestre 2006 Italia Francia Spagna Altri paesi rettifiche TOTALE Ricavi diffusionali 209,2 73,6 49,5 38,8 (0,7) 370,4 Ricavi pubblicitari 191,5 0,0 49,8 0,6 (0,2) 241,7 Ricavi editoriali diversi 24,2 8,6 13,1 14,1 (1,1) 58,9 Ricavi per settore 424,9 82,2 112,4 53,5 (2,0) 671,0 Ricavi infrasettoriali (1,2) (0,1) (0,2) (0,5) Ricavi netti 423,7 82,1 112,2 53,0 671,0

Elisioni / 4° trimestre 2005 Italia Francia Spagna Altri paesi rettifiche TOTALE Ricavi diffusionali 210,9 73,2 47,7 32,4 (1,8) 362,4 Ricavi pubblicitari 181,5 0,7 39,2 0,7 (0,3) 221,8 Ricavi editoriali diversi 25,6 7,2 7,5 1,9 (1,6) 40,6 Ricavi per settore 418,0 81,1 94,4 35,0 (3,7) 624,8 Ricavi infrasettoriali (1,7) (1,1) (0,6) (0,3) Ricavi netti 416,3 80,0 93,8 34,7 624,8

Progressivo al 31 dicembre

Elisioni / 31 dicembre 2006 Italia Francia Spagna Altri paesi rettifiche TOTALE Ricavi diffusionali 850,2 233,9 170,6 129,5 (2,8) 1.381,4 Ricavi pubblicitari 640,6 0,4 153,1 2,3 (0,1) 796,3 Ricavi editoriali diversi 111,1 14,3 36,1 44,8 (4,3) 202,0 Ricavi per settore 1.601,9 248,6 359,8 176,6 (7,2) 2.379,7 Ricavi infrasettoriali (5,5) (0,5) (0,7) (0,5) Ricavi netti 1.596,4 248,1 359,1 176,1 2.379,7

Elisioni / 31 dicembre 2005 Italia Francia Spagna Altri paesi rettifiche TOTALE Ricavi diffusionali 861,4 234,9 170,7 112,3 (5,8) 1.373,5 Ricavi pubblicitari 590,4 1,0 129,2 2,2 (0,5) 722,3 Ricavi editoriali diversi 58,6 14,1 23,8 3,2 (4,5) 95,2 Ricavi per settore 1.510,4 250,0 323,7 117,7 (10,8) 2.191,0 Ricavi infrasettoriali (8,4) (1,5) (0,6) (0,3) Ricavi netti 1.502,0 248,5 323,1 117,4 2.191,0

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(€/millions) Other December 31, 2006 Italy France Spain countries TOTAL

Segment assets 1.463,4 258,1 324,2 79,1 2.124,8 Investments in associated companies and JVs 53,5 8,1 10,7 72,3 Unallocated financial assets 327,5 Unallocated tax assets 153,0 Total assets 2.677,6

Investment in intangible assets 38,8 6,3 12,0 10,7 67,8 Investment in property, plant & equipment 25,6 2,1 22,1 0,5 50,3

Other December 31, 2005 Italy France Spain countries TOTAL

Segment assets 1.409,8 261,0 281,8 58,6 2.011,2 Investments in associated companies and JVs 52,3 8,8 12,4 4,6 78,1 Unallocated financial assets 286,2 Unallocated tax assets 155,8 Total assets 2.531,3

Investment in intangible assets 95,0 5,5 5,9 106,4 Investment in property, plant & equipment 73,8 15,1 16,1 0,1 105,0

13. Transactions with related parties

Transactions with related parties are carried out on an arm's length basis as part of the normal course of business of each party concerned. The conduct of transactions with related parties is governed by specific procedures approved by the Board of Directors, as described in the "Corporate governance" section of the Report on operations. As required by IAS 24, the following table reports the total value of transactions and balances in 2006 between RCS group companies and "related parties", excluding intragroup transactions and balances which are eliminated on consolidation.

It is reported that there were no transactions with "related parties" that were atypical or unusual or fell outside the normal course of business or such that would have a significant impact on the group's income statement, balance sheet and financial position. Transactions with joint ventures mostly refer to M-dis S.p.A., in respect of which group companies have earned €554.8 million in revenues, incurred €40.4 million in costs, earned €2.3 million in other operating revenues and income, incurred €1.1 million in financial charges and reported €35.1 million in trade receivables, €14.2 million in trade payables and €25.4 million in financial payables. The more significant trading relationships with other associated companies are with Eurogravure, Mach 2 and IGPDecaux.

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Transactions between group companies and subsidiary and associated companies mostly refer to the exchange of goods, the provision of services, the provision and obtaining of funding, as well as tax-related transactions. All such transactions are conducted on an arm's length basis, according to the standard of the goods and services provided.

Transactions by RCS MediaGroup S.p.A. with subsidiary and associated companies, which are specified in the parent company's explanatory notes to its financial statements, mostly refer to: • transactions associated with agreements for the centralized provision of services (communication, corporate and legal affairs and planning); • commercial transactions involving the letting of offices and work space by the parent company to its subsidiaries; • financial transactions, involving loans and current account transactions undertaken as part of the centralized treasury management service.

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

Group tax election for VAT purposes During the year RCS MediaGroup S.p.A. continued to make use of the rules allowing the filing of group VAT returns, ending the year with a net payable balance of €3.3 million. RCS MediaGroup S.p.A. transferred net payables totaling around €0.6 million to the group VAT position during 2006.

As required by IAS 24, key management personnel have been identified as members of the Board of Directors and Board of Statutory Auditors of the parent company and its subsidiaries, the parent company's Chief Executive Officer and Chief Operating Officer, the Chief Executive Officers and Chief Operating Officers of RCS Quotidiani, RCS Libri, RCS Pubblicità, RCS Periodici and RCS Broadcast (all directly controlled by RCS MediaGroup S.p.A.), and the directors and statutory auditors of Dada. The following table presents the required information regarding their compensation in the various forms received.

Other Cost of Payroll equity services costs instruments Board of Directors - emoluments 3,9 Board of Statutory Auditors - emoluments 0,8 Chief Executive Officer & Chief Operating Offer - other remuneration 1,0 17,7 1,1 Total related parties 5,7 17,7 1,1 Reported total 973,0 420,4 4,2 % of reported total 1% 4% 26%

The transactions with related parties in 2006 include €8.7 million in non-recurring charges relating to top management changes involving the Chief Executive Officer and other key managers within the group, of which €7.7 million reported in "Payroll costs" and €1 million classified in "Services". "Payroll costs" also include compensation paid to key management personnel in the form of remuneration (€5.5 million), company bonuses earned in the year (€3.5 million), and the cost of stock options charged to 2006 (€1 million). "Other equity instruments" report the overall cost of stock options granted as from the start of the vesting period.

In addition to the disclosure requirements envisaged by IAS 24 and so not included in the amounts reported on the face of the income statement and balance sheet, it is reported that members of the RCS MediaGroup Group had dealings during 2006 with companies belonging to the groups headed up by Mediobanca S.p.A.

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and Fiat S.p.A., which have direct and indirect shareholdings of more than 10% of RCS MediaGroup S.p.A.'s ordinary share capital. The overall amounts involved in these transactions are set out below.

RCS MediaGroup S.p.A. and some of its subsidiaries had trade and financial dealings during the year with the existing shareholders and/or companies under their control. These transactions were nonetheless carried out in the ordinary course of business and conducted on an arm's length basis.

14. Increase in assets built internally

The amount of €3.5 million relates to the Dada group and refers to the capitalization of costs incurred to develop new products and services mostly for websites and consumer services. The change of €3.1 million on the prior year is due to the consolidation of Dada for the whole of 2006 rather than just two months like in 2005, and to the costs incurred for the dada.net product, for projects to launch the .eu domain and for new shared hosting.

15. Raw materials and services consumed

These amount to €1,687.4 million and consist of €554.5 million in costs for raw and ancillary materials, consumables and goods, €973 million in costs for services, and €159.9 million in rentals and leasing. These items are discussed below:

Raw and ancillary materials, consumables and goods

Details of raw and ancillary materials, consumables and goods are presented below:

The increase of €39.6 million is basically due to an increase of €17.9 million in purchases of finished products, of which €9.8 million attributable to RCS Quotidiani S.p.A. and €7.8 million to GE Fabbri, and to €16 million in extra costs incurred for purchasing other materials, of which €8.1 million relating to the purchase of semi-finished goods by GE Fabbri and €7.2 million relating to the purchase of consumables and gadgets by the Newspapers Italy segment.

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Services

The cost of services has increased by €100.8 million on 2005, mostly attributable to the full-year consolidation in 2006 of the Dada group, Editrice Abitare Segesta and Pubblibaby (€72.5 million, of which €46.2 million relating to advertising costs and €21.4 million to other services), and to the increase in transport costs at the subsidiary Unedisa (€5.8 million) and in advertising costs at the subsidiary GE Fabbri (€6.5 million), as a result of the larger number of new releases in 2006 and the company's new publishing program, also involving the newly-formed companies in Eastern Europe. These increases have been only partially absorbed by savings, on a consistent comparative basis, of €9.6 million by all group companies for other services.

Rentals and leasing

These costs, totaling €159.9 million, mostly refer to copyrights for text and photographs and to operating leases for the rental of buildings, office machinery and motor vehicles. The increase of €4.4 million relative to the prior year is chiefly due to the full-year consolidation in 2006 of the Dada group, Editrice Abitare Segesta and Pubblibaby, as well as the line-by-line consolidation of Adelphi in the second half of 2006.

16. Payroll costs

These amount to €420.4 million in 2006. The increase of €21 million includes €14.9 million in respect of changes in the scope of consolidation, €8.7 million in non-recurring charges incurred in 2006 for top management changes involving the Chief Executive Officer and certain other group managers, specifically in the parent company and the Newspapers and Advertising segments, €7 million in additional costs incurred by Unedisa for the growth in its workforce, and €2.9 million in higher provisions for stock option plans. These increases have been only partially absorbed by cost savings resulting from the completion of corporate reorganization, specifically in the Newspapers and Corporate Functions segments.

"Employee benefits" include €17.9 million in provisions for the defined-benefit plans described in note 41.

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The average workforce during the year is broken down by category as follows:

17. Other operating revenues and income

These have decreased mainly as a result of recognizing fewer grants towards the cost of paper (€6.8 million in 2006 versus €20.5 million in 2005), based on expenditure incurred in 2005, as partially offset by €4.3 million in income reported by the subsidiary GFT Usa following the settlement of certain prior year disputes.

18. Other operating expenses

These are detailed as follows:

The taxes mostly consist of VAT paid by the publishing houses and local property taxes. "Other overheads" include €3.7 million in positive margins passed back to co-publishers working with the Books business, €5.7 million in entertaining and gifts, and €4.2 million in management fees for the foreign partworks division. The taxes reported in 2005 included a refund of €2.5 million received by RCS Libri for registration tax paid in the past.

19. Impairment of trade and other receivables

This amounts to €12.2 million in 2006, having decreased by €1.8 million on the prior year due to fewer writedowns against receivables and author advances, specifically in the Books segment.

20. Amortization, depreciation and impairment of fixed assets

These charges have increased from €45.7 million in the prior year to €65.4 million in 2006.

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The increase in amortization of intangible assets mainly refers to the amortization of software user licenses purchased by the Corporate Functions (€3.8 million), to the amortization of goodwill arising on the consolidation of Dada and of intangible assets with a finite useful life in Editrice Abitare Segesta (€1.8 million), to Unedisa's investment in 2006 in television rights and copyrights (€1.9 million), and to the purchase of new broadcasting frequencies by RCS Broadcast (€0.6 million). Depreciation of property, plant and equipment has increased by €8.7 million, primarily due to the higher charges booked by RCS Quotidiani for the full-color printing operations of Corriere della Sera, which entered service in July 2005 (+€5.9 million relative to the year before), and the reduction in the remaining useful life of production plant and machinery at Gazzetta dello Sport causing the monthly depreciation charge to rise as from November 2006 (+€0.9 million). The following table shows the current and future effect of this revision on the depreciation charge for production plant and machinery at Gazzetta dello Sport:

The change in the scope of consolidation has added €1.6 million in amortization of intangible assets and €1.1 million in depreciation of property, plant and equipment. Lastly, the goodwill relating to Flammarion was written down by €5.3 million in 2006 after testing it for impairment.

21. Financial income

The increase of €3.2 million is mainly due to gains arising on the partial sale of units in hedge funds managed by Duemme Sgr (€5 million), while the 2005 figure included €2.8 million in gains on the sale of Recoletos shares. This year's increase also reflects an improvement in the group's net financial position, in turn generating higher interest income on bank deposits, also helped by the rise in interest rates.

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22. Financial charges

Financial charges are higher in 2006 due to the larger exchange losses reported by group companies on currency hedges (+€2.5 million), in respect of which €1,4 million in higher financial income has been recognized, and to increased interest expense as a result of the rise in interest rates.

23. Other income (charges) from financial assets/liabilities

These include the gains realized by the parent company on the sale of part of its investment in Banca Intesa (€59.6 million), the gain realized by Dada on the sale of Planet Com (€2.2 million) and the gain realized by RCS International Magazines on the sale of Pegasus (€0.4 million). The dividends include €9.6 million received from Banca Intesa. The increase relative to the prior year is mostly due to the higher dividend paid by Banca Intesa, which was €5 million more than in 2005. Equity investment impairment includes €1.1 million for Poligrafici Editoriale S.p.A. and €1.1 million for MB Venture Capital.

24. Share of income (losses) from investments valued using equity method

The share of income (losses) from investments valued using the equity method amounted to €3.2 million (€0.6 million in 2005) and mostly refers to the positive results reported by M-Dis (€2.8 million), IGPDecaux (€1.7 million), Eurogravure (€0.8 million), Mach 2 (€0.3 million), Editoriale del Mezzogiorno (€0.1 million) and minor companies in the Flammarion group (€0.7 million). This was partially offset by the group's share of losses reported by RBA Fabbri France (€0.9 million), GE Eaglemoss (€0.8 million), Hachette Rizzoli Magazines (€0.4 million) and minor companies in the Unedisa group (€1.1 million).

25. Income taxes

The income taxes reported in the income statement are as follows:

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The decrease in income taxes is principally due to the smaller amount of deferred tax assets reversing in the current year relative to the prior one.

Current tax assets and current tax liabilities are analyzed below:

"Current tax assets" of €75.1 million mostly consist of IRES (Italy’s new corporate income tax) credits carried forward and IRPEG (Italy's former corporate income tax) credits for which application for repayment has been made in previous years. The decrease is principally attributable to the parent company after the partial transfer of its carried forward IRES credit to companies participating in the group tax election, and to fewer tax credits transferred by subsidiaries to the parent company by way of advance payments of IRES paid under the group tax election. "Current tax liabilities" reflect tax of €13.5 million due on current-year income.

Deferred tax assets and deferred tax liabilities are analyzed as follows:

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The actual tax charge reported in the financial statements is reconciled to the theoretical tax charge, resulting from the application of current rates, as follows:

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26. Net (income) loss pertaining to minority interests

The share of net income (loss) pertaining to minority interests is analyzed as follows:

27. Earnings per share

2006 2005 Net income pertaining to the group 219,5 219,3 Dividends paid to savings shares 3,8 1,8 Net income for determining basic earnings per share 215,7 217,5

No. ordinary shares 732.669.457,0 732.669.457,0 No. treasury shares (19.430.225,0) (19.430.225,0) Ordinary shares outstanding during the year 713.239.232,0 713.239.232,0

Dilution arising from contingently issuable ordinary shares: -number of ordinary shares relating to options: 14.313.675,2 1.900.192,4 -number of shares that could be issued at fair value (16.883.531,1) (1.934.761,9) Anti-dilutive effect (2.569.855,9) (34.569,5)

Weighted average number of ordinary shares for determining 713.239.232,0 713.239.232,0 diluted earnings per share

Basic earnings per share 0,30 0,30 Diluted earnings per share 0,30 0,30

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28. Non-recurring income (charges)

Details of the non-recurring income and charges included in the results for 2006 are shown below, also indicating their percentage share of the line items in which they have been classified:

Non-recurring income relates to the gain realized on the sale in 2006 of part of the shares held in Banca Intesa (€59.6 million), to grants toward the cost of paper (€6.8 million), to the gain on the partial sale of units in hedge funds managed by Duemme Sgr (€5 million), to proceeds received by GFT Usa on the settlement of prior year disputes (€4.3 million), and to the gain realized by Dada on the disposal of its investment in Planet Com (€2.2 million). Non-recurring charges principally refer to €11.7 million in costs incurred in the year for top management changes involving the Chief Executive Officer and certain other group managers.

29. Property, plant and equipment

Changes during the year were as follows:

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Land is not being depreciated. However, its value is periodically reviewed in order to assess the need for any downward adjustments. Other property, plant and equipment recorded in the financial statements is being depreciated over the estimated useful life of each individual asset, using the following rates: Buildings from 2% to 5% Plant and machinery from 10% to 30% Equipment from 10% to 25% Other assets from 10% to 25%

No financial expenses have been capitalized.

Land and buildings

The buildings (€75.6 million), leased buildings (€21.1 million) and related land (€42.6 million) mostly refer to industrial properties and the Via Solferino building in Milan, as well as the offices of companies in the Unedisa and Flammarion Groups. The additions to "Land and buildings" mostly refer to investments by Flammarion for alterations to its new head office (€1 million), investments by RCS Quotidiani for restructuring the property in Via Solferino (€4.4 million), and improvement expenditure by RCS MediaGroup S.p.A. for the premises, rented under operating lease, in Via Rizzoli, Milan (€0.7 million). The Via Solferino building in Milan is mortgaged against a loan originally for €71.3 million but now standing at €35.8 million.

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Plant and machinery

These report a balance of €163.9 million, of which €118.2 million refers to leased assets. Most of the overall balance refers to rotary presses and other machinery used by RCS Quotidiani S.p.A., the Unedisa Group and the newspaper printing operations in Rome. The additions in the year include €3 million in relation to Unedisa for the full-color printing project at El Mundo and €0.9 million in relation to RCS Broadcasting S.p.A. which purchased assets required for its existing broadcasting systems and equipment. Other movements reflect the reclassification of leased plant that was redeemed in 2006.

Other assets

These amount to €33 million and consist mainly of servers supporting the publishing and operating systems, plus PCs, miscellaneous electronic devices, furniture, fittings and motor vehicles. Most of the additions took place at RCS Quotidiani S.p.A., the Unedisa group and the Dada group.

Assets under construction and advances

These amount to €33 million. The change during the year is due to the restructuring of the building in Via Solferino still in progress (€5.7 million) and the gradual completion of the full-color printing project at El Mundo relating not only to machinery but also to alterations to existing production sites.

30. Intangible assets

Changes during the year were as follows:

FINITE USEFUL LIFE INDEFINITE USEFUL LIFE DESCRIPTION Development Industrial Concessions, Assets under Other Concessions, Goodwill Goodwill arising TOTAL costs patents licenses, development and intangible licenses, on consolidation trademarks and advances assets trademarks and similar similar HISTORICAL COST AT 12/31/05 4,7 23,4 150,1 6,4 4,9 137,5 28,7 281,7 637,4 Reclassifications for goodwill allocation 15,6 (11,7) 3,9 HISTORICAL COST AT 12/31/05 4,7 23,4 165,7 6,4 4,9 137,5 28,7 270,0 641,3 Additions 3,5 7,2 23,7 2,5 0,6 0,1 30,2 67,8 Disposals (2,4) (2,4) (0,4) (5,2) Equity transaction (9,2) (9,2) Impairment losses (5,3) (5,3) Exchange differences (0,3) (0,3) Change in scope of consolidation 0,4 1,3 0,1 1,8 Other movements (10,9) 5,1 (5,2) (26,1) 1,4 (35,7) HISTORICAL COST AT 12/31/06 8,2 17,7 193,1 3,3 5,6 137,5 2,7 287,1 655,2 ACC. AMORTIZATION AT 12/31/05 (1,4) (20,2) (85,8) 0,0 (4,3) (22,2) (12,2) (43,1) (189,2) Amortization (2,0) (3,2) (20,0) (0,4) (25,6) Disposals 2,4 2,4 4,8 Exchange differences 0,3 0,3 Change in scope of consolidation (0,3) (0,6) (0,1) 0,1 (0,9) Other movements 10,9 1,2 26,1 38,2 ACC. AMORTIZATION AT 12/31/06 (3,4) (10,4) (102,5) 0,0 (4,8) (22,2) 14,0 (43,1) (172,4) NET BALANCE AT 12/31/05 3,3 3,2 79,9 6,4 0,6 115,3 16,5 226,9 452,1 Additions 3,5 7,2 23,7 2,5 0,6 0,0 0,1 30,2 67,8 Disposals 0,0 0,0 0,0 (0,4) 0,0 0,0 0,0 0,0 (0,4) Equity transaction 0,0 0,0 0,0 0,0 0,0 0,0 0,0 (9,2) (9,2) Amortization (2,0) (3,2) (20,0) 0,0 (0,4) 0,0 0,0 0,0 (25,6) Impairment losses 0,0 0,0 0,0 0,0 0,0 0,0 0,0 (5,3) (5,3) Exchange differences 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Change in scope of consolidation 0,0 0,1 0,7 0,0 0,0 0,0 0,1 0,0 0,9 Other movements 0,0 0,0 6,3 (5,2) 0,0 0,0 0,0 1,4 2,5 NET BALANCE AT 12/31/06 4,8 7,3 90,6 3,3 0,8 115,3 16,7 244,0 482,8

Intangible assets with finite useful lives are amortized over their useful lives, estimated as follows: Development costs 10 years Industrial patents 5 years Concessions, licenses and trademarks from 5 to 30 years Other intangible assets 5 years

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The allocation of goodwill arising on the first-time consolidation in 2005 of the Dada group and Editrice Abitare Segesta (see note 11) has involved reclassifying €11.7 million from "Goodwill arising on consolidation" to "Concessions, licenses, trademarks and similar rights", of which €8.3 million relates to the Abitare title and €3.4 million to a software program generated internally by the Dada group. Furthermore, the recognition of deferred taxes on this goodwill has involved increasing "Concessions, licenses, trademarks and similar rights" by €3.9 million, with a matching entry in "Deferred tax liabilities". In compliance with IFRS 3, the comparative figures at December 31, 2005 have been restated for these changes.

Development costs

Development costs of €4.8 million relate to the Dada group and refer to the capitalization of costs incurred for developing new products and services mostly relating to consumer portals and services. Costs are capitalized as a function of their future profitability and in accordance with the principles established by international accounting standards.

Industrial patents

The balance of €7.3 million refers to internally generated assets relating to the costs incurred by the Unedisa Group for producing audiovisual material and films.

Concessions, licenses, trademarks and similar rights

Finite useful life

These amount to €90.6 million and mostly refer to RCS Broadcast's rights to use radio frequencies (€32.2 million) and software licenses.

The additions of €23.7 million include €17.1 million in expenditure on software licenses by RCS Quotidiani S.p.A. and the Flammarion group, €4 million by RCS Broadcast S.p.A. for acquiring rights to use radio frequencies, while the rest refers to acquisitions. Other movements of €6.3 million refer to reclassifications from "Assets under development and advances", after completing work on new software programs.

Indefinite useful life

These amount to €115.3 million and mostly consist of the goodwill allocated to El Mundo, the daily newspaper published by the Unedisa group in Spain (€108 million) and the Casterman trademark (€7.3 million).

El Mundo, whose first edition dates back to October 1989, has become one of the most widely circulated national newspapers in under four years; since 2001 it has been Spain's number two newspaper in terms of the number of readers and copies sold. Based on its past trends, its current leadership of the general news segment and its potential future earnings in terms of both distribution and number of readers, there is no foreseeable limit to the period when El Mundo will generate cash flows. This is why it is regarded as an intangible asset with an indefinite useful life.

The Casterman brand, specializing in the segment of comics and children's books since 1780, is also treated as an asset with an indefinite useful life: the brand's notoriety and image help transfer to its published works the benefits associated with the perception of the high quality of the graphics for which this brand is known. Furthermore, the remaining period over which the trademark is legally protected is not particularly relevant given the ease and low cost involved in renewing trademark protection.

The Casterman trademark and the El Mundo title both have indefinite useful lives and so are not amortized. Instead, their recoverable amount is reviewed each year by testing for impairment.

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Goodwill allocated to the unexpressed higher value of assets has been increased to take account of the related deferred tax charge, recognized in the deferred tax liabilities. In the case of assets with an indefinite life, these taxes will be released in the future if the asset is sold or its value adjusted for impairment. In the case of assets with a finite life (radio frequency licenses), these taxes are released to match the asset’s amortization.

Assets under development and advances

These total €3.3 million. The increase mostly refers to costs incurred by RCS Broadcast for purchasing new frequencies, and by RCS Quotidiani and Flammarion for buying new software licenses.

Other intangible assets

The net balance amounts to €0.8 million. The change over the year is an increase of €0.6 million in respect of capitalizations carried out by Dada.

Goodwill

This amounts to €16.7 million and reflects the goodwill recorded in the financial statements of consolidated companies, specifically RCS Libri, of which €8.5 million pertaining to the acquisition of Casa Editrice La Tribuna and €8 million to the acquisition of the business activities of Tramontana and Markes and the textbook publishing division of Calderini-Edagricole.

Goodwill arising on consolidation

This amounts to €244 million and mostly consists of goodwill arising on first-time consolidation which has not been allocated to the unexpressed higher value of assets, liabilities and contingent liabilities of subsidiary companies. It refers in particular to Flammarion (€77.5 million), the Dada group (€74.4 million), the Sfera group (€36.1 million), RCS Advertising BV, the direct parent of IGPDecaux (€17.0 million), Blei S.p.A. (€10.1 million), Pubblibaby (€9.3 million), Casterman (€10.5 milion) and Marsilio (€0.3 million). The increases in the year refer to the Skirà group (€7.4 million, of which €2 million was classified last year in investments) and Adelphi Edizioni (€1.4 million), after raising the interests held in both, and to Dada's acquisition of a number of small companies in 2006 (€14.2 million). Goodwill was also recognized during the year on the purchase of minority interests in Dada S.p.A. (€9.2 million), but this has been deducted from the group's consolidated equity since this purchase qualified as an equity transaction. The application of the purchase method of accounting (IFRS3) for the acquisitions of Editions d’Art Albert Skirà and Adelphi Edizioni, both carried out since June 2006, has initially involved a provisional determination of the fair values of the assets, liabilities and contingent liabilities acquired, such as to allow the recognition of an initial amount for goodwill arising on consolidation. These amounts may be adjusted within twelve months of the acquisition date. The goodwill arising in 2005 on the acquisitions of Editrice Abitare Segesta and Dada has been totally or partially allocated to intangible assets with a finite useful life as a result of completing the initial accounting process in accordance with the purchase method (-€11.7 million).

In compliance with IFRS, goodwill and goodwill arising on consolidation are no longer being amortized, but are tested at least once a year for impairment in accordance with IAS 36. The purpose of this test is to demonstrate whether the intangible asset can be recovered through the discounted cash flow produced by the cash generating unit to which it refers, in a finite period of no more than twenty years.

The main assumptions used for calculating value in use refer to the discount rate, the growth rate and the expected changes in selling prices and in direct costs over the calculation period (20 years). The discount rate used for discounting future cash flows is the weighted average cost of capital (WACC), calculated as a weighted average of the return on risk-free investments plus a risk premium and the cost of borrowing. The discount rate used has been calculated post-tax and reflects the specific risk associated with the RCS Group's business: this rate varies between 7.5% and 8.9%.

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Future cash flows after the planning period have been prudently assumed to have zero growth; in fact, throughout the period from the end of the three year planning period, cash flows have been assumed to be the same as in the last year of the plan and so with no growth at all. The changes in selling costs and direct costs are based on past experience and future market expectations.

The following table reports the book value of intangible assets with indefinite useful lives allocated to individual cash generating units.

Goodwill arising on Concessions, licenses & consolidation Goodwill trademarks Segments CGU 12/31/2006 12/31/2005 12/31/2006 12/31/2005 12/31/2006 12/31/2005 Newspapers Unedisa 108,0 108,0 Books Flammarion (1) 88,0 93,3 7,3 7,3 Ed. d'Art Albert Skirà 7,4 Adelphi Edizioni 1,4 Education 0,3 0,3 16,7 16,5 Magazines Sfera (2) 45,4 45,4 Dada Dada 74,4 60,8 Advertising Blei 10,1 10,1 IGPDecaux 17,0 17,0 Total 244,0 226,9 16,7 16,5 115,3 115,3

(1) Also includes Casterman (2) Also includes Pubblibaby

31. Investments in associated companies and joint ventures

The list of investments in associated companies and joint ventures can be found in one of the tables attached to this report.

Movements during the period were as follows:

The revaluations and impairment losses, recognized in application of the equity method, amount to €3.2 million, details of which can be found in note 24. The increases include €0.8 million for smaller companies acquired by Dada in 2006 and €0.2 million in capital increases subscribed in Editoriale del Trentino Alto Adige and Media Alpi. Other movements mainly refer to movements in the IAS transition reserves included in the equity of associates and to minor reclassifications. The dividends paid relate to M-dis (€3.7 million), as well as smaller companies in the Unedisa group (€0.7 million) and the Books segment (€0.4 million). The changes in the scope of consolidation mostly refer to the line-by-line consolidation of Adelphi Edizioni and the Skirà group, which were accounted for using the equity method up until the end of 2005. Figures for the principal associated companies and joint ventures are reported below:

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32. Available-for-sale financial assets

Under IAS 39 securities and investments in companies which are not subsidiaries, associates or held for trading are defined as available-for-sale financial assets. Such assets amount to €221.1 million at December 31, 2006. These assets are stated at market (ie. fair) value. The market value of investments in listed companies is their quoted price at year end. In contrast, investments in unlisted companies, for which a market value is not available, are tested for impairment. Only a few minor investments have been valued at cost, since no future business plans, required for performing the impairment test, were available. It has been assumed that cost approximates their fair value. The change at December 31, 2006 with respect to the end of last year is the product of opposing movements, the principal ones of which were as follows: • the fourth-quarter purchase of 3,169,000 shares in San Paolo-Imi for €53.8 million and their subsequent revaluation by €3.3 million; • the disposal of part of the shares held in Banca Intesa, with a carrying amount of €107.1 million inclusive of €25.4 million in revaluation. The disposal gave rise to a capital gain of €59.6 million; • the recognition of €2.2 million in impairment losses for Poligrafici Editoriale and MB Venture Capital in order to adjust their carrying amount to fair value; • the disposal of Pegasus Publishing, whose carrying amount at December 31, 2005 was €1.8 million.

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33. Financial assets and liabilities recognized for derivatives

These line items report derivative financial instruments. Such instruments are recognized as financial assets or financial liabilities at fair value. The principal types of derivative contract taken out are analyzed below, specifying whether they are hedging or trading instruments.

Notional Parameter Description amount range Range% <1 year >1<2 >2<5 >5

Cap purchased for hedging 194,3 Euribor 3m - 1y 4% - 5% 8,9 28,5 92,1 64,8 Cap purchased for trading 25,0 Euribor 3m - 6m 4,5% 25,0

CAP 219,3 33,9 28,5 92,1 64,8

Cash flow hedge: swap from floating to fixed rate 13,0 Euribor 3m-6m 3,025% - 4,69% 12,7 0,2 0,1

IRS 13,0 12,7 0,2 0,1 0,0

TOTAL 232,3 46,6 28,7 92,3 64,8

Interest rate derivatives mature as follows:

The notional amount of interest rate swaps and interest rate caps at December 31, 2006 is €232.3 million (€209.3 million at December 31, 2005). The most important type of derivative included in this amount are interest rate caps for a notional amount of approximately €97.3 million. Their purpose is to hedge exposure to interest rate risk on floating-rate finance leases, repayable over ten years and relating to the investment in the full-color project at RCS Quotidiani S.p.A.. They include an interest rate cap for a notional amount of €15.4 million that was negotiated in October 2006. They also include an interest rate cap of up to €18 million activated in October 2006 to hedge interest rate risk on finance leases, repayable over ten years and relating to the Unedisa group's project to introduce full- color printing for El Mundo. An interest rate cap hedging a 10-year loan was also negotiated, with a start date of May 2006. The contractual fixed interest rates of the interest rate swaps and the capped rates of the interest rate caps range between 3.025% and 5%, both at December 31, 2006 and December 31, 2005; the reference parameter for the floating rate is three, six and twelve-month Euribor.

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Foreign currency hedges have the following maturities at December 31, 2006:

The notional amount of forward foreign exchange contracts is €17.4 million at December 31, 2006 (€29.5 million at December 31, 2005).

The Unedisa Group has negotiated around €3.3 million in forward foreign exchange contracts to hedge part of its future payments in Swiss francs associated with the investment in full-color printing at El Mundo.

All the above instruments have been taken out for hedging purposes. However, in compliance with international accounting standards they have been submitted to the so-called effectiveness test to check that they meet the specific conditions required by these standards. This test has involved classifying some instruments as trading ones since they do not fully satisfy the conditions required for hedge accounting.

The net financial position at year end is broken down by currency as follows.

34. Non-current financial receivables

This balance has decreased by €3.4 million, primarily after the discharge of €2.8 million in loans made by the subsidiary RCS Quotidiani to non-group companies which manage the external printing operations of Corriere della Sera and Gazzetta dello Sport. Management has estimated the fair value of non-current financial receivables by discounting future cash flows at the market rate. Fair value is as follows:

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35. Other non-current assets

Other non-current assets amount to €13.1 million at December 31, 2006, having decreased by €10.1 million on a year earlier, primarily as a result of transferring €6 million in tax credits held by RCS Investimenti S.p.A. to group companies for the purposes of settling advance and final payments of IRAP, and as a result of RCS International Newspapers BV closing its restricted bank deposit (€3.3 million). The balance at December 31, 2006 includes €4.8 million in tax credits relating to mandatory advance payments of tax on employee termination indemnities and €6.4 million in security deposits and restricted bank deposits. The book value of these assets reflects their fair value.

36. Inventories

The following table shows inventories by type along with the provisions made to adjust their cost to market value:

This balance is €14.5 million higher than at December 31, 2005. This increase is mostly due to the growth of €19.2 million in finished products and work in progress in the Books segment, of which €8.3 million attributable to changes in the method of consolidating the Skirà group (€6.1 million) and Adelphi Edizioni (€2.2 million). The remaining €10.9 million of the increase mostly refers to the subsidiary GE Fabbri as a result of major differences in its publishing program relative to the prior year and to the longer production and sourcing times required by its companies in Eastern Europe, which started full-swing operations only in 2006. The increase was partially absorbed by a decrease in paper held in the Magazines segment (-€6.3 million compared with December 31, 2005), after using the surplus paper stocks purchased the year before in anticipation of a price rise and due to the establishment in 2006 of new production methods for Italian magazines after transferring the printing operations managed by Eurogravure to new facilities in Treviglio.

The following tables provide a breakdown by business segment of inventories and of the change in inventories of finished products, semi-finished products and work in progress:

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Total changes in Changes in work in Changes in finished Writedown of Description finished products and progress products finished products semi-finished products Newspapers 0,6 0,6 Books (1) 6,2 4,4 10,6

Total 6,8 4,4 0,0 11,2 (1): The change in inventories in the Books segment differs from the increase in inventories reported in the balance sheet, due to changes in the scope of consolidation as a result of exchange differences arising on the translation of foreign company financial statements.

37. Trade receivables

Receivables are broken down by type as follows:

Amounts "due from customers" are shown net of €107.6 million in provisions (€101.1 million the previous year) covering doubtful accounts as well as the return of newspapers, magazines and partworks. The book value of trade receivables reflects their fair value. No interest is calculated on receivables falling due within 180 days of the invoice issue date (120 days for receivables relating to advertising revenue). Interest of 4.08% is calculated on receivables paid after these dates.

Amounts "due from customers" have increased by €71.1 million, of which €35.4 million explained by the combined growth in business at Unedisa and the Advertising segment, €17.5 million by the growth in business at Dada and €6.9 million by the line-by-line consolidation of the Skirà group.

Amounts "due from other companies" refer to trading transactions on an arm's length basis, most of which with the associated company M-dis S.p.A.. Most of the increase since December 31, 2005 refers to RCS Quotidiani S.p.A. which had collected a higher quantity of advances at the end of the prior year.

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38. Other current receivables and assets

Description Balance at 12/31/2006 Balance at Change 12/31/2005 Author advances 111,3 97,1 14,2 Provision for doubtful accounts (60,2) (52,8) (7,4) Net author advances 51,1 44,3 6,8 Agent advances 33,6 29,1 4,5 Provision for doubtful accounts (2,1) (2,1) 0,0 Net agent advances 31,5 27,0 4,5 Sundry receivables 33,4 27,2 6,2 Provision for doubtful accounts (12,3) (13,6) 1,3 Net sundry receivables 21,1 13,6 7,5 Tax credits 29,5 40,2 (10,7) Prepayments 37,1 26,0 11,1 Supplier advances 7,1 8,4 (1,3) Receivables from personnel 2,1 2,0 0,1 Receivables from social security institutions 0,8 1,0 (0,2) Advances to freelance staff 1,8 1,6 0,2 Total 182,1 164,1 18,0

"Tax credits" include €11.8 million in respect of the Newspapers segment, €12.3 million for the Books segment and €3.7 million relating to the parent company. The decrease in tax credits is basically due to the utilization during the year of €8.6 million in tax credits in the form of government grants for capital expenditure and the purchase of paper. The increase in prepayments is mostly attributable to the Dada group and arise as a result of matching the costs of acquiring subscribers to consumer division services with the associated revenues. This matching is determined on the historic LTV (life time value) of payment service users. The increase in this amount is strictly associated with the growth in company business and the entry of new companies into the group. The book value of other receivables is considered to reflect their fair value.

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39. Net financial position

The book and fair values of balances making up the consolidated net financial position are compared below.

Comparison of book vs fair value

The methods of measuring fair value are summarized below for the principal classes of financial instrument to which they have been applied:

• derivatives: the standard calculation models have been used, based on market interest rates by maturity and currency and on the corresponding exchange rates; • asset and liability positions: the calculation methods used for interest rate derivatives have been used with appropriate adaptations; • investment funds: market value at the reporting date has been used.

The following table analyzes by maturity the book value at December 31, 2006 of the group's financial instruments that are exposed to interest rate risk:

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Interest rate risk

Loans (1,6) (0,6) (2,2) Finance leases (0,2) (0,2) (0,2) (0,3) (0,3) (7,9) (9,1) Total liabilities (1,8) (0,8) (0,2) (0,3) (0,3) (7,9) (11,3) Financial receivables 2,8 2,8 2,3 2,4 2,4 2,7 15,4 Total assets 2,8 2,8 2,3 2,4 2,4 2,7 15,4 TOTAL fixed rate 1,0 2,0 2,1 2,1 2,1 (5,2) 4,1

FLOATING RATE <1 year >1<2 >2<3 >3<4 >4<5 >5 Total 0,0 Loans (37,6) (9,6) (44,3) (19,5) (50,5) (10,6) (172,1) Other borrowing positions (0,8) (0,8) Bank overdrafts (8,3) (8,3) Finance leases (6,3) (13,9) (13,9) (13,7) (14,1) (67,2) (129,1) (2) Total liabilities (53,0) (23,5) (58,2) (33,2) (64,6) (77,8) (310,3) (1) Cash 259,8 259,8 Other lending positions 8,0 8,0 Financial receivables 22,2 22,2 Investment funds 6,7 6,7 Held-for-trading securities 26,4 26,4 Total assets 323,1 0,0 0,0 0,0 0,0 0,0 323,1 TOTAL floating rate 270,1 (23,5) (58,2) (33,2) (64,6) (77,8) 12,8

(1) The following interest rate derivates have been taken out to hedge the group’s borrowing positions: interest rate caps totaling €232.2 million. (2) The repayment schedule has been estimated for lease agreements relating to the Unidesa’s full-color project.

The amounts shown in the table reporting differences in the book and fair values of items making up the net financial position exclude the fair value of derivatives and include non-current financial receivables.

It is also reported that the without-recourse financial receivables of RCS Factor are exposed to fluctuations in interest rates.

The amount relating to lease payables, exposed to market risk for changes in interest rates, includes the lease of the premises in Pessano, which has been recognized in accordance with IAS 17 since it meets the conditions for being treated as a finance lease. Given its nature, the associated payable is exposed to rises in the rate of inflation.

Average rates on financial positions at December 31, 2006 are reported below. The rate of return on investments includes the return on investment funds, particularly those invested in short-term financial instruments and in hedge and similar funds. The cost of borrowing reflects the effect of outstanding hedging derivatives and excludes the related cost of the building in Pessano described earlier.

(*) including leases

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Finance lease payables

The RCS Group's lease agreements mostly refer to machinery and printing presses in the Newspaper segment, buildings in the Flammarion group and the plant in Pessano, Milan. More specifically, assets purchased under lease and used for printing Italian newspapers in color account for most of the amount recorded in the financial statements in application of IAS 17. A project is underway for replacing nearly all the plant and machinery used to print the newspaper El Mundo. This project, commencing in 2005, has involved various stages of negotiation, implementation and testing. The last stage will involve formalizing and defining financial amortization schedules underlying the various lease agreements. As a result, the minimum lease payments have been calculated at December 31, 2006 on the basis of estimated amortization schedules. The agreements have been made with major financial institutions and generally last for 10 years, with a period of around 2 years in which no repayments are made. The underlying amortization schedules involve constant repayments, of which a growing proportion relates to principal and which are adjusted for any interest-rate changes.

The principal figures relating to the group are reported below:

The fair value of finance leases contracted by the group reflects their book value, except for the lease of the building in Pessano, whose related financial payable has been recognized by discounting the future rent payments to present value using the rates in force at the date of entering into the contract. The fair value calculated using current rates is higher than this amount. However, the terms of the lease agreement must be regarded as market ones, since any renegotiation would reconfirm the existing conditions, also in view of the higher market value that the buildings now have.

40. Share capital and reserves

Share capital is made up of 732,669,457 ordinary shares and 29,349,593 savings shares with a par value of €1.00 each and all of which are fully paid up.

At December 31, 2006 the group owned 19,430,225 ordinary treasury shares, worth €61.7 million, corresponding to an average carrying value of €3.175 each and representing 2.65% of ordinary share capital and 2.55% of total share capital.

The main features of the two classes of share making up share capital are summarized as follows:

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• The ordinary shares carry full voting rights. They entitle their owners to attend ordinary and extraordinary shareholders' meetings and to participate in the apportionment of net income and net assets, if the company is wound up. These shares are registered shares.

• The savings shares do not carry any voting rights or right to attend ordinary and extraordinary shareholders' meetings, but are entitled to share in net assets under the conditions, limits, procedures and terms summarized in the company's by-laws. These shares are entitled to a minimum guaranteed dividend (annual minimum dividend of 5% of par value) which shall nonetheless be 2% higher than that paid to the ordinary shares. If the company does not distribute any earnings, the owners of savings shares are entitled to receive the minimum dividend in the two subsequent years. If the company is wound up, these shareholders shall have priority in the repayment of capital over the ordinary shareholders. In the event of capital increases, the owners of these shares may exercise rights to subscribe to shares of the same kind. Savings shares are bearer shares.

The nature and purpose of the equity reserves is summarized below:

• Other equity instruments: these reflect the payroll costs accruing in respect of the group's stock option plans;

• Share premium reserve: this represents a capital reserve that contains sums received by the company for issuing shares at a price above their par value;

• Legal reserve: this reserve, amounting to €152.4 million, is increased through the compulsory allocation of at least one-twentieth of net annual income, until reaching an amount corresponding to one-fifth of share capital;

• Treasury shares: these are deducted from the company's capital and reserves;

• Equity transaction reserve: this represents the goodwill arising from the acquisition of minority interests in companies over which the investor already has control;

• Valuation reserve: this includes the effects recognized directly in equity arising from the fair value measurement of financial instruments, as well as the translation reserve, used to record exchange differences arising on the translation of foreign subsidiary company financial statements into euro.

Details o f and movements during the year in the equity reserves can be found in the statement of changes in consolidated capital and reserves.

Details o f the cash dividends per share that were declared and paid in the year and of dividends submitted for the approval of the shareholders are shown below.

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2006 2005 Per share Total Per share Total (1) Dividends declared and paid in year Ordinary shares 0,11 78,5 0,04 28,2 Savings shares 0,13 3,8 0,06 1,8 Total 82,3 30,0 Dividends proposed for shareholder approval Ordinary shares 0,03 21,4 0,11 78,5 Savings shares 0,05 1,5 0,13 3,8 Total 22,9 82,3

(1) During 2005 a total of 7,352,365 ordinary shares in RCS MediaGroup S.p.A., held by the company, were allocated as a bonus to shareholders in the ratio of one ordinary share for every 100 ordinary and/or savings shares held.

Saldi al Saldi al Descrizione Accantonamenti Utilizzi Altri movimenti Attuarizzazione 31/12/2005 31/12/2006 Trattamento di fine rapporto e quiescenza 102,1 17,8 (18,3) (3,8) 1,2 99,0 Fondo per benefici ai dipendenti 6,9 0,1 (0,1) (0,5) (1,3) 5,1 Totale 109,0 17,9 (18,4) (4,3) (0,1) 104,1

41. Provisions for employee benefits

These include the actuarial value of the group's effective payable to all employees calculated using the methods envisaged by IAS 19.

Employee termination indemnities (€96.3 million) represent a type of employee remuneration, whose payment is deferred until termination of employment. This indemnity accumulates in proportion to the length of service and represents an additional employment cost for the company.

The executive termination benefits (€2.7 million) refer to the payment due under the national contract for newspaper-industry executives, calculated on the basis of length of service and based on the employee's remuneration in the last twenty-four months. Payment of this amount is deferred until termination of employment.

The provision for other employee benefits chiefly reflects the actuarial value of the amount owed to Unedisa's founding shareholders in relation to the agreed retirement plan. This plan is based on two types of insurance policy:

• the first relates to the retirement age of 60 to 65 years, and involves an insurance policy in the company's name and of which it is also beneficiary, and consequently responsible for making payment to the three beneficiary shareholders;

• the second type of insurance policy relates to the post-65 retirement age; although its cost is borne by Unedisa, the latter is not responsible for making payment to the beneficiaries, who receive the associated benefits directly from the insurance company.

The valuation of these provisions in accordance with the requirements of IAS 19 has been entrusted to independent actuaries.

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The amounts booked to the income statement in respect of the above employee benefits are as follows:

The RCS Group recognizes the full amount of actuarial gains (losses) in its payroll costs, as required by IAS 19.

The principal actuarial assumptions used for the calculation are as follows:

42. Provisions for risks and charges

Movements during the period were as follows:

"Other provisions for risks and charges", totaling €43.4 million, include:

• €22.2 million in charges for personnel departures and terminations. The associated reorganization plan is expected to be completed in the next year; • agent termination indemnities, payable to agents at the end of their mandate, of which €2 million is classified as non-current and €1.3 million as current;

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• €4 million in non-current provisions for environmental decontamination; • €6.3 million in provisions for risks booked by GFT NET and its subsidiary GFT USA; • €3.7 million in provisions for risks booked by the Unedisa group, mostly for different kinds of operating risk; • the balance of €3.6 million includes provisions for risks of various kinds.

The utilizations of these provisions mostly refer to the progress of the corporate reorganization plan mainly at RCS Quotidiani S.p.A. (€11.9 million) and to a lesser extent at RCS MediaGroup S.p.A. (€0.9 million), the Books segment (€0.8 million), the Advertising segment (€0.8 million) and the Magazines segment (€0.5 million). Utilizations also include the use of €0.9 million from the provision for agent termination indemnities. Utilizations of the legal disputes provision refer to €2.9 million at the parent company, after settling disputes dating back to prior years, €2.1 million in the Books segment, €1.7 million in the Newspaper segment and €1.7 million in the Magazines segment. Increases in provisions over the year, part of which classified in payroll costs, mostly refer to the Magazines, Advertising and Broadcasting segments mainly in relation to corporate reorganization, as well as to agent termination indemnities in the Advertising and Books segments.

In com p liance with international accounting standards, the non-current portion of these provisions has been discounted to take account of the implicit financial component using a rate of 4.135%.

The sta tu s of the principal disputes involving companies in the group is described below:

• RCS Editori (now RCS Quotidiani), which took over the cinema production companies, has received an injun ction from Indian movie producer Chitra Jindal in relation to the film "I misteri della giungla nera" that was co-produced in 1988-89 by RCS Produzioni TV. Mr. Jindal is trying to have a New Delhi court ruling, which recognized him as co-producer of the film, recognized in Italy and has claimed film rights of over €2 million plus interest. Counterclaims have been filed with the courts in Milan and Rome which have declared the payment injunction to be invalid. The company has also petitioned the New Delhi court to revise its ruling, partly on grounds that a formal complaint was never served. The case is still in prog ress.

43. Other non-current liabilities

This balance, totaling €22.4 million (€11.9 million at December 31, 2005) includes liabilities recognized when selling the printing business in Padua and building in Via Rizzoli, by way of adjustments to the gain then realized, in order to adjust to market value the printing rates and future rentals arising under the contracts signed with the purchasers for the supply of printing services and rental of the building sold. Other non-current liabilities also include the liability contracted for the option to buy 25% of the share capital of Arlanza Ediciones (€1.2 million) and the liability of €2 million per a put and call option involving Rey Sol. The increase in this line item reflects the recognition of liabilities for options to buy minority interests in group companies. In detail, €4.7 million has been recognized for the put option given by the subsidiary RCS International Newspapers BV to a minority shareholder in Unedisa over 1.2% of the company's share capital, €7 million for the put option given by the subsidiary RCS International Books BV to Societè du Livre for the acquisition of 52% of the share capital in Albert Skirà Editore and €2.9 million for the agreement made by the parent company with a leading financial intermediary involving a call option and matching put option for the counterparty over Dada shares corresponding to approximately 1% of its share capital. This increase has been partly offset by Unedisa's payment of €3.6 million for the capital increase, subscribed in the previous year, by the associate VEO Television.

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44. Trade payables

"Trade payables" have increased by €44.4 million since December 31, 2005. The increase is due to the growth in business by the Dada and Unedisa groups (€25.8 million), the line-by-line consolidation of the Skirà group (€9.5 million) and the different payment terms applied by GE Fabbri Ltd (€8.1 million).

The amounts "due to associated companies" include trading transactions mostly relating to M-dis S.p.A, Eurogravure S.p.A., and IGPDecaux S.p.A.. The decrease relative to December 31, 2005 is mostly due to a reduction of €5.1 million in amounts owed by RCS Periodici S.p.A. to Eurogravure following the application of different terms of payment, to a reduction of €5.6 million in amounts owed by RCS Libri S.p.A. to Rizzoli Larousse, absorbed by RCS Libri during 2006, as well as to Adelphi and the Skirà group, both of which consolidated line-by-line as from 2006.

The book value of trade payables, usually settled at 120 days, reflects their fair value. Payables due after more than 120 days have been discounted to present value using an interest rate of 4.08%.

45. Other current payables and liabilities

Amoun t s "due to employees" refer to liabilities for unused holiday entitlement, standard bonuses and social security charges thereon, while "taxes payable" refer to amounts owed for VAT. "Deferred income" mostly relates to the recognition on an accrual basis of domain, hosting, and connectivity contracts and other resold services whose economic impact extends beyond the financial year. The increase in this in come is attributable to the Dada group and reflects its growth in business as well as changes in its scope of consolidation following the acquisitions made in 2006. The increase in "sundry payables" mostly refers to higher payables for dividends declared but not yet paid to third parties.

The book value of these payables reflects their fair value.

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The liabilities for the unused holiday entitlement of journalists, which are expected to be used over the long term, have been discounted at a rate of 3.6%. 46. (Gains) losses and other non-monetary items

Details of this item which adjusts cash flows from operating activities, reported in the cash flow statement, are provided below:

The gains (€5.7 million) and losses (€0.5 million) refer to ordinary disposals of property, plant and equipment and intangible assets.

47. Impairment (revaluation) of equity investments

This amount is analyzed as follows:

These refer to non-monetary components of income that adjust cash flow from operating activities in the cash flow statement.

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48. Grant of stock options

As required by IFRS 2, the following information relates to the two stock option plans reflected in the group's consolidated financial statements involving payments in the shares of the group's two listed com panies: RCS MediaGroup S.p.A. and Dada S.p.A..

A) RCS MediaGroup S.p.A.

On April 29, 2005 the shareholders of RCS MediaGroup S.p.A. granted the Board of Directors the authority to increase share capital for cash, in one or more stages, in a divisible manner for a maximum period of five years from this date, by issuing a maximum of 25,740,704 ordinary shares of par value €1 each (and so for a maximum total amount of €25,740,704 at par) to be reserved under option to employees of the company and its subsidiaries holding key positions within the RCS Group as determined by the Board itself and under the terms and conditions it establishes. On November 11, 2005 the Board of Directors acted under this authority to approve the Regulations for a stock option plan for such employees involving the grant of options to subscribe to a corresponding number of new-issue ordinary shares in the parent company. The Board of Directors voted on the same date to grant a first block of 13,599,416 options to subscribe to an equal number of the company's ordinary shares (corresponding to around 1.85% of ordinary share capital) to approximately 70 key employees of the company and its subsidiaries in Italy and abroad. The options granted refer to ordinary shares in the parent company RCS MediaGroup S.p.A., which may be exercised in specified periods between June 16, 2008 and June 15, 2012. The options may be exercised at the end of the related "vesting period", which is June 15, 2008 for the options granted in 2005, and carry conditions relating to achievement of the consolidated earnings per share target for 2005-2007, as set out in the related Strategic Plan approved by the company's Board of Directors in December 2004. If the beneficiary ceases to be an employee of a group company, any unexercised rights shall be forfeited unless the employee is placed in early retirement. The fair value of these options, calculated using the binomial model, is €0.80.

Still in execution of the above stock option plan, the Board of Directors of RCS MediaGroup S.p.A., then approved: - on July 14, 2006, the grant to six employees with key positions in RCS group companies of a total of 744,662 stock options to subscribe to a corresponding quantity of new-issue ordinary shares at a price of €3.990, corresponding to the average official price of the company's ordinary shares during the period between June 14, 2006 and July 14, 2006; - on November 13, 2006, the grant (which supplemented that already made in July and completed the execution of the aforementioned stock option plan) to approximately 70 employees with key positions in the company and its subsidiaries, of a total of 14,274,763 stock options, to subscribe to a corresponding quantity of new-issue ordinary shares (around 1.95% of ordinary share capital) at a price of €3.616, corresponding to the average official price of the company's ordinary shares in the month preceding the grant.

On November 13, 2006 the Board of Directors also amended the plan's Regulations to extend the vesting period end date for the options granted in 2006 from the original date of June 15, 2009 to three years from the grant date. Based on the plan's Regulations all the options granted in 2006 may usually be exercised at the end of the related "vesting period", during pre-determined periods up until June 15, 2013 subject to the achievement of the consolidated earnings per share target for 2005-2007, as set out in the related Strategic Plan approved by the company's Board of Directors in December 2004.

The fair value of the options granted in 2006, calculated using the binomial model, is €0.87 for those granted on July 14 and €0.79 for those granted on November 13.

The terms and conditions of the RCS MediaGroup S.p.A. stock option plans at December 31, 2006 are as follows:

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No. options Options Unexercised Unit subscription Grant date Exercise period Options cancelled granted exercised options price November 11, 2006 13.599.416 06.16.2008-06.15.2012 0 3.183.564 10.415.852 4,286 July 14, 2006 744.662 07.15.2009-06.15.2013 0 0 744.662 3,990 November 13, 2006 14.274.763 11.14.2009-06.15.2013 0 0 14.274.763 3,616 TOTAL 28.618.841 25.435.277 The grant date corresponds to the date of the meeting of the Board of Directors which approved the grant.

The following table reports the number and average strike price of the RCS MediaGroup S.p.A. options in the period under review:

Dec-31-2006 Dec-31-2005 Average subscription Average subscription No. options No. options price price Unexercised options at start of year 13.599.416 4,286 13.599.416 4,286 Options granted during period 15.019.425 3,635 Options cancelled during period 3.183.564 4,286 Unexercised options at end of year 25.435.277 3,902 13.599.416 4,286 Vested options at end of year - - - -

The average expected remaining life of the options is 4.17 years.

The following table outlines the features of plans existing within the group and the related expense recorded under "payroll costs", analyzed according to the company which employs the beneficiary:

No. options No. options at Grant date Company Vesting period Payroll cost granted end of year November 11, 2005 RCS MediaGroup S.p.A. 4.129.129 2.338.399 11.11.2005 - 06.15.2008 0,59 November 11, 2005 RCS Quotidiani S.p.A. 3.072.394 2.412.282 11.11.2005 - 06.15.2008 0,67 November 11, 2005 Unedisa Editorial S.A. 1.680.527 1.680.527 11.11.2005 - 06.15.2008 0,49 November 11, 2005 RCS Pubblicità S.p.A. 1.193.807 814.594 11.11.2005 - 06.15.2008 0,22 November 11, 2005 RCS Libri S.p.A. 1.149.686 1.046.590 11.11.2005 - 06.15.2008 0,30 November 11, 2005 Flammarion S.A. 942.921 784.368 11.11.2005 - 06.15.2008 0,22 November 11, 2005 RCS Periodici S.p.A. 741.779 649.919 11.11.2005 - 06.15.2008 0,18 November 11, 2005 RCS Broadcast S.p.A. 539.840 539.840 11.11.2005 - 06.15.2008 0,16 November 11, 2005 Sfera Editore S.p.A. 149.333 149.333 11.11.2005 - 06.15.2008 0,04 TOTAL 1st BLOCK 13.599.416 10.415.852 2,88

July 14, 2006 RCS Quotidiani S.p.A. 476.404 476.404 07.14.2006-07.14.2009 0,06 July 14, 2006 RCS Pubblicità S.p.A. 268.258 268.258 07.14.2006-07.14.2009 0,04 TOTAL 2nd BLOCK 1st GRANT 744.662 744.662 0,10

November 13, 2006 RCS MediaGroup S.p.A. 4.410.177 4.410.177 11.13.2006-11.13.2009 0,19 November 13, 2006 RCS Quotidiani S.p.A. 3.069.671 3.069.671 11.13.2006-11.13.2009 0,13 November 13, 2006 Unedisa Editorial S.A. 2.013.704 2.013.704 11.13.2006-11.13.2009 0,09 November 13, 2006 RCS Pubblicità S.p.A. 744.641 744.641 11.13.2006-11.13.2009 0,03 November 13, 2006 RCS Libri S.p.A. 1.763.038 1.763.038 11.13.2006-11.13.2009 0,08 November 13, 2006 Flammarion S.A. 895.081 895.081 11.13.2006-11.13.2009 0,04 November 13, 2006 RCS Periodici S.p.A. 435.403 435.403 11.13.2006-11.13.2009 0,02 November 13, 2006 RCS Broadcast S.p.A. 637.303 637.303 11.13.2006-11.13.2009 0,03 November 13, 2006 Sfera Editore S.p.A. 176.325 176.325 11.13.2006-11.13.2009 0,01 November 13, 2006 Rizzoli International Pubblications 129.600 129.600 11.13.2006-11.13.2009 0,01 TOTAL 2nd BLOCK 2nd GRANT 14.274.943 14.274.943 0,61

TOTAL OPTIONS 28.619.021 25.435.457 3,58 (*)

(*): Non-monetary cost adjusting cash flows from operating activities in the cash flow statement.

The fair value of the stock options at the grant date is estimated using the binomial model which takes account of dividends. Expected volatility reflects the assumption that past volatility is indicative of future

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performance. Past volatility is calculated as the annualized standard deviation over a significant period of time ie. more than two years. The risk free discount rate is estimated on the basis of the return on Italian government securities whose remaining term is equal to the expected term of the option being valued. No other element of the stock option plan is considered for the purposes of measuring fair value. The following table sets out the assumptions made and the results obtained from valuing the options granted by RCS MediaGroup S.p.A.

B) DADA S.p.A.

Plan dated June 20, 2005

Dada's extraordinary shareholders' meeting voted on April 28, 2005 to grant the company's Board of Directors the power to increase share capital, in one or more stages, for a maximum period of five years and by a maximum amount of €79,922.95 at par, by issuing ordinary shares with a par value of €0.17 each to service an incentive and retention scheme for employees of Dada S.p.A. and its subsidiaries. In execution of this authority, the Board of Directors voted on June 20, 2005 to increase share capital to service the issue of a new three-year stock option plan for employees of Dada S.p.A. and its subsidiaries. This plan involves issuing a total of 441,406 shares, which will be split into three annual issues and will be offered to group employees to subscribe at a strike price of €10.82 per share, in the period from January 18 to February 6 in each of the following three years, ie. 2006-2008 (the results of the first subscription period are described in this report in the section on subsequent events): • 1st block: vesting period from June 20, 2005 to January 17, 2006, exercise period from January 18, to February 6, 2006; • 2nd block: vesting period from February 7, 2006 to January 17, 2007, exercise period from January 18 to February 6, 2007; • 3rd block: vesting period from February 7, 2007 to January 17, 2008, exercise period from January 18 to February 6, 2008. The subscription price has been determined as the arithmetic mean of the Dada share price in the month preceding the plan's introduction, taking account of the average share price in the last six months. The subscription of the options in this plan, like in the one dated March 16, 2006, is not subordinate to the achievement of predetermined results, nor are the shares restricted in any way. As required by IFRS 2, the actuarial valuation of the stock option plan introduced by the Dada group on June 20, 2005 has been carried out by an independent actuary using the binomial method. This method has established the value of stock options at June 20, 2005 (the plan's issue date) as €1.3 for options in the first block, €1.967 for options in the second block and €2.18 for options in the third block. These values have been revised since last year, although without involving any major changes.

Plan dated February 3, 2006

Dada's extraordinary shareholders' meeting voted on December 30, 2005 to grant the company's Board of Directors the power to increase share capital, in one or more stages, by a maximum amount of €136,000 at par, by issuing 800,000 new ordinary shares with a par value of €0.17 each to service an incentive and

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retention scheme for directors vested with particular authority or management responsibility, chief operating officers, managers and heads of division at Dada S.p.A. and its subsidiaries. In execution of this authority, the Board of Directors voted on February 3, 2006 to increase share capital to service the issue of a new three-year stock option plan for directors vested with particular authority or management responsibility, chief operating officers, managers and heads of division at Dada S.p.A. and its subsidiaries. At the proposal of the company's Compensation Committee, the Board of Directors approved the plan's regulations and granted 700,700 options to subscribe to a corresponding number of Dada ordinary shares to 10 directors with special responsibilities and top managers of the group, also voting to increase share capital by a maximum of €119,119 to service these options. The stock option plan is designed to retain and incentivize top management which is why the Board has made the exercise of the options conditional, within the limits specified in the regulations, on the achievement of 90% of the consolidated EBITDA target for 2008, as established by the Dada Board of Directors. The shares subscribed will not carry restrictions of any sort. As a general rule, the options may be exercised from the date of approving the Dada group's consolidated financial statements for the year ended December 31, 2008 in the following periods of every year up until November 11, 2012: from January 15 to January 31, from February 16 to February 28, from June 1 to June 15, from September 15 to September 30 (extended to October 15 just for 2012) and from November 15 to November 30. In compliance with the principles established by the shareholders' meeting, the company's Board of Directors has set the subscription price at €14.782, corresponding to the arithmetic mean of the Dada share price in the month preceding the option grant and nonetheless taking account of the average share price in the last six months. As required by IFRS 2, the actuarial valuation of this plan has been carried out by an independent actuary using the binomial method, resulting in a unit value of €4.232 per option.

Plan dated March 16, 2006

Still in execution of the shareholders' resolution dated April 28, 2005, the Board of Directors voted on March 16, 2006 to increase share capital to service the issue of a new three-year stock option plan for new employees of Dada S.p.A. and its subsidiaries. This plan involves issuing a total of 33,000 shares, split into three annual issues, which will be offered to group employees to subscribe at a strike price of €16.92 per share, corresponding to the average official price of Dada shares in the month preceding the option grant and nonetheless taking account of the average share price in the last six months. These options may be exercised in the period from January 18 to February 6 in each of three years 2007-2009. As required by IFRS 2, the actuarial valuation of this plan has been carried out by an independent actuary using the binomial method.

Plan dated July 28, 2006

On July 28, 2006 the Dada Board of Directors also voted to increase share capital for cash by a maximum of €9,350, by issuing up to 55,000 new shares to service an incentive and retention scheme for two new top managers, in partial execution of the authority granted to the Board in the shareholders' resolution dated December 30, 2005. The Board of Directors has set the share subscription price at an amount, inclusive of premium and par value, corresponding to the arithmetic mean of the official price of Dada ordinary shares in the calendar year ending on the option grant date, also taking account of the average share price in the last six months. This plan has the same characteristics as the one dated February 3, 2006 described above. As required by IFRS 2, the actuarial valuation of this plan has been carried out by an independent actuary using the binomial method, resulting in a unit value of €4.3192 per option.

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Changes in the number of options are set out below:

Dec-31-2006 Dec-31-2005 Average subscription Average subscription No. options No. options price price Unexercised options at start of year 441.406 10,820 198.483 4,840 Options granted during period: 441.406 10,820 - February 3, 2006 700.700 14,780 - March 16, 2006 33.000 16,920 - July 28, 2006 55.000 15,470 Options exercised in year (132.217) 10,820 (164.657) 4,840 Options expiring in year (33.424) 10,820 (33.826) 4,840 Unexercised options at end of year 1.064.465 441.406 10,820

OPTIONS GRANTED AT 12.31.2006 OF WHICH VESTED Remaining contractual life Average STRIKE PRICE remaining TOTAL TOTAL < 1 YEAR 1-2 YEARS > 2 YEARS contractual life €10.82 138.493 140.034 278.527 € 14,78 700.700 700.700 € 16,92 10.078 10.078 10.082 30.238 € 15,47 55.000 55.000 TOTAL 148.571 150.112 765.782 1.064.465

49. Increase (decrease) in provisions for employee benefits and for risks and charges

The change reported in the cash flow statement excludes the asset dismantling provision as well as the effect of discounting provisions to present value, which, being a non-monetary item, has been reversed out of net financial income (charges). The change in the scope of consolidation refers to the line-by-line consolidation of Adelphi Edizioni and the Skirà group.

50. Changes in working capital

The change in working capital has been adjusted by reversing non-monetary movements, specifically involving the recognition of purchase obligations for certain investments (see note 43) and the changes arising from the line-by-line consolidation of Adelphi Edizioni and the Skirà group.

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51. Purchase of equity investments

This amounts to €64 million (€87.6 million in 2005) and refers to outlays to purchase additional interests in Dada (€8.6 million), Adelphi S.p.A. (€1.6 million) RCS Investimenti (€1 million), and Editions d’Art Albert Skirà (€4.3 million as offset by the cash balances of €5.2 million held by the Skirà group), and to Dada's acquisitions of Upoc Networks, Nominalia, Tipic and Media Dada Science and Development (with an outlay of €10 million including the cash in the companies acquired) and of an additional interest in Register (€0.6 million). The purchase of equity investments also includes payments for capital increases by Veo Television (€3.6 million) and minor associates (€0.6 million). In the last quarter of the year, the group also purchased 3,169,000 shares in San Paolo-Imi for €53.8 million. The cash flow absorbed by these investments has been partly offset by the dividends received from companies valued at equity (€4.8 million) and from other major investments (€10.1 million).

52. Purchase of property, plant and equipment and intangible assets

The purchase of property, plant and equipment and intangible assets reported in the cash flow statement reflects €118.1 million in capital expenditure during the period, as adjusted for purchases not affecting cash flow, for goodwill arising on the consolidation of equity investments, whose cost is reflected in the cash flow statement in the form of the full amount of the outlay incurred, and for estimated dismantling costs, the cash effect of which occurs at the end of an asset's useful life. The amount of capital expenditure carried out in the prior year but paid in the year under review has been added back to the total amount reported in the cash flow statement and adjusted to exclude assets purchased under finance lease. The capital expenditure reported in the balance sheet at December 31, 2006 is reconciled to that included in the cash flow statement as follows:

53. Proceeds from the sale of equity investments

Proceeds from the sale of equity investments amount to €129.9 million (€175.4 million in 2005) and include the proceeds from the disposal of the Banca Intesa shares (€125.9 million) and investments held in Pegasus Publishing (€2.1 million), Planet Com (1.8 million) and other smaller companies (€0.1 million)

54. Proceeds from sale of property, plant and equipment and intangible assets

These proceeds amount to €11.2 million (€1.9 million in 2005) and include receipts from the sale of property, plant and equipment and intangible assets, amongst which the disposal of the Beaux Arts trademark for €2.5 million.

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55. Net change in financial payables and other financial assets

This amounts to €40.9 million (€70.9 million in 2005) and mostly refers to the sale of securities, as offset by other minor movements. Payables contracted to purchase assets under finance lease are not included in the cash flow statement, since they do not represent monetary movements, while, as required by international accounting standards, bank overdrafts form part of the change in cash and cash equivalents. The reconciliation with the changes in the net financial position is provided below:

56. Net interest received/paid

This amount of €3.9 million has been adjusted to exclude items without any monetary consequences, such as presumed exchange gains and losses, interest expense on finance leases, discounts to present value in application of international accounting standards, and the fair value measurement of held-for-trading securities.

57. Change in equity reserves

Changes in equity reserves included in the cash flow statement amount to €8 million and ignore movements originating from events not giving rise to monetary consequences, such as the fair value measurement of available-for-sale investments and changes in minority interests in capital and reserves produced by the recognition of unexercised options.

58. Commitments and contingencies

The principal guarantees given are listed below:

• Sureties given amount to €37.5 million and have decreased by €71.1 million since December 31, 2005 mainly as a result of discharging the surety issued by a major bank to CONSOB against performance of the obligation to pay the maximum consideration under the bid for Dada's shares launched at the end of December 2005. The sureties at the end of 2006 refer to those given to advertising brokers, to the Ministry of Trade & Industry and other public entities for tenders and competitive bids, to sureties for lease and loan agreements, sureties given by the Flammarion group upon the sale of Librairies du Savoir and sureties given by the Dada group following the acquisition of Cotei, Nominalia and Tipic.

• Endorsements of €24.8 million mostly refer to those given to third parties by the Unedisa Group for investments in new media.

• Other unsecured guarantees amount to €90.7 million and mainly refer to guarantees given by the parent company to the tax authorities on behalf of subsidiaries for VAT credits offset under the group VAT settlement for the years 2003, 2004, and 2005.

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• Commitments of €11.4 million mostly relate to the parent company and RCS Quotidiani S.p.A. as follows:

- €9.7 million for contractual commitments relating to personnel; - €1.5 million for the commitment to purchase shares in the MB Venture Capital Fund; - €0.2 million for the commitment to SIAE for the license relating to the "Comicollection" series.

• The main operating leases refer to building rentals, electronic equipment and company vehicles.

The amount of outstanding lease payments still owed by the group at the balance sheet date for non- cancelable operating leases is as follows:

Construction is in progress of a building overlooking Via Rizzoli, for which RCS MediaGroup S.p.A. has signed a lease agreement effective from the date of release of this building which will be used to house part of the group's offices in Milan. This contract will last for 24 years. The subsidiary GFT USA expects to collect a total of €23.9 million in the future from building sub- leases.

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SIGNIFICANT SUBSEQUENT EVENTS

Significant subsequent events are described in the Report on operations.

Milan, March 16, 2007 on behalf of the Board of Directors:

Chairman Piergaetano Marchetti

Chief Executive Officer Antonio Perricone

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FINANCIAL STATEMENTS RCS MEDIAGROUP S.P.A.

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ACCOUNTING STANDARDS USED

In compliance with EC Regulation 1606 issued in July 2002, RCS MediaGroup S.p.A. has adopted international accounting and financial reporting standards (IAS/IFRS) as from January 1, 2006. The financial statements at December 31, 2006 are the first full set of financial statements to have been prepared in accordance with IAS/IFRS. The 2005 comparative figures contained in this report take account of the new accounting standards.

The impact of the transition to international accounting and financial reporting standards on the parent company's results is described in the "Report on the transition to IAS/IFRS", an extract from which is appended to this report. The full version of the "Report on the transition to IAS/IFRS by RCS MediaGroup S.p.A." is appended to the Half-year Report at June 30, 2006.

The "Accounting policies" section of the notes to the financial statements describes the international accounting standards used, with particular reference to the discretionary choices required by their adoption.

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DIRECTORS' REPORT ON PARENT COMPANY OPERATIONS

The year closed with net income of €166.2 million, compared with €99.8 million in 2005. This improvement was mostly thanks to higher dividends received from group companies (€96.1 million versus €47.6 million in 2005) and the capital gain realized on the sale of part of the shares in Banca Intesa (€59.6 million versus capital gains of €44.3 million recognized in 2005), and the gains arising on the partial disposal of units in the hedge funds managed by Duemme Sgr (€5 million). A total of €6.6 million in non-recurring costs were incurred during the year as a result of top management changes involving the Chief Executive Officer and other company managers.

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

(1): Earnings before interest, tax, depreciation, amortization and impairment. (2): These references relate to the corresponding headings in the income statement.

Net revenues, arising from the provision of centralized services to subsidiary companies, amounted to €9.2 million in 2006, slightly down from last year's figure of €9.7 million. Operating costs were also lower, down from €8.5 million in 2005 to €8.3 million in 2006. This decrease related to a reduction in the rent paid for the premises in Via Rizzoli, Milan (-€4.3 million on the prior year), as partly offset by an increase in the cost of professional and consulting fees (+€2.5 million) and a lower amount of rental income received from the subsidiary RCS Quotidiani for the operating lease of the building in Via Solferino, Milan (-€1.6 million).

Payroll costs were €3.7 million higher at €21.9 million (€18.2 million in 2005). This increase mostly reflected €5.6 million in costs associated with top management changes involving the Chief Executive Officer and other company managers in 2006, less €2 million in provisions for corporate restructuring included in the 2005 figure.

Amortization and depreciation charges were virtually the same as the year before.

Net financial income increased by €6.7 million to €15.7 million. Most of the increase was attributable to €5 million in gains arising on the partial sale of hedge funds managed by Duemme Sgr and to €2.1 million in higher interest income on bank deposits made as a result of the company's greater liquidity.

Other income (charges) from financial assets/liabilities amounted to €148.2 million in 2006, having increased by €64.8 million from €83.4 million in 2005. This increase reflects higher dividends received from subsidiaries,

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associates and other companies in which the parent company holds an interest (€96.1 million versus €47.6 million in 2005), the capital gain of €59.6 million realized on the sale of part of the shares in Banca Intesa (capital gains on the disposal of non-strategic equity investments amounted to €44.3 million in 2005), as well as lower writedowns to adjust the carrying amount of investments in RCS Broadcast and Poligrafici Editoriale to their fair value (€7.5 million in 2006 versus €8.5 million in 2005).

Earnings before tax were a positive €141.2 million compared with a similarly positive figure of €73.9 million the previous year. Net income for the year came to €166.2 million, having benefited from €28.8 million in income arising on the recognition of deferred tax assets on tax losses for the year that can now be offset under the group income tax election.

Highlights from the balance sheet are summarized in the following table:

(3): These references relate to the corresponding headings in the balance sheet. (4): Indicator of financial structure, calculated as current and non-current financial payables less both cash and cash equivalents and current financial assets.

Property, plant and equipment were €3.1 million higher than at December 31, 2005 reflecting improvement expenditure on the premises in Via Rizzoli, Milan and on the company's new head office, as well as the purchase of furniture and fittings for the latter.

Investment property, comprising the property in Via Solferino, Milan, amounted to €92 million at year end, having decreased by €1 million on a year earlier as a result of charging depreciation.

Non-current financial assets decreased by €7.8 million, reflecting opposing factors amongst which: • the sale of 23,900,000 Banca Intesa shares, in the second half of the year, which had a carrying value of €107.2 million at December 31, 2005; • the fourth-quarter purchase of 3,169,000 San Paolo-Imi shares for €53.8 million; • the revaluation of the remaining Banca Intesa shares (€25.5 million) and the new San Paolo-Imi shares (€3.3 million) at December 31, 2006 in order to adjust their carrying amounts to fair value at the balance sheet date;

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• the increase in the interests held in RCS Broadcast (€12 million) and RCS Produzioni (€1.6 million), after subscribing to their respective capital increases; • the increase of the interest in Dada by around 2.6%, causing the carrying amount of this investment to increase by €8 million; • the purchase of 10% of Adelphi Edizioni in June 2006 for €1.6 million; • the purchase of around 1% of RCS Investimenti for €1 million; • the writedown of the investments in RCS Broadcast (€6.4 million) and Poligrafici Editoriale (€1.1 million), in order to adjust their carrying amount to fair value.

Net working capital was €42.7 million at year end, having come down by €20.4 million since December 31, 2005. This decrease was mostly due to a reduction of €9 million in tax credits, used during 2006 to settle IRES (Italy's corporate income tax) and to €10.5 million in fewer tax credits transferred by subsidiaries to the parent company as the head of the tax group in respect of IRES payments on account and withholding taxes incurred.

Provisions for risks and charges and deferred taxes were €4 million lower at €11.7 million, down from €15.7 million at December 31, 2005. This decrease was mainly due to utilizations in the year for the settlement of prior year disputes (€2.9 million), corporate reorganization (€0.9 million) and redevelopment of the site in Via Rizzoli, Milan (€0.5 million).

The provisions for employee benefits include the provision for employee termination indemnities (€2.5 million) and the provision for executive termination benefits (€0.3 million). The increase of €0.5 million on the prior year reflects €0.9 million in increases to the provisions and €0.4 million in utilizations of employee leaving indemnities.

The net financial position reported net cash of €348.2 million compared with net cash of € 254.9 million at the end of 2005. The increase of €93.3 million was mainly due to the €108.3 million in higher cash balances, largely as a result of the proceeds collected on the sale of the Banca Intesa shares as well as dividend receipts from the company's equity investments. These receipts amply exceeded the dividends paid out to shareholders (€82.3 million) and outlay required for purchasing shares in San Paolo-Imi.

The company's equity climbed by €70.8 million from €1,187.4 million at the end of 2005 to €1,258.2 million at the end of 2006, reflecting the recognition of net income for the year, as partly offset by the payment of dividends.

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SIGNIFICANT EVENTS DURING THE YEAR

Significant events during the year are described in the group's report on operations.

SIGNIFICANT SUBSEQUENT EVENTS

Significant subsequent events are described in the group's report on operations.

OUTLOOK FOR THE CURRENT YEAR

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

In the absence of currently unforeseeable events, these factors, combined with persistent attention to costs, confirm the projected improvements in profitability for the year.

TREASURY SHARES

At December 31, 2006 the company owned 19,430,225 ordinary treasury shares, worth €61.7 million, corresponding to an average carrying value of €3.175 each and representing 2.65% of ordinary share capital and 2.55% of total share capital.

TRANSACTIONS WITH RELATED PARTIES

Details of related-party transactions can be found in the notes to the financial statements.

MANAGEMENT OF FINANCIAL RISKS

The objectives and policies of RCS MediaGroup S.p.A. regarding financial risk management, including its hedging policy and exposure to credit, price, liquidity and cash flow risks, are discussed in detail in the notes to the financial statements.

SECURITY PLAN

In compliance with the provisions of Decree 196/2003 ( the "Personal data protection code"), it is reported that RCS MediaGroup S.p.A. has drawn up a Security Plan, which will be updated within the legal term of March 31, 2007.

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EQUITY INVESTMENTS HELD BY DIRECTORS AND STATUTORY AUDITORS

(Art. 79 of CONSOB Resolution 11971 dated May 14, 1999) NUMBER NUMBER NUMBER INVESTMENT HELD SHARES HELD NUMBER SHARES HELD NAME SHARES IN AT END 2005 SHARES SOLD AT END 2006 PURCHASED (1) (1) Raffaele Agrusti Roberto Bertazzoni RCS MediaGroup 11,056,419 ord. shares (ii) Claudio De Conto (a) Diego Della Valle RCS MediaGroup 35,231,698 ord. shares (i) John P. Elkann Giorgio Fantoni Gabriele Galateri di Genola Franzo Grande Stevens Berardino Libonati (b) Jonella Ligresti Piergaetano Marchetti Paolo Merloni Andrea Moltrasio (b) Renato Pagliaro Corrado Passera Alessandro Pedersoli Antonio Perricone (c) Carlo Pesenti Virginio Rognoni (d) Carlo Buora (e) Vittorio Colao (f) RCS MediaGroup 290,880 ord. shares 44,800 ord. shares - 335.680 Cesare Geronzi (g) Giangiacomo Nardozzi Tonielli (h) Umberto Quadrino (g) Pietro Manzonetto (b) Gianrenzo Cova Giorgio Silva (b) Flavio Arcidiacono (g) Clemente Rebecchini (g)

(1) or start/end of office if not coinciding with the periods of reference shown; (i) interest held via company under their control; (ii) interest partly held via companies under their control. (a) in office since December 15, 2006 (b) in office since April 27, 2006 (c) in office since September 12, 2006 (d) in office since November 13, 2006 (e) in office up until November 10, 2006 (f) in office up until September 12, 2006 (g) in office up until April 27, 2006 (h) in office up until August 31, 2006

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PROPOSED RESOLUTIONS

Shareholders,

We submit for your approval the financial statements for the year ended December 31, 2006 - comprising the balance sheet, income statement, cash flow statement, statement of changes in capital and reserves and the explanatory notes, together with related attachments - which close with net income of €166,223,230.00, and the accompanying report on operations, along with our proposal for allocating net income as follows:

> €22,864,656.61 in dividends, to be split - bearing in mind the 19,430,225 treasury shares held by the company, whose dividends are allocated proportionately to the other shares - as follows:

• €0.05 to each of the outstanding 29,349,593 savings shares, for a total of €1,467,479.65; • €0.03 to each of the outstanding 713,239,232 ordinary shares, for a total of €21,397,176.96

payable, gross of any withholdings required by law, from May 24, 2007, with the shares going ex-div on May 21, 2007, and

> €143,358,573.39 to retained earnings.

It is also proposed to grant shareholders a bonus of 14,851,777 treasury shares of par value €1 each currently held by the company, involving a corresponding reduction in earnings carried forward (originating from the reserve for treasury shares). The purpose of this grant is to optimize the group's financial position in view of any extraordinary transactions, while maintaining a consistent level of dividend pay-out relative to the prior year. With regard to this proposal, you are reminded that, as a result of authorization given in past years, the company has purchased and currently holds 19,430,225 ordinary shares, corresponding to 2.549% of share capital and 2.651% of voting capital, of which it is proposing to grant 14,851,777 to the shareholders. The grant will take place in the ratio of 2 ordinary shares - par value €1 each and carrying dividend rights from January 1, 2007 - for every 100 ordinary and/or savings shares held, causing earnings carried forward (originating from the reserve for treasury shares) to decrease from the figure of €61,697,945.13, reported in the balance sheet at December 31, 2006, to €14,543,553.15, corresponding to a reduction of €47,154,391.98 or €3.175 for every share granted, which equates to the average carrying cost of the shares themselves; the treasury shares granted will be made available to the shareholders once the shares have gone ex-div, in other words as from May 24, 2007. The bonus shares are treated like earnings in kind for tax purposes. In fact, shareholders will be taxed on the "normal" value of these shares, corresponding to the average official price of ordinary RCS MediaGroup shares on each day of trading on the Electronic Equities Market organized and run by Borsa Italiana S.p.A. in the month running up to the date of granting the treasury shares (in other words, the ex-div date). The disposal of the 4,578,448 remaining treasury shares will continue to be governed by the related authorization given by the shareholders on April 27, 2006.

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

"The shareholders' meeting of RCS MediaGroup S.p.A. > has examined the directors' report on operations; > acknowledges the reports of the Board of Statutory Auditors and the independent auditors Reconta Ernst & Young S.p.A.; > has examined the financial statements for the year ended December 31, 2006 which close with net income of €166,223,230.00;

and hereby resolves

I. to approve:

a) the directors' report on operations;

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b) the financial statements presented by the Board of Directors for the year ended December 31, 2006, which close with net income of €166,223,230.00, as a whole and in their individual parts, together with the proposed provisions and allocations;

c) the allocation of net income for the year of €166,223,230.00 as follows: > €22,864,656.61 in dividends, to be split - bearing in mind the 19,430,225 treasury shares held by the company, whose dividends are allocated proportionately to the other shares - as follows: • €0.05 to each of the outstanding 29,349,593 savings shares, for a total of €1,467,479.65;

• €0.03 to each of the outstanding 713,239,232 ordinary shares, for a total of €21,397,176.96,

payable, gross of any withholdings required by law, from May 24, 2007, with the shares going ex- div on May 21, 2007, and

> €143,358,573.39 to retained earnings;

II. to approve the grant of a bonus to shareholders of 14,851,777 ordinary shares in RCS MediaGroup S.p.A. held by the latter, in the ratio of 2 ordinary shares, with dividend rights from January 1, 2007, for every 100 ordinary and/or savings shares held, by reducing earnings carried forward (originating from the reserve for treasury shares) from €61,697,945.13 to €14,543,553.15, equating to a decrease of €47,154,391.98 or €3.175 for every share granted, and making these shares available to shareholders once they have gone ex- div".

Milan, March 16, 2007 on behalf of the Board of Directors:

Chairman Piergaetano Marchetti

Chief Executive Officer Antonio Perricone

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PARENT COMPANY FINANCIAL STATEMENTS

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Income statement

(in Euro) Notes Dec-31-2006 Dec-31-2005 I Net revenues 9 9.190.880 9.655.367 - of which with related parties 10 9.170.080 9.645.367 II Raw materials and services consumed 11 (19.716.337) (21.709.831) - of which with related parties 10 (5.941.943) (10.028.761) - of which non-recurring 21 (1.000.000) - III Payroll costs 12 (21.921.748) (18.192.050) - of which with related parties 10 (9.307.551) (2.085.118) - of which non-recurring 21 (5.627.720) - II Other operating revenues and income 13 12.981.157 15.324.942 - of which with related parties 10 12.551.111 13.830.867 II Other operating expenses 14 (1.537.590) (2.076.552) - of which with related parties 10 (29.001) IV Increases in provisions for risks 32 (145.978) (101.888) V Amortization of intangible assets 15 (42.077) (8.774) VI Depreciation of property, plant and equipment 15 (340.524) (311.142) VII Depreciation of investment property 15 (1.068.591) (1.068.591) EBIT (22.600.808) (18.488.519) VIII Financial income 16 21.712.503 12.935.051 - of which with related parties 10 9.578.990 6.716.420 - of which non-recurring 21 4.972.984 2.895.287 VIII Financial charges 17 (6.020.893) (3.897.637) - of which with related parties 10 (3.116.113) (2.171.006) IX Other income (charges) from financial assets/liabilities 18 148.153.453 83.364.141 - of which with related parties 10 79.535.978 40.460.558 - of which non-recurring 20 59.597.124 44.299.347 Earnings before tax 141.244.255 73.913.036 X Income taxes 19 24.978.976 25.867.005 Net income (loss) for the year 166.223.230 99.780.041

The notes form an integral part of this report.

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Balance sheet (in Euro) Notes Dec-31-2006 Dec-31-2005 ASSETS XI Property, plant and equipment 21 3.812.232 674.137 XII Investment property 22 91.966.228 93.034.477 XIII Intangible assets 23 210.448 120.228 XIV Investments in subsidiary and associated companies 24 569.445.579 548.912.532 - of which in related parties 10 569.445.579 548.912.532 XIV Available-for-sale financial assets 25 212.673.412 238.325.041 XXI Financial assets recognized for derivatives 29 4.471 10.191 XIV Other non-current assets 26 451.356 595.998 XIV Deferred tax assets 19 3.195.530 5.767.670 Total non-current assets 881.759.255 887.440.274 XV Trade receivables 27 3.797.719 4.642.537 - of which with related parties 10 3.612.636 3.999.440 XVII Other current receivables and assets 28 5.682.991 10.200.052 - of which with related parties 10 16.345 6.181.379 XVII Current tax assets 19 71.398.313 85.336.959 - of which with related parties 10 3.187.796 8.021.955 XXI Financial assets recognized for derivatives 29 - 14 XXI Current financial receivables 29 287.791.281 293.303.195 - of which with related parties 10 263.876.485 214.427.224 XXI Cash and cash equivalents 29 197.625.348 89.273.989 Total current assets 566.295.653 482.756.746 Non-current assets held for sale 0 0 TOTAL ASSETS 1.448.054.908 1.370.197.020 EQUITY AND LIABILITIES XX Share capital 30 762.019.050 762.019.050 XX Other equity instruments 30-36 4.242.641 659.573 - of which with related parties 10 3.593.268 551.919 XX Reserves 30 287.734.807 304.532.749 XX Treasury shares 30 (61.697.945) (61.697.945) XX Earnings (losses) carried forward 99.649.053 82.140.775 XX Net income (loss) for the year 166.223.230 99.780.041 Total equity 1.258.170.836 1.187.434.243 XXI Non-current financial payables 29 35.842.109 35.842.109 XXI Financial liabilities recognized for derivatives 29 - - XIX Provisions for employee benefits 31 2.781.460 2.342.610 XVIII Provisions for risks and charges 32 2.492.719 7.271.089 XVIII Deferred tax liabilities 19 5.933.625 5.622.345 XVII Other non-current liabilities 33 2.164.987 2.652.523 Total non-current liabilities 49.214.900 53.730.676 XXI Bank loans and overdrafts 29 3.094.110 15.214.830 XXI Current financial payables 29 98.296.653 76.613.303 - of which with related parties 10 97.810.132 76.272.625 XXI Financial liabilities recognized for derivatives 29 15.171 - XVII Current tax liabilities 19 21.076.923 16.460.834 - of which with related parties 10 12.157.004 6.519.931 XVI Current tax liabilities 34 6.341.039 7.493.632 - of which with related parties 10 1.456.885 917.886 XVIII Current portion of provisions for risks and charges 32 3.276.264 2.845.387 XVII Other current payables and liabilities 35 8.569.013 10.404.115 - of which with related parties 10 1.059.331 48.908 Total current liabilities 140.669.172 129.032.101 Liabilities associated with assets held for sale 0 0 TOTAL EQUITY AND LIABILITIES 1.448.054.908 1.370.197.020

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Cash flow statement

160

Statement of changes in capital and reserves

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EXPLANATORY NOTES

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FORM, CONTENT AND OTHER INFORMATION ON THE FINANCIAL STATEMENTS

1. Corporate information

The financial statements of RCS MediaGroup for the year ended December 31, 2006 were approved and authorized for publication by the Board of Directors on March 16, 2007, and approved by the shareholders in the Annual General Meeting of April 27, 2007. As a holding company, RCS MediaGroup S.p.A.'s sole business is the direction and co-ordination of the companies under its control, along with the provision of centralized services and financial management.

2. Form and content

The financial statements for 2006 represent the separate financial statements of the parent company RCS MediaGroup S.p.A. prepared under the international financial reporting and accounting standards (IFRS/IAS) issued or revised by the International Accounting Standards Board and adopted by the European Union. The abridged "Report on the transition to IAS/IFRS" attached to the current report details the principal decisions made by RCS MediaGroup S.p.A. when making the transition to international accounting standards, along with the reconciliations and related explanatory notes required by IFRS 1. The full version of the "Report on the transition to IAS/IFRS", to which reference should be made for a detailed description of the transition to international accounting standards, is appended to the Half-year Report at June 30, 2006. When preparing the annual report at the end of 2006, it was decided to reclassify some of the figures at December 31, 2005 previously published in the report on transition to IAS/IFRS. This specifically involved reclassifying €37.2 million from "Current tax assets" to "Current tax liabilities", without any impact on net income or equity.

The financial statements have been audited by Reconta Ernst & Young.

The presentation currency of these financial statements is the euro, which is also used to present the group's consolidated financial statements. Unless otherwise specified, all amounts reported in these explanatory notes are stated in millions of euro.

3. Reporting formats

RCS MediaGroup has adopted: • the balance sheet format in which assets and liabilities are separately classified as current and non- current; • the income statement format in which costs are classified by nature; • the cash flow statement using the indirect method, whereby net income for the year is adjusted for the effects of non-monetary items, of any deferral or provision of past or future operating receipts or payments and revenues or costs associated with cash flows from investing or financing activities. With reference to Consob Resolution 15519 of July 27, 2006, significant transactions with related parties and non-recurring items have been reported separately on the face of the balance sheet and income statement.

4. Accounting policies

The financial statements have been prepared on the basis of historical cost, amended as required for the valuation of certain financial instruments. This section summarizes the more important accounting policies adopted by the company:

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Revenues

Revenues are recognized on an accrual basis when their value can be reliably measured and the associated consideration is likely to be collected. Revenues from the recharge of centralized services are recognized on the date they are earned, as defined in the respective contracts. Interest is recognized as financial income on an accrual basis. Dividends are recognized on the date the dividend is declared. Rental income from investment property is recognized on a straight-line basis over the terms of the related leases.

Costs

Costs and other operating expenses are recognized when they are incurred under the accrual basis of accounting, and when they do not produce future economic benefits, meaning that they do not meet the conditions for being recorded as assets in the balance sheet. Payroll costs include benefits received in the form of share-based remuneration.

Financial income and charges

Financial income and charges are recorded on a time proportion basis using the applicable effective interest rate.

Income taxes

These include both current and deferred taxes. The charge or income relating to current income taxes for the period is determined using the tax rules actually in force. As part of the group's tax management, RCS MediaGroup S.p.A. has opted, commencing from 2004, to make a three-year group tax election, as allowed by Decree 344 dated December 12, 2003. It acts as the head of the tax group. This election makes it possible to obtain a group benefit by directly offsetting its own tax losses against the taxable income transferred by the companies in the tax group. In addition, the company, together with M-dis, has adopted the fiscal transparency election for the three years 2004-2006, as allowed by article 115 of the Income Tax Consolidation Act. As a result of this election, the taxable income received from M-dis also forms part of the company's taxable base for the purposes of calculating IRES (Italian corporate income tax). Deferred tax assets and liabilities are determined on the basis of temporary differences between the value of assets and liabilities reported for statutory purposes and the corresponding amounts that are applicable for tax purposes. Deferred tax assets are recognized only to the extent that it is probable that taxable income will be available against which the deductible temporary difference can be utilized, while deferred tax liabilities must be recognized for all taxable temporary differences. They are measured at the tax rates that are expected to apply to the period when the tax asset is realized or the tax liability is settled.

Property, plant and equipment

Items of property, plant and equipment are reported at historical cost if purchased separately or at fair value at the acquisition date if purchased through a business combination, and are systematically depreciated over their remaining useful lives. If any assets classified in this category are destined for sale, they are reclassified to non-current assets held for sale. Assets held for sale are no longer depreciated. If their fair value is lower than their carrying amount, the latter is written down accordingly. Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets; assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset's effective use during the year. Improvement expenditure is added to the value of the assets concerned only when it is clearly separable and identifiable and can be recovered through expected future economic benefits. Items of property, plant and equipment are periodically reviewed to identify any impairment losses as described in the paragraph on "Impairment of assets".

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Investment property

Investment property is recorded at cost, inclusive of any directly attributable expenditure, and is held to earn rentals or for capital appreciation or both. Investment property is systematically depreciated on a straight-line basis in each individual period to take account of its remaining useful life, except for the value of land classified in this category. Depreciation is calculated on a straight-line basis using rates considered to reflect the estimated useful lives of the assets. Improvement expenditure is added to the value of the assets concerned only when the related cost can be reliably determined and it is probable that this expenditure will produce future economic benefits. Assets acquired during the year are depreciated on a pro-rata basis, taking account of the asset's effective use during the year. Transfers to investment property are made when, and only when, there is a change in use evidenced by events like: the end of owner-occupation, the commencement of an operating lease to another party or the end of construction or development. Transfers from investment property are made when, and only when, there is a change in use evidenced by events like: the commencement of owner-occupation or the commencement of development with a view to sale. Investment property is periodically reviewed to identify any impairment losses as described in the paragraph on "Impairment of assets".

Intangible assets

These are recorded at purchase cost if purchased separately or capitalized at fair value at the acquisition date if purchased through a business combination. Intangible assets have a finite useful life and are systematically amortized on a straight-line basis over that life. Advertising costs, start-up and expansion costs and research costs are not capitalized. Intangible assets are periodically reviewed to identify any impairment losses as described in the paragraph on "Impairment of assets".

Impairment of assets

IAS 36 requires impairment testing to be carried out for property, plant and equipment, intangible assets and equity investments whenever there are any signs that they may be impaired. In the case of equity investments and other intangible assets with an indefinite useful life or assets not available for use, this test must be carried out at least once a year. The recoverability of the values recorded is tested by comparing the book value with the higher of the net selling price, if an active market exists, and the asset's value in use. The value in use is defined as the present value of estimated future cash flows expected to arise from the continuing use of an asset, or from its cash generating unit, and from its disposal at the end of its useful life. The cash generating units have been identified in keeping with the organizational structure and business of the parent company and its equity investments. They consist of groups of like assets that generate cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.

Investments in subsidiary and associated companies

Investments in subsidiaries, associates and joint ventures are stated at cost and periodically tested for impairment to ensure that they have not suffered any losses in value. These tests are carried out at least once a year, or whenever any investments display evidence that they might be impaired. These investments are valued using the Discounted Cash Flow model, adopting the methods described in "Impairment of assets". If it is necessary to recognize an impairment loss, this is debited to the income statement in the period in which it is identified. If the reasons for the impairment loss no longer apply, the carrying amount of the investment is increased but to no more than its original cost. Such a writeback is recognized in the income statement.

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Available-for-sale financial assets

Available-for-sale financial assets mainly consist of investments in other companies, in which the interest held is less than 20%. These investments have not been purchased for the purpose of selling them in the near term nor do they form part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. They are therefore usually classified as non-current assets and recorded at market value, which coincides with purchase cost on the date of initial recognition. The cost is subsequently adjusted to market value, with changes reflected in a corresponding equity reserve. This equity reserve is used when the investment is sold and forms part of the calculation of the related gain/loss. It is also used to absorb any subsequent downward adjustments to fair value; once the reserve has been used up, any additional negative adjustments for impairment losses will be recorded in the income statement. If such additional negative adjustment represents a market fluctuation, it is reflected in the equity accounts. The market value of these investments is determined using the Discounted Cash Flow method, or, failing this, using information derived from the market. Only if such information is unavailable will available-for- sale financial assets continue to be reported at cost. In the case of investments in listed companies, market value is taken as their quoted price at period end.

Trade and other receivables

Receivables are recorded at cost as adjusted to take account of any impairment by using a specific provision for doubtful accounts, which is directly deducted from their gross value. If the terms of payment are longer than normal market ones and the receivable does not earn interest, there is an implicit financial component in the amount recognized in the balance sheet which must therefore be discounted to present value by debiting the discount to the income statement. This implicit interest is recognized on an accrual basis over the term of the receivable under "Financial income and charges". Receivables expressed in foreign currencies are translated at period-end exchange rates, and the gains or losses from their conversion are charged to the income statement.

Derivatives

Derivatives consist of assets and liabilities recorded at their fair value. Derivatives are classified as hedging instruments when their relationship with the hedged item is formally documented (hedge accounting) and the hedge effectiveness is high (effectiveness test). Transactions which, in compliance with the company's risk management policies, meet the requirements of the relevant accounting standard are classified as hedging transactions; other transactions are classified as trading transactions, even if they are carried out with the intent of managing exposure to risks. Fair value hedges, which hedge the exposure to changes in the fair value of the item being hedged, are recorded at fair value with any gains/losses recognized in the income statement. Changes in the fair value of cash flow hedges, which hedge the exposure to changes in cash flow for the items hedged, are initially recorded in equity and subsequently booked to the income statement, in keeping with the effects of the transaction being hedged. Changes in the fair value of derivatives that do not satisfy the criteria for being treated as hedging derivatives are recorded in the income statement.

Current financial receivables

Current financial assets include held-for-trading assets. Such assets are initially recognized at cost and subsequently measured at fair value with changes recognized in the income statement as "Financial income" or "Financial charges". This heading also includes held-to-maturity investments, carried in the balance sheet at amortized cost.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, bank and post office sight deposits and investments in securities carried out as part of the treasury management function which have a short-term maturity, are highly liquid and subject to an insignificant risk of changing value.

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They are stated at face value. For the purposes of the cash flow statement, cash and cash equivalents are represented by cash and cash equivalents as defined above, less bank overdrafts.

Non-current financial payables

Loans and borrowings are initially recognized at cost, corresponding to the fair value of the sum received less any additional costs for its arrangement. After initial measurement, loans and borrowings are valued using the amortized cost method.

Treasury shares

Treasury shares are recorded as a deduction from equity. The original cost of the treasury shares and the income arising on any subsequent sales are reported as movements in equity.

Provisions for employee benefits

The provision for employee termination indemnities and the provision for executive termination benefits are recorded at the actuarial value of the company's effective liability to all employees, determined by applying existing statutory and regulatory provisions. The actuarial valuation, based on financial and demographic assumptions, is carried out by outside professional actuaries. The actuarial gains and losses are recognized in the income statement and classified under payroll costs.

Provisions for risks and charges

The provisions for risks and charges relate to certain or probable liabilities of a specific nature whose amount and/or timing is unknown. Provisions are recognized when (i) an enterprise has a present obligation, deriving from a past event, (ii) it is probable that an outflow of resources will be required to settle the obligation and (iii) a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the expenditure that the company would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party at that time. The estimate implicitly reflects a financial component associated with the assumption that the obligation will be settled in the long term. If this component is material and the date of paying the obligation may be reliably estimated, the provision is therefore discounted to its present value; the increase in the provision associated with the passage of time by the financial component is recorded in the income statement under "Financial charges".

Trade and other payables

Payables are booked at face value. If the terms of payment are longer than normal market ones and the payable does not carry interest, there is an implicit financial component in the amount recognized in the balance sheet. It is therefore discounted to present value by crediting the discount to income, which is recognized on an accrual basis over the term of the payable under "Financial charges". Payables expressed in foreign currencies are translated at period-end exchange rates, and the gains or losses from their conversion are charged to the income statement.

Share-based remuneration plans

The company gives additional benefits to certain executives in the form of stock option plans which are classified as equity-settled since they provide for the delivery of shares. Under IFRS 2 (Share-based payment) stock options for key employees are measured at their fair value on the grant date, determined using the binomial model. This model takes account of all the option's characteristics (life of the option, strike price and vesting conditions etc.), as well as the value of the underlying shares on the grant date and the expected volatility of these shares.

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If the right to exercise the option is exercisable after the end of a vesting period and after satisfying specific performance conditions, the overall cost of the options is recognized evenly over this period in a specific line item known as "Other equity instruments", with the matching entry going to "Payroll costs" in the income statement. At the end of each year the fair value of options determined in the past is not revised; instead, the estimated number of options that will vest up until their expiry is updated. The changes in this estimate are recorded as an adjustment to "Other equity instruments" with the matching entry going to "Payroll costs" in the income statement. When the options expire the amount recorded in the equity account is reclassified as follows: the portion of equity relating to exercised options is reclassified to the "Share premium reserve", while the portion relating to unexercised options is reclassified to "Earnings (losses) carried forward".

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5. Changes in international accounting standards

Details can be found in note 7 of the "Explanatory notes" to the consolidated financial statements.

6. IFRSs and IFRIC interpretations not yet in force

Details can be found in note 8 of the "Explanatory notes" to the consolidated financial statements.

7. Main decisions when applying accounting standards and key sources of estimation uncertainty

Details can be found in note 9 of the "Explanatory notes" to the consolidated financial statements.

8. Management of financial risks

RCS MediaGroup is exposed to a variety of financial risks in different degrees: market risks (interest rate risk, price risk and occasionally currency risk), liquidity risk and credit risk. After a formal process of review and approval, RCS MediaGroup uses different types of derivative to manage its exposure to interest rate and currency risk; the only types of contract currently in existence are interest rate caps. Derivatives are used solely for hedging purposes. Even if a financial instrument has been designated for hedging purposes, whenever it fails to satisfy the formal conditions of the hedge effectiveness test required by IAS, it will be classified as held-for-trading. RCS MediaGroup provides a centralized treasury service to group companies, including through the use of a zero-balance cash pooling system. This means that the cash needs of group companies are duly satisfied by RCS MediaGroup. This arrangement means that RCS MediaGroup is responsible for controlling and managing the group's financial risks.

Interest rate risk RCS MediaGroup is exposed to fluctuations in interest rates. Exposures to interest rate risk are managed by duly analyzing the group's exposure. The group's exposure to the risk of undesired fluctuations in interest rates is hedged at a consolidated level using cash flow hedges in the form of interest rate swaps (IRS) and interest rate caps. IRS transform the floating rate into a fixed one through the periodic swap, with the financial counterparty, of the difference between the fixed rate interest (swap rate) and floating rate interest, both calculated on the notional contractual amount. In the case of interest rate caps, only if the interest rate rises above the contractual one, does the financial counterparty pay the company the difference between the contractual rate and the market floating rate in such a way as to bring the company's financial cost back to its contractual level. At December 31, 2006 RCS Media Group had €55 million in outstanding interest rate caps, of which €30 million for hedging the exposure on long-term loans and €25 million not allocated to a specific underlying item, even though taken out for hedging purposes.

Currency risk RCS MediaGroup does not have a trading exposure to currency risk. RCS MediaGroup hedges foreign currency positions using forward purchase/sale agreements and/or purchase options. Currently it does not have any currency hedging derivatives. The exposure to currency risk for net investments in a foreign entity is not hedged.

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Liquidity risk RCS MediaGroup manages the group's liquidity risk by investing surplus cash in both short-term transactions (usually lasting between one and three months) and those which are easily and quickly unwound. A total of €750 million in revolving committed credit lines lasting between seven and eleven years have been arranged with a number of banks.

Credit risk RCS MediaGroup's exposure to credit risk refers to financial receivables and to a lesser extent trade receivables. As far as financial receivables are concerned, investments of surplus cash and derivative transactions are carried out solely with highly reputable banking counterparties, for maximum amounts that are set internally for each individual counterparty. RCS MediaGroup does not have any areas of particularly significant risk where its trade receivables are concerned.

Price risk The company is also exposed to fluctuations in the price of listed financial investments.

The fair value of derivatives, which are generally over-the-counter, is calculated using the standard valuation methods based on market conditions reported at the balance sheet date.

9. Net revenues

Net revenues amount to €9.2 million in 2006 compared with €9.7 million in 2005. The parent company's revenues basically consist of recharges to group companies for services it provides mainly in the areas of legal affairs, communication, corporate affairs and planning.

10. Transactions with related parties

The transactions and balances between RCS MediaGroup S.p.A. and subsidiary and associated companies mostly refer to: • transactions associated with agreements for the centralized provision of services (communication, corporate and legal affairs and planning) to group companies; • commercial transactions involving the letting of offices and work space by the parent company to its subsidiaries; • financial transactions, involving loans and current account transactions undertaken as part of the centralized treasury management service.

All these transactions are carried out in the ordinary course of business and conducted on an arm's length basis. The following table shows the amount of related-party transactions and balances included in each relevant heading of the balance sheet and income statement.

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Balance sheet:

Income statement:

Note 13 to the consolidated financial statements contains details of related-party transactions concerning the group income tax and VAT elections and the intragroup transfer of tax credits.

As required by IAS 24, key management personnel have been identified as the directors, statutory auditors and Chief Executive Officer and Chief Operating Officer of RCS MediaGroup, details of whose remuneration in the various forms received are provided in the following table:

The transactions with related parties include €5.8 million in non-recurring charges relating to top management changes involving the company's Chief Executive Officer, of which €4.8 million reported in "Payroll costs" and €1 million classified in "Services". "Payroll costs" also include €3.5 million in company bonuses earned in 2006, and €0.2 million for the 2006 cost of stock options granted to the Chief Executive Officer in his capacity as Chief Operating Officer. "Other equity instruments" report the overall cost of stock options granted to the Chief Executive Officer & Chief Operating Officer as from the start of the vesting period.

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The total amount of compensation paid to the directors, statutory auditors and the Chief Operating Officer during the year is reported in the following table:

DESCRIPTION OF OFFICE REMUNERATION (€/thousands) Office Period in office End of office Emoluments Bonuses and Other Name and surname held from to of office other incentives remuneration Piergaetano Marchetti Chairman *^ 01/01/2006 12/31/2006 AGM to approve 2008 annual report 19/01/1902 55 ◊

Gabriele Galateri Di Genola Deputy Chairman 01/01/2006 12/31/2006 18 AGM to approve 2008 annual report Antonio Perricone CEO & COO * 09/12/2006 12/31/2006 Next AGM 106 (1) 1.407 (1) 201 (1)

Raffaele Agrusti Director ** 01/01/2006 12/31/2006 36 3 (2) AGM to approve 2008 annual report

Roberto Bertazzoni Director 01/01/2006 12/31/2006 18 AGM to approve 2008 annual report Claudio De Conto Director 12/15/2006 12/31/2006 Next AGM 1 (3)

Diego Della Valle Director 01/01/2006 12/31/2006 23 (4) AGM to approve 2008 annual report

John P. Elkann Director * 01/01/2006 12/31/2006 35 AGM to approve 2008 annual report

Giorgio Fantoni Director ^ 01/01/2006 12/31/2006 0 (5) AGM to approve 2008 annual report

Franzo Grande Stevens Director 01/01/2006 12/31/2006 23 (4) AGM to approve 2008 annual report

Berardino Libonati Director 04/27/2006 12/31/2006 13 (6) AGM to approve 2008 annual report

Jonella Ligresti Director 01/01/2006 12/31/2006 18 AGM to approve 2008 annual report

Paolo Merloni Director 01/01/2006 12/31/2006 18 AGM to approve 2008 annual report

Andrea Moltrasio Director ** ^ 04/27/2006 12/31/2006 39 (7) AGM to approve 2008 annual report

Renato Pagliaro Director *^ 01/01/2006 12/31/2006 53 AGM to approve 2008 annual report

Corrado Passera Director 01/01/2006 12/31/2006 18 AGM to approve 2008 annual report

Alessandro Pedersoli Director ** ^ 01/01/2006 12/31/2006 49 (8) AGM to approve 2008 annual report

Carlo Pesenti Director * 01/01/2006 12/31/2006 35 AGM to approve 2008 annual report Virginio Rognoni Director 11/13/2006 12/31/2006 Next AGM 3 (9) Vittorio Colao CEO & COO * 01/01/2006 09/12/2006 - 175 (10) 7.130 (10) 526 (10) Cesare Geronzi Director 01/01/2006 04/27/2006 - 5 Umberto Quadrino Director 01/01/2006 04/27/2006 - 5 Giangiacomo Nardozzi Tonielli Director 01/01/2006 08/31/2006 - 15 (9) Carlo Buora Director 01/01/2006 11/10/2006 - 15 (3) Chairman of Board of Statutory Pietro Manzonetto 04/27/2006 12/31/2006 42 (a) Auditors AGM to approve 2008 annual report

Gianrenzo Cova Statutory auditor 01/01/2006 12/31/2006 48 (b) AGM to approve 2008 annual report

Giorgio Silva Statutory auditor 04/27/2006 12/31/2006 28 (c) 3 (c) AGM to approve 2008 annual report Flavio Arcidiacono Statutory auditor 01/01/2006 04/27/2006 - 13 Clemente Rebecchini Statutory auditor 01/01/2006 04/27/2006 - 13

* MEMBER OF THE EXECUTIVE COMMITTEE (5 members) ^ MEMBER OF THE GROUP COMPENSATION COMMITTEE (5 members) ** MEMBER OF THE INTERNAL CONTROL COMMITTEE (3 members)

◊ During 2006 companies in the RCS Group booked a total of €54,568 in professional fees from the Studio notarile associato Marchetti (the Marchetti notary partnership), of which €43 thousand for services and €12 thousand for expenses. (1) In office from September 12, 2006 with a gross annual remuneration of €650,000 for the position of Chief Operating Officer and a gross annual fixed fee of €350,000 for the position of Chief Executive Officer. He also received a golden hello of €1,000,000 in 2006 and earned an estimated results-related bonus of €407,000, payable in 2007. (2) As from May 1, 2006 Raffaele Agrusti is a member of the company's Supervisory Board, established under Decree 231/2001, for which he receives an additional annual fee of €5,000. (3) Carlo Buora resigned as a director with effect from November 10, 2006, being replaced by Claudio De Conto on December 15, 2006 under a resolution passed by the Board of Directors on the same date. (4) The directors Diego Della Valle and Franzo Grande Stevens were members of the Group Compensation Committee until April 27, 2006. (5) Giorgio Fantoni has waived all emoluments as a director and member of the Group Compensation Committee. (6) Berardino Libonati has been a director since April 27, 2006. (7) Andrea Moltrasio has been a director and member of the Internal Control Committee and Group Compensation Committee since April 27, 2006. (8) Alessandro Pedersoli has been a member of the Group Compensation Committee since April 27, 2006. (9) Giangiacomo Nardozzi Tonielli resigned from office on August 31, 2006, being replaced by Virginio Rognoni on November 13, 2006 under a resolution passed by the Board of Directors on the same date. Giangiacomo Nardozzi Tonielli had been a member of the Internal Control Committee up until April 27, 2006. (10) Vittorio Colao resigned as a director, Chief Executive Officer and Chief Operating Officer. Vittorio Colao received a gross annual remuneration of €750,000 for the position of Chief Operating Officer and a gross annual fixed fee of €250,000 for the position of Chief Executive Officer. He also received a results-related bonus of €1,332,940 for 2005 in his capacity as Chief Executive Officer and earned an estimated results-related bonus of €989,000 for 2006, payable in 2007. "Bonuses and other incentives" include €4,807,720 by way of a golden handshake.

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(a) Pietro Manzonetto has been an acting statutory auditor and Chairman of the Board of Statutory Auditors since April 27, 2006. (b) Gianrenzo Cova was Chairman of the Board of Statutory Auditors until April 27, 2006 since when he is just an acting auditor and no longer the Chairman of the Board of Statutory Auditors. (c) Giorgio Silva has been an acting statutory auditor since April 27, 2006 and since May 1, 2006 a member of the company's Supervisory Board, established under Decree 231/2001, for which he receives an additional annual fee of €5,000.

11. Raw materials and services consumed

These amount to €19.7 million and consist of €0.6 million in costs for "Raw materials and goods", €15.3 million in "Services" and €3.8 million in "Rentals and leasing". These items are discussed below:

Raw materials and goods

These costs amount to €0.6 million in 2006 compared with €0.4 million the year before. They basically refer to the purchase of office materials, printed matter and fuel.

Services

The cost of services amounts to €15.3 million in 2006 compared with €13.4 million in the prior year. The increase of €1.9 million is mainly attributable to the rise of €2.5 million in the cost of professional and consulting fees, as partially absorbed by the decrease in the cost of staff services. This heading also includes €1 million in non-recurring charges in 2006 in relation to the top management change involving the Chief Executive Officer.

Rentals and leasing

These costs, totaling €3.8 million, mostly refer to rent paid for the operating leases of the premises in Via Rizzoli, Milan. The decrease of €4.1 million on the prior year figure of €7.9 million is mostly attributable to costs incurred in 2005 for settling the early rescission and renegotiation of lease agreements (€2 million) and a lower amount of rent paid in 2006 for the premises in Via Rizzoli (€2.3 million).

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12. Payroll costs

These amount to €21.9 million in 2006 compared with €18.2 million in 2005. The increase of €3.7 million reflects costs of €5.6 million associated with top management changes involving the Chief Executive Officer and other company managers in 2006, less €2 million in provisions for corporate restructuring included in the 2005 figure.

"Employee benefits" include the provisions for the defined-benefit plans described in note 34.

The average workforce during the year is broken down by category as follows:

13. Other operating revenues and income

Other operating revenues and income amount to €13 million in 2006, having decreased by €2.3 million on the figure of €15.3 million reported in 2005. This heading basically reports the rental income paid by the subsidiary RCS Quotidiani for the operating lease of the building in Via Solferino, Milan.

14. Other operating expenses

These are detailed as follows:

"Other overheads" mostly refer to entertaining, corporate compliance costs and gifts.

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15. Amortization and depreciation

These amount to €1.5 million, in line with the figure reported in 2005.

16. Financial income

The increase in financial income is due to gains arising on the partial sale of units in hedge funds managed by Duemme Sgr (+€5 million), higher interest income on bank deposits thanks to the company's larger cash balances (+€2.1 million) and the growth in interest income on short-term funding of subsidiary and associated companies under the centralized cash pooling arrangements (+€3 million).

17. Financial charges

Financial charges amount to €6 million, having increased by €2.1 million on the figure of €3.9 million reported in 2005. This change is mostly due to €0.7 million in costs for committed credit lines and €0.9 million in higher interest expense on intragroup current accounts managed on a cash-pooling basis.

18. Other income (charges) from financial assets/liabilities

These include €86 million in dividends received from group companies, primarily RCS Quotidiani (€60 million), RCS International Magazines (€15 million), RCS Periodici (€7 million), M-Dis (€3.7 million) and

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RCS Factor (€0.2 million) and €10.1 million in dividends received from other companies, namely Banca Intesa (€9.6 million), Poligrafici Editoriale (€0.3 million) and Raisat (€0.2 million). The gain of €59.6 million is attributable to the sale of 23,900,000 Banca Intesa shares in the second half of the year for €125.9 million. The income from financial assets has been partially offset by the recognition of impairment losses against the investments in RCS Broadcast (€6.4 million) and Poligrafici Editoriale (€1.1 million), in order to adjust their carrying amount to fair value.

19. Income taxes

The income taxes reported in the income statement are as follows:

Current tax assets and current tax liabilities are analyzed below:

"Current tax assets" of €71.4 million consist of: • €45 million in credits for IRPEG (Italy's former corporate income tax), for which a refund was requested in the tax return for 1998. This figure includes €8.9 million in interest, calculated at the currently applicable rate. • €10.6 million in carried forward credits for IRES (Italy's new corporate income tax) compared with €14.6 million in 2005. During the year RCS MediaGroup transferred its carried forward IRES credit to the group tax position as well as using it to settle IRAP (Italy's regional business tax) and its other taxes and contributions. • €12.5 million in tax credits transferred to the head of the tax group, following the introduction of group payments on account of IRES and withholding taxes (€16.8 million in 2005). • €3.3 million in receivables from subsidiaries, booked in respect of IRES, net of advance payments, payable on their taxable income and transferred to the head of the tax group under the group tax election pursuant to articles 117 et seq of the Income Tax Consolidation Act (€8.1 million in 2005).

"Current tax liabilities" mostly refer to €8.9 million in tax due on current-year income (€9.9 million in 2005), €7.1 million in advance payments of IRES transferred to the group tax position (€4.8 million in 2005), and €4.9 million in payables to subsidiaries arising from the group tax election (€1.6 million in 2005).

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Deferred tax assets and deferred tax liabilities are analyzed as follows:

The actual tax charge reported in the financial statements is reconciled to the theoretical tax charge, resulting from the application of current rates, as follows:

2006 Earnings before tax 141,2 Theoretical income tax 46,6 Tax effect of permanent differences (45,0) Net effect of temporary deductible and taxable differences (30,5) Taxes relating to prior years (0,5) Current taxes (29,4) Ires - deferred tax 3,5 Income taxes reported in the financial statements, excluding current & deferred IRAP (25,9) IRAP - current 0,8 IRAP - deferred 0,1 Income taxes reported in the financial statements (current & deferred) (25,0)

20. Non-recurring income (charges)

Details of the non-recurring income and charges included in the results for 2006 are shown below:

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Non-recurring income amounts to €64.6 million and relates to the gain realized on the sale of 23,900,000 Banca Intesa shares (€59.6 million) in the second half of the year, and the gain realized on the partial sale of units in hedge funds managed by Duemme Sgr (€5 million). Non-recurring charges of €6.6 million relate to top management changes involving the Chief Executive Officer and other company managers during 2006.

21. Property, plant and equipment

Changes during the year were as follows:

Property, plant and equipment recorded in the financial statements is being depreciated over the estimated useful life of each individual asset, using the following rates: Plant and machinery from 10% to 30% Other assets from 10% to 25% Leased buildings 12.5%

The net balance of €3.8 million at December 31, 2006 is higher than a year earlier, reflecting €3.4 million in additions during 2006 less €0.4 million in depreciation charges. In detail, the additions of €1.1 million reported for "other assets" relate to the installation of audio/video systems in the company's congress and events hall (€0.6 million) and the purchase of new office furniture (€0.5 million). "Leased buildings" report the capitalization of improvement expenditure on the rented premises in Via Rizzoli, Milan. Lastly, the assets under construction mostly refer to the capitalization of building and refurbishment costs at the premises in Via Rizzoli.

No financial expenses have been capitalized.

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22. Investment property

Changes in investment property over the year are shown in the following table:

This line item reports the value of the premises in Via Solferino 28, Milan. These premises are rented to RCS Quotidiani at an annual rent of €6.7 million, as adjusted each year for price inflation based on the index published by Italy's central statistics office (ISTAT). The lease agreement has a duration of 24 years commencing December 2000, and may be renewed for another six years. The building part of this property is being depreciated at a rate of 2% per annum, while the land on which it stands is not being depreciated at all. The value of the land and the building has been split on the basis of an appraisal by an independent expert. The entire premises are mortgaged against a loan contracted in February 2001, originally for €71.3 million, but now standing at €35.8 million.

23. Intangible assets

Changes during the year were as follows:

Intangible assets are being amortized over their useful life, estimated as 5 years. The balance basically refers to intangible assets associated with the development of software for the purposes of compliance with latest laws and regulations.

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24. Investments in subsidiary and associated companies

Movements during the period were as follows:

The additions include: • the payment of €12 million for the capital increase by the subsidiary RCS Broadcast; • the purchase of around 2.6% of Dada during 2006 for €8.6 million, taking the interest in this company to 44.24% of its share capital; • the purchase of 10% of Adelphi Edizioni in June 2006 for €1.6 million; • the payment of €1.6 million on account of capital increases to cover losses at the subsidiary RCS Produzioni; • the purchase of around 1% of RCS Investimenti for €1 million, taking the interest in this company to some 99.5% of its share capital.

The disposal refers to the sale of the entire interest in RCS Editori to the subsidiary RCS Quotidiani in October 2006.

The impairment loss refers to the subsidiary RCS Broadcast in order to adjust the carrying amount of the related investment to its fair value.

"Other movements" mostly relate to the increase in equity investments following the recognition of stock options granted to employees of RCS Group companies, matched by a corresponding amount in "Other equity instruments", in accordance with IFRS 2. More details can be found in note 36 of this report and in note 48 to the consolidated financial statements.

The list of equity investments can be found in one of the tables attached to this report.

25. Available-for-sale financial assets

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Under IAS 39 securities and investments in companies which are not subsidiaries, associates or held for trading are defined as available-for-sale financial assets. Such assets amount to €212.6 million at December 31, 2006. These assets are stated at market (ie. fair) value. The market value of investments in listed companies is their quoted price at year end. In contrast, investments in unlisted companies, for which a market value is not available, are tested for impairment. The results obtained have confirmed the book values. Only a few minor investments have been valued at cost, since no future business plans, required for performing the impairment test, were available. It has been assumed that cost approximates their fair value. Movements during 2006 have been as follows: • the sale of 23,900,000 Banca Intesa shares, in the second half of the year, which had a carrying value of €107.2 million at December 31, 2005; • the fourth-quarter purchase of 3,169,000 San Paolo-Imi shares for €53.8 million; • the revaluation of the remaining Banca Intesa shares (€25.5 million), the new San Paolo-Imi shares (€3.3 million) and the writedown of the investment in Poligrafici Editoriale (-€1.1 million), in order to adjust their carrying amounts to fair value at December 31, 2006.

26. Other non-current assets

Thes e amount to €0.5 million at December 31, 2006, in line with a year earlier, and basically refer to prepaid fee s on committed credit lines relating to the following year.

27. Trade receivables

Rec e ivables are broken down by type as follows:

Trade receivables amount to €3.8 million at December 31, 2006, having decreased by €0.8 million on the prior year. This decrease is attributable to the reduction in amounts due from third-party customers and associated companies, while amounts due from subsidiary companies are about the same as the year before.

The book value of trade receivables reflects their fair value.

28. Other current receivables and assets

The decrease of €4.5 million in other current receivables and assets since December 31, 2005 is explained by the decrease of €6.1 million in amounts due from group companies, mostly as a result of collecting €5.1

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million from the sale of all 150,000 shares in HdP BV to RCS International Magazines BV, as partially offset by an increase in sundry receivables after paying insurance premiums for 2007 early.

The book value of other receivables is considered to reflect their fair value.

29. Net financial position

The book and fair values of balances making up the net financial position are compared below.

The breakdown of the net financial position by currency is as follows:

The methods of measuring fair value are summarized below for the principal classes of financial instrument to which they have been applied:

• asset and liability positions: the calculation methods used for interest rate derivatives have been used with appropriate adaptations; • held-for-trading securities: market value at the reporting date has been used.

The following table analyzes by maturity the book value at December 31, 2006 of the company's financial instruments that are exposed to interest rate risk:

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FLOATING RATE <1 year >1<2 >2<3 >3<4 >4<5 >5 Total 0,0 Loans (1) (0,5) (35,8) (36,3) Other borrowing positions (97,8) (97,8) Bank overdrafts (3,1) (3,1) Total liabilities (101,4) 0,0 0,0 0,0 (35,8) 0,0 (137,2) Cash 197,6 197,6 Other lending positions 263,9 263,9 Investment funds 23,9 23,9 Total assets 485,4 0,0 0,0 0,0 0,0 0,0 485,4 TOTAL floating 384,0 0,0 0,0 0,0 (35,8) 0,0 348,2

(1) The following interest rate derivatives have been taken out to hedge the company's borrowing positions: interest rate caps totaling €30 million (€30 million at December 31, 2005).

RCS MediaGroup does not have any fixed-rate lending or borrowing positions.

Interest rate derivatives mature as follows:

The fair value of derivatives at December 31, 2006 is not material and includes the recognition of the option to buy 1% of Dada's share capital to be exercised on November 30, 2008 at a price of €2.9 million.

Average rates on financial positions at December 31, 2006 are reported below. The rate of return on investments includes the return on investment funds, particularly those invested in short-term financial instruments and in hedge and similar funds.

30. Share capital and reserves Share capital is made up of 732,669,457 ordinary shares and 29,349,593 savings shares with a par value of €1.00 each and all of which are fully paid up.

At December 31, 2006 the company owned 19,430,225 ordinary treasury shares, worth €61.7 million, corresponding to an average carrying value of €3.175 each and representing 2.65% of ordinary share capital and 2.55% of total share capital. There have been no changes relative to December 31, 2005.

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The main features of the two classes of share making up share capital are summarized as follows:

• The ordinary shares carry full voting rights. They entitle their owners to attend ordinary and extraordinary shareholders' meetings and to participate in the apportionment of net income and net assets, if the company is wound up. These shares are registered shares.

• The savings shares do not carry any voting rights or right to attend ordinary and extraordinary shareholders' meetings, but are entitled to share in net assets under the conditions, limits, procedures and terms summarized in the company's by-laws. These shares are entitled to a minimum guaranteed dividend (annual minimum dividend of 5% of par value) which shall nonetheless be 2% higher than that paid to the ordinary shares. If the company does not distribute any earnings, the owners of savings shares are entitled to receive the minimum dividend in the two subsequent years. If the company is wound up, these shareholders shall have priority in the repayment of capital over the ordinary shareholders. In the event of capital increases, the owners of these shares may exercise rights to subscribe to shares of the same kind. Savings shares are bearer shares.

The nature and purpose of the equity reserves is summarized below:

• Other equity instruments: these reflect the amounts accruing in respect of the group's stock option plans;

• Share premium reserve: this represents a capital reserve that contains sums received by the company for issuing shares at a price above their par value;

• Legal reserve: this reserve is increased through the compulsory allocation of at least one-twentieth of net annual income, until reaching an amount corresponding to one-fifth of share capital;

• Treasury shares: these are deducted from the company's capital and reserves;

• Valuation reserve: this primarily includes the effects recognized directly in equity of the fair value measurement of financial instruments. The undistributable amount of this reserve is €59.7 million;

• Carried forward earnings (losses): these include the results from prior years after distributing dividends and the reserve for treasury shares, which has been reclassified in accordance with IAS 32.

Details of and movements during the year in the equity reserves can be found in the statement of changes in capital and reserves.

Details of monetary dividends per share declared and paid in the year and the dividends being submitted for shareholder approval are contained in note 40 to the consolidated financial statements, as well as in the proposed resolutions.

31. Provisions for employee benefits

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These include the actuarial value of the company's effective payable to all employees calculated using the methods envisaged by IAS 19.

Employee termination indemnities (€2.5 million) represent a type of employee remuneration, whose payment is deferred until termination of employment. This indemnity accumulates in proportion to the length of service and represents an additional employment cost for the company.

The executive termination benefits (€0.3 million) refer to the payment due under the national contract for newspaper-industry executives, calculated on the basis of length of service and based on the employee's remuneration in the last twenty-four months. Payment of this amount is deferred until termination of employment.

The actuarial valuation of these provisions has been performed by independent actuaries.

The amounts booked to the income statement in respect of the above employee benefits are as follows:

The principal actuarial assumptions used for the calculation are as follows:

32. Provisions for risks and charges

Movements during the period were as follows:

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The utilizations of these provisions refer to the legal disputes provision, after settling disputes dating back to prior years (€2.9 million), to the current portion of provisions for risks following continued corporate reorganization during 2006 (€0.9 million), and to the non-current portion of provisions for risks in relation to the redevelopment of the site in Via Rizzoli, Milan (€0.5 million). In compliance with international accounting standards, the non-current portion of these provisions has been discounted to take account of the implicit financial component using a rate of 4.135%.

33. Other non-current liabilities

This balance, totaling €2.2 million (€2.7 million at December 31, 2005), refers to amounts payable under operating leases for certain buildings used by the company. The decrease of €0.5 million on the prior year relates to the reclassification of part of this payable to other current liabilities.

34. Trade payables

Trade payables have decreased by €1.2 million since December 31, 2005, reflecting a reduction of €1.6 million in amounts due to third-party suppliers, as partially offset by an increase in trade payables to subsidiaries.

The book value of trade payables, usually settled at 120 days, reflects their fair value.

35. Other current payables and liabilities

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The decrease of €1.8 million in "other current payables and liabilities" is basically due to the reduction in amounts owed to employees after paying out €2.4 million for part of the non-compete agreement made with the Chief Executive Officer in the wake of the top management changes in 2004, and to the lower amount of employee bonuses earned in the year (-€0.9 million). This change has been partially offset by the increase in sundry payables to group companies (€1.1 million at December 31, 2006), relating to the transfer of the VAT credit by subsidiaries belonging to the VAT tax group, combined with other increases in taxes payable and sundry payables to third parties.

The book value of these payables reflects their fair value.

36. Grant of stock options

Details of stock option plans and a breakdown by company can be found in note 48 to the consolidated financial statements. The overall cost of stock options granted to senior managers of RCS MediaGroup was €0.8 million in 2006. Details of the stock options granted to the Chief Executive Officer in his capacity as Chief Operating Officer are shown below:

(1): in office until September 12, 2006 (2): in office from September 12, 2006

37. Increase (decrease) in provisions for employee benefits and for risks and charges

This excludes the effect of discounting these provisions to present value in 2006 (€0.1 million), which, being a non-monetary item has also been reversed out of net financial income (charges), and the effect of releasing the discounts booked in the past after utilizing the full amount of the provisions for which they had been recognized (€0.3 million).

38. Changes in working capital

This amounts to €19.6 million and excludes the reclassification of payables for capital expenditure made in 2006 but not yet paid in cash, as well as receivables relating to interest on tax refunds not yet received. The following table provides a breakdown of the changes in working capital:

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39. Purchase of equity investments

This amounts to €17.5 million (-€39.8 million in 2005) and refers to outlays to purchase shares in San Paolo- Imi (€53.8 million), an additional interest in Dada (€8.6 million), 10% of Adelphi (€1.6 million) and the shares in RCS Investimenti (€1 million), as well as payments for capital increases by RCS Broadcast (€12 million) and RCS Produzioni (€1.6 million). The cash absorbed by these investments was more than offset by the parent company's dividend receipts from its equity investments (€96.1 million).

40. Purchase of property, plant and equipment and intangible assets

This refers to capital expenditure made in the year (€3.6 million), as adjusted for purchases not causing any change in cash flow. The capital expenditure reported in the balance sheet is reconciled to that included in the cash flow statement as follows:

41. Proceeds from the sale of equity investments

These refer to the sum of €125.9 million collected upon the sale of part of the Banca Intesa shares.

42. Net change in financial payables and other financial assets

This amounts to €25.4 million, most of which refers to financial payables owed to group companies. As required by international accounting standards, bank overdrafts form part of the change in cash and cash equivalents.

The reconciliation with the changes in the net financial position is provided below:

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43. Net interest received

The amount of €13.4 million refers to net financial income (charges) as adjusted to exclude non-monetary movements during the year. This figure is reconciled with the amount reported in the income statement as follows:

44. Commitments and contingencies

The principal guarantees given are listed below:

• Sureties given amount to €1 million and have decreased by €89.1 million since December 31, 2005 mainly as a result of discharging the surety issued by a major bank to CONSOB against performance of the obligation to pay the maximum consideration under the bid for Dada's shares launched at the end of December 2005. The balance at December 31, 2006 mostly relates to sureties given to the company Iniziative Immobiliare Due in respect of property leases.

• Other unsecured guarantees amount to €151.3 million; they include €90.4 million in guarantees given to the tax authorities on behalf of subsidiaries for VAT credits offset under the group VAT settlement for the years 2003, 2004, and 2005, and €59.3 million in guarantees given to the subsidiary RCS Livres, in relation to medium-term borrowing positions.

• Commitments amount to €2 million, of which €1.8 million relates to contractual commitments relating to personnel.

• Third-party assets held by the company, amounting to €465.4 million, relate to the shares belonging to the shareholder syndicate placed under RCS MediaGroup's management. These shares have been deposited at Monte Titoli.

• The main operating leases refer to building rentals and company vehicles. The amount of outstanding lease payments still owed by the parent company at December 31, 2006 for non-cancelable operating leases is as follows:

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Construction is in progress of a building overlooking Via Rizzoli, for which the company has signed a lease agreement effective from the date of release of this building which will be used to house part of the group's offices in Milan. This contract will last for 24 years.

The company expects to collect a total of €19 million in the future from sub-letting the buildings in Via Rizzoli, Milan and Viale Rossini, Rome.

Milan, March 16, 2007 on behalf of the Board of Directors:

Chairman Piergaetano Marchetti

Chief Executive Officer Antonio Perricone

190

ATTACHMENTS

191

REPORT ON THE TRANSITION TO IAS/IFRS BY THE PARENT COMPANY RCS MEDIAGROUP S.P.A.

192

The following is an extract from the "Report on the transition to IAS/IFRS" attached to the Half-year Report at June 30, 2006 to which the reader should refer for the full text.

TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS

In compliance with Decree 38 of February 28, 2005, as from financial year 2006 all companies with shares listed on organized markets within the European Union must prepare their individual financial statements in accordance with the international accounting and reporting standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB) and approved by the EU.

RCS MediaGroup S.p.A. has accordingly adopted IAS/IFRS for its individual financial reporting as from the start of 2006.

The company has adopted January 1, 2005 as the date of transition to IAS/IFRS. RCS MediaGroup S.p.A. has made the same elections required by IFRS 1 for the purposes of transition of its individual financial statements as those adopted for the transition of its consolidated financial statements on January 1, 2004. The other IFRS have been applied to the financial statements of RCS MediaGroup S.p.A. using the same criteria adopted by the parent company for preparing its post-transition consolidated financial statements.

As required by CONSOB communication DEM/6064313 of July 28, 2006, the parent company's financial statements contained in the Half-year Report at June 30, 2006 are accompanied by the information required in paragraphs 39 and 40 of IFRS 1, along with explanatory notes on the method of preparation and the reconciling items.

Accordingly, this report contains:

• reconciliations between equity and results for the period under the previous accounting standards and those under the new standards, together with related explanatory notes: - at the start of the first comparative period prepared under IAS/IFRS, namely January 1, 2005; - for the period presented for comparative purposes, namely the year ended December 31, 2005.

• comments on the principal changes in net debt following the introduction of the new accounting standards;

• the balance sheet at January 1, 2005, together with the balance sheet and income statement at December 31, 2005, reconciled with the figures previously reported under Italian GAAP;

• the international accounting standards and policies adopted by the company commencing from the transition date.

The report on the transition to international accounting standards at January 1, 2005 and December 31, 2005 has been submitted to a full audit by the accounting firm of Reconta Ernst & Young S.p.A..

The financial statements and reconciliations have been prepared solely for the purpose of drawing up the first complete set of financial statements at December 31, 2006 under the IAS/IFRS approved by the European Commission. They therefore lack comparative figures and the necessary explanatory notes required to provide complete information on the company's balance sheet, financial position and results at these dates, in accordance with IAS/IFRS.

193

APPLICATION OF INTERNATIONAL ACCOUNTING STANDARDS

For the purposes of the transition of the individual financial statements of RCS MediaGroup S.p.A. to international accounting standards the company has made the following elections allowed by IFRS 1:

• Classification and measurement of financial assets and liabilities: RCS MediaGroup S.p.A. has taken up the option to postpone the transition date and hence the adoption of IAS 32 and IAS 39 to January 1, 2005; • Business combinations: RCS MediaGroup S.p.A. has decided not to apply IFRS 3 retrospectively to business combinations completed before the IFRS transition date.

Property, plant and equipment and intangible assets, as well as investment property, have been valued at cost and depreciated/amortized under the option allowed by IAS 16, IAS 38 and IAS 40 as an alternative to the fair value model. As regards provisions for employee benefits, RCS MediaGroup has decided not to adopt the corridor method and to recognize all the actuarial gains and losses in the income statement after the first-time adoption of IAS 19 on January 1, 2004.

RCS MediaGroup S.p.A. has prepared a balance sheet at the transition date of January 1, 2005 in which:

• all assets and liabilities have been recognized using the new standards; • all assets and liabilities have been recorded at the values that would have arisen if the IAS/IFRS had been applied retrospectively (apart from the exceptions detailed above); • line items within the financial statements have been reclassified to reflect the new reporting format.

The post-tax effects of the change in opening asset and liability balances have been recorded directly in the special IAS transition reserve forming part of equity.

194

EFFECTS OF THE TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS ON EQUITY AT JANUARY 1, 2005

The table below reconciles the company's equity at January 1, 2005 and is followed by a series of explanatory notes. The individual reconciling items are reported before tax, which is reported and discussed as a single amount.

Reconciliation of equity at January 1, 2005

(€/thousands) Jan-01-2005

Equity at December 31, 2004 1,128,851

1. Reversal of dividends in kind (7,261) 2. Reversal of writedown provision for equity investments carried at cost 3,000 3. Reversal of accumulated depreciation for land in Via Solferino 2,525 4. Reversal of depreciation charge for land in Via Solferino 804 5. Actuarial value of employee termination indemnities and fixed indemnity for executives 593 6. Present value of provisions for risks 770 7. Reclassification of treasury shares (85,042) 8. Fair v alue measurement of available-for-sale financial assets 71,002 9. Valu a tion of derivatives (158) 10. Deferred taxes on IAS/IFRS adjustments (2,612)

Equity at Jan uary 1, 2005 under IAS/IFRS 1,112,472

1. Reversal of dividends in kind (IAS 18): under the former accounting standards adopted by the company, income from equity investments included the grant of bonus shares by Banca Intesa S.p.A., through the distribution of a "dividend in kind". This income, amounting to €7,261 thousand, has been reversed on the transition to IAS/IFRS. Since it does not give rise to any cash consideration, it is not recognizable under IAS 18. This adjustment has had a negative impact of the same amount on the company's equity.

2. Reversal of writedown provision for equity investments carried at cost (IAS 27 and 28): as established by IAS 27 and IAS 28, equity investments in subsidiaries and associates may be valued at cost or in compliance with IAS 39. RCS MediaGroup S.p.A. has decided to adopt the cost model. Accordingly, all the equity investments in subsidiaries and associates were tested for impairment at the transition date. If the test supported the historic cost of these investments, the writedown provisions booked under the former accounting principles were reversed. This method of valuation has involved reversing a writedown provision of €3,000 thousand at the transition date.

3. Reversal of accumulated depreciation for land in Via Solferino (Milan) (IAS 40): during 2004 RCS MediaGroup S.p.A. absorbed Immobiliare Solferino 28 S.r.l., owner of the property in Via Solferino. This property is leased to RCS Quotidiani at an indexed annual rent, and, under the former accounting standards, was depreciated on a straight-line basis at a rate of 2% per annum, reflecting the asset's remaining useful life. Following the introduction of international accounting standards, this property, being unrelated to the company's business, has been reclassified as an "Investment property" and the accumulated depreciation at January 1, 2004 relating to the land on which it stands has been reversed. This adjustment, made during 2004, has increased equity by €2,525 thousand.

4. Reversal of depreciation charge for land in Via Solferino (Milan) (IAS 40): in compliance with IAS 40, the value of land included in an investment property must no longer be depreciated. RCS MediaGroup has therefore reversed the depreciation charge for 2004, with a resulting increase in equity of €804 thousand before tax.

195

5. Actuarial value of employee termination indemnities and fixed indemnity for executives (IAS 19): under the previous accounting standards, the liabilities relating to personnel-related provisions were recognized at face value, in accordance with statutory rules in force at period end. According to IAS 19, the provision for employee termination indemnities and the fixed indemnity, paid to newspaper executives by contract, fall into the category of post-employment defined-benefit plans and must be valued on an actuarial basis. This valuation, performed by independent experts, has involved increasing equity by €593 thousand.

6. Present value of provisions for risks (IAS 37): liabilities whose financial outlay extends beyond one year must be discounted to present value. Opening equity has been increased by €770 thousand as a result.

EFFECTS OF ADOPTING IAS 32 AND IAS 39

7. Reclassification of treasury shares: under the former accounting standards treasury shares were recorded under non-current assets. The equity accounts included a corresponding undistributable "Reserve for treasury shares". According to IAS 32, treasury shares must be recorded as a direct deduction from equity, while the reserve for treasury shares, reported under the former accounting policies, must be reclassified to "Earnings (losses) carried forward". This different accounting treatment has produced a reduction of €85,042 thousand in equity at January 1, 2005 after reclassifying a corresponding amount of treasury shares from non-current assets.

8. Fair value measurement of available-for-sale financial assets: securities and investments, which are not investments in subsidiaries or associates or assets held for trading, are classified under IAS 39 as "available for sale" and measured at fair value. The gain or loss arising from this valuation is booked to a special reserve under equity. At the time of adopting IAS 32 and IAS 39, this valuation produced an increase of €71,002 thousand in the company's equity, recorded under the reserve for changes in accounting policy and adjustments, and mostly referring to the fair value measurement of the investments in listed companies and securities.

9. Valuation of derivatives: the company's equity reports a pre-tax decrease of €158 thousand as a result of measuring the fair value of outstanding derivatives at January 1, 2005.

10. Deferred taxes on IAS/IFRS adjustments: these mostly refer to the tax effect of the valuation of securities classified as current financial assets.

196

Reconciliation of the balance sheet at January 1, 2005

(€/thousands) Italian GAAP Net effect of IAS/IFRS Jan- Reclassifications Adjustments Dec-31-2004 transition 1-2005 ASSETS

A) NON-CURRENT ASSETS 953,639 ( 88,042) 64,277 ( 23,765) 92 9,874 Property, plant and equipment 91,190 ( 90,248) 1 ( 90,247) 943 Investment property - 90,333 3,328 93,661 93,661 Intangible assets 85 ( 85) ( 85) - Equity investments carried at cost 479,537 ( 3,000) 3,000 - 479,537 Available-for-sale financial assets 261,923 57,851 57,851 31 9,774 Financial assets recognized for derivatives - 57 57 57 Non-current financial receivables 106,114 ( 85,042) ( 85,042) 21,072 Deferred tax assets 14,762 40 40 14,802 Other non-current assets 28 - 28

B) CURRENT ASSETS 425,392 5,675 5,675 431,067 Inventories - - Trade receivables 11,013 - 11,013 Other current receivables and assets 7,757 ( 221) ( 221) 7,536 Current tax assets 117,261 - 11 7,261 Current financial assets recognized for derivatives - 6 6 6 Current financial receivables 288,934 5,890 5,890 29 4,824 Cash and cash equivalents 427 - 427

C) NON-CURRENT ASSETS HELD FOR SALE TOTAL ASSETS (A+B+C) 1,379,031 ( 88,042) 69,952 ( 18,090) 1,360,941

EQUITY AND LIABILITIES

A) EQUITY 1,128,851 ( 85,042) 68,663 ( 16,379) 1,112,472 Share capital 762,019 - 762,019 Other equity instruments - - - R eserves 308,682 ( 85,042) ( 9,878) ( 94,920) 2 13,762 Earnings (losses) carried forward - 85,042 85,042 85,042 Net income (loss) for the year 58,150 ( 6,501) ( 6,501) 51,649

B) NON-CURRENT LIABILITIES 58,175 ( 5,226) 1,289 ( 3,937) 54,238 Non-current financial payables 36,675 - 3 6,675 Non-current financial payables recognized for derivatives - - - Provisions for employee benefits 2,751 ( 593) ( 593) 2,158 Provisions for risks and charges 18,749 ( 8,731) ( 770) ( 9,501) 9,248 Deferred tax liabilities - 2,652 2,652 2,652 Other non-current payables and liabilities - 3,505 3,505 3,505

C) CU RRENT LIABILITIES 192,005 2,226 2,226 19 4,231 B ank loans and borrowings 16,360 - 16,360 Current financial payables 121,670 - 121,670 Current financial payables recognized for derivatives - - Current tax liabilities 25,870 - 2 5,870 Trade payables 10,984 - 1 0,984 Current portion of provisions for risks and charges - 475 475 475 Other current payables and liabilities 17,121 1,751 1,751 18,872

D) LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE TOTAL LIABILITIES (B+C+D) 250,180 ( 3,000) 1,289 ( 1,711) 248,469 TOTAL EQUITY AND LIABILITIES (A+B+C+D) 1,379,031 ( 88,042) 69,952 ( 18,090) 1,360,941

197

EFFECTS OF THE TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS ON EQUITY AND RESULTS AT DECEMBER 31, 2005

As required by IFRS 1, the following table reconciles the company's equity and results at December 31, 2005. The individual reconciling items are reported before tax, which has been reported as a single amount.

Reconciliation of equity and results at December 31, 2005

(€/thousands) Changes Net income (loss) Equity DESCRIPTION recognized in for the year at Dec-31-2005 equity

Under Italian GAAP 123.899 1.199.411

1. Reversal of dividends in kind (7.261) 2. Reversal of writedown provision for equity investments carried at cost 3.000 3. Reversal of accumulated depreciation for land in Via Solferino 2.525 4. Reversal of depreciation charge for land in Via Solferino 894 1.698 5. Actuarial value of employee termination indemnities and fixed indemnity for executives (278) (2) 313 6. Present value of provisions for risks (35) 735 7. Reclassification of treasury shares (61.698) (61.698) 8. Fair value measurement of available-for-sale financial assets 79.711 79.711 9. Valuation of derivatives 12 (60) (146) 10. Adjustments to value of equity investments (24.267) (1.225) (25.492) 11. Share-based payment (200) 660 460 12. Deferred taxes on IAS/IFRS adjustments (245) (3.954) (5.822)

Under IAS/IFRS 99.780 13.432 1.187.434

The principal IAS/IFRS adjustments are summarized as follows:

1. Reversal of dividends in kind (IAS 18): there are no changes to report at December 31, 2005 relative to those discussed earlier.

2. Reversal of writedown provision for equity investments carried at cost (IAS 27 and 28): there are no changes to report at December 31, 2005 relative to those discussed earlier.

3. Reversal of accumulated depreciation for land in Via Solferino (Milan) (IAS 40): there are no changes to report at December 31, 2005 relative to those discussed earlier.

4. Reversal of depreciation charge for land in Via Solferino (Milan) (IAS 40): the depreciation charge relating to the land forming part of the investment property has been reversed at December 31, 2005, producing an increase of €894 thousand in net income for the year.

5. Actuarial value of employee termination indemnities and fixed indemnity for executives (IAS 19): the actuarial calculation of these provisions for post-employment benefits has had a negative impact of €278 thousand on net income for the year; this is due to the charge of €219 thousand resulting from the actuarial calculation of the fixed indemnity for newspaper executives and the recognition of actuarial losses of €59 thousand arising on employee termination indemnities. The overall impact of the actuarial calculation on equity at December 31, 2005 is an increase of €313 thousand.

6. Present value of provisions for risks (IAS 37): the discounting of the provisions for risks to present value has resulted in an adjustment of €35 thousand to net income at December 31, 2005. This adjustment mostly refers to recognition of the portion pertaining to 2005 of the implicit financial component reversed at January 1, 2005. Equity reports an increase of €735 thousand at December 31, 2005.

198

7. Reclassification of treasury shares (IAS 32): as required by IAS 32, treasury shares have been reclassified as a deduction from the company's equity, while the reserve for treasury shares has been reclassified to "Earnings (losses) carried forward". The effect of this reclassification is to decrease equity by €61,698 thousand at December 31, 2005; this decrease is €23,344 thousand lower than the impact at January 1, 2005 (first-time adoption date of IAS 32 and IAS 39). The reduction in this impact is due to the bonus distribution of treasury shares by way of a dividend during 2005.

8. Fair value measurement of available-for-sale financial assets (IAS 39): the fair value measurement of equity investments and securities traded on an active market, classified under current and non-current assets as "available for sale", has had the effect of increasing equity by €79,711 thousand, of which €5,485 thousand relates to securities classified as current assets and €76,014 thousand relates to investments classified as non-current assets. These remeasurements have been partially offset by the release of part of the fair value reserve recognized on January 1, 2005 after certain equity investments were sold.

9. Valuation of derivatives (IAS 39): the company's results report a pre-tax increase of €12 thousand as a result of measuring the fair value of outstanding derivatives at December 31, 2005. The overall impact on the company's equity at the same date is a decrease of €146 thousand.

10. Adjustments to value of equity investments (IAS 39): the effect on net income mostly refers to the reversal of the writeback, carried out under the former accounting standards, to the equity investments in Banca Intesa (€15,839 thousand) and DADA (€7,984 thousand), due to the positive performance of the former's share price in 2005 and the purchase of an additional interest in the latter, as well as other minor adjustments totaling €444 thousand. In addition, the impairment of the investment in Eurogravure is higher under IFRS, causing equity to go down by €1,225 thousand at December 31, 2005. The overall impact on the company's equity at this date is a negative €25,492 thousand.

11. Share-based payment (IFRS 2): in November 2005 the Board of Directors of RCS MediaGroup approved a stock option plan, involving an increase in share capital for cash and the allocation of an initial block of 13,599,416 options to subscribe to an equal number of the company's ordinary shares; these options were granted to some 70 employees of the company and its Italian and foreign subsidiaries. These options may be exercised in specified periods between June 16, 2008 and June 15, 2012. The fair value of the options granted, calculated using the binomial model, is €0.80. In compliance with IFRS 2, RCS MediaGroup has recorded its share of this expense in payroll costs, calculated on the basis of the number of options allocated to its own executives and general managers. This accounting treatment has caused a negative change of €200 thousand in net income for the year, matched by a corresponding increase in the specific equity reserve, resulting in an overall neutral impact on equity at December 31, 2005. In addition, RCS MediaGroup has recorded in "Other equity instruments" the overall cost of the stock options granted to all its subsidiaries, resulting in an increase of €460 thousand in equity, matched in the value of the equity investments in these subsidiaries.

12. Deferred taxes on IAS/IFRS adjustments (IAS 12): this amount summarizes the tax effect of all the adjustments made for the purposes of adopting international accounting standards.

199

EFFECTS ON NET FINANCIAL POSITION AT JANUARY 1, 2005 AND DECEMBER 31, 2005

The following table shows the effect of adopting international accounting standards on net financial position at January 1, 2005 and December 31, 2005.

(€/thousands) Jan-01-2005 Dec-31-2005

Net financial position 115,248 249,455

Fair value measurement of current financial assets 5,890 5,485 Valuation of derivatives 63 10 Reclassification of accrued income and liabilities (647) (33)

Net financial position under IAS/IFRS 120,554 254,917

200

Reconciliation of the balance sheet at December 31, 2005

(€/thousands) Italian GAAP Net effect of Reclassifications Adjustments IAS/IFRS Dec-31-2005 transition ASSETS

A) NON-CURRENT ASSETS 903,173 ( 61,698) 45,965 ( 15,733) 887,440 Property, plant and equipment 88,959 ( 88,286) ( 88,286) 673 Investment property - 88,813 4,222 93,035 93,035 Intangible assets 647 ( 527) ( 527) 120 Equity investments carried at cost 559,442 ( 10,530) ( 10,530) 548,912 Available-for-sale financial assets 185,864 52,462 52,462 238,326 Financial assets recognized for derivatives - 10 10 10 Non-current financial receivables 61,698 ( 61,698) ( 61,698) - Deferred tax assets 5,967 ( 199) ( 199) 5,768 Other non-current assets 596 - 596

B) CURRENT ASSETS 514,663 ( 37,235) 5,329 ( 31,906) 482,757 Inventories - - Trade receivables 4,643 - 4,643 Other current receivables and assets 10,356 ( 156) ( 156) 10,200 Current tax assets 122,572 ( 37,235) ( 37,235) 85,337 Current financial assets recognized for derivatives - - - Current financial receivables 287,818 5,485 5,485 293,303 Cash and cash equivalents 89,274 - 89,274

C) NON-CURRENT ASSETS HELD FOR SALE - - - - - TOTAL ASSETS (A+B+C) 1,417,836 ( 98,933) 51,294 ( 47,639) 1,370,197

EQUITY AND LIABILITIES

A) EQUITY 1,199,411 ( 61,698) 49,721 ( 11,977) 1,187,434 Share capital 762,019 - 762,019 Other equity instruments 660 660 660 Reserves 285,338 ( 123,406) 80,902 ( 42,504) 242,834 Earnings (losses) carried forward 28,155 61,708 ( 7,722) 53,986 82,141 Net income (loss) for the year 123,899 ( 24,119) ( 24,119) 99,780

B) NON-CURRENT LIABILITIES 55,491 ( 5,985) 4,226 ( 1,759) 53,732 Non-current financial payables 35,842 - 35,842 Non-current financial payables recognized for derivatives - - - Provisions for employee benefits 2,658 ( 315) ( 315) 2,343 Provisions for risks and charges 16,991 ( 8,985) ( 735) ( 9,720) 7,271 Deferred tax liabilities - 5,623 5,623 5,623 Other non-current payables and liabilities - 3,000 ( 347) 2,653 2,653

C) CURRENT LIABILITIES 162,934 ( 31,250) ( 2,653) ( 33,903) 129,031 Bank loans and borrowings 15,214 - 15,214 Current financial payables 76,613 - 76,613 Current financial payables recognized for derivatives - Current tax liabilities 53,696 ( 37,235) ( 37,235) 16,461 Trade payables 7,494 - 7,494 Current portion of provisions for risks and charges 5,985 ( 3,140) 2,845 2,845 Other current payables and liabilities 9,917 487 487 10,404

D) LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE - - - - - TOTAL LIABILITIES (B+C+D) 218,425 ( 37,235) 1,573 ( 35,662) 182,763 TOTAL EQUITY AND LIABILITIES (A+B+C+D) 1,417,836 ( 98,933) 51,294 ( 47,639) 1,370,197

201

Reconciliation of the income statement at December 31, 2005

(€/thousands) Italian GAAP Net effect of Reclassifications Adjustments IAS/IFRS Dec-31-2005 transition

A) REVENUES 9,655 - - - 9,655 Distribution revenues - - Advertising revenues - - Other publishing revenues 9,655 - 9,655

B) OPERATING COSTS 25,898 380 478 858 26,756 Increase in assets built internally - - - Change in inventories of work in progress and finished and semi-finished products - - - Raw materials and services consumed 21,518 193 - 193 21,711 Purchase and consumption of raw materials, consumables and goods 420 - 420 Services 13,180 193 193 13,373 Rentals and leasing 7,918 - 7,918 Payroll costs 17,714 478 478 18,192 Other operating income and revenues ( 15,244) ( 81) ( 81) ( 15,325) Other operating costs 1,808 268 268 2,076 Increase in provisions 102 - 102 Impairment of receivables - - -

EBITDA (A-B) ( 16,243) ( 380) ( 478) ( 858) ( 17,101) C) AMORTIZATION, DEPRECIATION AND IMPAIRMENT 2,282 - ( 894) ( 894) 1,388 Amortization of intangible assets 22 ( 14) ( 14) 8 Depreciation of property, plant and equipment 2,260 14 ( 894) ( 880) 1,380 Impairment of fixed assets - - -

EBIT (A-B-C) ( 18,525) ( 380) 416 36 ( 18,489) Net financial income (charges) 8,869 191 ( 23) 168 9,037 Other income (charges) from financial assets/liabilities 65,038 42,593 ( 24,267) 18,326 83,364 EARNINGS BEFORE TAX 55,382 42,404 ( 23,874) 18,530 73,912 Extraordinary income 45,546 ( 45,546) ( 45,546) - Extraordinary charges ( 570) 570 570 - NET EXTRAORDINARY ITEMS 44,976 ( 44,976) - ( 44,976) - Income taxes 23,541 2,572 ( 245) 2,327 25,868 NET INCOME (LOSS) FROM CONTINUING OPERATIONS 123,899 - ( 24,119) ( 24,119) 99,780 Net income (loss) from discontinuing operations - NET INCOME (LOSS) FOR THE PERIOD 123,899 - ( 24,119) ( 24,119) 99,780

202

LIST OF GROUP EQUITY INVESTMENTS

203

RCS GROUP – LIST OF EQUITY INVESTMENTS AT DECEMBER 31, 2006

Companies consolidated line-by-line

%% HEAD SHARE CONSOLIDATED held COMPANY NAME OFFICE BUSINESS CURRENCY CAPITAL BY GROUP HELD BY directly

Dada S.p.A. Florence Multimedia Euro 2.714.569 44,24 RCS MediaGroup SpA 44,24 GFT NET SpA Turin Apparel Euro 900.000 100,00 RCS MediaGroup SpA 100,00 RCS Broadcast SpA Milan Radio Euro 24.270.735,24 98,99 RCS MediaGroup SpA 98,99 RCS Factor S.p.a. Milan Publishing Euro 2.000.000 90,00 RCS MediaGroup SpA 90,00 RCS Investimenti SpA Milan Investment holding Euro 39.129.066 99,52 RCS MediaGroup SpA 99,52 RCS International Magazines B.v. Amsterdam Publishing Euro 2.300.000 100,00 RCS MediaGroup SpA 100,00 RCS Libri S.p.a. Milan Publishing Euro 42.405.000 99,99 RCS MediaGroup SpA (1) 99,99 RCS Periodici S.p.a. Milan Publishing Euro 5.000.000 100,00 RCS MediaGroup SpA 100,00 RCS Produzioni Spa Milan Services Euro 1.000.000 100,00 RCS MediaGroup SpA 100,00 RCS Pubblicità SpA Milan Advertising Euro 40.000.000 100,00 RCS MediaGroup SpA 100,00 RCS Quotidiani SpA. Milan Publishing Euro 40.000.000 100,00 RCS MediaGroup SpA 100,00 Adelphi Edizioni S.p.a. Milan Publishing Euro 1.040.000 57,99 RCS MediaGroup SpA 10,00 RCS Libri S.p.a. 48,00

Companies in the RCS QUOTIDIANI Group Arlanza Ediciones S.a. Madrid Publishing Euro 375.000 72,07 Unidad Editorial S.a. 75,00 Canal Mundo Ficcion S.l. Madrid Television Euro 3.060 72,07 Canal Mundo Producciones Audiovisuales S.a. 100,00 Canal Mundo Producciones Audiovisuales S.a. Madrid Television Euro 80.270,68 72,07 Unidad Editorial S.a. 75,00 Canal Mundo Radio Cataluna S.L. Madrid Radio Euro 3.010 96,08 Unidad Editorial S.a. 99,99 Canal Mundo Radio Extremadura S.l. Madrid Radio Euro 3.913 96,08 Unidad Editorial S.a. 99,99 City Italia S.p.a. Milan Publishing Euro 3.100.230 100,00 RCS Quotidiani SpA. 100,00 City Milano S.p.a. Milan Publishing Euro 100.000 90,00 City Italia Spa 90,00 Consorzio Milano Marathon s.c.a.r.l. Milan Services Euro 20.000 60,00 RCS Sport S.p.a. 60,00 Ediservicios Madrid 2000 S.l.U. Madrid Publishing Euro 601.000 96,09 Unidad Editorial S.a. 100,00 Editora De Medios De Castilla Y Leon S.a. Valladolid Publishing Euro 1.668.300 76,04 Unidad Editorial S.a. 79,13 Editora De Medios De Valencia, Alicante Y Castellon S Valencia Publishing Euro 1.322.200 58,56 Unidad Editorial S.a. 59,64 Fabripress S.a. 1,30 Editorial Del Pueblo Vasco S.a. Bilbao Publishing Euro 2.193.900 96,09 Unidad Editorial S.a. 100,00 Editoriale Veneto S.r.l. Padua Publishing Euro 1.840.000 51,00 RCS Quotidiani SpA. 51,00 La Esfera dos Libros S.l.U. Lisbon Publishing Euro 5.000 72,07 La Esfera de los Libros 100,00 Fabripress S.a.u. Madrid Publishing Euro 961.600 96,09 Unidad Editorial S.a. 100,00 Impresiones De Catalunya S.a. Barcelona Publishing Euro 3.000.000 96,04 Unidad Editorial S.a. 90,30 Fabripress S.a.u. 9,65 La Esfera De Los Libros S.l. Madrid Publishing Euro 48.000 72,07 Unidad Editorial S.a. 75,00 Logintegral 2000 S.a.u. Madrid Publishing Euro 500.000 96,09 Unidad Editorial S.a. 100,00 Mundinteractivos S.a.u. Madrid Multimedia Euro 3.600.000 96,09 Unidad Editorial S.a. 100,00 Omni S.l.U. Palma De Mallorca Publishing Euro 156.260 64,06 Rey Sol S.a. 100,00 Rey Sol S.a. Palma De Mallorca Publishing Euro 1.330.172 64,06 Unidad Editorial S.a. 66,67 RCS Editori SpA Milan Services Euro 100.000 100,00 RCS Quotidiani SpA. 100,00 RCS Digital Spa Milan Publishing Euro 500.000 100,00 RCS Quotidiani SpA. 100,00 RCS International Newspapers B.v. Amsterdam Publishing Euro 6.250.000 100,00 RCS Quotidiani SpA. 100,00 RCS Sport S.p.a. Milan Publishing Euro 100.000 100,00 RCS Quotidiani SpA. 100,00 Unedisa Producciones Baleares S.L.U. Palma De Mallorca Television Euro 3.060 72,07 Canal Mundo Producciones Audiovisuales S.a. 100,00 Unedisa Telecomunicaciones Baleares S.a Madrid Multimedia Euro 1.200.000 96,09 Unedisa Telecomunicaciones S.L 100,00 Unedisa Comunicaciones S.L.U. Madrid Multimedia Euro 2.410.000 96,09 Unidad Editorial S.a. 100,00 Unedisa Telecomunicaciones S.L.U. Madrid Multimedia Euro 1.100.000 96,09 Unidad Editorial S.a. 100,00 Unedisa Telecomunicaciones de Levante Valencia Multimedia Euro 3.010 49,16 Unedisa Telecomunicaciones S.L.U. 51,16 Unidad Editorial S.a. Madrid Publishing Euro 40.363.638 96,09 RCS International Newspapers B.v. 96,09 Unidad de Producción de Andalucía Seville Multimedia Euro 3.060 72,07 Canal Mundo Producciones Audiovisuales S.a. 100,00

Companies in the DADA group Business Engineering S.r.l. Pistoia Multimedia Euro 21.800 22,12 Softec SpA 100,00 Register S.p.A. Bergamo Multimedia Euro 1.913.477 42,93 Dada SpA (2) 100 Cotei SL Barcelona Multimedia Euro 23.128 29,53 Register.it S.p.A. 66,75 Nominalia S.L. Barcelona Multimedia Euro 3.005 22,15 Register.it S.p.A. 75,00 Softec S.p.A. Pistoia Multimedia Euro 300.000 22,12 Dada SpA 50,00 WebNet S.r.l. Sesto Fiorentino (FI) Multimedia Euro 20.800 22,12 Softec SpA 100,00 DadaMobile S.p.A. Florence Multimedia Euro 9.933.000 44,24 Dada SpA 100,00 Clarence S.r.l. Florence Multimedia Euro 21.000 44,24 DadaMobile SpA 100,00 Dada Brasil Serviços de Tecnologia Ltda Sao Paolo (Brazil) Multimedia BRL 163.000 44,24 DadaMobile SpA 98,00 Dada USA Inc 2,00 Dada USA Inc New York (USA) Multimedia USD 100 44,24 DadaMobile SpA 100,00 Tipic Inc. New York (USA) Multimedia USD 1.000 44,24 Dada USA Inc 100,00 Upoc Networks Inc. New York (USA) Multimedia USD 17.248 44,24 Dada USA Inc 100,00 Notes (1) Percentage refers to total share capital. Share of ordinary capital held: 100% (2) Total percentage also includes the 10% held by the company itself in treasury shares.

204

Companies consolidated line-by-line (cont'd)

205

Companies valued using the equity method

% HEAD SHARE held COMPANY NAME OFFICE BUSINESS CURRENCY CAPITAL HELD BY directly

Eurogravure S.p.a. Bergamo Publishing Euro 24.492.374,92 RCS MediaGroup SpA 30,00 Inimm Due S.à.r.l. Luxembourg Real estate Euro 240.950 RCS MediaGroup SpA 20,00 M-Dis Distribuzione Media SpA Milan Publishing Euro 6.392.727 RCS MediaGroup SpA 45,00

Companies equity accounted by the RCS QUOTIDIANI group Calprint S.l. Valladolid Publishing Euro 1.856.880 Unidad Editorial S.a. 39,58 Comercial de Prensa Siglo XXI S.a. Madrid Publishing Euro 601.000 Unidad Editorial S.a. 20,00 Difernet S.l. Madrid Multimedia Euro 4.320 Munditeractivos S.a. 33,00 Ediciones Periodisticas Leonesas (Propelesa) S.a. Leon Publishing Euro 691.150 Unidad Editorial S.a. 10,00 Editoriale Del Mezzogiorno S.r.l. Naples Publishing Euro 866.360 RCS Quotidiani SpA. 48,92 Ediciones Reunitel S.l. Madrid Publishing Euro 548.700,01 Unidad Editorial S.a. 50,00 Edi.T.A.A. S.r.l. Trento Publishing Euro 600.000 RCS Quotidiani SpA. 50,00 Omniprint S.A. Santa Maria del Cami Publishing Euro 2.790.000 Rey Sol S.a. 45,00 Red De Distribuciones Editoriales S.l. Baleari Publishing Euro 176.829,78 Unidad Editorial S.a. 30,00 Veo Television S.a. Madrid Television Euro 27.328.752 Unidad Editorial S.a. 27,68

Companies equity accounted by the RCS LIBRI group Actes Sud Participation S.a. Arles Publishing Euro 3.408.134,00 Flammarion S.a 35,40 Editions J'ai lu S.a. 11,60 Call Centre Factory Sarl Jullian Telemarketing Euro 10.000 Ge Fabbri Ltd. 20,00 Data Base Factory Sarl Paris Publishing Euro 90.354 Ge Fabbri Ltd. 20,00 Data Base Factory Ltd London Publishing GBP 1.000 Ge Fabbri Ltd. 20,00 Mail order Factory France Paris Publishing Euro 10.000 Ge Fabbri Ltd. 20,00 Fédération Diffusion S.a.r.l. Paris Publishing Euro 7.623 Ud-Union Distribution S.a.s. 20,00 Garamond S.r.l. Rome Publishing Euro 10.000 RCS Libri S.p.a. 50,00 Livres Diffusion Sas Ivry Sur Seine Publishing Euro 39.000 Ud-Union Distribution S.a.s. 33,33 White Bird Production Courbevoire Publishing Euro 307.500 Editions Casterman S.a. 44,40 Mach 2 Libri S.p.a. Peschiera B. Publishing Euro 646.250 RCS Libri S.p.a. 20,00 R.L. Libri S.r.l. Milan Publishing Euro 250.000 RCS Libri S.p.a. 50,00 Rba Fabbri France S.a.r.l. Paris Publishing Euro 50.000 Editions Fabbri S.a.r.l. 50,00 Socadis Ltée St Laurent Publishing CAD 40.000 Editions Flammarion Ltée 50,00 Ge Eaglemoss London Publishing GBP 1.000 Ge Fabbri Ltd. 50,00 Ge Eaglemoss ( China) Bejing Publishing RMB 4.047.000 Ge Eaglemoss 100,00

Companies equity accounted by the RCS PUBBLICITA' group ADR Advertising SpA Fiumicino Advertising Euro 1.000.000 IGP-Decaux S.p.a. (5) 74,50 IGP-Decaux S.p.a. Milan Advertising Euro 11.085.783 RCS International Advertising B.v. 67,65 Media Alpi S.r.l. Trento Advertising Euro 10.000 RCS Pubblicità SpA 50,00 Pubblisuccesso Lombardia S.r.l. (in liquidation) Milan Advertising Euro 312.000 IGP-Decaux S.p.a. 100,00 Publitransport GTT S.r.l. Turin Advertising Euro 100.000 IGP-Decaux S.p.a. 49,00 Ser.com S.p.a. Florence Advertising Euro 260.000 IGP-Decaux S.p.a. 50,00

Companies equity accounted by the RCS DIFFUSIONE group Consorzio C.S.I.E.D. Milan Distribution Euro 103.291 M-Dis Distribuzione Media SpA 10,00 Milano Press S.r.l. 10,00 Milano Press S.r.l. Milan Distribution Euro 50.000 M-Dis Distribuzione Media SpA 100,00 GE-dis S.r.l. Genoa Distribution Euro 350.000 M-Dis Distribuzione Media SpA 80,00 Pieroni Distribuzione S.r.l. Milan Distribution Euro 750.000 M-Dis Distribuzione Media SpA 30,00 TO-dis Srl Turin Distribution Euro 510.000 M-Dis Distribuzione Media SpA 55,00 Trento Press Service S.r.l. Trento Distribution Euro 260.000 M-Dis Distribuzione Media SpA 30,40

Companies equity accounted by the BV group Hachette Rizzoli International Communications B.v. Amsterdam Publishing Euro 9.075.604 RCS International Magazines B.v. 50,00 Hachette Rizzoli International Hachette Rizzoli Magazines Sa Athens Publishing Euro 3.540.000 50,00 Communications B.v.

Companies equity accounted by the DADA group Register Iberia SL Barcelona Multimedia Euro 3.006 Register.it S.p.A. 100,00 Media Dada Science and Development CO. Ltd Beijing Multimedia USD 759.000 Dada SpA 100,00 Sailog Srl Agrate Brianza Multimedia Euro 52.000 Altair 50,00 Mediatec-mr Srl Prato Multimedia Euro 30.000 Altair 33,33 BestFly Srl in liquidation (formerly traveonline.it Srl) Milan Multimedia Euro 100.000 DadaMobile SpA 28,60

(5) Percentage refers to total share capital. Share of ordinary capital held: 49%

206

Companies available for sale

207

EXCHANGE RATES AGAINST THE EURO

208

209

QUARTERLY CONSOLIDATED INCOME STATEMENTS

210

Quarterly income statement

(€/millions) 1st quarter 2nd quarter 3rd quarter 4th quarter Full year Full year 2006 2005(1) 2006 2005(1) 2006 2005(1) 2006 2005 2006 2005

Net revenues 532,3 498,5 605,2 554,8 571,2 512,9 671,0 624,8 2.379,7 2.191,0 Distribution revenues 320,7 329,7 314,5 318,7 375,8 362,7 370,4 362,4 1.381,4 1.373,5 Advertising revenues 171,0 152,0 235,2 212,5 148,4 136,0 241,7 221,8 796,3 722,3 Other publishing revenues 40,6 16,8 55,5 23,6 47,0 14,2 58,9 40,6 202,0 95,2 Operating costs (392,1) (374,3) (404,8) (348,2) (426,6) (382,0) (437,6) (406,0) (1.661,1) (1.510,5) Payroll costs (105,0) (95,9) (104,8) (94,6) (104,0) (91,8) (106,6) (117,2) (420,4) (399,4) Impairment of receivables (2,7) (2,8) (5,8) (2,3) (2,7) (4,1) (1,0) (4,7) (12,2) (14,0) Increases in provisions for risks (1,1) (0,5) (1,2) (0,3) 0,3 (0,7) (5,6) (2,7) (7,6) (4,2) EBITDA 31,4 25,0 88,6 109,4 38,2 34,3 120,2 94,2 278,4 262,9 Amortization of intangible assets (4,5) (3,0) (5,5) (4,3) (5,4) (3,7) (10,2) (4,4) (25,6) (15,4) Depreciation of property, plant and equipment (8,1) (4,4) (8,4) (5,2) (8,2) (6,7) (9,8) (9,5) (34,5) (25,8) Impairment of fixed assets (0,1) 0,0 0,1 (0,9) 0,0 0,0 (5,3) (3,6) (5,3) (4,5) EBIT 18,7 17,6 74,8 99,0 24,6 23,9 94,9 76,7 213,0 217,2 Net financial income (charges) 3,6 0,2 3,9 1,6 (2,0) (3,0) (3,8) 3,4 1,7 2,2 Income (charges) from financial assets/liabilities 0,0 50,8 6,9 25,6 34,9 0,2 28,7 (4,2) 70,5 72,4 Share of income (losses) from investments valued using equity method 1,9 (0,6) 0,9 2,0 (4,9) 0,1 5,3 (0,9) 3,2 0,6 Earnings before tax 24,1 68,0 86,6 128,2 52,6 21,2 125,1 75,0 288,4 292,4 Income taxes 12,4 14,3 (25,8) (37,3) (16,4) (12,0) (23,9) (27,4) (53,8) (62,4) Net income (loss) from continuing operations 36,5 82,3 60,7 90,9 36,2 9,2 101,2 47,6 234,6 230,0 Net income (loss) from discontinuing operations 0,0 0,0 0,0 (0,1) 0,0 0,0 0,0 0,1 0,0 0,0 Net income (loss) before minority interests 36,5 82,3 60,7 90,8 36,2 9,2 101,2 47,7 234,6 230,0 Net (income) loss pertaining to minority interests (2,8) 0,6 (5,0) (4,1) (0,9) 0,8 (6,4) (8,0) (15,1) (10,7) Net income (loss) pertaining to the group 33,7 82,9 55,7 86,7 35,3 10,0 94,8 39,7 219,5 219,3

(1): The figures relating to the first, second and third quarters of 2005 do not include the figures of the DADA Grou p, which was consolidated line-by-line only from November 2005.

211

TABLES ATTACHED TO THE FINANCIAL STATEMENTS OF RCS MEDIAGROUP S.P.A.

212

LIST OF EQUITY INVESTMENTS PURSUANT TO ITALIAN CIVIL CODE ART. 2427.5 PLUS ADDITIONAL INFORMATION RECOMMENDED BY CONSOB IN COMMUNICATION 94001437 OF FEBRUARY 23, 1994 AND SUBSEQUENT ONES

Net income Name and head office Share (loss) for % Number of Book (€/millions) capital latest year Equity held shares value

Subsidiary companies

RCS Libri S.p.A. - Milan At 12/31/05 42,4 14,1 90,3 99,99 706.664.884,0 155,0 - purchase of preference shares 17.110,0 0,0 - stock options 0,7 At 12/31/06 42,4 19,6 110,6 99,99 (a) 706.681.994,0 155,7

RCS Broadcast S.p.A. - Milan At 12/31/05 17,5 (5,4) 12, 2 98,99 64.156.576,0 51,2 - capital reduction (19.666.299,0) 0,0 - capital increase 44.490.277,0 12,0 - stock options 0,2 - impairment loss (6,4) At 12/31/06 24,3 (8,7) 15, 7 98,99 (a) 88.980.554,0 57,0

RCS Pubblicità S.p.A. - Milan At 12/31/05 40,0 (13,1) 48,8 100,00 40.000.000,0 40,1 - stock options 0,3 At 12/31/06 40,0 0,2 50,3 100,00 (a) 40.000.000,0 40,4

RCS Quotidiani S.p.A. - Milan At 12/31/05 40,0 66,5 145,4 100,00 40.000.000,0 40,2 - stock options 1,5 At 12/31/06 40,0 52,9 139,8 100,00 (a) 40.000.000,0 41,7

RCS Investimenti S.p.A. - Milan At 12/31/05 39,1 0,2 39,3 98,33 94.900.130,0 38,5 - acquisitions 1.151.388,0 1,1 At 12/31/06 39,1 0,5 39,8 99,52 (a) 96.051.518,0 39,6

GFT NET S.p.A. - Turin At 12/31/05 0,9 0,3 1,2 100,00 900.000,0 0,0 At 12/31/06 0,9 6,1 7,3 100,00 (a) 900.000,0 0,0

RCS International Magazines BV - Amsterdam At 12/31/05 2,3 28,0 51,6 100,00 2.300,0 20,1 At 12/31/06 2,3 28,0 51,6 100,00 (c) 2.300,0 20,1

RCS Periodici S.p.A. - Milan At 12/31/05 5,0 9,2 27,6 100,00 5.000.000,0 115,6 - stock options 0,2 At 12/31/06 5,0 8,8 29,7 100,00 (a) 5.000.000,0 115,8

213

Net income Name and head office Share (loss) for % Number of Book (€/millions) capital latest year Equity held shares value

RCS Factor S.p.A. - Milan At 12/31/05 2,0 0,6 4,4 90,00 1.800.000,0 1,9 At 12/31/06 2,0 0,3 5,4 90,00 (a) 1.800.000,0 1,9

RCS Produzioni S.p.A. (ex RCS Servizi e Partecipazioni S.p.A.) - Milan At 12/31/05 1,0 (1,2) 0,2 100,00 1.000.000,0 1,5 - coverage of losses and reinstatement of share capital 1,6 At 12/31/06 1,0 (0,7) 1,4 100,00 (a) 1.000.000,0 3,1

RCS Editori S.p.A. - Milan At 12/31/05 0,1 0,0 0,1 100,00 100.000,0 0,1 - disposals (100.000,0) (0,1) At 12/31/06 --- - 0,0 0,0

Dada S.p.A. - Florence At 12/31/05 2,7 4,6 43,7 41,60 6.580.341,0 72,3 - acquisitions 3,00 483.227,0 8,6 -dilutive effect (0,40) - decrease due to partial release of invoices receivable (0,6) At 12/31/06 2,7 7,3 53,5 44,24 (a) 7.063.568,0 80,3

Adelphi Edizioni S.p.A. - Milan At 12/31/05 ------acquisitions 10,00 104.000,0 1,6 At 12/31/06 1,0 0,0 2,4 10,00 (a) 104.000,0 1,6

Net balance "subsidiary companies" at 12/31/06 557,2

Net income Name and head office Share (loss) for % Number of Book (€/millions) capital latest year Equity held shares value

Associated companies

Eurogravure S.p.A. - Bergamo At 12/31/05 24,5 (17,8) 12,4 30,00 14.130.216,0 3,7 At 12/31/06 24,5 2,7 15,2 30,00 (a) 14.130.216,0 3,7 m-dis S.p.A. (ex RCS Diffussione S.p.A.) - Milan At 12/31/05 6,4 12,0 23,0 45,00 2.876.727,0 8,1 At 12/31/06 6,4 6,1 20,9 45,00 2.876.727,0 8,1

Inimm Due S.à.r.l. - Luxembourg At 12/31/05 0,2 2,6 4,5 20,00 1.928,0 0,5 At 12/31/06 0,2 0,0 4,5 20,00 (a) 1.928,0 0,5

Net balance "associated companies" at 12/31/06 12,3

214

Other companies

Intesa Sanpaolo S.p.A. (ex Banca Intesa S.p.A.) - Milan At 12/31/05 3.596,2 1.564,2 14.251,0 0,63 43.471.685,0 194,9 - disposals (23.900.000,0) (107,2) - reversal of impairment loss 25,5 At 12/31/06 3.613,0 1.564,2 14.251,0 0,28 (c) 19.571.685,0 113,2

Intesa Sanpaolo S.p.A. (ex Sanpaolo IMI S.p.A.) - Milan At 12/31/05 - 0,0 0,0 0,00 0,0 0,0 - acquisitions 0,17 3.169.000,0 53,8 - reversal of impairment loss 3,3 At 12/31/06 5.400,3 n.d. n.d. 0,17 3.169.000,0 57,1

3 Italia S.p.A. - Trezzano sul Naviglio (Mi) At 12/31/05 6.512,7 (371,3) 5.731,8 0,50 6.594.480,0 15,0 At 12/31/06 6.512,7 (371,3) 5.731,8 0,50 (c) 6.594.480,0 15,0

Poligrafici Editoriale S.p.A. - Bologna At 12/31/05 34,3 4,6 96,2 9,99 13.199.900,0 20,3 - impairment loss (1,1) At 12/31/06 34,3 4,6 96,2 9,99 (c) 13.199.900,0 19,2

Raisat S.p.A. - Rome At 12/31/05 2,6 3,1 7,4 5,00 25.000,0 2,5 At 12/31/06 2,6 2,8 7,3 5,00 (a) 25.000,0 2,5

Istituto Europeo di Oncologia S.r.l. - Milan At 12/31/05 79,1 4,9 89,9 5,18 1,0 4,2 At 12/31/06 79,1 4,9 89,9 5,18 (c) 1,0 4,2

Alice Lab Netherlands NV - Amsterdam At 12/31/05 0,1 0,4 10,9 9,70 25.000,0 0,9 At 12/31/06 0,1 (0,4) 10,5 10,65 (b) 27.370,0 0,9

Mode et Finance - Paris At 12/31/05 6,4 (0,3) 4,5 9,49 60.980,0 0,4 At 12/31/06 6,4 (0,1) 4,4 9,49 (a) 60.980,0 0,4

Emittenti Titoli S.p.A. - Milan At 12/31/05 4,3 1,2 6,2 1,47 120.000,0 0,1 At 12/31/06 4,3 1,2 6,2 1,47 (a) 120.000,0 0,1

Immobiliare Editori Giornali S.r.l. - Rome At 12/31/05 0,8 0,0 0,7 7,49 1,0 0,1 At 12/31/06 0,8 0,0 0,7 7,49 (c) 1,0 0,1

Vital Stream Holding Inc - Irvine, CA, USA At 12/31/05 n.d. n.d. n.d. 0,03 8.998,0 0,0 At 12/31/06 n.d. n.d. n.d. 0,03 8.998,0 0,0

Cardio Now - Encinitas, CA, USA At 12/31/05 n.d. n.d. n.d. n.d. 436,0 0,0 At 12/31/06 n.d. n.d. n.d. n.d. 436,0 0,0

Net balance "other companies" at 12/31/06 212,7 Net balance "total equity investments" at 12/31/06 782,2 215

LIST OF "OTHER EQUITY INVESTMENTS" AND "OTHER SECURITIES" NOT HELD AS FIXED ASSETS AND THEIR MOVEMENTS DURING THE YEAR

216

RECLASSIFIED INCOME STATEMENT FOR HOLDING COMPANIES PURSUANT TO DECREE 127/91 (CONSOB Communication 94001437 of February 23, 1994)

RECLASSIFIED INCOME STATEMENT FOR HOLDING COMPANIES PURSUANT TO DECREE 127/91 (CONSOB Communication 94001437 of Feb-23-1994)

(€/millions) 2006 2005

FINANCIAL INCOME (CHARGES)

1) INCOME FROM EQUITY INVESTMENTS . subsidiary companies 82,3 39,0 . associated companies 3,7 4,8 . other companies 69,7 48,1

2) OTHER FINANCIAL INCOME a) from receivables held as fixed assets: . subsidiary companies - 0,1 . associated companies - - . other companies - b) from securities held as fixed assets not - - representing equity investments c) from securities held as current assets not 6,6 - representing equity investments d) income other than above: . subsidiary companies 9,5 6,4 . associated companies 0,1 0,2 . other companies 5,1 6,2

3) INTEREST AND OTHER FINANCIAL CHARGES . subsidiary companies ( 2,0) ( 1,5) . associated companies ( 1,2) ( 0,7) . other companies ( 2,9) ( 1,7) . exchange gains and (losses) - -

TOTAL FINANCIAL INCOME (CHARGES) 170,9 100,9

ADJUSTMENTS TO THE VALUE OF FINANCIAL ASSETS 4) REVALUATIONS a) equity investments - - c) securities held as current assets not 0,4 - representing equity investments - - 5) WRITEDOWNS a) equity investments ( 7,5) ( 8,5) c) securities held as current assets not representing equity investments

TOTAL ADJUSTMENTS ( 7,1) ( 8,5)

6) OTHER OPERATING INCOME 22,1 24,9

OTHER OPERATING COSTS: 6) RAW AND ANCILLARY MATERIALS, CONSUMABLES AND GOODS ( 0,6) ( 0,4) 7) NON-FINANCIAL SERVICES ( 15,3) ( 13,3) 8) RENTALS AND LEASING ( 3,8) ( 7,9) 9) PAYROLL COSTS ( 21,9) ( 18,2) 10) AMORTIZATION, DEPRECIATION AND WRITEDOWNS ( 1,5) ( 1,4) 12) PROVISIONS FOR RISKS ( 0,1) ( 0,1) 13) OTHER PROVISIONS - - 14) OTHER OPERATING EXPENSES ( 1,5) ( 2,1)

TOTAL OTHER OPERATING COSTS ( 44,7) ( 43,4)

INCOME (LOSS) FROM ORDINARY OPERATIONS 141,2 73,9

INCOME (LOSS) BEFORE TAXES 141,2 73,9 16) INCOME TAXES (CURRENT AND DEFERRED) 25,0 25,9

NET INCOME (LOSS) FOR THE YEAR 166,2 99,8

217

INDEPENDENT AUDITOR’S REPORT

218

REPORT BY THE BOARD OF STATUTORY AUDITORS

221 RCS MediaGroup S.p.A. Via San Marco, 21 – 20121 Milan Share capital €762,019,500 fully paid-in Company Register, Tax Code & VAT number 12086540155 Business Register number 1524326

Report by the Board of Statutory Auditors to the Shareholders’ Meeting pursuant to Art. 2429.2 of the Italian Civil Code and Art. 153 of Legislative Decree n. 58 dated February 24, 1998

To RCS MediaGroup SpA’s Shareholders’ Meeting held on April 27, 2007

Dear Shareholders,

Firstly, we would like to point out that the above mentioned report refers, for the first four months of the period under examination, to the activities carried out by the Board prior to the nomination of its current members. The Ordinary Shareholders’ Meeting of RCS MediaGroup SpA held on April 27th, 2006, in fact, appointed the current Board.

We confirm that we conducted the supervisory activities required of us by law in compliance with the “Standards of conduct by the Board of Statutory Auditors” recommended by the Italian Accountancy Profession and with other instructions issued by CONSOB (the stock market regulator) in Bulletin n. 1025564 dated April 6, 2001 and subsequent amendments during the year that ended on December 31, 2006.

The supervisory activities for which we are responsible were carried out as described below and we hereby inform you that we: • took part in meetings of the shareholders, the Board of Directors, the Executive Committee, the Internal Control Committee and the Compensation Committee held during the year and that we received timely and adequate information from the directors regarding the activities and major operations carried out by the company and its subsidiaries as per the law and the company’s by-laws; • obtained the information necessary to verify compliance with the principles underlying correct administration as well as the adequacy of the company’s internal control, accounting

222 systems, and organizational structure. We obtained the information from the heads of the primary areas involved as well as from the independent auditors, Reconta Ernst & Young; • ascertained the adequacy of the control systems of the Company’s subsidiaries, including pursuant to Art. 114, paragraph 2 of Legislative Decree n. 58/98; • monitored compliance with the rules for corporate governance outlined in the Corporate Governance Code promoted by the Italian Stock Exchange and adopted by the company; • verified compliance with all current statutes and regulations regarding the preparation and drawing up of parent company and consolidated financial statements as well as the related annexes. We also verified that the company’s and the Group’s 2006 Directors’ Reports on Operations were prepared pursuant to the law and current regulations and in line with the resolutions adopted by the Board of Directors, as are the facts represented in both the parent company and consolidated financial statements. The Board of Statutory Auditors had no observations to make regarding the half-year and quarterly reports and observed that they were published as per the law and current regulations.

No significant facts that would require reporting to the supervisory authorities or mention in this report have emerged as a result of the monitoring activities described above .

The specific information to be provided in the present report pursuant to the above mentioned Consob Bulletin dated April 6, 2001 is listed below. 1. We received adequate information regarding those operations with a major impact on the company’s balance sheet, income statement and financial position completed by RCS MediaGroup SpA and its subsidiaries. Based on the information obtained we ascertained that these operations were carried out in compliance with the law and the company’s by- laws and did not appear to be imprudent or abnormal or, at any rate, against the company’s interest; 2. We received adequate information regarding transactions with other group companies or related parties. Based on the information provided, we ascertained that these transactions were in compliance with the law and the company’s by-laws, were carried out in the best interest of the company and no doubts emerged regarding the correctness and completeness of the information contained in the financial statements, potential conflicts of interest, the safeguarding of the company’s assets and the protection of minority shareholders. Based on the information made available to us no abnormal or atypical transactions emerged.

223 3. In the Directors’ Reports on Operations and the Explanatory Notes related to both the parent company and consolidated financial statements the directors pointed out and explained the transactions with third parties, other group companies and related parties in adequate detail. The Corporate Governance section of the Directors’ Report on Operations for the RCS MediaGroup Group includes an outline of the procedure approved by the Board of Directors, subsequent to examination and approval by the Internal Control Committee, related to the transactions, including significant transactions, carried out by the Company or its subsidiaries with related parties and particularly those in which any director has an interest on his own account or that of third parties. 4. The reports issued today by Reconta Ernst & Young, the independent auditors, contain a favourable opinion of both the parent company and consolidated financial statements for the year ended December 31, 2006 and no significant facts or situations requiring reporting emerged. 5. In 2006 the Board of Statutory Auditors received three letters from a company shareholder, qualified as such pursuant to Art. 2408 of the Italian Civil Code. Following the necessary controls and gathering of information from interested parties, no violations of the law and/or company regulations or procedures emerged nor was any unusual and/or atypical behaviour found to have been carried out by the parties involved. 6. In 2006 the Board of Statutory Auditors did not receive any statements or complaints. 7. In 2006 RCS MediaGroup SpA also granted the following assignments to Reconta Ernst & Young, in addition to the financial audit of the parent company and consolidated financial statements as per Art. 159 of Legislative Decree n. 58/98, involving other activities associated with financial audits pursuant to Art. 155 of Legislative Decree n 58/98 and the limited audit of the parent company and consolidated half-year reports, for which the following invoices have already issued for the amounts indicated below: - consulting connected to the determination of profit for the year as per international accounting standards IAS/AFRS and the taxable income pursuant to Legislative Decree n. 917/86; €40,000; - due diligence activities; €106,000. 8. No assignments were made to individuals « involved in a continuous relationship » with the independent audit firm appointed. 9. In 2006 the Board of Statutory Auditors did not issue any opinions as provided for by law.

224 10. In 2006 the Board of Directors met 8 times, the Executive Committee met 4 times, the Group Compensation Committee met 5 times, the Internal Control Committee met 4 times while the Board of Statutory Auditors met 9 times. 11. We have no particular observations to make regarding the compliance with the principles underlying correct business administration and they appear to have been complied with in a consistent manner. 12. We have no particular observations to make regarding the adequacy of the organizational structure which we consider suitable for ensuring the proper conduct of business and operations. 13. The internal control system appeared adequate in light of both the company’s needs and operations, as ascertained during the meetings of the Internal Control Committee which, based on the corporate governance rules adopted, were attended by the Chairman (or another auditor appointed by the Chairman) of the Board of Statutory auditors. The Head of Internal Audit and the officer responsible for internal control pursuant to the Corporate Governance Code for Listed Companies attended the meetings of the Board of Statutory Auditors in order to facilitate the proper exchange and flow of information regarding the implementation of the tasks assigned the different administrators as well as the results of any audits performed. 14. We have no particular observations to make regarding the adequacy of the accounting system and consider it suitable for correctly representing the results of operations. In this regard please note that as of January 1, 2006 RCS MediaGroup SpA, in compliance with Legislative Decree n. 38/2005, has adopted the IAS/IFRS international accounting standards as provided for in EU Regulation n. 1606/2002. The parent company financial statements at December 31, 2006 are, therefore, the first full set of financial statements to have been prepared in accordance with said standards. The impact of the transition from national accounting standards to the IAS/IFRS on the Parent Company’s income statement and balance sheet is described in the complete version of Report on the transition to IAS/IFRS appended to the half-year report at June 30, 2006, while an abridged version of same was attached to the parent company financial statements at December 31, 2006. In the “Accounting policies” section of the Explanatory Notes to the parent company’s financial statements at December 31, 2006 the primary international accounting standards applied are described with particular regard for those standards left to the discretion of RCS.

225 15. We have no particular observations to make regarding the adequacy of the information provided by subsidiaries to the parent company designed to ensure timely compliance with the disclosure required by law. 16. No facts or situations that need to be mentioned in the present report emerged from the exchange of information between the Board of Statutory Auditors and the Independent Auditors, pursuant to Art. 150, paragraph 3, of Legislative Decree n. 58/1998. 17. The Board of Directors, and to the extent applicable, the Board of Statutory Auditors of RCS MediaGroup SpA have adopted almost entirely the corporate governance rules outlined in the March 2006 edition of the Corporate Governance Code promoted by the Italian Stock Exchange. RCS MediaGroup SpA’s report on corporate governance, prepared pursuant to Section IA.2.6 of the Instructions to the Regulations of Markets Organized and Managed by the Italian Stock Exchange, describes in detail the criteria adopted by the company in order to clearly illustrate which recommendations of the above mentioned Corporate Governance Code have been applied and in what way in 2006 and, at any rate, through approval of the report itself. The report also lists the reasons why certain recommendations have either been adopted partially or not at all. Where opportune the measures yet to be implemented but already planned – particularly in regard to 2007 – are also indicated. To the extent of our responsibility we controlled the implementation of the corporate governance rules that the company declared to have adopted making sure that the results of the periodic audits made by the Board of Statutory Auditors regarding the continued independence of the Directors were included in RCS MediaGroup SpA’s Report on Corporate Governance. We would also like to point out that in 2006 the Organizational, Management and Control Model under Legislative Decree 231/2001, also adopted by the subsidiaries, was extensively updated particularly in relation to corporate and other crimes linked to “market abuse”. As part of this process a new Supervisory Body was created since May 1, 2006 comprised of a member of the Internal Control Committee, a Standing Auditor (to serve as Chairman) and the company’s Head of Internal Audit. Said Supervisory Body approved its regulations, plan and also periodically provided the Board of Directors, the Internal Control Committee and the Board of Statutory Auditors with information regarding its activities. 18. We performed our monitoring activities during the year in a normal way and no omissions, significant facts or irregularities that needed to be reported emerged. 19. We have no proposals to make pursuant to Article 2429 of the Italian Civil Code and Art. 153, paragraph 2, of Legislative Decree n. 58/1998 related to RCS MediaGroup SpA’s individual financial statements at December 31, 2006, the approval of same just as we have nothing to add regarding the allocation of net profit for the year and the proposal to grant shareholders bonus treasury shares.

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Milan, April 6, 2007

The Board of Statutory Auditors Pietro Manzonetto Flavio Arcidiacono Clemente Rebecchini

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