Gruppo Editoriale L'espresso

Gruppo Editoriale L’Espresso Società per azioni Annual Report 2004

(Translation from the original issued in Italian)

Gruppo Editoriale L’Espresso Società per azioni Annual Report 2004

(Translation from the original issued in Italian)

Gruppo Editoriale L’Espresso 2004 | 5

Contents

Report of the Board of Directors

Report of the Board of Directors 13

Information required by Consob - resolution 11971/1999 27

Consolidated Financial Statements of the Espresso Group at 31 December, 2004

Consolidated Financial Statements 36

Notes to the Consolidated Financial Statements 45

Attachments 68

Reclassified Consolidated Financial Statements 80

Revenues, Group personnel, Circulation 84

Report of the Independent Auditors 89

Financial Statements of the Gruppo Editoriale L’Espresso SpA at 31 December, 2004

Financial Statements 92

Notes to the Financial Statements 101

Attachments 124

Reclassified Financial Statements 136

Report of the Board of Statutory Auditors 141

Report of the Independent Auditors 147

Financial highlights of subsidiaries 151

Report on Corporate Governance 155

Gruppo Editoriale L’Espresso 2004 | 7

Company Gruppo Editoriale L’Espresso Società per Azioni

Share Capital Euro 64,896,058.20

Tax ID and Rome Company Register no. 00488680588

VAT no. 00906801006

Registered office Rome, Via Cristoforo Colombo, 149 Secondary office Rome, Via Cristoforo Colombo, 90

Board of Directors: Chairman Carlo Caracciolo

Managing Director Marco Benedetto

Directors Oliviero Maria Brega Cristina Busi Giulia Maria Crespi Mozzoni Carlo De Benedetti Rodolfo De Benedetti Francesco Dini Pierluigi Ferrero Milvia Fiorani Franco Girard Paolo Mancinelli Gianluigi Melega Alberto Milla Piero Ottone Alberto Piaser Vittorio Ripa di Meana

Executive Committee: Carlo Caracciolo Marco Benedetto Oliviero Maria Brega Rodolfo De Benedetti Alberto Piaser

Board of Statutory Auditors: Chairman Vittorio Bennani

Auditors Claudio Berliri Federico Gamna

Independent Auditors PricewaterhouseCoopers SpA

Gruppo Editoriale L’Espresso 2004 | 9

Financial Highlights

Consolidated financial data

(in millions of euro) 2001 2002 2003 2004 Revenues 923 964 1,051 1,080 Value added 376 427 481 490 Gross operating profit 131 181 231 232 Operating profit 74 122 175 177 Net profit 1 46 68 88 Capital employed (excluding employee severance reserve) 602 567 590 620 Net financial position (111) (63) (150) (131) Shareholders' Equity 392 402 332 375 Net profit + depreciation and amortization 58 104 124 142 Employees 3,394 3,250 3,166 3,271

Ratios

2001 2002 2003 2004 Gross operating profit/revenues 14.2% 18.8% 22.0% 21.4% ROS 8.0% 12.7% 16.7% 16.4% ROCE 12.3% 21.6% 29.7% 28.6% ROE 0.3% 11.5% 20.4% 23.4%

Per share data

(euro) 2001 2002 2003 2004 Operating profit 0.17 0.29 0.41 0.41 Net profit 0.00 0.11 0.16 0.20 Net profit + depreciation and amortization 0.14 0.24 0.29 0.33

(in milions) No. of shares (excluding own shares) 430.1 428.2 429.1 429.3

Report of the Board of Directors

Report of the Board of Directors | Gruppo Editoriale L’Espresso 2004 | 13

Report of the Board of Directors

The Espresso Group closed the 2004 financial year Growth in the advertising market continued to be reporting a consolidated net profit of €87.7 mil- modest, though showing signs of a recovery in the lion, up from €67.8 million in 2003, on consolida- last quarter also as a result of full color advertising ted revenues equal to €1,079.8 million (up from offered by la Repubblica. With the coming into €1,051.1 million in 2003). Consolidated operating operation of the new rotary presses on schedule and profit amounted to €177.4 million (16.4% of mar- one year in advance of competitors, la Repubblica gin revenues), against €175.1 million in 2003 is currently the only national newspaper able to (16.7% of margin revenues). offer color advertising pages and formats without saturation constraints. The new offer was well Net financial debt at December 31, 2004 declined received by the market: in December, 73% of all to €131.1 million from €149.5 million at the end advertising published by the newspaper was in of the previous year thanks to cash flow genera- color, as compared with 49.4% in the same period ted by operations that more than offset capital in 2003; in 2004, national color advertising of la expenditure and dividends distributed. Repubblica grew by 12.3%, as compared with 7.5% for the market as a whole (source: FCP, Shareholders’ Equity grew from €332 million at December 2004). In the first months of 2005, the the end of 2003 to €375.2 million at December replacement of black and white advertising with 31, 2004. color continues, with good prospects for sales and margin growth. Main events in 2004 included the completion of the full color project by la Repubblica (involving Sales of products sold optionally in conjunction also the construction of a new printing center in with Group publications confirmed once again Rome), the transfer of all Group companies based that there now exists a sustainable, well consoli- in Rome to a new location, the good performance dated market accounting for a stable proportion of products sold optionally in conjunction with la of revenues and profits of the Group. Repubblica and L’espresso, the growth of radio In 2004, revenues from products sold optionally audiences and the successful completion of restruc- in conjunction with Group publications reached turing in the Internet area. €227.2 million, with a margin exceeding 35%. In 2004, sales benefited from the good reception by Along with the strengthening of the Group’s core the public of the l’Enciclopedia di Repubblica and business, efforts were devoted also to development: La Storia series, that sold a total of over 9.6 mil- new publishing activities, such as the launch of a lion volumes with an average circulation of over magazine devoted to TV programs (TV magazine) 280 thousand copies per issue. Sales initiatives of and the restyling of the magazine Musica with its L’espresso and local newspapers also reported conversion to a monthly magazine, in addition to good results. the signing of an important agreement for the acquisition of a national TV network Rete A. This Circulation of newspapers and periodicals were in is a network aimed at a very young public that is line with 2003: la Repubblica had an average cir- currently registering a growth in audience and culation of 625 thousand copies per issue, local advertising sales and will be able to develop further newspapers one of 488 thousand copies and L’e- by exploiting the trademarks and know-how of spresso an average circulation of 390 thousand Group’s radio stations, in addition to the technolo- copies per week. gical support provided by the Internet area. The last Audipress report (2004/II), released at the beginning of the current year, rewards la Repub- 14 | Gruppo Editoriale L’Espresso 2004 | Report of the Board of Directors

blica, placing it at the top position of Italian new- hosting the Group in Rome, amounted to €94.3 spapers (2.9 million readers). million (as compared with €70.8 million in 2003). Radio stations registered further gains in terms of audience, reaching a total of 8.4 million average At December 31, 2004, the consolidated net finan- daily listeners and a 20.5 million weekly audience cial position showed an indebtness of €131.1 mil- (source: Audiradio 2004 annual data). Radio lion, improving from €149.5 million at December Deejay climbed to 5.6 million average daily liste- 31, 2003 thanks to the strong cash flow generated ners, confirming its ranking as first radio station in the year (€162 million) that allowed to finance in terms of audience for the whole week with 12.7 capital expenditure and the payment of €47.1 mil- million listeners; Radio Capital’s audience grew to lion in dividends. almost 2 million average daily listeners and 5.6 million average weekly listeners, while m2o, aimed At the end of 2004, the Group employed 3,271 at a younger public, doubled its audience in the persons, including personnel under term con- last two years to almost 1 million average daily tracts, as compared with 3,166 at December 31, listeners. Advertising revenues of the three radios 2003. The increase is due to the decision to mana- grew by 18.9% on the previous year. ge directly the pre-printing and printing of la Repubblica in Rome, involving the hiring of per- After the completion of the critical phase of the sonnel by subsidiary Rotocolor. restructuring process, the Internet area begun to exploit new sources of revenue and growth. In Below are finally reported 2004 main results, 2004 Kataweb sharply reduced its operating loss compared with previous year statements: from €9 million in 2003 to €2.9 million.

_____ (€million) 2003 2004 ch. % Revenues 1,051.1 1,079.8 +2.7% Financial charges declined significantly from of which: € € 28.6 million at the end of 2003, to 12.9 mil- • Circulation 482.8 496.4 +2.8% lion at the end of 2004; financial charges in the • Advertising 534.0 546.1 +2.3% previous year were negatively affected by costs Gross operating profit 231.5 231.5 - incurred in the unwinding and termination of Operating profit 175.1 177.4 +1.3% interest rate hedging transactions. Financial income/(expense) (28.6) (12.9) Net profit 67.8 87.7 After having made public its “BBB-” Stan- dard&Poor’s rating with a positive outlook, on Shareholders’ Equity 332.0 375.2 October 8 the Company placed a 10 year, €300 mil- Net financial position (149.5) (131.1) lion bond with institutional investors. The bond was Employees 3,166 3,271 very well received on the market with requests for over 5 times the amount on issue. Bonds are listed on the Luxembourg Stock Exchange and pay an annual 5.125% coupon, equal to a 10 year mid- swap rate plus 105 basis points.

Capital expenditure, namely on new full color printing presses, the update of a number of printing centers – some of which were completely rebuilt – and the renovation of the new offices Report of the Board of Directors | Gruppo Editoriale L’Espresso 2004 | 15

Parent company Gruppo Editoriale L’Espresso Espresso Division

(€million) 2003 2004 ch. % (€million) 2003 2004 ch. % Revenues 648.5 656.4 +1.2% Revenues 110.9 121.0 +9.1% of which: of which: • Circulation 367.9 380.8 +3.5% • Circulation 75.9 86.3 +13.6% • Advertising 271.6 267.3 -1.6% • Advertising 32.4 33.2 +2.5% Gross operating profit 142.3 117.2 -17.7% Gross operating profit 14.3 17.4 +21.6% Operating profit 125.7 98.5 -21.6% Operating profit 13.4 16.8 +25.4% Financial income/(expense) (27.4) (12.5) Figures for the division include the share in revenues and costs Net profit 57.7 70.4 that may not be attributed to a specific activity Shareholders’ Equity 239.2 266.1 Net financial position (176.7) (162.9) Circulation was in line with 2003 at an average of about 390 thousand copies per issue, as were pro- Employees 920 940 ducts sold optionally with the magazine: in 2004, L’espresso sold a total of 4.2 million books, 2.4 Operating results of the parent company are illu- million DVDs and 2.5 million CD-ROMs and strated in the Operating Divisions Review; in the music CDs. section that follows, we comment upon the financial performance of the parent company and of The increase in advertising sales, out of line with its equity investments. respect to the weak advertising market for other periodicals, and of margins on products sold optio- In 2004, net revenues from equity investments nally with the magazine, coupled with the reduction amounted to €21.7 million (as compared with a in production and subscription promotional costs, net expense of €4.2 million in 2003); higher divi- represented a determining factor in the improve- dends received from subsidiaries and affiliated ment of the operating profit, up from €13.4 million companies (€27.2 million) more than offset write- in 2003 (a 12.1% margin on sales), to €16.8 mil- downs and the coverage of losses incurred by sub- lion in 2004 (a 13.9% margin on sales). sidiaries, amounting to €5.5 million. Other publications of the division continued to The positive cash flow (€114.7 million) due to the perform well both in terms of circulation and good operating performance and the containment margins: the monthly magazine National Geo- of net current assets, allowed to achieve a reduc- graphic sold over 123 thousand copies per issue, tion in debt from €176.7 million at December 31, while magazines Limes and Micromega recorded 2003, to €162.9 million at the end of 2004, after an average circulation of 19 thousand and 20 capital expenditure amounting to €57.4 million thousand copies per issue respectively. In 2004, and the distribution of €47.1 million in dividends. the total contribution of these publications to the operating profit of the division amounted to about €2.7 million.

Among publications of affiliated company Le Scienze SpA, periodical Mente & Cervello reached an average circulation of 25 thousand copies per issue, while monthly magazine Le Scienze reported an average circulation of 61 thousand copies per issue. 16 | Gruppo Editoriale L’Espresso 2004 | Report of the Board of Directors

Repubblica Division a third party. The in-house printing and offset of the newspaper will allow to achieve higher pro- € ( million) 2003 2004 ch. % duction efficiency and significant cost savings. Revenues 537.6 535.4 -0.4% of which: Higher launch and production costs linked to the • Circulation 292.0 294.6 +0.9% increased number of products sold optionally with • Advertising 239.3 234.2 -2.1% the newspaper in the year, the growth in printing Gross operating profit 128.0 99.8 -22.1% costs and higher depreciation charges relating to Operating profit 112.3 81.7 -27.2% the new color rotary presses were reflected on the operating profit that declined from €112.3 million Figures for the division include the share in revenues and costs € that may not be attributed to a specific activity (20.9% of sales) in the previous year, to 81.7 million (15.3% of sales) in 2004.

The year was characterized for la Repubblica by the The Internet site of the newspaper, www.Repubbli- change in the graphic design spurred by the coming ca.it, registered in the last year a constant growth into operation of the new full color rotary presses: in in unique users, continuing to rank first among December, color pages represented 85% of the new- domestic information sites and among the first in spaper. Color was used to highlight major news and Europe (source: Audiweb 2004). In December events and its potential was exploited in full in new 2004, www.Repubblica.it had almost 3.5 million supplements l’Almanacco dei libri and la Domenica unique users and page views were about 164.7 di Repubblica. Starting in November, the newspa- million. In the aftermath of the catastrophe that hit per includes in fact eight pages dedicated to reviews South-East Asia, the Internet site experimented and sales figures of the best selling books, published with a strong success an online news update servi- every Saturday, and 20 pages of investigations, ce 24 hours on 24. reportages and in-depth coverage of major current events, published on Sunday. Results of main subsidiaries

Moreover, in 2004 sales and revenues from pro- Local newspapers ducts sold optionally with the newspaper reached a peak. Two sales initiatives contributed most to these (€million) 2003 2004 ch. % results: l’Enciclopedia di Repubblica, whose appen- Revenues 244.3 254.3 +4.1% dix volumes sold in the first four months of the year of which: over 4.8 million copies, and La Storia, which sold • Circulation 118.9 119.1 +0.1% an average of 283 thousand copies per issue. • Advertising 105.6 107.7 +2.0% Gross operating profit 56.8 62.6 +10.3% A new book series, L’Italia, was launched on Operating profit 40.3 46.0 +14.0% Decem-ber 28. The series is a collection of guide books of major Italian cities and regions, consisting Financial income/(expense) 0.7 0.5 of 23 volumes published in cooperation with the Ita- Net profit 19.1 24.4 lian Touring Club. The first issue, after a free intro- Net financial position 58.7 31.2 ductory one, was dedicated to Rome and went into reprint after over 300 thousand copies were sold. The Local Newspapers area includes Finegil Edi- toriale and its subsidiaries (Editoriale la Nuova La Repubblica’s new Rome printing plant became Sardegna, Eag, Ene, Editoriale la Città), Seta and operational at the end of August. The printing of Editoriale FVG. The Espresso Group publishes the newspaper had previously been carried out by through its subsidiaries 16 newspapers and a bi- Report of the Board of Directors | Gruppo Editoriale L’Espresso 2004 | 17

weekly magazine, reaching daily a total of 3.1 distribution of €19.1 million in dividends and million readers. capital expenditure amounting to €46.3 million, relating primarily to the implementation of la Average circulation of local newspapers in 2004 Repubblica’s full color project. was 488 thousand copies per issue, just above 2003: circulation of individual newspapers followed the same trend, with the exception of those Elemedia in the Veneto Region whose sales grew by 4.7%, € with a 7% increase in market share, and newspa- ( million) 2003 2004 ch. % per Il Centro di Pescara (whose circulation grew Revenues 55.3 67.4 +21.8% by 2.0%), favored by the launch of the new Lan- Gross operating profit 22.2 33.6 +51.4% ciano local edition. Operating profit 13.8 25.1 +81.8% Financial income/(expense) (0.4) (0.1) The sale of publications and products in conjunc- Net profit 4.6 15.2 tion with some local newspapers (Nuova Sarde- Net financial position (5.2) 6.9 gna, Mattino di Padova, Tribuna di Treviso, Mes- saggero Veneto and Piccolo) continued with a The increase in advertising revenues, the conti- series of books dedicated to regional authors: nuing effort to improve productive efficiency and sales averaged about 30 thousand copies per issue. the containment of promotional expenses resul- The first joint publishing initiative involving all ted in an improvement in the operating profit local newspapers of the Group was launched in that almost doubled from €13.8 million in the April, with the publication of a series of 20 books previous year, to €25.1 million in 2004. The ope- for teenagers whose sales reached an average of rating margin also improved sharply from 25% 28 thousand copies per issue. in 2003 to 37.3% in 2004.

Advertising revenues, though still far from registe- Exploiting the Deejay trademark and the popula- ring strong growth rates, is undergoing a gradual rity of its characters, a DVD titled Natale a Casa change in the breakdown of advertising spaces Deejay was distributed at newsstands at Christmas sold. The 19% increase in sales of color adverti- selling over 125 thousand copies. The promotion of sing and the parallel 4.2% reduction in black and Group radio station trademarks had already been white advertising sales confirm the migration of experimented with success with the distribution of advertisers towards color. In this framework the music compilations produced by m2o, that conti- Mantova and Sassari printing centers increased nued in the year reaching top sales positions. their color printing capacity. Thanks to the good cash flow generated by ope- Gross operating profit amounted to €62.6 mil- rations, the net financial position improved from lion, up from €56.8 million in the previous year, an indebtness of €5.2 million at December 31, thanks to the decline in the price of paper and the 2003, to positive €6.9 million at the end of 2004. containment of operating costs. Operating profit grew also from €40.3 million in 2003, to €46 At the end of the year, the broadcasting network million in 2004: in the same period, its margin consisted of 843 stations, up from 834 at the end improved from 16.5% to 18.1%. of 2003. The good signal coverage achieved by the radio stations allowed to limit work on broad- The net financial position declined from positive casting equipment to ordinary maintenance. €58.7 million at December 31, 2003, to positive €31.2 million at the same date in 2004, after the 18 | Gruppo Editoriale L’Espresso 2004 | Report of the Board of Directors

In 2004, Deejay Television completed its first full The increase in sales revenues, the ongoing moni- year of broadcasting on the Sky Italia platform. toring of major cost items and the streamlining of The inclusion in the Sky bouquet of programs sales channels reflected positively on the operating and the consequent containment of broadcasting profit that grew from €1.8 million in 2003 to €5.1 costs resulted in a marked improvement in Ele million in 2004. TV’s results: revenues grew by 19% and operating profit reached €0.7 million, representing a At December 31, 2004, the net indebtedness amoun- 35% margin on sales. ted to €7 million, improving from €20 million at December 31, 2003 as a result of €6.5 million generated by operations and the €7 million capital A.Manzoni&C. increase carried out in the year.

(€million) 2003 2004 ch. % Gross advertising revenues 591.1 604.7 +2.3% Kataweb Net revenues 538.5 551.3 +2.4% In 2004, the Group’s sites registered a strong Gross operating profit 2.6 5.7 n.s. growth in audience: in December, the network Operating profit 1.8 5.1 n.s. registered 5.9 million unique users and 246.4 million page views, up about 30% on the same Financial income/(expense) (0.8) (0.5) period in 2003. Net profit (0.5) 1.0 Net financial position (20.0) (7.0) Numerous activities were launched in 2004 with qualified partners. New activities are aimed at After a strong performance at the beginning of the offering new services such as the printing of digi- year, the advertising market slowed down conside- tal photos, the online sale of books, shopping, the rably in the last quarter for all media (press, TV, download of music and Internet telephony servi- radio, cinema and outdoors). Gross advertising ces. Revenues were streamlined, new activities revenues grew by 7.3%, but once again adverti- were launched and a number of projects aimed at sing expenditure concentrated on television, up promoting advertising on sites were launched in 10.4%, and radio, registering a 21.7% increase in the last part of the year. These efforts resulted in advertising revenues. Advertising on printed media an improvement of Kataweb’s operating profit remains weak, with periodicals registering a 0.3% from a loss of €9 million in 2003, to a loss of increase and newspapers a 2.4% growth (source: €2.9 million in 2004. The €5.5 million net loss Nielsen Media Research). reflects the share in the loss for the year of subsidiaries (€3.9 million). The different growth rates in advertising revenues among media resulted in a 2.3% growth in Man- The net financial position improves from positive zoni’s gross advertising revenues that reached €5.7 million at December 31, 2003, to positive €604.7 million. Almost all sectors in which the €17.7 million at the end of 2004 thanks to €20 Group is active registered an improvement: radio million in contributions made by the Parent com- stations reported an excellent performance, recor- pany in 2004. ding an 18.9% growth, while local newspapers were up 2.3%, L’espresso 1.8% and Internet sites Printing registered a 2.8% increase in revenues. Adverti- In 2004 Rotosud, the company managing the sing sales of la Repubblica declined slightly rotary press center for the Espresso Group perio- (down 2.3%) due primarily to difficulties registe- dicals, reported a turnover of €30.9 million, red by its supplements. down 4.3% on the previous year due to the lower Report of the Board of Directors | Gruppo Editoriale L’Espresso 2004 | 19

circulation and number of pages per issue of la Somedia Repubblica’s supplements. The decline in turno- Somedia represents today the reference point in the ver resulted in a reduction in the operating profit Group for all direct marketing and customer care from €7.2 million to €6.1 million, while net pro- activities promoted by Group. fit was in line with 2003 at €3.1 million. In addition to the fulfilment of subscriptions and The net financial position at December 31, 2004 the traditional activities, with the publication of the amounted to an indebtness of €12.5 million (€17 Carrer Book, the company is active in the organiza- million at the end of 2003), after capital expendi- tion of personnel training seminars and conferen- ture amounting to €2.4 million and the payment ces, among which the university degree program in of €2.9 million in dividends. enginering organized cooperation with the Milan Polytechnic, that continued with success. CPS, active in preparing the Espresso Group magazines for printing and the setting of la Repubbli- Thanks to the good performance of the different ca’s advertising, closed 2004 reporting sales of business areas, turnover reached €6.2 million, up € 3.7 million, up 5.4% due to the higher number 2% on 2003. Operating profit amounted to €0.1 of color advertising pages produced as a result of million. the launch of the full color project. Operating € profit amounted to 0.9 million and net profit to The net financial position at December 31, 2004 € 0.5 million, in line with the previous year. was positive €0.8 million, down slightly on €1.4 million at the end of 2003. The net financial position improved slightly from positive €1.5 million at the end of 2003, to €1.6 Subsequent events and outlook million at December 31, 2004. In the first months of 2005, advertising on the Since August 26, subsidiary Rotocolor carries out Group’s media grew steadily as a result primarily of the printing of la Repubblica in Rome in addition the increase of color advertising on la Repubblica. to the pre-printing of all newspaper editions, previously carried out by a third party. Two new full Products sold optionally in conjunction with publi- color rotary presses were installed and were ope- cations showed a strong performance: the first rational since September. Personnel previously issues of the Touring Club guides with la Repub- working for STEC, the former printer of the new- blica sold an average of over 255 thousand copies, spaper in Rome (122 persons), was transferred to while Stanley Kubrick’s complete work DVD series the new plant upon its coming into operation. distributed in conjunction with L’espresso sold an average of almost 100 thousand copies per issue. In 2004 the company reported an operating profit of €0.5 million on sales amounting to €6.9 million. New bi-weekly magazine TV magazine dedicated to Results are not comparable with the previous year TV programming was launched on January 10. The as the plant came into operation only in 2004. magazine uses a successful formula already adopted in Germany and France, offering a guide to TV pro- Capital expenditure in the year amounted to €15.4 grams for the two weeks following its publication. million, used primarily in the renovation of the plant, the purchase of rotary presses and the con- La Repubblica’s new digital radio, broadcasting struction of typeset equipment. three hours a day on the Internet as part of the newspaper’s site, www.Repubblica.it, was laun- € At December 31, 2004, net debt amounted to 5.4 ched on February 14. The radio is dedicated enti- million, after net expenditure described above. rely to news, in-depth analysis, opinions and deba- 20 | Gruppo Editoriale L’Espresso 2004 | Report of the Board of Directors

tes, and may represent a first nucleus of a future sites, and those held with subsidiaries Rotosud digital channel once the technology will be in use SpA and CPS SpA, supplying typeset and printing within the radio sector. services. Gruppo Editoriale L'Espresso SpA also manages a current account for transactions within On February 10, 2005, the Authority for Tele- the Group to which most subsidiaries and affilia- communications issued a favorable opinion on ted companies participate according to individual the acquisition of national TV network Rete A, debit and credit positions. while approval from the Antitrust Authority is expected soon. Gruppo Editoriale L'Espresso SpA receives in turn from its parent company CIR SpA, services and At the end of January, the Lazio Regional Revenue advice on strategic, administrative, financial and Service Office accepted the appeal submitted to tax matters. It is to be noted that the provision of obtain a waiver on the application of tax elusion such services on the part of the parent company is regulations in the context of the merger of Eleme- deemed as preferable to the provision of the same dia SpA, Ele TV SpA and Studio Vit SpA into on the part of a third party thanks, among other Kataweb SpA. The operation will allow the Espres- things, to the wide knowledge and experience CIR so Group to merge activities in the radio, television SpA has acquired over time on the company and and Internet sectors, thus benefiting from synergies the sector in which Gruppo Editoriale L'Espresso between Group companies operating in the multi- SpA operates. media sector. The new Testo Unico tax law (TUIR) introduced Relationships with related parties the possibility for companies of a same Group to Transactions between Group companies and rela- determine an overall profit corresponding in printed parties, including intragroup transactions, are ciple to the algebraic sum of taxable profits of each carried out in the normal course of business and are company (parent company and companies control- settled at market rates; in the period under conside- led directly and/or indirectly with a share over ration there were no atypical or unusual transac- 50%) and, consequently, to determine a single tions falling outside the scope of ordinary business income tax liability for the whole Group. On to report. October 20, 2004, the Board of Directors of Grup- po Editoriale L’Espresso SpA resolved the partici- The economic and financial effect of transactions pation of the company to CIR’s “Tax consolida- between consolidated companies are eliminated tion” and a general agreement regulating the rights in the consolidated financial statements, while the and obligations of CIR and consolidated compa- effect on the consolidated statements of transac- nies (thus including Gruppo Editoriale L’Espresso tions with other related parties are immaterial. SpA) with respect to the participation in the tax consolidation, was underwritten. The parent company, Gruppo Editoriale L'Espres- so SpA, holds with its subsidiaries and affiliated The table below shows the operating and financial companies both trade relationships and relation- data concerning Gruppo Editoriale L'Espresso SpA ships involving the provision of services and of and its parent companies, subsidiaries and affilia- operating and financial advice. Among the most ted companies. Individual items are commented important trade relation are those held with subsi- upon in the notes to the financial statements of diary A.Manzoni&C. SpA, concessionaire for the Gruppo Editoriale L'Espresso SpA. advertising space of L’espresso and la Repubblica, those with the subsidiary Kataweb SpA for advertising on the Internet and the management of Report of the Board of Directors | Gruppo Editoriale L’Espresso 2004 | 21

(€ thousand) Costs Revenues Financial Financial Receivables Payables Guarantees expense income* Financial Trade Financial Trade given SUBSIDIARIES Finegil Editoriale SpA 14,014 3,105 (46) 16,480 6,477 487 - 5,043 17,190 Editoriale La Nuova Sardegna SpA 2,254 451 (254) - - 1 4,102 395 - E A G SpA 1,966 349 (173) - - 72 9,605 297 1,728 Edizioni Nuova Europa SpA - 32 (18) - - - 1,216 1 - Editoriale La Città SpA 12 206 (8) - - 38 631 - - S.E.T.A. SpA 185 434 (51) 319 - 118 4,653 51 1,192 Editoriale FVG SpA 6 389 (369) 2,426 - 78 20,575 1 - Elemedia SpA 25 1,763 (19) 4,591 - 853 6,772 1,185 - EleTv SpA - 19 (18) - - - 1,726 4 - Deejay Budapest kft - - - 2 1 - - - 100 Radio Bonton a.s. ------200 A. Manzoni & C. SpA 6,016 268,664 (48) 193 3,610 92,150 - 1,126 - Rotosud SpA 31,134 342 (8) 3,200 9,160 12 - 5,685 5,766 C.P.S. SpA 3,615 595 (26) 520 - 168 1,607 802 - Rotocolor SpA 6,882 497 (59) 30 5,463 143 - 5,457 - Selpi SpA 418 25 (40) 157 - 47 2,224 306 - Somedia SpA 5,856 325 (9) 2 - 676 465 3,092 - Kataweb SpA 2,545 3,797 (361) 2 - 1,643 17,478 1,082 - Kataweb News Srl ------4 - - Ksolutions SpA 30 128 - 250 5,743 92 - 16 - Esperya SpA 6 - - 37 - 2 60 6 509 Studio Vit Srl - - - 1 1 - - 169 66 AFFILIATED COMPANIES Le Scienze SpA - 466 - 103 - 492 - 423 - PARENT COMPANY CIR SpA 2,330 - - 45 - 4,360 - - -

(*) includes dividends received from subsidiaries 22 | Gruppo Editoriale L’Espresso 2004 | Report of the Board of Directors

Other information With regards to the adoption of new accounting Own shares held by the Parent Company at principles, as allowed by IFRS1, the Group deci- December 31, 2004 were 3.3 million and represen- ded to opt for the “estimated cost” for the initial ted 0.8% of the share capital. valuation of tangible assets, the exemption on the application of the international accounting princi- ____ ple for combinations of companies formed before January 1, 2004, and the adoption of IAS32 and Pursuant to Legislative Decree no.196, it is ack- IAS 39 from January 1, 2005. nowledged that Gruppo Editoriale L’Espresso, in compliance with current regulations, has updated The Company is also evaluating, in agreement the “safety protocol” for the year 2004. In com- with parent company CIR SpA and as recommen- pliance with the provisions of the Code on the Pri- ded by CONSOB, whether to adopt IAS princi- vacy of Personal Information the Company has ples already from the 1st Quarter of 2005 or to moreover taken steps to make such document com- postpone their application to the Half-year Report patible with law provisions requiring the adoption at June 30, 2005. of “new safety measures” by June 30, 2005.

Adoption of international accounting principles The Espresso Group has reached an advanced stage in the review of the project for the adoption of international accounting principles (IAS, currently IFRS - International Financial Reporting Stan- dards), which will have to be adopted by European companies whose shares are traded on a regulated market starting with the consolidated financial statements for the 2005 financial year.

In 2004 the Company assessed main differences between the accounting principles currently adopted by the Group and IFRS, and has selected those options that allow a better representation of the economic and financial structure of the Company. A Company Accounting Principles Manual is currently being drafted and in the immediate future all Group companies will be required to identify and quantify differences between previously adopted accounting principles and those contained in the Manual so as to determine the effect of the adoption of new principles.

As highlighted in the diagnostics phase, the areas that are most affected by the adoption of the new principles are Intangible assets, Financial assets and liabilities, Personnel benefits (particularly the accounting treatment of stock options) and information contained in the financial statements. Report of the Board of Directors | Gruppo Editoriale L’Espresso 2004 | 23

Allocation of net profit for the year ended Allocation of net profit for the year ended December 31, 2004 December 31, 2004 resolved by the To our Shareholders: Shareholders’ Meeting of April, 20, 2005 the Financial Statements of Gruppo Editoriale The Shareholders’ Meeting held on April 20, L’Espresso SpA that we submit to your approval 2005 having acknowledged the proposal of the close reporting a net profit of €70,423,331.54. Board of Directors and the issue on March 31, 2005 of 495,900 ordinary shares of par value € We propose to distribute a dividend of 0.13 to €0.15 each, with rights accruing from January 1, each of the 428,990,388 ordinary shares in circula- 2004, issued to service current stock option plan, tion (keeping into account the 3,650,000 own sha- resolved the following allocation of the 2004 net res held by the Company) and to allocate the profit of Gruppo Editoriale L’Espresso SpA, amoun- remainder to the voluntary reserve, having the Legal ting to €70,423,331.54: Reserve already reached an amount equal to 20% € of the share capital. Thus we propose to allocate: • €55,833,217.44 as ordinary dividends of 0.13 to each of the 429,486,288 ordinary shares in circu- • €55,768,750.44 to ordinary dividends to be lation (keeping into account the 3,650,000 own distributed to shareholders in a proportion of shares held by the Company) with rights accruing € 0.13 for each share in circulation, to be paid out January 1, 2004, to be paid out on May 26, 2005, on May 26, 2005, with an ex-dividend date of upon the clipping of Coupon no. 9 on May 23, Coupon no. 9 on May 23, 2005; 2005; • €14,654,581.10 to voluntary reserve. • €14,590,114.10 to voluntary reserve.

The proposed allocation of net profit keeps into The proposed allocation of net profit keeps into nd account the provisions of article 2357 ter., 2 account the provisions of article 2357 ter., 2nd paragraph of the Italian Civil Code, providing for paragraph of the Italian Civil Code, providing for dividends accrued by own shares to be distributed dividends accrued by own shares to be distributed proportionally to other shares. proportionally to other shares.

The exact amount to be destined to the distribution Rome, April 20, 2005 of dividends and to voluntary reserve may vary according to the number of own shares held at the date of the Meeting or according to the possible issue, on March 31, 2005, of a maximum of 4,650,850 shares with rights accruing January 1, 2004 as part of applicable stock option plans.

Rome, February 23, 2005

Information required by Consob - resolution 11971/1999

Information required by Consob - resolution 11971/1999 | Gruppo Editoriale L’Espresso 2004 | 27

Information on stock option plans

Stock option plans for managers of the parent have expired. The residual number of shares is company and its subsidiaries holding strategic thus 1,615,000. positions within the Group assign the right to exercise at a pre-determined price and for a set “April 24, 2001” stock option plan term an option for the underwriting of new shares On April 24, 2001, the Board of Directors, in appli- to be issued by the company pursuant to the rela- cation of the proxy assigned by the Shareholders’ ted stock option plan resolutions. The related rules Meeting on April 6, 2001, resolved a capital increa- regulate, among other terms and conditions, also se pursuant to article 2441, last paragraph, of the the case in which the assignee of the said options Italian Civil Code, for a total of 930,000 shares at ceases for whatever reason to be employed by the a price of €6.25, of which €0.15 of nominal value company. Starting from 2001, ad hoc stock option and €6.10 of premium over par, determined in rela- plans were assigned to the Managing Director of tion to the provision of article 9, paragrapf IV of the company, Marco Benedetto, giving him the the Income Tax Code that makes reference to the right to acquire from the company at a pre-deter- simple arithmetic mean of official stock market pri- mined price and for a set term, a number of shares ces of the company’s shares in the previous month, equal to the options already assigned to him. Cur- for the purposes the “April 24, 2001” stock option rent stock option plans are: plan. The stock option plan provides for the options to be exercised by each assignee in the fol- “2000” stock option plan lowing periods: a) up to a maximum of 12% of the On February 23, 2000, the Board of Directors, in total options assigned starting from September 30, application of the proxy assigned by the Sharehol- 2001 and at subsequent quarterly intervals until ders’ Meeting on April 29, 1996, resolved a capital September 30, 2011; b) up to a maximum for each increase pursuant to article 2441, last paragraph, quarter of 6% of the total options assigned in the of the Italian Civil Code, for a total of 2,155,000 period between December 31, 2001 and March 31, shares at a price of €25.60, of which €0.15 of 2005, and at subsequent quarterly intervals until nominal value and €25.45 of premium over par, September 30, 2011; c) the residual 4% of the total determined in relation to the higher between the options assigned starting from June 30, 2005 and official price and the listed price on the Italian up until September 30, 2011. Stock Market (Borsa Italiana S.p.A.) on February To date no option has been exercised and, pur- 22, 2000, for the purposes of the “2000” stock suant to the stock option plan, 150,000 options option plan. The stock option plan provides for have expired. The residual number of shares is the options to be exercised by each assignee in the thus 780,000. following periods: a) up to a maximum of 12% of the total options assigned starting from September “October 24, 2001” stock option plan 30, 2000 and at subsequent quarterly intervals On October 24, 2001, the Board of Directors, in until September 30, 2010; b) up to a maximum for application of the proxy assigned by the Sharehol- each quarter of 6% of the total options assigned in ders’ Meeting on April 6, 2001, resolved a capital the period between December 31, 2000 and increase pursuant to article 2441, last paragraph, of March 31, 2004, and at subsequent quarterly the Italian Civil Code, for a total of 885,000 shares intervals until September 30, 2010; c) the residual at a price of €2.51, of which €0.15 of nominal 4% of the total options assigned starting from value and €2.36 of premium over par, determined June 30, 2004 and up until September 30, 2010. in relation to the provision of article 9, paragraph To date no option has been exercised and, pur- IV of the Income Tax Code that makes reference to suant to the stock option plan, 540,000 options the simple arithmetic mean of official stock market 28 | Gruppo Editoriale L’Espresso 2004 | Information required by Consob - resolution 11971/1999

prices of the company’s shares in the previous have expired. The residual number of shares is thus month, for the purposes the “October 24, 2001” 728,850. stock option plan. The stock option plan provides for the options to be exercised by each assignee in “July 24, 2002” stock option plan the following periods: a) up to a maximum of 12% On July 24, 2002, the Board of Directors, in appli- of the total options assigned starting from March cation of the proxy assigned by the Shareholders’ 31, 2002 and at subsequent quarterly intervals until Meeting on April 6, 2001, resolved a capital increa- March 31, 2012; b) up to a maximum for each se pursuant to article 2441, last paragraph, of the quarter of 6% of the total options assigned in the Italian Civil Code, for a total of 1,322,500 shares at period between June 30, 2002 and September 30, a price of €3.36, of which €0.15 of nominal value 2005, and at subsequent quarterly intervals until and €3.21 of premium over par, determined in rela- March 31, 2012; c) the residual 4% of the total tion to the provision of article 9, paragraph IV of options assigned starting from December 31, 2005 the Income Tax Code that makes reference to the and up until March 31, 2012. simple arithmetic mean of official stock market pri- To date 501,900 options have been exercised and, ces of the company’s shares in the previous month, pursuant to the stock option plan, 10,200 options for the purposes the “July 24, 2002” stock option have expired. The residual number of shares is thus plan. The stock option plan provides for the 372,900. options to be exercised by each assignee in the following periods: a) up to a maximum of 12% of the “March 6, 2002” stock option plan total options assigned starting from December 31, On March 6, 2002, the Board of Directors, in 2002 and at subsequent quarterly intervals until application of the proxy assigned by the Sharehol- December 31, 2012; b) up to a maximum for each ders’ Meeting on April 6, 2001, resolved a capital quarter of 6% of the total options assigned in the increase pursuant to article 2441, last paragraph, of period between March 31, 2003 and June 30, the Italian Civil Code, for a total of 1,330,000 sha- 2006, and at subsequent quarterly intervals until res at a price of €3.30, of which €0.15 of nominal December 31, 2012; c) the residual 4% of the total value and €3.15 of premium over par, determined options assigned starting from September 30, 2006 in relation to the provisions of article 9, paragraph and up until December 31, 2012. IV of the Income Tax Code that makes reference to To date 440,475 options have been exercised and, the simple arithmetic mean of official stock market pursuant to the stock option plan, 47,050 options prices of the company’s shares in the previous have expired. The residual number of shares is thus month, for the purposes of the “March 6, 2002” 834,975. stock option plan. The stock option plan provides for the options to be exercised by each assignee in “February 26, 2003” stock option plan the following periods: a) up to a maximum of 12% On February 26, 2003, the Board of Directors, in of the total options assigned starting from Septem- application of the proxy assigned by the Sha- ber 30, 2002 and at subsequent quarterly intervals reholders’ Meeting on April 6, 2001, resolved a until September 30, 2012; b) up to a maximum for capital increase pursuant to article 2441, last each quarter of 6% of the total options assigned in paragraph, of the Italian Civil Code, for a total of the period between December 31, 2002 and March 1,367,500 shares at a price of €2.86, of which 31, 2006, and at subsequent quarterly intervals €0.15 of nominal value and €2.71 of premium until September 30, 2012; c) the residual 4% of the over par, determined in relation to the provision total options assigned starting from June 30, 2006 of article 9, paragraph IV of the Income Tax Code and up until September 30, 2012. that makes reference to the simple arithmetic To date 549,750 options have been exercised and, mean of official stock market prices of the com- pursuant to the stock option plan, 51,400 options pany’s shares in the previous month, for the pur- Information required by Consob - resolution 11971/1999 | Gruppo Editoriale L’Espresso 2004 | 29

poses of the “February 26, 2003” stock option have expired. The residual number of shares is thus plan. The stock option plan provides for the 1,084,675. options to be exercised by each assignee in the following periods: a) up to a maximum of 12% “February 25, 2004” stock option plan of the total options assigned starting from Sep- On February 25, 2004, the Board of Directors, in tember 30, 2003 and at subsequent quarterly application of the proxy assigned by the Sharehol- intervals until September 30, 2013; b) up to a ders’ Meeting on April 6, 2001, resolved a capital maximum for each quarter of 6% of the total increase pursuant to article 2441, last paragraph, options assigned in the period between December of the Italian Civil Code, for a total of 1,485,000 31, 2003 and March 31, 2007, and at subsequent shares at a price of €4.95, of which €0.15 of nomi- quarterly intervals until September 30, 2012; c) nal value and €4.80 of premium over par, determi- the residual 4% of the total options assigned star- ned in relation to the provision of article 9, para- ting from June 30, 2007 and up until September graph IV of the Income Tax Code that makes refe- 30, 2013. rence to the simple arithmetic mean of official To date 320,850 options have been exercised and, stock market prices of the company’s shares in the pursuant to the stock option plan, 61,200 options previous month, for the purposes of the “February have expired. The residual number of shares is 25, 2004” stock option plan. The stock option thus 985,450. plan provides for the options to be exercised by each assignee in the following periods: a) up to a “July 23, 2003” stock option plan maximum of 12% of the total options assigned On July 23, 2003, the Board of Directors, in appli- starting from September 30, 2004 and at subse- cation of the proxy assigned by the Shareholders’ quent quarterly intervals until September 30, 2014; Meeting on April 6, 2001, resolved a capital increa- b) up to a maximum for each quarter of 6% of the se pursuant to article 2441, last paragraph, of the total options assigned in the period between Italian Civil Code, for a total of 1,332,500 shares December 31, 2004 and March 31, 2008, and at at a price of €3.54, of which €0.15 of nominal subsequent quarterly intervals until September 30, value and €3.39 of premium over par, determined 2013; c) the residual 4% of the total options assi- in relation to the provision of article 9, paragraph gned starting from June 30, 2008 and up until Sep- IV of the Income Tax Code that makes reference to tember 30, 2014. the simple arithmetic mean of official stock market To date no option has been exercised and, pur- prices of the company’s shares in the previous suant to the stock option plan, 45,000 options month, for the purposes of the “July 23, 2003” have expired. The residual number of shares is stock option plan. The stock option plan provides thus 1,440,000. for the options to be exercised by each assignee in the following periods: a) up to a maximum of 12% “July 28, 2004” stock option plan of the total options assigned starting from Decem- On July 28, 2004, the Board of Directors, in appli- ber 31, 2003 and at subsequent quarterly intervals cation of the proxy assigned by the Shareholders’ until December 31, 2013; b) up to a maximum for Meeting on April 6, 2001, resolved a capital each quarter of 6% of the total options assigned in increase pursuant to article 2441, last paragraph, the period between March 31, 2004 and June 30, of the Italian Civil Code, for a total of 1,450,000 2007, and at subsequent quarterly intervals until shares at a price of €4.80, of which €0.15 of nomi- December 31, 2013; c) the residual 4% of the total nal value and €4.65 of premium over par, determi- options assigned starting from September 30, 2007 ned in relation to the provision of article 9, para- and up until December 31, 2013. graph IV of the Income Tax Code that makes refe- To date 202,725 options have been exercised and, rence to the simple arithmetic mean of official pursuant to the stock option plan, 45,100 options stock market prices of the company’s shares in the 30 | Gruppo Editoriale L’Espresso 2004 | Information required by Consob - resolution 11971/1999

previous month, for the purposes the “July 28, giving the right to purchase an equivalent number 2004” Stock Option Plan. The stock option plan of ordinary shares of Gruppo Editoriale L’Espres- provides for the options to be exercised by each so S.p.A. at a price of €6.25 each, and further assignee in the following periods: a) up to a maxi- 500,000 stock options at a price of €2.51 each at mum of 12% of the total options assigned starting the meeting held on October 24. Stock options from December 31, 2004 and at subsequent quar- assigned on October 24, were exercised in full on terly intervals until December 31, 2014; b) up to a September 30, 2003, while those assigned on maximum for each quarter of 6% of the total April 24, are still exercisable on a daily basis options assigned in the period between March 31, until April 30, 2006. In 2002, the Board of Direc- 2005 and June 30, 2008, and at subsequent quar- tors assigned him at its meeting held on March 6, terly intervals until December 31, 2014; c) the resi- 500,000 stock options giving the right to purcha- dual 4% of the total options assigned starting se an equivalent number of ordinary shares of from September 30, 2008 and up until December Gruppo Editoriale L’Espresso S.p.A. at a price of 31, 2014. €3.30 each, and further 500,000 stock options at To date no option has been exercised. a price of €3.36 each at the meeting held on July 24. Both stock option assignments were exercised “April 24, 2001”, “October 24, 2001”, “March 6, in full on December 16, 2004. In 2003, the Board 2002”, “July 24, 2002”, “February 26, 2003”, of Directors assigned him at its meeting held on “July 23, 2003”, “February 25, 2004” and “July February 26, 600,000 stock options giving the 28, 2004” stock option plans attributed to Marco right to purchase an equivalent number of ordinary Benedetto, Managing Director of the company shares of Gruppo Editoriale L’Espresso S.p.A. at a In 2004, 1,200,000 options for the purchase of an price of €2.86 each, and further 600,000 stock equivalent number of ordinary shares of the com- options at a price of €3.54 each at the meeting pany pursuant to the terms and conditions of the held on July 23. These options may be exercised stock option plans for previous years were assigned from March 31, 2005 on a daily basis until to Marco Benedetto, Managing Director of the March 31, 2008. company. More specifically, at the meeting held on The exercise prices of the above stock option February 25, 2004, the Board of Directors assigned plans are all determined in relation to the provi- to Marco Benedetto 600,000 options at a strike sion of article 9, paragraph IV of the Income Tax price of €4.95, and at the meeting held on July 28, Code that makes reference to the simple arithme- 2004 it assigned him a further 600,000 options at a tic mean of official stock market prices of the strike price of €4.80. Marco Benedetto will be enti- company’s shares in the previous month. tled to exercise the 1,200,000 stock options starting The company has committed itself to purchase an from March 31, 2006 on a daily basis until March equivalent number of shares for the purposes of the 31, 2009. At the meeting held on February 25, stock option plans in favor of Marco Benedetto. 2004, the Board of Directors assigned to Marco Benedetto further 400,000 stock options of extraor- Stock options giving the right to underwrite ordi- dinary nature for the brilliant results achieved by nary shares of the company in circulation at the company in 2003. Such stock options, assigned December 31, 2004 at a price of €4.95, were exercisable between Based on the above, at the present date unexerci- March 1, 2004 and December 31, 2004, but expi- sed stock options giving the right to purchase red without being exercised. shares of the company amount to 9,291,850, Stock options assigned in 2004 are in addition to representing 2.14% of the overall share capital of those assigned in 2001, 2002 and 2003. In 2001, the company. the Board of Directors assigned him at its meeting held on April 24, 500,000 stock options Information required by Consob - resolution 11971/1999 | Gruppo Editoriale L’Espresso 2004 | 31 Stock options held at the end of year expired in the year not considering the periods in which exercise of stock options is allowed (further detail options price (years) options price (years) options price at exercise options options price (years) of stock strike term of stock strike term of stock strike listed price of stock of stock strike term Stock options held atbeginning of the year Stock options assigned in the year Stock options exercised in the year Stock options A) B) 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) NameMarco Benedetto Position held Managing DirectorMarco Barina General Manager of Espresso DivisionCarlo Ottino 203,300Fabio Tacciaria General Manager of Repubblica Division 141,100 General Manager of parent company 2,950,000 9.21 Number 480,800 3.35 5.66 Average 8.35 Average 8.32 9.39 3.83 90,000 Number 1,600,000 150,000 8.50 Average 4.88 Average 200,000 4.88 4.88 9.83 Number 4.88 4.25 9.83 42,000 Average 1,000,000 9.83 Average 3.11 3.33 80,100 Number 3.14 4.70 Number 4.29 Average 400,000 Average 4.45 3,150,000 6.10 251,300 3.55 8.68 600,700 8.11 7.86 291,100 8.19 4.14 9.13 Information required by Consob - art. 79 resolution 11971/99 table 2 STOCK OPTIONS ASSIGNED TO DIRECTORS AND GENERAL MANAGERS Note: the average term was obtained by considering exclusively latest expiration date for each existing stock option plan, is provided in the section that precedes present table). 32 | Gruppo Editoriale L’Espresso 2004 | Information required by Consob - resolution 11971/1999 held at purchased sold held at Dec. 31, 2003 in the year in the year Dec. 31, 2004 through Alpa Spa (2)through Romed SpA (4)held by the spouse Roberto Paris 8,493,333 1,000 104,684 ------8,493,333 1,000 104,684 ittorio Ripa di Meanaittorio Bennani Gruppo Editoriale L'Espresso SpA Gruppo Editoriale L'Espresso SpA 15,000 14,650 - - - 14,650 15,000 - Carlo De Benedettiof which: through CIR SpA (3) Gruppo Editoriale L'Espresso SpA 216,816,235 2,010,000 216,815,235 - 2,010,000 218,826,235 - 218,825,235 Carlo CaraccioloMarco BenedettoOliviero Maria BregaGiulia Maria Crespi Mozzoniof which: through trust company Biennebi SpA (1)Pierluigi Ferrero Gruppo Editoriale L'Espresso SpAMilvia Fiorani Gruppo Editoriale L'Espresso SpAof which: held direcly Gruppo Editoriale L'Espresso SpA Gruppo Editoriale L'Espresso SpAV V 37,994,720Marco Barina 10,006,799 750,000Carlo Ottino 5,000 Fabio Tacciaria 750,000 1,513,466 Editoriale L'Espresso SpA Gruppo 1,000,000 Gruppo Editoriale L'Espresso SpA - - 1,750,000 - - 352,376 Gruppo Editoriale L'Espresso SpA 194,684 - Gruppo Editoriale L'Espresso SpA Gruppo Editoriale L'Espresso SpA 5,000 352,376 38,744,720 35,000 9,654,423 - 56,700 - 139,200 51,900 90,000 1,161,090 5,000 - 42,000 80,100 - - - 88,200 139,200 30,000 194,684 - - 10,500 80,100 51,900 90,000 Name Company in which shares are held Number of shares Number of shares Number of shares Number of shares TTENDANCE OF DIRECTORS, INDEPENDENT AUDITORS AND GENERAL MANAGERS (1) no. 01694290154. Fiduciaria Biennebi SpA - via San Pietro all'Orto, 22 Milan VAT (2) no. 09866410153. Alpa SpA, via San Pietro all'Orto, 22 Milan - VAT (3) no. 00519120018. - VAT 53 - Leinì (Torino) Cir - Compagnie Industriali Riunite SpA strada Volpiano, (4) no. 04934530017. - VAT n.41 - Torino ROMED SpA - via Valeggio Information required by Consob - art. 79 resolution 11971/99 table 3 A Information required by Consob - resolution 11971/1999 | Gruppo Editoriale L’Espresso 2004 | 33 held in company preparing benefits other incentives compensation financial statements Jan. 1, 2004 - Dec. 31, approval of 2005 Fin.Stat. 41,950 83,588 (6) Chairman of the Board Statutory Auditors of the Executive Committeethe Executive Committeethe Executive Committee Jan. 1, 2004 - Dec. 31, approval of 2005 Fin.Stat. Jan. 1, 2004 - Dec. 31, Jan. 1, 2004 - Dec. 31, approval of 2005 Fin.Stat.the Executive Committee approval of 2005 Fin.Stat. 510,000 Jan. 1, 2004 - Dec. 31, 10,000 approval of 2005 Fin.Stat. 10,000 the Executive Committee 10,000 Jan. 1, 2004 - Dec. 31, 14,000 (1) approval of 2005 Fin.Stat. 14,000 (1) 10,000 ittorio Ripa di Meanaittorio Bennani Director Jan. 1, 2004 - Dec. 31, approval of 2005 Fin.Stat. 10,000 725,555 (5) A)Name Carlo Caracciolo Position held B) Chairman of the Board and Cristina BusiGiulia Maria Crespi Mozzoni DirectorCarlo De BenedettiRodolfo De Benedetti Director held Term Francesco Dini Director Director and member of Pierluigi FerreroMilvia Fiorani C)Franco GirardAntonio Grigolini Director DirectorPaolo Mancinelli Jan. 1, 2004 - Dec. 31, Gianluigi Melega Director ExpirationAlberto Milla Director Director approval of 2005 Fin.Stat.Alberto Piaser Jan. 1, 2004 - Dec. 31, Director Jan. 1, 2004 - Dec. 31, DirectorPiero Ottone approval of 2005 Fin.Stat.V approval of 2005 Fin.Stat. D) Director Compensation for positionsV Director and member of 21, 2004 - Dec. 31, Apr. Claudio Berliri Jan. 1, 2004 - Dec. 31, 10,000 Non-monetaryFederico Gamna Director approval of 2005 Fin.Stat. Bonuses and Marco Barina Jan. 1, 2004 - Dec. 31, approval of 2005 Fin.Stat. Other Jan. 1, 2004 - Dec. 31, Carlo Ottino 10,000 30, 2004 Jan. 1, 2004 - Mar. 10,000Fabio Tacciaria Auditor approval of 2005 Fin.Stat. Jan. 1, 2004 - Dec. 31, Auditor approval of 2005 Fin.Stat. Jan. 1, 2004 - Dec. 31, (1) General Manager of Espresso Division approval of 2005 Fin.Stat. Jan. 1, 2004 - Dec. 31, approval of 2005 Fin.Stat. 6,667 General Manager of Repubblica Division General Manager of parent company 10,000 approval of 2005 Fin.Stat. 10,000 Jan. 1, 2004 - Dec. 31, 10,000 10,000 approval of 2005 Fin.Stat. Jan. 1, 2004 - Dec. 31, 10,000 Jan. 1, 2004 - Dec. 31, (2) approval of 2005 Fin.Stat. 10,000 approval of 2005 Fin.Stat. (3) 2,500 10,000 until revoked (2) until revoked until revoked 26,706 26,706 (4) 9,000 (1) 119,540 (3) 79,682 (4) 4,033 3,068 3,404 18,556 (6) 116,200 162,500 192,700 177,799 (7) 170,103 (7) 221,670 (8) Marco BenedettoOliviero Maria Brega Managing Director and member of Director and member of (1) Other compensation includes emoluments for Director positions held in other Group companies. (2) The emolument paid for the position of Director Gruppo Editoriale L'Espresso SpA is by ROMED SpA. (3) Other compensation relates to advisory services and emoluments for Director positions held in other Group companies. (4) Other compensation relates to professional services as journalist. (5) Other compensation relates to professional services. (6) Other compensation relates to emoluments for Auditor positions held in other Group companies. (7) Other compensation includes for employment. (8) Other compensation includes for employment and Director positions held in other Group companies. Information required by Consob - art. 78 resolution 11971/99 table 1 OF DIRECTORS, AUDITORS AND GENERAL MANAGERS IN 2004 COMPENSATION

Consolidated Financial Statements at December 31, 2004 36 | Gruppo Editoriale L’Espresso 2004 | Consolidated Financial Statements

Consolidated Balance Sheet

in thousands of euro ASSETS Dec. 31, 2003 Dec. 31, 2004

A - Receivables from Shareholders - -

B - Fixed assets I. Intangible assets Incorporation and startup costs - 11 Industrial patents and intellectual property rights 236 172 Concessions, licenses and trademarks 6,354 4,943 Goodwill on publications 276,242 266,785 Goodwill arising on consolidation 23,350 22,465 Goodwill on other assets 26,740 22,117 Work in progress and advances 361 1,066 Leasehold improvements 2,434 11,157 Other 628 336 TOTAL INTANGIBLE ASSETS 336,345 329,052

II. Tangible assets Land and buildings 32,657 44,197 Plant and equipment 56,081 151,922 Industrial and sales equipment 290 623 Other assets 12,360 15,635 Work in progress and advances 80,270 20,858 TOTAL TANGIBLE ASSETS 181,658 233,235

III. Financial assets Investments in subsidiaries 114 97 in affiliated companies 21,598 21,530 in other companies 3,885 3,771 Receivables short-term 258 134 long-term 4,593 3,816 Own shares 8,663 13,192 TOTAL FINANCIAL ASSETS 39,111 42,540

TOTAL FIXED ASSETS 557,114 604,827 Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 37

Consolidated Balance Sheet

in thousands of euro ASSETS Dec. 31, 2003 Dec. 31, 2004

C - Current assets I. Inventories Raw materials, supplies, consumable stores and merchandise 27,318 26,937 Work in progress, semi-finished and finished products 3,642 3,252 Contract work in progress 5,508 6,385 TOTAL INVENTORIES 36,468 36,574

II. Receivables Trade receivables short-term 231,285 232,365 Subsidiaries short-term 7 7 Affiliated companies short-term 205 492 Parent company short-term - 1,734 Grants receivable short-term 767 969 long-term 1,621 886 Tax receivables short-term 14,967 10,965 long-term 20,478 28,774 Prepaid taxes 19,539 19,860 Other receivables short-term 3,469 8,852 long-term 798 710 TOTAL RECEIVABLES 293,136 305,614

III. Marketable securities Other securities 20,326 20,142 TOTAL MARKETABLE SECURITIES 20,326 20,142

IV. Cash and cash equivalents Banks 69,580 383,026 Cheques 55 21 Cash 180 167 TOTAL CASH AND CASH EQUIVALENTS 69,815 383,214

TOTAL CURRENT ASSETS 419,745 745,544

D - Accrued income and prepaid expenses Accrued income 255 4,171 Prepaid expenses 5,261 11,322 TOTAL ACCRUED INCOME AND PREPAID EXPENSES 5,516 15,493 TOTAL ASSETS 982,375 1,365,864 38 | Gruppo Editoriale L’Espresso 2004 | Consolidated Financial Statements

Consolidated Balance Sheet

in thousands of euro LIABILITIES Dec. 31, 2003 Dec. 31, 2004

A - Shareholders’ Equity I. Share capital 64,769 64,896 II. Share premium reserve 63,991 61,958 III. Restatement reserve 2,533 2,560 IV. Legal reserve 12,954 12,979 V. Statutory reserve - - VI. Reserve for own shares 8,663 13,192 VII. Other reserves 111,259 131,941 VIII. Profit (loss) carried forward - - IX. Net profit (loss) for the period 67,838 87,723 CONSOLIDATED SHAREHOLDERS’ EQUITY 332,007 375,249

Minority interests 9,853 10,098 CONSOLIDATED SHAREHOLDERS’ EQUITY AND MINORITY INTERESTS 341,860 385,347

B - Provisions for risks and charges Provision for retirement benefits 7,849 8,338 Deferred taxes 5,409 4,050 Other provisions 25,933 23,794 TOTAL PROVISIONS FOR RISKS AND CHARGES 39,191 36,182

C - Employee severance reserve 90,607 94,884 Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 39

Consolidated Balance Sheet

in thousands of euro LIABILITIES Dec. 31, 2003 Dec. 31, 2004

D - Payables Bonds 200,000 500,000 Banks short-term 12,703 12,360 long-term 27,119 22,187 Advances short-term 614 169 Trade payables short-term 179,867 208,901 Subsidiaries short-term 7 7 Affiliated companies short-term 585 423 Tax payables short-term 16,159 16,481 Health and social security institutions short-term 13,607 14,032 Other payables short-term 29,789 30,668 TOTAL PAYABLES 480,450 805,228

E - Accrued liabilities and deferred income 30,267 44,223 TOTAL LIABILITIES 982,375 1,365,864

Memorandum accounts Guarantees 2,335 2,379 Other commitments 47,769 122,336 40 | Gruppo Editoriale L’Espresso 2004 | Consolidated Financial Statements

Consolidated Income Statement

in thousands of euro 2003 2004

A - Production value Revenues from sales and services 1,051,069 1,079,832 Change in inventories of work in progress, semi-finished and finished goods 342 (373) Change in contract work in progress 1,660 877 Capitalization of internal construction costs 57 6 Operating grants 1,558 9,427 Other revenues 10,246 9,760 TOTAL PRODUCTION VALUE 1,064,932 1,099,529

B - Production costs Raw materials, auxiliaries and goods 160,154 159,909 Services 341,799 374,645 Leases and rentals 61,723 57,549 Personnel: - Wages and salaries 173,580 180,036 - Social security contributions 54,679 57,153 - Employee severance 14,263 14,613 - Retirement benefits 1,168 1,027 - Other costs 5,534 5,498 Depreciation, amortization and write-downs - Amortization of intangible assets 22,371 20,546 - Depreciation of tangible assets 33,964 33,552 - Write-down of intangible assets 11,872 222 - Write-down of tangible assets 512 2,767 - Write-down of receivables under current assets and cash and cash equivalents 4,585 4,767 Change in inventories (1,498) 383 Provisions for risks and charges 9,051 3,439 Sundry operating costs 8,615 8,999 TOTAL PRODUCTION COSTS 902,372 925,105

DIFFERENCE BETWEEN PRODUCTION VALUE AND PRODUCTION COSTS 162,560 174,424 Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 41

Consolidated Income Statement

in thousands of euro 2003 2004

C - Financial income and charges Income from investments Dividends from affiliates and other companies 1,629 41 Other financial income From long-term receivables 83 46 From securities and other financial assets 5,248 742 Income other than the above From subsidiaries and affiliated companies 16 45 From third parties 10,594 6,160 Interest and other financial charges (45,056) (19,812) Foreign exchange gains (loss) 246 123 TOTAL FINANCIAL INCOME AND CHARGES (27,240) (12,655)

D - Adjustments to the value of financial assets Revaluations Of investments 1,186 1,051 Write-downs Of investments (107) (17) Of marketable securities (114) (181) TOTAL ADJUSTMENTS 965 853

E - Extraordinary items Profits Gains on disposal of assets 20 97 Other income 1,071 599 Charges Other charges (4,115) (3,366) TOTAL EXTRAORDINARY ITEMS (3,024) (2,670) Profit before taxes 133,261 159,952 Taxes payable: current (71,927) (73,775) prepaid (deferred) 6,934 2,134 Profit before minority interests 68,268 88,311

(Profit) loss attributable to Minority interests (430) (588) NET PROFIT 67,838 87,723

Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 45

Notes to the Consolidated Financial Statements

Principles of consolidation In the notes to the accounts, amounts are expressed The Consolidated Financial Statements include the in thousands of euro, as and where relevant. statutory accounts at December 31, 2004 of Gruppo Editoriale L’Espresso SpA, the parent com- To provide a more complete information and clea- pany and the companies in which it holds, either rer understanding of the financial statements, a directly or indirectly, a majority share (higher than reclassified Balance Sheet and Income Statement 50%) of voting rights. Subsidiaries under liquida- have been enclosed, in addition to a Statement of tion were recorded at cost. Other investments are Cash Flows and a Statement of Changes in the recorded at equity or cost, as specified in the para- Consolidated Shareholders’ Equity. graphs that follow. Financial data of subsidiaries relate to amounts The financial statements are presented in accor- contained in the respective companies’ statutory dance with the format provided for by the Italian accounts, prepared according to current applicable Civil Code. regulations by the Boards of Directors of individual companies. In the Balance Sheet and Income Statement, numerals and small letters have been omitted and entries A reconciliation between net profit and sharehol- with a zero balance in the two years under conside- ders’ equity of the parent company and consolida- ration have not been reported. ted net profit and shareholders’ equity is provided in the table below: The Balance Sheet and Income Statement have been prepared in thousands of euro, with no decimals.

Net profit Shareholders’ Equity at December 31 2003 2004 2003 2004 Parent company’s statutory accounts 57,725 70,423 239,217 266,094 Dividends (29,110) (34,253) - - Shareholders’ Equity and net profit of consolidated companies 17,559 49,612 284,829 333,847 Book value of consolidated companies 38,101 10,318 (282,632) (306,010) Goodwill on publications and goodwill arising on consolidation (13,919) (1,961) 60,635 58,674 Subsidiaries valued at equity 89 (68) 21,597 21,529 Elimination of tax-related items (2,556) (6,250) 8,577 2,329 Other consolidation adjustments (51) (98) (216) (1,214) Consolidated Financial Statements 67,838 87,723 332,007 375,249 46 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Area of consolidation Consolidation principles A list of companies included in the consolidation Main consolidation principles adopted were: area is enclosed in the financial statements as • the value of investments held by the parent com- Attachment 5. pany and other companies included in the consoli- No change in the consolidation area or owner- dation was netted against the relating portion of ship shares occurred in 2004. Shareholders’ Equity of the consolidated company, according to the line-by-line method. The premium Accounting principles paid over the value of the Shareholders’ Equity Consolidation principles applied in the preparation acquired at the time of the acquisition is recorded of the Balance Sheet and the Income Statement are as merger difference or, in the case of publishing in line with those adopted in previous years, with companies, a part is entered as the goodwill of the exception of regulatory changes introduced by publications up to their fair market value, and the Legislative Decree no. 6, dated January 17, 2003, remainder as goodwill on consolidation; and subsequent amendments commented and interpreted in Document 1 issued by the Italian • payables and receivables, costs and revenues Accounting Board (OIC 1). More specifically: and all significant inter-company transactions are 1. the present financial statements were the object eliminated; of the “elimination of tax-related entries”: the • minority interests in consolidated companies are mentioned Legislative Decree no. 6/2003 amended recorded in a specific item under liabilities, while paragraph 2 of article 2426 of the Italian Civil the relating share in the net profit of such compa- Code, eliminating the possibility of “carrying out nies is reported separately in the consolidated inco- value adjustments and accruals exclusively for tax me statement; reporting purposes”. Interpreting such amendment, OIC 1 requested the “elimination of possible • the underwriting of capital increases in consoli- value adjustments or accruals made in the income dated companies or companies valued at equity statement in previous years pursuant to previously carried out through the issue of new shares can applicable article 2426 paragraph 2 of the Italian determine, in the case of minority interests, a Civil Code”. The elimination of tax-related entries change in the share of ownership held by the did not have a significant effect on the consolida- Group’s parent company. In the case of a reduc- ted financial statements; tion in the ownership share and where the transac- 2. as set out in paragraph 7-bis of article 2427 of tion can be considered as a sale, the resulting eco- the Italian Civil Code, a table showing for each nomic effect is debited or credited to the consoli- item of Shareholders’ Equity, the origin, possibility dated income statement. In case of an increase in of usage and distribution, in addition to their pos- the share, the resulting economic effect is recorded sible usage in previous years, was included; as goodwill on consolidation; 3. as provided for by paragraph 22, article 2427 of • balance sheets expressed in foreign currencies are the Italian Civil Code, the effect of leasing con- converted at current exchange rates; individual asset tracts existing at December 31, 2004 recorded as and liability items are translated at the exchange financial leases, were included; rate at the balance sheet date. Shareholders’ Equity 4. as provided for by paragraph 4, article 2497-bis items are converted at the historical exchange rate of the Italian Civil Code, summary financial infor- and income statement items at the average exchan- mation of parent company CIR SpA was included ge rate for the period. Foreign exchange differen- in the notes to the accounts of Gruppo Editoriale ces are recorded under “Other reserves” of Sha- L’Espresso SpA. CIR SpA is required by law to pre- reholders’ Equity. pare consolidated financial statements. Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 47

Valuation criteria 342 of November 21, 2000. Depreciation is calcu- Intangible assets lated on a straight line basis, according to the rates Intangible assets are recorded at acquisition or shown below, deemed representative of the resi- production cost, inclusive of any auxiliary cost. dual useful life of the assets: They are amortized over their expected useful life. The item includes goodwill on publications, corre- Buildings 3% sponding to the premium paid on their acquisition Plant, machinery and equipment 10% - 20% with respect to the portion of Shareholders’ Equity Furniture, office equipment and motor vehicles 12% - 25% acquired at the date of the purchase, which is attributed to publications up to their fair market value. Depreciation rates of assets acquired in the period The item includes goodwill on publications, corre- are reduced by half. Assets whose value is less than € sponding to the premium paid on their acquisition 516.46 are expensed in the period in which they with respect to the portion of Shareholders’ Equity are acquired. acquired at the date of the purchase, which is attri- New rotary presses that went into operation in the buted to publications up to their fair market value. year in accordance with the full color plan whose Publications are amortized over a period of 40 implementation allows to print the newspaper enti- years from their acquisition, according to their resi- rely in full color in all printing centers, are depre- dual useful life. Such term is periodically reviewed ciated over an estimated useful life of ten years. in light of the expected future economic perfor- In the case of permanent impairment, the asset is mance of subsidiaries. written down accordingly. Where such impair- Intangible assets also include goodwill arising on ment is reversed in subsequent years, the original consolidation, which reflects the difference between value of the asset is restored, net of accumulated the acquisition cost of subsidiaries and affiliated depreciation. companies and the portion of Shareholders’ Equity Equity investments acquired, not attributable to specific asset and liabi- Investments in unconsolidated companies, on which lity items of the company to which it relates. the parent company exercises either directly or indi- Goodwill arising on consolidation is amortized rectly significant influence (generally with an over 10 years from the date of acquisition, accor- ownership share between 20% and 50%), are ding to the asset estimated residual useful life. In valued at equity. Other investments (generally held case such differences relate to publications, they are with a share below 20%) are recorded at cost, writ- amortized over 40 years, as described further on. ten down where appropriate to keep into account Costs incurred in the start-up phase in the Internet permanent impairment. The original value is resto- sector relating to specific projects are amortized red in subsequent financial periods in case of a over three years in accordance with the principle of reversal. Subsidiaries that have not yet become ope- prudence and the expected recovery of costs. If, rational and those whose accounts are not relevant, therefore, during the amortization period an invest- are excluded from consolidation and valued at cost. ment reaches its full operation stage or the possibility of recovering costs incurred ceases to exist, the Long-term investments unamortized portion is charged to the income sta- Long-term investments are recorded at cost, adju- tement in the period in which such event occurs. sted where necessary in the case of permanent impairment. Tangible assets Tangible assets are recorded at cost, adjusted Own shares upwards in the case of certain assets according to Within the limits set by article 2357 of the Italian the provisions of Law no. 72 of March 19, 1983, Civil Code and in accordance with the terms resol- Law no. 413 of December 31, 1991 and Law no. ved by the Shareholders’ Meeting, own shares are 48 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

recorded at cost, adjusted in case of permanent Provisions for risks and charges impairment, and included under long-term finan- The provisions for risks and charges cover losses cial assets. or payables whose nature and existence are certain Pursuant to article 2357 ter, paragraph 3 of the or likely, for which at the date of the financial sta- Italian Civil Code, a reserve for own shares was tements the amount or the expiration date cannot accrued using a part of the share premium reserve. be determined.

Inventories Employee severance provision Raw material inventories are recorded at the lower The reserve covers amounts, net of advantages, due between acquisition cost, determined based on the to employees upon termination of their employ- weighted average method, and the expected reali- ment according to current regulation, collective zable value, set equal to the market value at the labor contracts and independent agreements with closing date of the financial period. the company. Finished goods and work in process are valued at the lower of the acquisition or production cost Payables and the expected realizable value. Payables are recorded at face value. Work in progress is recorded based on the percentage of completion method. Costs, revenues and pro- Bonds fits on contract work are recognized according to Bonds issued by the company are recorded at face the stage of completion of the productive process. value. Discounts and issue costs are classified among accrued liabilities. They are deferred and Receivables amortized over the life of the bond issue to which Receivables are recorded at face value, adjusted they relate. Interest accrued at the end of the downward to reflect their expected realizable value. period is recorded under accrued liabilities.

Marketable securities Loans and financing Investments and other securities are recorded at the Loans and financing received are recorded at face lower between cost and market value. Marketable value which corresponds to the actual liability of securities are also valued at the lower between cost the principal. Interest accrued at the end of the and market value. Interest accrued at the time of period is recorded under accrued liabilities. acquisition and the date of the financial statements is recorded under “Accrued income”. Hedging instruments Hedging instruments held to hedge against the risk Cash and cash equivalents of fluctuations in the value of specific assets or lia- They are represented by cash on hand, demand and bilities are valued at cost, in line with assets and short-term bank and post office deposits. They are liabilities hedged and valued at cost. Positive and recorded at the lower of face value and the expec- negative differences accrued on hedging contracts ted realizable value. on assets or liabilities that generate interest flows are recorded in the Income Statement applying the Accrued income and prepaid expenses, matching principle. Gains/losses on “paper swap” accrued liabilities and deferred income transactions are recorded to increase/decrease the These are costs and revenues whose effect spans supply cost. over one or more years, costs and revenues relating to future accounting periods incurred in the current Cost and revenue recognition one, and whose amount varies according to time. Criteria used in recording costs and revenues relating to ordinary operations are the following: Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 49

• revenues from the sale of publications are recogni- dation” and a general agreement regulating the zed at the time of shipping, net of related returns; rights and obligations of CIR and of the mentioned • revenues from the sale of advertising space are consolidated companies with respect to the partici- recognized at the time at which the advertising is pation in the tax consolidation was underwritten. published. Costs are recorded in the financial statements ap- Conversion of amounts originally expressed plying the same criteria used for revenues, and in in foreign currencies any case, in accordance with the accrual method. Transactions denominated in foreign currencies are Grants are recorded separately in the Income State- recorded in euro at the exchange rate applicable at ment under “Other revenues”. the time of the transaction. At the time at which Capital grants, including those in the form of tax receivables and payables denominated in foreign credits, are recorded in the period in which the currencies are collected or paid out, exchange rate related capital investment is made, and credited to differences are recorded in the income statement. the Income Statement under “Other revenues” Payables and receivables denominated in foreign over a period correlated with the residual life of the currencies at the closing date of the financial state- assets to which they relate and with the same ments are recorded in the same at the exchange depreciation rate. The share relating to future years rate in force at the date of the financial statements. is recorded as deferred income. Gains and losses resulting from the conversion of individual credits and debits are credited and debi- Income taxes ted as appropriate to the income statement, kee- The provision for income taxes is accrued in accor- ping into account hedging transactions. dance with the expected tax liability. Individual tax liabilities are recorded in the Balan- Explanation added for translation into English ce Sheet . The consolidated financial statements and the rela- Deferred and prepaid taxes arising from timing dif- ted notes have been translated into English from the ferences between the profit reported in the finan- original Italian version. They have been prepared in cial statements and that reported for tax purposes accordance with Italian accounting principles, are also recorded. Prepaid taxes are recorded in which differ in certain aspects from the accounting accordance with prudent criteria, pursuant to arti- principles of other countries. cle 2423-bis of the Italian Civil Code, and where there exists reasonable certainty of their recovery in future years. The new Income Tax Code (TUIR) introduced the possibility for companies of a same Group to determine an overall profit corresponding in principle to the algebraic sum of taxable profits of each company (parent company and companies controlled directly and/or indirectly with a share over 50%) and, consequently, to determine a single income tax liability for the whole Group. In October, the Boards of Directors of Gruppo Editoriale L'Espresso, Fine- gil Editoriale, Editoriale La Nuova Sardegna, Edi- zioni Nuova Europa, Editoriale La Città, A.Manzo- ni&C., Elemedia, EleTv, Somedia, Rotosud, CPS, Rotocolor, Selpi, Kataweb, Esperya and Studio Vit resolved their participation to CIR’s “Tax consoli- 50 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Balance sheet assets Concessions, licenses and trademarks Dec. 31, 2003 Dec. 31, 2004 6,354 4,943 A – Receivable from shareholders At December 31, 2004 no amount was due by The item relates mainly to licenses for the use of shareholders as capital not paid- in. software packages expected to have a useful life spanning over several years. B – Fixed assets Expenditure in the period amounted to €1,456 Intangible assets thousand, while net divestments amounted to The breakdown and changes in intangible assets €139 thousand, write-downs and reclassifications are shown in Attachment 1. At December 31, to €192 thousand and amortization charges were 2004, intangible assets amounted to €329,052 equal to €2,536 thousand. thousand, declining by €7,293 thousand on December 31, 2003 (€336,345 thousand). The most significant investments were made by: • the parent company (€1,031 thousand), due pri- Expenditure on intangible assets in 2004 amoun- marily to the development of editing, management € ted to 13,748 thousand, net divestments to and distribution systems, in addition to network € 365 thousand, reclassifications of intangible and transmission software for printing centers; assets were equal to €92 thousand, amortization € charges to €20,546 thousand and write-downs to • local newspapers ( 222 thousand) for the repla- €222 thousand. cement of editorial software and the renovation of distribution systems. The item breaks down as follows: Write-downs amount to €67 thousand and relate Incorporation and start-up costs Dec. 31, 2003 Dec. 31, 2004 to proprietary and licensed software of subsidiary -11Esperya, no longer used.

Incorporation and start-up costs are made up of Goodwill on publications Dec. 31, 2003 Dec. 31, 2004 notary public fees incurred by subsidiary Rotoco- la Repubblica 160,684 154,917 lor. The depreciation expense for the year amounts Local newspapers 44,144 42,571 to €4 thousand. Free press 2,307 2,222 Il Piccolo 26,139 25,371 Industrial patents and Messaggero Veneto 42,968 41,704 intellectual property rights Dec. 31, 2003 Dec. 31, 2004 Total 276,242 266,785 236 172

The item consists mainly of software developed The decline of €9,457 thousand on December 31, for Internet applications of subsidiary Ksolutions 2003 is due exclusively to the amortization expen- (€87 thousand). se for the year.

Expenditure in the year amounted to €156 thou- Goodwill arising on consolidation Dec. 31, 2003 Dec. 31, 2004 sand, reclassifications from assets under develop- Radio sector companies 654 436 ment amounted to €187 thousand and amortiza- Friuli Venezia Giulia companies 22,696 22,029 € tion expense was equal to 407 thousand. Total 23,350 22,465 Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 51

The €885 thousand decline is due entirely to the amounted to €91 thousand, while reclassifications amortization expense for the period. were equal to €89 thousand and the amortization expense to €472 thousand. Goodwill on other assets Dec. 31, 2003 Dec. 31, 2004 26,740 22,117 Tangible assets The breakdown and changes in tangible assets It relates primarily to goodwill paid by Group are shown in Attachment 2. radio stations for the acquisition of broadcast frequencies. In the year, subsidiary Elemedia acquired At December 31, 2004, tangible assets amounted frequencies for a total amount of €491 thousand to €233,235 thousand, growing by €51,577 thou- and sold frequencies for a total net value of €225 sand on December 31, 2003 (€181,658 thousand). thousand. The amortization expense for the year They are made up by capital goods, buildings and amounts to €4,734 thousand, while write-downs office furniture, owned by consolidated companies amounted to €155 thousand. used in ordinary business activities.

Work in progress and advances Dec. 31, 2003 Dec. 31, 2004 Expenditure in the year amounted to €89,667 thou- 361 1,066 sand, while net divestments were equal to €1,771 thousand, the amortization expense to €33,552 The €705 thousand increase on December 31, thousand and write-downs to €2,767 thousand. 2003 is due primarily to investments made by Ele- media for the renovation of the Rome and Milan The most significant investments relate to: € offices ( 923 thousand). • the parent company (€16.7 million) for projects aimed at increasing color printing capacity and Other intangible assets Dec. 31, 2003 Dec. 31, 2004 for the upgrade of editing systems and of infor- Leasehold improvements 2,434 11,157 mation and network systems; Other 628 336 • local newspapers (€50.8 million), for the upgrade Total 3,062 11,493 of production and printing plants in the context of la Repubblica’s full color project (€33.9 million), Leasehold improvements relate primarily to the for the increase in color printing capacity at the € restructuring of leased offices in which Group com- Mantova and Sassari printing centers ( 15.2 mil- panies are based. Investments in the year amounted lion), for the update of editorial and information € to €10,483 thousand relating primarily to work for systems ( 1.4 million) and for the maintenance of € the Milan and Bari printing centers, the renovation offices ( 0.3 million); of la Repubblica and L’espresso’s new Rome offi- • subsidiary Rotocolor (€17.4 million) for the reno- ces, the renovation of radio production studios in vation of its printing complex, the construction of Rome and Milan and the renovation of the new printing plant and the purchase of new full color location of newspaper il Centro in Pescara. The rotary presses for the printing of la Repubblica; amortization expense was equal to €2,051 thou- € sand, while reclassifications of assets under deve- • subsidiary Elemedia ( 2.7 million), for environ- lopment amounted to €291 thousand. mental work and the update of equipment for the transmission and reception of radio signal. Other intangible assets include mainly accessory Write-downs in the year amounted to €2,767 thou- costs (stamp duties, notary public expenses) incur- sand relating prevalently to printing plant of the red by Elemedia for the acquisition of new busi- old Rome and Milan printing complexes. nesses (€115 thousand). Investments for the year 52 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Some subsidiaries make use of leased assets. • The book value of the investment in Saire increased by €21 thousand due to the share in net inco- In the past, a number of subsidiaries have carried me reported for the period. out revaluations of tangible assets pursuant to spe- • The book value of the investment in Editoriale cial laws. Libertà declined by €115 thousand due to the distribution of €875 thousand in dividends, partly Guarantees have been granted on some tangible offset by the share in net income for the period, assets in favor of banks that have extended subsidi- adjusted to take into account the amortization of zed loans to subsidiaries, as reported in the relative goodwill, equal to €760 thousand. sections of the balance sheet and in the memorandum accounts. • The book value of the investment in Altrimedia grew by €8 thousand due to the share in net inco- Assets held under financial leases me for the period adjusted to take into account the Assets held under a financial lease are reported in amortization of goodwill, equal to €148 thousand, Attachment 3 that provides a detail showing the that more than offset the distribution of €140 effect on the Consolidated Shareholders’ Equity thousand in dividends. and the Consolidated Income Statement that would have been produced, had been the same assets ac- counted for as a financial leases. Investments valued at cost

Financial assets % ownership Book value Financial assets at December 31, 2004 amount to Dec. 31, Dec. 31, Dec. 31, Dec. 31, €42,540 thousand (€39,111 thousand at December 2003 2004 2003 2004 31, 2003), declining by €3,429 thousand. Sandalyaweb not operational 100% 100% 75 75 Ansa Soc. Coop.a r.l. 16.68% 16.97% 2,209 2,209 Investments E Ink Corporation Inc. 0.69% 0.43% 1,481 1,481 Investments at December 31, 2004 amount to €25,398 thousand (€25,597 thousand at Decem- DAB Servizi 12.5% - 114 - ber 31, 2003). Main changes in the year are shown Trento Press Service 14.4% 14.4% 37 37 in the table that follows: A.G.F. 10% 10% 10 10 Audiradio 4% 4% 26 26 Investments in companies valued at equity Other investments 48 31 Total investments valued at cost 4,000 3,869 % ownership Book value Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2003 2004 2003 2004 • The equity interest held in E-Ink Corporation Le Scienze 50% 50% 167 185 Inc. declined due to the decision of the parent Saire 50% 50% 327 348 company not to underwrite its share in the capi- Editoriale Libertà 35% 35% 20,450 20,335 tal increase carried out by the company. Altrimedia 35% 35% 653 661 • Company DAB Servizi was liquidated in the year. Total investments valued at equity 21,597 21,529 • The book value of other investments declines • The book value of the investment in Le Scienze due to the write-down in the investment in Alsoft grew by €18 thousand due to net profit for the and Uhuru Multimedia. year amounting to €121 thousand, partly offset by the distribution of €103 thousand in dividends. Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 53

Receivables C - Current assets

Dec. 31, Dec. 31, of which 2003 2004 expiring over 5 years Inventories Guarantee deposits 1,547 1,572 377 Tax credits for advances on Dec. 31, 2003 Dec. 31, 2004 personal income tax payable on Paper 24,064 23,846 employee severance indemnities 3,300 2,371 - Materials for typesetting and printing 1,673 2,179 Other long-term financial receivables 4 7 - Other goods 1,581 912 Total 4,851 3,950 377 Publications 3,642 3,252 Contract work in progress 5,508 6,385 Total 36,468 36,574 Guarantee deposits at December 31, 2004 relate primarily to lease contracts. Paper inventories are in line with December 31, 2003. Tax credits for advances on personal income tax on employee severance indemnities are made up of tax Materials for typesetting and printing grow by €506 advances paid pursuant to Law 140/97 on amounts thousand due to purchases made as a result of the accrued by employees upon termination of employ- coming into operation of new full color rotary ment at December 31, 1997, revalued yearly. The presses. net decline of €929 thousand on December 31, 2003 is due to the use of the provision for person- Other goods amount to €912 thousand and consist nel terminating employment in the year, partly off- mainly of software and hardware acquired by Kso- set by the revaluation carried out. lutions for resale, in addition to products for sale on the Internet. The €669 thousand decline is due Own shares to the discontinuation of activities by subsidiary The Company acquired, starting from the fiscal Esperya. year 2001, a total of 4,800,000 shares (of which 1,600,000 in 2004) to service stock option plans. Inventories of publications at December 31, 2004 rela- Over the course of time, rights to a total of te primarily to the first issue of National Geographic 1,500,000 shares (of which 1,000,000 in 2004) and the supplements of la Repubblica, in addition to were exercised, bringing the number of own shares products sold in conjunction with Group magazi- held to 3,300,000. Own shares at December 31, nes and newspapers distributed in the first months 2004 are recorded at €13,192 thousand (€8,663 of 2005. thousand at December 31, 2003), net of a write- down of €820 thousand carried out in 2002. Contract work in progress relates to work under completion by subsidiary Ksolutions. The €877 Pursuant to article 2357 ter, paragraph 3 of the Ita- thousand increase is due to higher contract work lian Civil Code, the reserve for own shares was carried out for the Public Administration. increased through a transfer from the share premium reserve. 54 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Receivables Tax receivables Pursuant to article 2424 of Legislative Decree no. Trade receivables Dec. 31, 2003 Dec. 31, 2004 6/2003, the item “Tax receivables” was reported Newsstands and distributors 13,146 12,783 as a separate item under “Receivables”. The corre- Advertising receivables 213,105 215,946 sponding amount for the previous year was reclas- Sundry receivables 5,034 3,636 sified accordingly. At December 31, 2004 tax Total 231,285 232,365 receivables amount to €39,793 thousand (up from €35,445 thousand at December 31, 2003), and are made up as follows: Receivables from newsstands and distributors decline by €363 thousand due to changes in collection Dec. 31, 2003 Dec. 31, 2004 terms. Corporate and local taxes receivable 3,734 958 Corporate and local tax receivables Advertising receivables grow by €2,841 thousand for which a refund has been requested 10,245 10,345 due to increased advertising sales. VAT receivable 5,041 552 Other tax credits 16,425 27,884 Sundry receivables include mainly receivables for Total 35,445 39,739 the sale of rejects and returns, the sale of videotapes to be demagnetized, printing services provided to third parties, receivables from subscribers Due to the participation in the tax consolidation of Group publications and revenues from web of parent company CIR, corporate and local taxes solutions and e-commerce activities. The €1,398 receivable at December 31, 2004 include only pre- thousand decline is due primarily to the lower vious years’ taxes receivable accounts. number of unsold videotapes by L’espresso to be demagnetized, as a result of the gradual abandon- Corporate and local tax receivables for which a refund ment of this kind of product sold in conjunction has been requested include tax credits relating to pre- with the magazine. vious years, for which a refund has been requested.

Receivables from subsidiaries, affiliated VAT receivable declines by €4,489 thousand due companies, parent companies and other primarily to the decline in VAT receivable by the Group companies parent company as a result of the higher advance These amount to €2,233 thousand (€212 thou- paid in December. sand at December 31, 2003) and consist for €492 thousand of trade receivables of the parent com- Other tax credits relate primarily to tax receivables pany from Le Scienze and €1,734 thousand rela- on contributions pursuant to Law 62/2001 (Law ting to income tax (IRES) receivable from parent on publishing), in addition to contributions on company CIR resulting from the participation in paper purchases provided for by Law no. 350, the tax consolidation of the same. December 24, 2003, and interest on tax receivables on taxes for which a refund has been requested. Grants receivable Law 62/2001 provides that capital expenditure Grants receivable amount to €1,855 thousand eligible for contributions receives a 3% tax credit (€2,388 thousand at December 31, 2003) and rela- per year for five years. At December 31, 2004, te primarily to subsidiary Rotosud on contribu- tax credits relating to the said law amounted to tions provided by the Presidency of the Council of €19,220 thousand; benefits accruing in other Ministers pursuant to Law 416/81 on the leasing years, amounting to €18,970 thousand, were contract stipulated with Intesa Leasing in 1998. recorded under “deferred income” and are drawn- Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 55

down each year over the useful life of the asset to Other receivables which they relate. Law no. 350 dated December 24, 2003 provides Dec. 31, 2003 Dec. 31, 2004 contributions towards the cost of paper used in Advances to personnel, suppliers, agents 1,788 7,009 2004 for the printing of publishing products, pro- Social security receivables 484 372 viding a 10% tax credit on the total cost of paper Other receivables 1,995 2,181 € consumed. The law sets an overall limit of 95 Total 4,267 9,562 million of contributions for year 2004. Since the tax credit granted to the Company has not been defined, as the number of applications is unk- Advances to suppliers include the €5,000 thousand nown at this stage, we estimate the amount of the deposit paid on the agreement for the acquisition subsidy based on information available on paper of national TV network Rete A. consumption for 2003 at about half the normal tax credit on the Group’s paper consumption for Other receivables include: 2004. Paper purchase contributions for 2004 are • trade receivables amounting to €2,047 thousand; recorded at €4,858 thousand. The table that fol- • current receivables amounting to €134 thousand lows shows paper purchases for 2004, the portion consisting of deposits held with the Post Office. eligible for subsidies pursuant to the mentioned law and the related estimated tax credit recorded: Marketable securities Marketable securities consist of Government secu- Dec. 31, 2004 rities held by the parent company (€20,142 thou- Paper purchases 121,147 sand). A detail is included in Attachment 6. These Paper consumption eligible for subsidies 97,160 securities are recorded at December 31, 2004, net € 10% tax credit (applied for) 9,716 of the write-down of 181 thousand carried out Expected tax credit recorded (50% of amount applied for) 4,858 to bring their book value in line with current market prices. Part of these securities, amounting to €2,523 thousand, are pledged as guarantees Prepaid taxes against subsidized loans. Article 2424 of Legislative Decree no. 6/2003 provides for the reporting of prepaid taxes under a Cash and cash equivalents separate item in the Consolidated Balance Sheet. Cash and cash equivalents amount to €383,214 The corresponding amount for the previous year thousand (€69,815 thousand at December 31, was reclassified accordingly. At December 31, 2004 2003). The breakdown is provided in the table prepaid taxes amount to €19,860 thousand (up below: from €19,539 thousand at December 31, 2003) and correspond to the difference generated by Dec. 31, 2003 Dec. 31, 2004 timing differences between taxes recorded in the Current accounts 69,580 383,026 balance sheet and amounts reported for tax pur- Checks 55 21 poses. A detail of changes in the year is included Cash on hand 180 167 under Attachments 7 and 8. Total 69,815 383,214

The €313,399 thousand increase on December 31, 2004 is due mainly to the investment in short-term bank deposits of €300 million generated through the new bond issue described under “Bonds”. 56 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Investments in short-term bank deposits are carried Accrued interest includes primarily interest accrued out prevalently by the parent company (€368,800 on interest rate swap transactions used to exchan- thousand). The breakdown at December 31, 2004 ge the original fixed rate on the bond issue with a is provided in the table below: variable rate, in addition to interest accrued on bank deposits. Bank Maturity Rate Amount (€’000) Rents and leases relate primarily to subsidiary Banco di Brescia January 27, 2005 2.10% 18,000 Rotosud and consist of the residual portion of Banco di Brescia January 17, 2005 2.10% 6,500 leasing payments and pre-leasing service costs of Banco di Brescia January 12, 2005 2.00% 4,000 a rotary press. The decline over the end of 2003 Banca Intesa January 17, 2005 2.07% 10,000 is due to the portion paid in the year. Banca Intesa August 1, 2005 2.18% 80,000 B.N.L. January 3, 2005 2.20% 2,000 Bond issue costs consist of issue discounts and B.N.L. January 7, 2005 2.12% 1,200 costs incurred in the organization and placement B.N.L. January 7, 2005 2.13% 2,000 of bonds issued. They are amortized over the life B.N.L. January 13, 2005 2.10% 4,000 of the relating bond issue. B.N.L. January 17, 2005 2.10% 5,000 B.N.L. January 27, 2005 2.10% 10,000 Other prepaid expenses include mainly costs relating B.N.L. August 1, 2005 2.18% 50,000 to 2005 for agency fees, market research and insu- M.P.S. January 5, 2005 2.17% 3,000 rance, in addition to maintenance, Internet connec- M.P.S. January 5, 2005 2.12% 1,100 tion fees and production costs. The €6,117 thou- M.P.S. January 10, 2005 2.15% 8,000 sand increase is due to the acquisition of rights for M.P.S. January 27, 2005 2.13% 40,000 the publishing of products that will be sold optio- M.P.S. January 31, 2005 2.12% 4,000 nally with la Repubblica and L’Espresso in future M.P.S. August 1, 2005 2.19% 40,000 years and to the rents relating to 2005. Unicredit January 10, 2005 2.12% 5,000 Unicredit January 10, 2005 2.11% 10,000 Unicredit January 13, 2005 2.08% 5,000 Unicredit January 27, 2005 2.10% 30,000 Unicredit August 1, 2005 2.17% 30,000

D - Accrued income and prepaid expenses

Dec. 31, 2003 Dec. 31, 2004 Accrued income • Interest 222 4,145 • Other 33 26 Total accrued income 255 4,171 Prepaid expenses • Rent and leases 990 736 • Bond issue costs 494 692 • Other prepaid expenses 3,777 9,894 Total prepaid expenses 5,261 11,322 TOTAL 5,516 15,493 Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 57

Liabilities and Shareholders’ Equity The reserve was accrued by withdrawing from the share premium reserve. A - Shareholders’ equity Changes in the Consolidated Shareholders’ Equity Other reserves in the year are detailed in Attachment 4, while a Other reserves amount to €131,941 thousand detail of Shareholders’ Equity reserves and the (€111,259 thousand at December 31, 2003). The related portions that are available or may be distri- €20,682 thousand increase on December 31, buted is included under Attachment 4-bis. 2003 is due mainly to the allocation to reserves of part of the 2003 net income, as resolved by the Share capital Shareholders’ Meeting on April 21, 2004. The share capital amounts to €64,896,058.20 and is made up of 432,640,388 shares with par value of Net profit (loss) for the year €0.15 each. The €127,196.25 increase on December Net profit (loss) for the year amounts to €87,723 31, 2003 is due to the issue of 847,975 shares to ser- thousand (€67,838 thousand at December 31, vice the Group’s stock option plans for employees. 2003).

Share premium reserve Minority interests It amounts to €61,958 thousand (€63,991 thou- The €10,098 thousand balance (€9,853 thousand sand at December 31, 2003) and represents the at December 31, 2003) represents the portion of the premium paid by shareholders on capital increases Shareholders’ Equity held by minority shareholders. carried out over time. It declines by €2,033 thousand on December 31, 2003 due to the transfer of Dec. 31, 2003 Dec. 31, 2004 €4,529 thousand to the Reserve for own shares, Editoriale FVG 8,256 8,390 offset by the share premium of €2,496 thousand Edigraf 184 217 paid for the above mentioned capital increase. Seta 1,413 1,491 Total 9,853 10,098 Restatement reserve It amounts to €2,560 thousand (€2,533 thousand at December 31, 2003). The €27 thousand increa- B - Provisions for risks and charges se is due to the accrual to the reserve carried out by Edigraf. Dec. 31, Accruals Uses Dec. 31, 2003 2004 Legal reserve Retirement provision 7,849 1,027 (538) 8,338 It amounts to €12,979 thousand and increases by Tax provision 5,409 131 (1,490) 4,050 €25 thousand on December 31, 2003 due to the Provision for legal accrual to legal reserve up to its reaching 20% of proceedings 19,648 2,938 (3,391) 19,195 the share capital, as provided for by law. Provision for contract renewal 141 - (141) - Reserve for own shares Provision for sundry risks 6,144 501 (2,046) 4,599 The reserve, accrued pursuant to article 2357 ter, Total 39,191 4,597 (7,606) 36,182 paragraph 3 of the Italian Civil Code, amounts to €13,192 thousand (as compared with €8,663 The retirement provision, accrued according to thousand at December 31, 2003), corresponding amounts payable pursuant to labor contracts in to the book value of 3,300,000 shares acquired on force, includes indemnities for journalists and the regulated market, net of the write-down of managers. Accruals for the period relate to amounts €820 thousand. set aside for employees, while uses relate to settle- 58 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

ments of amounts due to managers who left their D – Payables employment with the Group. Bonds The tax provision includes primarily accelerated On October 8, 2004, the Company placed on the depreciation adjustments carried out in the conso- market through Banca Caboto S.p.A., JP Morgan lidated financial statements. Securites Ltd, Lehman Brothers International and Mediobanca as lead managers, a €300 million 10- The provision for legal proceedings is accrued against years fixed-rate bond issue. Bonds are listed on the the risk of potential charges resulting from legal Luxembourg Stock Exchange and pay an annual proceedings and litigations. The provision has been 5.125% coupon, equal to a 10-year mid-swap rate accrued according to prudent criteria, keeping into plus 105 basis points. The full amount of the issue account the particular nature of the activity carried was swapped into a 10-year floating-rate through out, despite the difficulty encountered in assessing swap transactions having a term matching that of the amount of potential charges relating to each the bond issue through which the Espresso Group individual legal proceeding underway. In addition pays a floating-rate equal to the 6-months Euribor to potential libel claims, affecting all publishers, it rate and receives a 5.125% fixed rate. The fair includes also risks relating to commercial and labor market value of swap contracts at December 31, issues, in addition to possible social security audits. 2004 amounts to €5,435 thousand. The contracts were closed in March 2005 resulting in a gain. The provision for sundry risks includes provisions for The item includes a €200 million 2000-2005 5- early retirement incentives, tax contestation on pre- year bond issue, expiring August 1, 2005. mium transactions and other risks. Banks C - Employee severance reserve Dec. 31, 2003 Dec. 31, 2004 The provision covers amounts accrued by person- Short-term nel at December 31, 2004 pursuant to current laws Overdrafts 6,424 7,436 and regulations. Changes occurred in the period Current portion of secured loans 5,369 4,195 are shown below: Current portion of unsecured loans 910 729 Total short-term loans 12,703 12,360 Dec. 31, 2003 Accruals Uses Dec. 31, 2004 Long-term 90,607 14,613 (10,336) 94,884 Secured loans 25,256 21,054 Unsecured loans 1,863 1,133 Uses of the provision relate to indemnities paid to Total long-term loans 27,119 22,187 personnel terminating their employment with the TOTAL 39,822 34,547 Group and advances to employees on severance indemnities. The table below shows the average number of employees by category: At December 31, 2004, short-term bank debt was made up primarily of advances on receivables of 2003 2004 subsidiary A.Manzoni&C. in the context of liqui- Journalists 1,181 1,189 dity management. Manual workers 411 431 Office workers 1,413 1,378 Secured loans are extended against liens on equip- Managers 108 105 ment financed and other company assets. They Fixed-term employees 96 102 benefit from subsidies provided for by Italian legi- Total 3,209 3,205 slation on publishing. Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 59

Unsecured loans are extended against liens on secu- Other trade payables grow by €7,915 thousand, due rities and financial assets pledged and recorded in primarily to the optimization of payment terms. the balance sheet among “Other securities”. A total of €6,287 thousand of debts was reimbur- Payables to subsidiaries and affiliated companies sed in 2004 while no new debt was assumed. They amount to €430 thousand (€592 thousand at December 31, 2003) and relate primarily to the Advances parent company’s trade payables to Le Scienze. Advances received amount to €169 thousand (€614 thousand at December 31, 2003). They are made up Taxes payable primarily of advances received by the Udine Divi- sion of Editoriale FVG in accordance with the con- Dec. 31, 2003 Dec. 31, 2004 tract for the printing of newspaper Il Sole 24 Ore. Income taxes payables 4,852 1,608 Withholding taxes on personnel salaries payable 9,222 9,305 Trade payables Other taxes payable 274 233 Dec. 31, 2003 Dec. 31, 2004 VAT payable 1,811 5,335 Paper 32,835 41,319 Total 16,159 16,481 Printing 25,039 32,229 Capital goods 24,341 31,089 Promotion 13,460 12,157 As a result of the participation in CIR’s tax consolidation procedure, income taxes payable at Decem- Other 84,192 92,107 ber 31, 2004 include regional income tax on pro- Total 179,867 208,901 ductive activities (Irap) payable by all subsidiaries and income taxes (Ires) of companies that do not Paper payables grow by €8,484 thousand due to participate in the tax consolidation procedure the conclusion of a higher number of publishing (Editoriale FVG, Seta, Edigraf and Ksolutions). initiatives. € Payables for printing services increase by €7,190 VAT payable increases by 3,524 thousand due pri- thousand due primarily to publications sold optio- marily to the settlement of Group VAT payables in nally in conjunction with la Repubblica and L’e- December. spresso, and costs for the implementation of the new full color technology. Health and social security institutions Payables to social security institutions amount to Capital goods grow by €6,748 thousand due mainly €14,032 thousand (€13,607 thousand at December to purchases by the Repubblica division, local new- 31, 2003) and are made up mainly of social secu- spapers and Rotocolor of new rotary presses and rity contributions on salaries paid to employees in equipment relating to the full color project. December 2004.

Payables for promotion decline by €1,303 thousand Other payables due to the failure to repeat the advertising cam- Dec. 31, 2003 Dec. 31, 2004 paign involving cinema and television carried out Payable to personnel for paid leave 12,795 14,209 by Elemedia in the last quarter of the previous Other payables to personnel 13,926 13,306 year. The item includes the promotion for the launch at the end of the year of the Touring Club Payables for purchase of equity investments 54 - guide book series distributed with la Repubblica Other payables 3,014 3,153 and the new multimedia products sold in conjunc- Total 29,789 30,668 tion with L’espresso. 60 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Payables to personnel for paid leave relate to the days Memorandum accounts of vacation accrued and not enjoyed by Group employees. Guarantees At December 31, 2004 guarantees amount to Other payables to personnel relate to retribution, Sun- €2,379 thousand and consist primarily of gua- day indemnities, overtime and contractual agree- rantees provided by Kataweb, Elemedia and ments. A.Manzoni&C. for the lease of their respective offices. Other payables include amounts due to directors, statutory auditors and shareholders. Other commitments At December 31, 2004, other commitments amount to €122,336 thousand, growing by €74,567 thou- E - Accrued liabilities and deferred income sand on December 31, 2003 due mainly to the €110 million commitment resulting from the Dec. 31, 2003 Dec. 31, 2004 underwriting of the agreement for the acquisition Accrued liabilities of the national network Rete A. They consist of: • Interest 5,449 10,010 • Other 2,849 2,681 • Commitments relating to contracts for the acqui- € Total accrued liabilities 8,298 12,691 sition of plant and equipment ( 6,032 thousand), primarily for Repubblica, Finegil Editoriale and Deferred income 21,969 31,532 Editoriale La Nuova Sardegna, in the context of Total 30,267 44,223 the full color project.

Accrued interest payable includes mainly the share • A commitment to acquire television network in the interest expense relating to the 2000-2005 Rete A (€110 million). bond issue (€5,449 thousand) and the 2004-2014 bond issue (€2,738 thousand). The item includes • Risks connected to an injunction relating to liti- also interest accrued on interest rate swap con- gation of Editoriale FVG (€1,269 thousand). tracts relating to the new bond issue. • Leasing payments (€4,599 thousand), with prin- Other accrued liabilities relate mainly to deferred cipal amounting to €4,255 thousand. compensations. • Guarantees and other minor commitments (€436 Deferred income relates mainly to the early collec- thousand). tion of subscription fees for L’espresso, la Repub- blica, National Geographic and local newspapers. The item includes also deferred income on tax credits under Law 62/2001 for grants on investments, amounting to €18,970 thousand, relating to the portion to be recorded in future years, in accordance with amortization charges for the investments they relate to. Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 61

Income Statement Revenues from the sale of hardware and software, Internet services and software development grew by €2,043 thousand on the previous year and related A- Production value to the activity of subsidiary Ksolutions. In 2004 production value amounted to €1,099,529 thousand (€1,064,932 thousand in 2003). Revenues from e-commerce products relate primarily to subsidiary Esperya. The €548 thousand decline Revenues from sales and services on 2003 can be attributed to sale of the company’s In 2004, the consolidated revenues from sales and business in July 2004. services amounted to €1,079,832 thousand (up 2.7% on 2003), as shown in the table below. Other revenues related to advisory services supplied by Internet companies, Somedia’s business in the 2003 2004 organization of conferences and training courses, Net circulation revenues 482,751 496,434 the sale of paper and unsold inventories for paper Net advertising revenues 534,030 546,148 recycling, and to the residual activities of publi- Hardware and software products 671 3,029 shing companies and the advertising concessionai- Internet services and re A.Manzoni&C.. Other revenues increased by software development 4,386 4,071 €1,141 thousand on 2003. E-commerce products 1,231 683 Other products 464 790 Change in inventories of work in progress, Other revenues 27,536 28,677 semi-finished and finished goods € Total 1,051,069 1,079,832 The change amounts to 373 thousand and includes primarily the difference between closing and opening product inventories of the parent Net circulation revenues increase by €13,683 thou- company (€331 thousand). sand on 2003 (up 2.8%). The growth in revenues can be attributed primarily to the sale of products Other revenues sold optionally in conjunction with Group publica- 2003 2004 tions. In 2004, la Repubblica published appendix Grants received 1,558 9,427 volumes to the l’Enciclopedia collection, La Storia Extraordinary gains 4,586 3,743 series of volumes and a number of comics book series. L’espresso published the La Storia Generale Recovery of costs 2,177 2,877 della Letteratura Italiana series, an art book series Capital gains on the disposal of assets 95 361 and DVD, music CD and CD-ROM series. Rent received 697 507 Other revenues and income 2,691 2,272 Circulation of Group publications was in line with Total 11,804 19,187 2003. La Repubblica had an average circulation of 625 thousand copies per issue, local newspapers Grants received include the share accrued in the sold an average of 488 thousand copies per issue, year of tax credits provided by Law 350/2003 on while L’espresso recorded an average of 390 thou- paper purchases and those provided on capital sand copies per week. expenditure (Law 62/2001), in addition to the reimbursement of expenses for news agencies’ Net advertising revenues grew in the period by fees and discounts on electricity and telephone 2.3% on 2003, up €12,118 thousand. The perfor- costs of radio stations (Law 250/90). The amount mance of the advertising market has already been of €9,427 thousand received in the year relates discussed in the Report of the Board of Directors. primarily to the parent company (€4,883 thou- 62 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

sand), local newspapers (€1,372 thousand), Ele- Other consumables include the purchase of books media (€484 thousand) and Ksolutions for capi- and newspapers, stationary and other materials. tal grants on costs incurred in long-term research projects (€1,999 thousand). Purchases of products sold optionally with publications include costs incurred for the purchase of products Extraordinary gains relate to the parent company sold optionally in conjunction with Group publica- (€2,070 thousand) mainly due to the adjustment of tions. The €5,669 thousand decline is due to lower sale figures; to local newspapers (€691 thousand); quantities acquired from third parties. to A.Manzoni&C. (€647 thousand) for the collection of receivables already recorded as losses and to E-commerce goods purchases declined by €595 VAT on liquidation proceedings; to Elemedia (€226 thousand as a result of the sale by Esperya of its thousand) and to Kataweb (€109 thousand). online sales business.

Recovery of costs includes mainly amounts charged Other goods purchases grew by €2,325 thousand due by A.Manzoni&C. to agents for the use of com- to the higher purchases of hardware and software pany assets, and amounts charged to customers, products for resale by subsidiary Ksolutions. agencies and other publishers for uncollectibles. Services B- Production costs 2003 2004 Raw materials, auxiliaries and goods purchases Printing and other work carried out by others 94,883 114,254 2003 2004 Editing costs 63,635 63,023 Paper 123,510 121,620 Publishers’ fees 19,041 20,109 Printing supplies 11,034 15,801 Transport 26,490 28,065 Other consumables 4,119 4,936 Commissions and agents’ fees 27,914 28,429 Products sold optionally with publications 20,133 14,464 Advertising and promotional services 34,106 38,647 E-commerce goods 740 145 Postage, telephone and data transmission 14,873 15,282 Other goods 618 2,943 Maintenance and utilities 16,528 17,862 Total 160,154 159,909 TV production and Internet sites’ technical services 6,882 8,629 Other services 37,447 40,345 Paper purchases € declined by 1,890 thousand Total 341,799 374,645 (down 1.5% on 2003), thanks to the reduction in the average price of paper that more than offset higher consumption due to new sales initiatives in The cost of printing and other work carried out by the year (books, encyclopedia and other products). others increased by €19,371 thousand due to the printing of products sold optionally with the publi- Purchases of printing materials grew by €4,767 cations of the Group and to higher costs for the thousand due to costs incurred for the start of ope- printing of la Repubblica in full color. ration of the new full color printing presses and the choice not to acquire products for resale in Editorial costs include the cost of photographs, free- conjunction with publications already finished, lance editorial work, travel expenses and news buying instead the paper and contracting only the agencies. They decline by €612 thousand on the printing outside. previous year. Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 63

Publishers’ fees grew by €1,068 thousand, due to €4,953 thousand on 2003 is due mainly to lower higher advertising sales. rights paid for products sold optionally with Group publications. Transport costs increased by €1,575 thousand, mainly due to higher quantities of products sold in Rents grew by €1,507 thousand due primarily to conjunction with la Repubblica and L’espresso. the transfer into the new Via Cristoforo Colombo Rome offices of Group companies. Commissions and agents’ fees grow by €515 thousand due to stronger advertising sales in the period Leases are in line with 2003 and relate to contracts and the consequent higher costs incurred by A.Man- stipulated by Rotosud and A.Manzoni&C.. zoni&C. for fees, prizes and incentives to agents and agencies. Other costs include motor vehicle leasing costs, the lease of satellites for radio broadcasting, Internet Advertising and promotional expenses grow by connection fees and the rental of office equipment. €4,451 thousand on 2003 due mainly to the The €797 thousand decline is due mainly to the higher cost of products sold optionally with Group agreement signed by EleTV for the broadcasting of publications. the DeeJay TV signal via satellite through Sky Ita- lia that bears transmission costs from the second TV production and Internet sites’ technical service costs half of 2003. relate to the Internet area. The €1,747 thousand increase on 2003 is due to the growth in turnover Personnel registered by Ksolutions for services provided. The cost of personnel amounts to €258,327 thousand, growing by €9,103 thousand, up 3.7% on Other services increased by €2,898 thousand on 2003 (€249,224 thousand) due mainly to automa- 2003 due mainly to higher consulting costs incur- tic contractual adjustments and the increase in red by the parent company and for work carried personnel due to the hiring by subsidiary Rotoco- out at the new Rome offices of the Group. The lor of the personnel of STEC, the former printer of item includes, among other things, costs for newspaper la Repubblica in Rome. market surveys and research, insurance, auditing and certification, in addition to receivable collec- Depreciation, amortization and write-downs tion and portfolio management costs. Depreciation, amortization and write-downs amount to €61,854 thousand (€73,304 thousand at Leases and rentals December 31, 2003).

2003 2004 Intangible and tangible asset amortization/deprecia- Reproduction and copyrights 39,512 34,559 tion and write-downs for 2004 are shown in Atta- Rents 14,835 16,342 chments 1 and 2. Leases 1,365 1,434 Other costs 6,011 5,214 2003 2004 Total 61,723 57,549 Intangible asset amortization 22,371 20,546 Tangible asset depreciation 33,964 33,552 Write-down of intangible and tangible assets 12,384 2,989 Copyright costs relate primarily to royalties paid for Write-down of receivables 4,585 4,767 the publication of products sold with L’espresso Total 73,304 61,854 and la Repubblica, radio rights and reproduction rights for Internet site contents. The decline of 64 | Gruppo Editoriale L’Espresso 2004 | Notes to the Consolidated Financial Statements

Intangible asset amortization declines by €1,825 Sundry operating costs grew by €384 thousand on thousand with respect to 2003 due primarily to a 2003. Major increases relate to item “Other char- decline in capital expenditure of companies opera- ges” and include costs incurred by the parent com- ting in the Internet area. pany for free contributions to the victims of the earthquake in South-East Asia. Tangible asset depreciation declines by €412 thousand due to lower investments in the Internet area, partly offset by higher depreciation charges as a C - Financial income and charges result of the coming into operation of la Repubbli- ca’s new full color rotary presses. Income from investments Income from investments amounts to €41 thou- Write-downs of intangible and tangible assets amount sand and relates primarly to dividends received to €2,989 thousand and relate primarily to the from subsidiary Seta. parent company for obsolete printing plant and equipment. Other financial income and income other than above Write-down of receivables grew by €182 thousand Other financial income and income other than on 2003 due to higher accruals made by A.Man- above amount to €6,993 thousand (€15,941 thou- zoni&C.. sand in 2003). The item includes mainly interest on financial investments, interest on securities and Change in inventories interest on tax credits. Raw materials and merchandise inventories in 2004 amount to €383 thousand. Interest and other financial charges The item was restated due to the creation of a new Provisions for risks and charges caption “Foreign- exchange gains (losses)”, as provi- Provisions for risk and charges amount to €3,439 ded for by article 2425 of Legislative Decree no. thousand (€9,051 thousand in 2003) and include 6/2003. mainly accruals made against risks relating to tax, Interest and other financial charges amount to legal and social security litigation. At December €19,812 thousand (€45,056 thousand in 2003). 31, 2003 they included the accrual made against The decline on 2003 amounts to €25,244 thou- the risk deriving from social security litigation on sand and is due primarly to the negative market the restructuring of STEC, printer of la Repubblica value of interest rate hedging transactions conclu- in Rome. ded in July 2003. The item includes also interest payable on current Sundry operating costs accounts held with banks and on other short-term financing amounting to €135 thousand, interest on 2003 2004 long-term loans amounting to €949 thousand and Taxes and duties payable 1,629 1,273 interest on bonds issued amounting to €15,738 Public relations and gift expenses 906 1,219 thousand. Membership fees 908 971 Transactions and reimbursements 446 608 Foreign exchange gains (loss) € Other charges 1,422 2,369 Foreign exchange gains amount to 123 thou- € Extraordinary losses 3,304 2,559 sand, down 123 thousand on the previous year. Total 8,615 8,999 Notes to the Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 65

D - Adjustments to the value of financial assets to €73,775, of which €53,729 thousand of corporate income taxes (Ires) and €20,046 thousand of Revaluations regional income tax on productive activities (Irap), Revaluations of investments amount to €1,051 net of €2,134 thousand of deferred taxes. The thousand and relate to the share in net profit of the detail of the item is shown in Attachment 7. affiliated companies Editoriale Libertà (€761 thousand), Altrimedia (€148 thousand), Le Scienze (€121 thousand) and Saire (€21 thousand).

Write-downs Write-downs amount to €198 thousand resulting from the write-down of Government Bonds (BTPs) recorded by the parent company under current assets (€181 thousand) on the basis of the lower between cost and market value, in addition to write- downs carried out by subsidiary Ksolutions (€17 thousand).

E - Extraordinary items

Extraordinary profits Extraordinary profits amount to €696 thousand (in 2003 they amounted to €1,091 thousand) and consist primarily of extraordinary gains recorded by subsidiary Esperya on the sale of products that had been previously written-down upon the sale of the business.

Extraordinary charges Extraordinary charges amount to €3,366 thousand (in 2003 they amounted to €4,115 thousand) and include primarily extraordinary charges on early retirement incentives provided in the context of the restructuring of Internet subsidiaries Esperya and Ksolutions (€1,085 thousand), charges incurred by the parent company for the decommissioning of obsolete printing plant and equipment (€717 thousand), in addition to extraordinary charges incurred by A.Manzoni&C. in connection with the tax amnesty scheme (€370 thousand).

___

Taxes Taxes payable for the period amount to €71,641 thousand (as compared with €64,993 thousand in 2003) and are made up of current taxes amounting

Attachments 68 | Gruppo EditorialeL’Espresso 2004

Changes in assets occurred during the year ended December 31, 2004 ATTACHMENT 1 - INTANGIBLE ASSETS

(in thousands of euro) OPENING BALANCE CHANGES IN THE YEAR CLOSING BALANCE Cost Accumulated depreciation and revaluations and write-downs

Cost Reval. Write- Accum. Beginning Increases Decreases Reclass. Increases Decreases Reclass. Cost Reval. Write- Accum.| Balance at downs depre- balance downs depre-Attachments Dec. 31, 2004 ciation ciation Incorporation costs 5,858 - (1,255) (4,603) - 5 (944) 12 (4) 944 (2) 4,931 - (1,255) (3,665) 11 Research&Development and advertising costs 4,616 - (2,744) (1,872) ------4,616 - (2,744) (1,872) - Industrial patents and intellectual property rights 10,883 - (825) (9,822) 236 156 (7) 187 (407) 7 - 11,219 - (825) (10,222) 172 Concessions, licenses and trademarks 32,699 - (377) (25,968) 6,354 1,456 (221) (26) (2,603) 82 (99) 33,908 - (444) (28,521) 4,943 Goodwill on publications 375,948 - (53) (99,653) 276,242 - - - (9,457) - - 375,948 - (53) (109,110) 266,785 Goodwill on consolidation 65,768 - (26,267) (16,151) 23,350 - - - (885) - 65,768 - (26,267) (17,036) 22,465 Goodwill on other assets 50,511 - - (23,771) 26,740 491 (856) - (4,889) 631 - 50,146 - - (28,029) 22,117 Work in progress and advances 361 - - - 361 1,066 - (361) - - - 1,066 - - - 1,066

Other intangible assets 38,504 - (1,153) (34,289) 3,062 10,574 (4,666) 280 (2,523) 4,665 101 44,692 - (1,108) (32,091) 11,493

TOTAL 585,148 - (32,674) (216,129) 336,345 13,748 (6,694) 92 (20,768) 6,329 - 592,294 - (32,696) (230,546) 329,052

ATTACHMENT 2 - TANGIBLE ASSETS Land and buildings 44,117 4,675 (320) (15,815) 32,657 11,731 (17) 1,323 (1,632) 135 - 57,154 4,675 (320) (17,312) 44,197 Plant and equipment 261,389 1,345 (600) (206,053) 56,081 50,561 (7,541) 75,678 (28,813) 5,924 32 380,091 1,341 (3,203) (226,307) 151,922 Industrial and sales equipment 2,411 5 - (2,126) 290 547 (70) - (202) 58 - 2,888 5 (7) (2,263) 623 Other assets 68,856 308 (1,723) (55,081) 12,360 9,046 (2,399) 101 (5,672) 2,231 (32) 75,613 299 (1,759) (58,518) 15,635

Work in progress and advances 80,270 - - - 80,270 17,782 - (77,194) - - - 20,858 - 20,858 TOTAL 457,043 6,333 (2,643) (279,075) 181,658 89,667 (10,027) (92) (36,319) 8,348 - 536,604 6,320 (5,289) (304,400) 233,235 Attachments | Gruppo Editoriale L’Espresso 2004 | 69

Effect of financial lease method for the recording of leased assets

ATTACHMENT 3

EFFECT ON CONSOLIDATED SHAREHOLDERS' EQUITY Assets held under financial lease Dec. 31, 2003 CHANGES IN THE YEAR Dec. 31, 2004

Gross Accum. Adj./write Net Purchases Redemptions Depreciation Uses of Net amount depreciation -ups value redemption value provision Buildings 11,171 (4,448) - 6,723 - - (334) - 6,389 Plant and equipment 11,091 (5,823) - 5,268 - - (1,122) - 4,147 TOTAL (a) 22,262 (10,271) - 11,991 - - (1,456) - 10,536

Dec. 31, 2003 Increases Repayment Redemptions Dec. 31, 2004 of capital Implicit debt on financial lease transactions - maturing between 1 and 5 years 5,074 49 (1,007) - 4,116 - maturing over 5 years 219 (49) - - 170 TOTAL (b) 5,293 - (1,007) - 4,286

Total gross effect (a-b) 6,250 Netting of prepaid expenses (lump payment and accessory costs) (885) TOTAL 5,365 Tax effect (1,998) EFFECT ON CONSOLIDATED SHAREHOLDERS' EQUITY 3,366

EFFECT ON CONSOLIDATED INCOME STATEMENT Description Dec. 31, 2004 Netting of financial lease payments 1,021 Netting of lump payments and accessory costs 252 Recording of interest charges on financial leases (101) Recording of: - depreciation expense (1,415) EFFECT ON PRE-TAX PROFIT (243) Tax effect 90 EFFECT ON NET PROFIT (152) 70 | Gruppo Editoriale L’Espresso 2004 | Attachments

Statement of changes in the Consolidated Shareholders’ Equity

ATTACHMENT 4 (in thousands of euro) Share Share Legal Other Reserve for Net Total capital premium reserve reserves own shares profit/(loss) BALANCE AT DEC. 31, 2002 64,599 118,900 12,920 151,145 8,231 46,093 401,888

Allocation of net income: Dividends - - - - - (42,756) (42,756) Accrued to reserves - - - 3,337 - (3,337) - Extraordinary dividend - (57,783) - (40,662) - (98,445) Capital increases 170 3,306 - - - - 3,476 Grants - - - 6 - - 6 Transfers between reserves - (432) 34 (34) 432 - - Net income (loss) for 2003 - - - - - 67,838 67,838 BALANCE AT DEC. 31, 2003 64,769 63,991 12,954 113,792 8,663 67,838 332,007

Allocation of net income: Dividends - - - - - (47,114) (47,114) Accrued to reserves - - - 20,724 - (20,724) - Capital increases 127 2,496 - - - - 2,623 Grants - - - 10 - - 10 Transfers between reserves - (4,529) 25 (25) 4,529 - - Net income (loss) for 2004 - - - - - 87,723 87,723 BALANCE AT DEC. 31, 2004 64.896 61.958 12.979 134.501 13.192 87.723 375.249 Attachments | Gruppo Editoriale L’Espresso 2004 | 71

Availability and distribution of consolidated shareholders' equity items for years 2002, 2003 and 2004

ATTACHMENT 4/bis in thousands of euro Nature / description Total Uses Share Summary of operations carried amount allowed available out in the past three years loss coverage other EQUITY 64,896 EQUITY RESERVES: Reserve for own shares (where equity reserve) 13,192 - - - Share premium reserve 61,958 ABC 61,958 - 57,783 Restatement reserve 2,560 ABC 2,560 - - Merger differences (where equity reserve) 11,231 ABC 11,231 - - Grants 40,646 ABC 40,646 - - Reserve for loss coverage 7,692 B - - - Other reserves 17,629 ABC 17,629 - - TOTAL EQUITY RESERVES 154,908 134,024 - 57,783

RETAINED EARNINGS RESERVES: Legal reserve 12,979 B - - - Merger differences (where accrued from profits) 1,551 ABC 1,551 - - Reserve for reinvested profits 934 ABC 934 - - Statutory reserves - - - 40,662 Other reserves 52,258 ABC 52,258 - 35,487 RETAINED EARNINGS RESERVES 67,722 54,743 - 76,149

TOTAL EQUITY AND RESERVES 287,526 188,767 - 133,932 of which: Not available share - - - - Residual share that may be distributed - 188,767 - -

Note: A - capital increases B- coverage of losses C- distribution to shareholders 72 | Gruppo Editoriale L’Espresso 2004 | Attachments

Group Companies

ATTACHMENT 5 Company and Seat Capital % Shares activity stock owned owned by

PARENT COMPANY Gruppo Editoriale L’Espresso SpA Rome 64,896 publishing

SUBSIDIARIES CONSOLIDATED LINE-BY-LINE Finegil Editoriale SpA Rome 18,161 100 Gruppo Editoriale L’Espresso SpA publishing Editoriale La Nuova Sardegna SpA Sassari 776 100 Finegil Editoriale SpA publishing EAG SpA Pavia 815 100 Finegil Editoriale SpA publishing Edizioni Nuova Europa SpA Ivrea 104 100 Finegil Editoriale SpA publishing (TO) Editoriale La Città SpA Salerno 774 100 Finegil Editoriale SpA publishing S.E.T.A. SpA Bolzano 775 71 Gruppo Editoriale L’Espresso SpA publishing Editoriale FVG SpA Udine 87,960 91.95 Gruppo Editoriale L’Espresso SpA publishing Edigraf Srl Trieste 312 66.67 Editoriale FVG SpA printing A.Manzoni&C. SpA Milan 15,000 100 Gruppo Editoriale L’Espresso SpA advertising concessionaire Elemedia SpA Milan 3,000 100 Gruppo Editoriale L’Espresso SpA radio broadcasting EleTV SpA Milan 2,120 95 Gruppo Editoriale L’Espresso SpA digital TV 5 Elemedia SpA Radio Deejay Kft Budapest 50,000 (,000) HUF 95 Elemedia SpA radio broadcasting Hungary 5 EleTV SpA Radio Bonton a.s. Prague 12,000 (,000) CZK 100 Elemedia SpA radio broadcasting Czech Republic Somedia SpA Milan 500 100 Gruppo Editoriale L’Espresso SpA services Rotosud SpA Oricola 2,860 100 Gruppo Editoriale L’Espresso SpA printing (AQ) C.P.S. SpA Rome 520 100 Gruppo Editoriale L’Espresso SpA pre-printing Rotocolor SpA Rome 23,000 100 Gruppo Editoriale L’Espresso SpA printing Selpi SpA Rome 3,202 70 Gruppo Editoriale L’Espresso SpA publishing and services 30 Finegil Editoriale SpA

Note: in thousands of euro unless otherwise specified Attachments | Gruppo Editoriale L’Espresso 2004 | 73

Company and Seat Capital % Shares activity stock owned owned by Kataweb SpA Rome 25,000 100 Gruppo Editoriale L’Espresso SpA internet publishing and services Kataweb News Srl Rome 10 100 Kataweb SpA internet publishing Ksolutions SpA San Giuliano 1,000 100 Kataweb SpA internet services Terme (PI) Esperya SpA Porto Recanati 500 100 Kataweb SpA e-commerce (MC) Studio Vit Srl Rome 25 100 Kataweb SpA internet services

AFFILIATED COMPANIES CONSOLIDATED ON EQUITY Le Scienze SpA Rome 103 50 Gruppo Editoriale L'Espresso SpA publishing Saire Srl Milan 47 50 Gruppo Editoriale L'Espresso SpA printing Editoriale Libertà SpA Piacenza 1,000 35 Finegil Editoriale SpA publishing Altrimedia SpA Piacenza 517 35 Finegil Editoriale SpA advertising concessionaire

AFFILIATED COMPANIES AND UNCONSOLIDATED SUBSIDIARIES Benedettine Srl in liquidation Piacenza 255 35 Finegil Editoriale SpA real estate Alsoft Srl in liquidation San Giuliano 52 100 Ksolutions SpA internet services Terme (PI) Uhuru Multimedia Srl not operational Rome 10 100 Ksolutions SpA internet services SandalyaWeb srl not operational Sassari 75 51 Editoriale La Nuova Sardegna SpA e-commerce 49 Kataweb SpA Enotrya Srl in liquidation Rome 78 70 Kataweb SpA e-commerce Zivago SpA in liquidation Milan 3,096 50 Kataweb SpA e-commerce Cellularmania.com Srl in liquidation Rome 10 100 Kataweb SpA internet services

Note: in thousands of euro unless otherwise specified 74 | Gruppo Editoriale L’Espresso 2004 | Attachments

Company and Seat Capital % Shares activity stock owned owned by

MAIN INVESTMENTS IN OTHER COMPANIES A.G.F. Srl Rome 102 10 Gruppo Editoriale L'Espresso SpA photo agency Agenzia ANSA Soc. Coop. a r.l. Rome 12,539 3.14 Gruppo Editoriale L’Espresso SpA press agency 3.14 Finegil Editoriale SpA 3.14 Editoriale La Nuova Sardegna SpA 3.14 Editoriale FVG SpA 1.89 EAG SpA 2.52 S.E.T.A. SpA Club DAB Italia - consortium Milan 18 14.03 Elemedia SpA radio broadcasting services E-Ink Corporation Cambridge, Mass. 43,284 (US$'000) 0.43 Gruppo Editoriale L’Espresso SpA printing technologies (USA) Presto Technologies Inc. not operational Cambridge, Mass. 7,664 (US$'000) 7.83 Kataweb SpA internet services (USA) Consorzio Energia Sassari Sassari 4 12.5 Editoriale La Nuova Sardegna SpA purchase of electricity Agenzia Informativa Adriatica d.o.o. Capodistria 2,120 (Tallers'000) 19 Editoriale FVG SpA production and provision of information Slovenia Trento Press Service Srl Gardolo di Trento 260 14.4 S.E.T.A. SpA newspaper distribution (TN) Immobiliare Editori Giornali Srl Rome 830 0.17 S.E.T.A. SpA real estate 0.12 Editoriale La Nuova Sardegna SpA Protagon Periodici SpA under bankruptcy proceedings Perugia 10 Finegil Editoriale SpA publishing Audiradio Srl Milan 234 4 A. Manzoni & C. SpA market research Consuledit Srl Milan 20 6.62 Gruppo Editoriale L'Espresso SpA market research 3.99 Finegil Editoriale SpA 0.62 Editoriale La Nuova Sardegna SpA 0.39 EAG SpA 0.49 S.E.T.A. SpA 0.47 Editoriale FVG SpA

Note: in thousands of euro unless otherwise specified Attachments | Gruppo Editoriale L’Espresso 2004 | 75

Marketable securities

ATTACHMENT 6 Gruppo Editoriale L'Espresso SpA (in thousands of euro) Issuer Security Nominal Expiration Interest Amount value rate B.T.P. 3.5% Government bonds 2,500 Sept. 15, 2005 3.5% 2,523 B.T.P. 4.5% Government bonds 2,500 May 15, 2005 4.5% 2,522 B.T.P. 4.0% Government bonds 5,000 July 15, 2005 4.0% 5,050 B.T.P. 4.0% Government bonds 2,500 July 15, 2005 4.0% 2,525 B.T.P. 4.5% Government bonds 2,500 May 15, 2005 4.5% 2,522 Lehman Brothers Treasury Co. BV F.R.N. Floating-rate bonds 5,000 Feb. 24, 2006 3-mo. Euribor + 45bp 5,000 Total Gruppo Editoriale L’Espresso SpA 20,000 20,142 76 | Gruppo Editoriale L’Espresso 2004 | Attachments

Reconciliation between reported tax expense ATTACHMENT 7

(in thousands of euro) 2004 Tax rate

IRES Profit before taxes 191,730 Expected tax rate 67,184 33% Increases (decreases): Temporary differences deductible in future years 18,027 Permanent differences of the year 22,145 Temporary differences from previous years (32,568) Dividends (33,712) Non-taxable profits (6,758) Taxable income 155,834 Adjustment due to participation in tax consolidation procedure 4,063 Current income tax (IRES) for the year 53,729 28%

IRAP Difference between value of production and costs 176,497 IRAP-exempt income (1,255) Non-deductible costs for the purposes of IRAP (personnel, associates, receivables and other costs) 286,480 IRAP deductions (3,210) Total 458,512

Expected tax expense 19,564 4.25% Net tax adjustments on revenues 536 Net tax adjustments on costs 10,782 Net value of production 469,830 Current local tax on productive activities (IRAP) on value of production 20,046 4.37% Attachments | Gruppo Editoriale L’Espresso 2004 | 77

Deferred and prepaid taxes ATTACHMENT 8

2003 2004

Temporary Tax Tax Temporary Tax Tax (in thousands of euro) differences rate effect differences rate effect

Balance sheet Prepaid taxes: Write-down of receivables 4,685 33% 1,546 3,816 33% 1,259 Provision for legal costs, advances 8,637 37.25% 3,217 11,127 37.25% 4,145 Provision for social security and labor litigation 8,421 33% 2,779 8,506 33% 2,807 Write-down of tangible assets - - 2,492 37.25% 928 Other fixed-asset write-down 29,914 33% 9,872 23,546 33% 7,770 Write-down of inventories 2,310 37.25% 860 4,870 37.25% 1,814 Public relations expenses 383 37.25% 143 459 37.25% 171 Others 3,011 37.25% 1,122 2,591 37.25% 965 Total 57,361 19,539 57,407 19,860 Deferred taxes: Fiscal accelerated depreciation 148 37.25% (5,409) 6,264 37.25% (3,715) Provision for reinvested capital gains - - 876 37.25% (326) Total 148 (5,409) 7,140 (4,042) Net deferred (prepaid) taxes 14,130 15,818

Net effect (2,283) of which: included under item current, deferred and (prepaid) taxes 2,078 included under extraordinary gains/(charges) (4,361)

Temporary differences excluded from the determination of (prepaid) and deferred taxes: Fixed indemnity for managers pursuant to National Labor Contract 15,274 33% 5,170 15,727 33% 5,427 Net 5,170 5,427

Reclassified Consolidated Financial Statements 80 | Gruppo Editoriale L’Espresso 2004 | Reclassified Consolidated Financial Statements

Reclassified Consolidated Balance Sheet

(in thousands of euro) Dec. 31, 2003 Dec. 31, 2004

Net fixed assets 181,658 233,235 Capitalized costs 36,753 39,802 Goodwill on publications 276,242 266,785 Goodwill arising on consolidation 23,350 22,465 Net investments 25,597 25,398 Own shares 8,663 13,192

Trade receivables, net 231,499 234,597 Inventories 36,468 36,574 Trade payables (156,111) (178,235) Net current assets 111,856 91,018

Income taxes (payable)/receivable 23,257 25,505 Other taxes (payable)/receivable 10,159 13,563 Payables to personnel, health and social security institutions (40,328) (41,547) Employee severance indemnities and similar (98,456) (103,222) Other reserves (25,933) (23,794) (Payable)/receivable on capital expenditure (24,341) (31,089) Other assets (liabilities) (17,071) (16,819) Net capital employed 491,406 516,410

Short-term financial assets 90,283 403,491 Short-term debt (12,710) (12,367) Long-term debt (227,119) (522,187) Net financial position (149,546) (131,063)

Share capital 64,769 64,896 Other reserves 199,400 222,630 Net profit 67,838 87,723 Shareholders’ Equity 332,007 375,249

Minority interests 9,853 10,098 Reclassified Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 81

Reclassified Consolidated Income Statement

(in thousands of euro) 2003 2004

REVENUES Circulation 482,751 496,434 Advertising 534,030 546,148 Other revenues 34,288 37,250 TOTAL REVENUES 1,051,069 1,079,832

PRODUCTION COSTS Paper (102,583) (96,406) Printing and other supplies (79,648) (85,708) Maintenance and technological costs (24,500) (26,840) Other production costs (60,877) (83,508) TOTAL PRODUCTION COSTS (267,608) (292,462)

OPERATING COSTS Promotion (43,252) (46,532) Distribution (28,298) (30,128) Publisher fees (19,041) (20,109) Agent/agency fees (27,914) (28,429) Copyrights (39,494) (34,559) Other operating costs (144,374) (137,241) TOTAL OPERATING COSTS (302,373) (296,998)

Labor costs (249,630) (258,853) Gross operating profit 231,458 231,519

Depreciation of fixed assets (40,566) (39,022) Amortization of goodwill (15,769) (15,076) Operating profit 175,123 177,421

Financial income/(expense) (28,590) (12,877) Leasing payments (1,365) (1,434) Income/(expense) on investments (9,004) 1,075 Extraordinary income/(charges) (2,903) (4,233) Profit before taxes 133,261 159,952

Taxes (64,993) (71,641) Profit before minority interests 68,268 88,311

Minority interests (430) (588) NET PROFIT 67,838 87,723 82 | Gruppo Editoriale L’Espresso 2004 | Reclassified Consolidated Financial Statements

Consolidated Statement of Cash Flows

(in thousands of euro) Dec. 31, 2003 Dec. 31, 2004

NET FINANCIAL POSITION AT THE BEGINNING OF THE YEAR (62,924) (149,546)

Net profit 67,838 87,723 Affiliates' net profit, net of dividends received (89) 1,118 Net profit (loss) attributable to minority interests 430 588 Depreciation and amortization 56,335 54,098 Net change in employee severance and retirement reserves 5,813 4,766 Capital (gains)/losses (938) (321) (Revaluations)/Write-downs 12,234 1,955 CASH GENERATED FROM OPERATING ACTIVITIES BEFORE CHANGES IN CURRENT ASSETS 141,623 149,927

(Increase)/Decrease in net trade receivables (8,225) (3,098) (Increase)/Decrease in inventories (2,822) (106) Increase/(Decrease) in trade payables 8,682 22,124 Change in net current assets (2,365) 18,920

Change in income taxes payable/receivable (24,956) (2,248) Change in other taxes payable/receivable (6,529) (3,404) Change in employee severance indemnities 3,139 1,219 Change in other provisions 1,729 (2,139) Change in other assets/liabilities 15,675 (252) CASH GENERATED FROM OPERATING ACTIVITIES 128,316 162,023

Net equity investments (6,456) (4,748) Net investments in fixed assets (70,763) (94,311) Net cash used in investing activities (77,219) (99,059)

Grants received 6 10 Dividends distributed (141,201) (47,114) Other changes in provisions 3,476 2,623

CHANGE IN NET FINANCIAL POSITION (86,622) 18,483

NET FINANCIAL POSITION AT THE END OF THE YEAR (149,546) (131,063) Revenues, Group personnel, Circulation 84 | Gruppo Editoriale L’Espresso 2004 | Revenues, Group personnel, Circulation

Consolidated revenues

(in thousands of euro) 2003 2004 Gruppo Editoriale L’Espresso 648,479 656,416

Subsidiaries Finegil Editoriale 121,112 132,605 Editoriale La Nuova Sardegna 33,264 32,020 EAG 18,671 18,653 Edizioni Nuova Europa 2,041 2,110 Editoriale La Città 2,266 2,749 S.E.T.A. 19,117 18,838 Editoriale FVG 52,586 53,040 Edigraf 897 1,087 Elemedia 55,334 67,371 EleTV 1,589 1,891 Radio Deejay Kft 365 382 Radio Bonton a.s. 810 755 Somedia 6,059 6,178 A.Manzoni&C. 538,529 551,306 Rotosud 32,341 30,949 C.P.S. 3,544 3,736 Rotocolor - 6,883 Selpi 983 1,234 Kataweb 13,129 12,637 Kataweb News 38 - Ksolutions 8,802 11,573 Esperya 1,478 706 Studio Vit 469 584 TOTAL 1,561,903 1,613,703

less: intra-group sales (510,834) (533,871) CONSOLIDATED REVENUES 1,051,069 1,079,832 Revenues, Group personnel, Circulation | Gruppo Editoriale L’Espresso 2004 | 85

Personnel at year-end

(including term contracts) Dec. 31, 2003 Dec. 31, 2004

Gruppo Editoriale L’Espresso 920 940 A.Manzoni&C. 464 450 • Finegil Editoriale 583 591 • Editoriale La Nuova Sardegna 146 146 • E.A.G. 90 91 • Editoriale La Città 26 27 • Edizioni Nuova Europa 13 13 • S.E.T.A. 122 124 • Editoriale FVG 304 280 • Edigraf 8 8 Local newspapers 1,292 1,280 Elemedia 127 132 Ele TV 5 5 Radio Deejay Kft 3 3 Radio Bonton a.s. 11 10 Rotosud 127 126 C.P.S. 29 29 Rotocolor - 133 Somedia 22 25 Selpi 1 1 • Kataweb 73 71 • Ksolutions 80 64 • Esperya 10 - • Studio Vit 2 2 Internet 165 137 TOTAL 3,166 3,271 86 | Gruppo Editoriale L’Espresso 2004 | Revenues, Group personnel, Circulation

Circulation

(average copies per issue) 2003 2004 L'espresso 404,222 389,756 la Repubblica 625,008 625,436 Il Tirreno 86,188 85,794 La Nuova Sardegna 61,640 61,468 Gazzetta di Mantova 35,821 35,692 Gazzetta di Reggio 15,453 15,478 Nuova Gazzetta di Modena 12,486 12,278 La Nuova Ferrara 12,388 12,100 Il Mattino di Padova 29,725 31,275 La Tribuna di Treviso 18,708 19,122 La Nuova Venezia 10,234 11,035 Il Centro 24,036 24,524 La Provincia Pavese 23,881 23,218 La Città 6,598 6,906 La Sentinella del Canavese (bi-weekly) 12,680 12,825 Alto Adige/ Corriere delle Alpi 38,255 37,722 Il Piccolo 45,843 45,367 Messaggero Veneto 52,598 52,770 National Geographic (monthly) 127,168 122,806 Le Scienze (monthly) 62,508 60,552 Limes (quarterly) 23,832 19,114 Micromega (bi-weekly) 29,344 19,609

Source: 2003 - ADS Accertamento Diffusione Stampa 2004 - Data supplied by publisher, being audited Report of the Independent Auditors

Report of the Independent Auditors | Gruppo Editoriale L’Espresso 2004 | 89

Financial Statements of Gruppo Editoriale L’Espresso SpA at December 31, 2004 92 | Gruppo Editoriale L’Espresso 2004 | Financial Statements

Balance Sheet

euro ASSETS Dec. 31, 2003 Dec. 31, 2004

A - Receivable from Shareholders - -

B - Fixed assets I. Intangible assets Concessions, licenses and trademarks 3,192,816 2,859,615 Goodwill on publications 150,361,416 144,827,594 Other 191,048 6,743,971 TOTAL INTANGIBLE ASSETS 153,745,280 154,431,179

II. Tangible assets Land and buildings 2,735,497 4,239,572 Plant and equipment 11,416,535 55,959,103 Furniture, equipment and motor vehicles 7,165,864 9,605,468 Other assets 48,619 73,678 Work in progress and advances 46,091,037 - TOTAL TANGIBLE ASSETS 67,457,552 69,877,821

III. Financial assets Investments in subsidiaries 231,295,993 252,755,993 in affiliated companies 1,384,234 1,384,234 in other companies 1,946,137 1,946,137 Receivables short-term 29,598 64,079 long-term 1,860,736 1,446,488 Own shares 8,662,805 13,191,844 TOTAL FINANCIAL ASSETS 245,179,503 270,788,774

TOTAL FIXED ASSETS 466,382,335 495,097,775 Financial Statements | Gruppo Editoriale L’Espresso 2004 | 93

Balance Sheet

euro ASSETS Dec. 31, 2003 Dec. 31, 2004

C - Current assets I. Inventories Raw materials, supplies, consumable stores and merchandise 22,772,366 22,544,657 Work in progress, semi-finished and finished products 3,577,470 3,246,465 TOTAL INVENTORIES 26,349,836 25,791,122

II. Receivables Trade receivables short-term 12,607,732 12,083,643 Subsidiaries short-term 136,564,391 125,109,960 Affiliated companies short-term 205,071 491,957 Parent company short-term - 4,360,495 Tax receivables short-term 6,542,219 6,697,134 long-term 15,074,351 19,003,381 Prepaid taxes short-term 14,335,346 15,379,852 Other receivables short-term 1,406,240 6,066,643 TOTAL RECEIVABLES 186,735,350 189,193,065

III. Marketable securities Other securities 20,322,501 20,141,701 IV. Cash and cash equivalents Banks 58,401,253 372,526,844 Cash 47,390 50,125 TOTAL CURRENT ASSETS 291,856,330 607,702,856

D - Accrued income and prepaid expenses 2,576,661 12,498,413 TOTAL ASSETS 760,815,326 1,115,299,044 94 | Gruppo Editoriale L’Espresso 2004 | Financial Statements

Consolidated Balance Sheet

euro LIABILITIES Dec. 31, 2003 Dec. 31, 2004

A - Shareholders’ Equity I. Share capital 64,768,862 64,896,058 II. Share premium reserve 63,990,640 61,958,022 III. Restatement reserve 785,631 785,631 IV. Legal reserve 12,953,772 12,979,212 V. Statutory reserve - - VI. Reserve for own shares 8,662,805 13,191,844 VII. Other reserves: Voluntary reserve 271,316 10,857,428 Reserve for grants 17,830,609 17,840,209 Dividend equalization reserve 3,868,684 3,868,684 Reserve ex art. 55 Pres. Decree 597/73 489,647 489,647 Reserve ex art. 54 Pres. Decree 597/73 - 934,093 Merger differences 7,870,056 7,870,056 VIII. Profit (loss) carried forward - - IX. Net profit (loss) for the period 57,725,254 70,423,332 SHAREHOLDERS’ EQUITY 239,217,276 266,094,215

B - Provisions for risks and charges Provision for retirement benefits 5,128,982 5,954,240 Tax provision - 326,647 Other provisions 13,278,351 12,407,515

TOTAL PROVISIONS FOR RISKS AND CHARGES 18,407,333 18,688,402

C - Employee severance reserve 37,335,728 39,321,098 Financial Statements | Gruppo Editoriale L’Espresso 2004 | 95

Consolidated Balance Sheet

euro LIABILITIES Dec. 31, 2003 Dec. 31, 2004

D - Payables Bonds 200,000,000 500,000,000 Banks short-term 4,911,408 5,034,404 long-term 12,331,179 9,966,252 Trade payables short-term 105,250,651 125,826,794 Subsidiaries short-term 102,038,502 95,832,256 Affiliated companies short-term 585,293 422,518 Taxes payable short-term 4,470,968 7,842,881 Health and social security institutions short-term 5,174,916 5,242,714 Other payables short-term 13,657,732 14,944,381 TOTAL PAYABLES 448,420,649 765,112,200

E - Accrued liabilities and deferred income 17,434,340 26,083,129 TOTAL LIABILITIES 760,815,326 1,115,299,044

Memorandum accounts Guarantees 28,357,613 27,772,966 Other commitments 10,898,405 112,533,020 96 | Gruppo Editoriale L’Espresso 2004 | Financial Statements

Income Statement

euro 2003 2004

A - Production value Revenues from sales and services - circulation 367,858,661 380,826,497 - advertising 271,635,807 267,329,062 - other revenues 8,984,680 8,261,186 Change in inventories of work in progress, semi-finished and finished goods 285,200 (331,913) Operating grants 1,520,829 4,882,704 Other revenues 5,986,136 7,843,492 TOTAL PRODUCTION VALUE 656,271,313 668,811,029

B - Production costs Raw materials, auxiliaries and goods 123,616,013 117,779,267 Services 240,799,925 282,904,309 Leases and rentals 42,489,909 39,298,747 Personnel: - Wages and salaries 68,352,348 72,521,166 - Social security contributions 19,740,509 21,347,349 - Employee severance 5,798,051 6,040,869 - Retirement benefits 814,718 831,020 - Other costs 3,337,740 3,286,151 Depreciation, amortization and write-downs - Amortization of intangible assets 7,771,092 7,767,582 - Depreciation of tangible assets 8,899,235 10,905,939 - Other write-downs of fixed assets 327,243 2,496,437 - Write-down of receivables under current assets and cash and cash equivalents 1,183,000 957,920 Change in inventories (1,914,441) 226,801 Provisions for risks and charges 5,911,103 1,575,903 Sundry operating costs 3,271,506 4,399,787 TOTAL PRODUCTION COSTS 530,397,951 572,339,247

DIFFERENCE BETWEEN PRODUCTION VALUE AND PRODUCTION COSTS 125,873,362 96,471,782 Financial Statements | Gruppo Editoriale L’Espresso 2004 | 97

Consolidated Income Statement

euro 2003 2004

C - Financial income and charges Income from investments Dividends from affiliates and other companies 34,493,443 27,230,709 Other financial income From long-term receivables 42,182 25,359 From marketable securities and short-term financial assets 5,050,197 741,533 Income other than the above From parent companies, subsidiaries and affiliates 1,762,933 1,128,185 From third parties 10,411,252 5,847,742 Interest and other financial charges From parent companies, subsidiaries and affiliates (1,779,461) (1,508,215) From third parties (43,135,844) (18,576,471) Foreign exchange gains (losses) (33,784) 48 TOTAL FINANCIAL INCOME AND CHARGES 6,810,918 14,888,890

D - Adjustments to the value of financial assets Revaluations Of investments 92,569 - Write-downs Of investments (26,021,387) (5,540,000) Of marketable securities (113,875) (180,800) TOTAL ADJUSTMENTS (26,042,693) (5,720,800)

E - Extraordinary items Charges Other charges (1,513,313) (1,064,880) TOTAL EXTRAORDINARY ITEMS (1,513,313) (1,064,880) Profit before taxes 105,128,274 104,574,992 Taxes payable: current (53,136,846) (35,217,468) prepaid (deferred) 5,733,826 1,065,808 NET PROFIT 57,725,254 70,423,332

Notes to the Financial Statements

Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 101

Notes to the Financial Statements

Assets Form and content of the Financial Statements B.I Goodwill of publications The financial statements at December 31, 2004 B.II Furniture, equipment, motor vehicles have been prepared in accordance with the provi- C.III Other financial assets sions of the Italian Civil Code, as interpreted and integrated by accounting standards adopted by Income statement the Italian accounting profession. They consist of A. Circulation revenues a Balance Sheet, an Income Statement and Notes A. Advertising revenues to the financial statements. A. Sundry revenues

To provide a more complete information and clearer understanding of the financial statements, a To provide a more appropriate reporting, item reclassified Balance Sheet and Income Statement “Electronic equipment” was reclassified within Tan- in addition to a Statement of Cash Flows have gible Assets under “Furniture, equipment and motor also been enclosed. vehicles”, reducing “Other assets” to residual investments in sundry equipments. The Balance Sheet and Income Statement have been prepared in euro, with no decimals, as provi- Numerals and capital letters in the leftmost column ded for by article 2423, comma 5 of the Italian were eliminated from the Balance Sheet and Income Civil Code. Amounts stated in the Notes are Statement. Items having a zero balance in the two expressed in thousands of euro, as relevant. periods were not reported.

Criteria used in the preparation of the Notes A column reporting the corresponding amounts Accounting principles for the previous year was included beside the Accounting principles applied in the preparation column for the current accounting period in the of the Balance Sheet and the Income Statement are Balance Sheet and Income Statement. in line with those adopted in previous years, with the exception of regulatory changes introduced by Where necessary, figures for the same period in Legislative Decree no. 6, dated January 17, 2003, the previous year were adjusted for consistency and subsequent amendments, commented and purposes. Adjustments or the lack of consistency interpreted in Document 1 issued by the Italian between the two periods with regards to indivi- Accounting Board (OIC 1). More specifically: dual figures are reported in the related notes. 1. the present financial statements were the object Adjustments made to the Balance Sheet and of the “elimination of tax-related entries”: the men- Income Statement format provided for by Law tioned Legislative Decree no. 6/2003 amended As allowed by article 2423 ter of the Italian Civil paragraph 2 of article 2426 of the Italian Civil Code, in order to provide a clearer representation of Code, eliminating the possibility of “carrying out the economic and financial performance of the Com- value adjustments and accruals exclusively for tax pany, additional items were included in the same reporting purposes”. Interpreting such amendment, with respect to the format provided for by Law. OIC 1 requested the “elimination of possible value adjustments or accruals made in the income state- Additional captions included are: ment in previous years pursuant to previously applicable article 2426 of the Italian Civil Code”. The elimination of tax-related entries did not pro- 102 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

duce relevant effects on the financial statements of zed on a straight-line basis over the term of the the Company; lease contract. Advertising costs are expensed in the period in 2. as set out in paragraph 7-bis of article 2427 of which they are incurred. the Italian Civil Code, a table showing for each item of Shareholders’ Equity, the origin, possibility Tangible assets of usage and distribution, in addition to their pos- Tangible assets are recorded at cost, inclusive of sible usage in previous years was included; accessory costs, adjusted upwards in the case of certain assets in accordance to the provisions of Law 3. as set out in paragraph 4 of article 2497 of the no. 72 of March 19, 1983 and Law no. 413 of Italian Civil Code, summary financial informa- December 30, 1991. Assets still owned revalued tion of parent company CIR SpA was included in pursuant to the above laws are listed in a separate the notes to the accounts. CIR is required by law attachment. to prepare consolidated financial statements. Maintenance and repair costs are charged to the Valuation criteria income statement for the year in which they are Individual items were valued in accordance with the incurred, with the exception of costs resulting from principle of prudence, while different items included the extension of the useful life of the assets, which under the same caption were valued individually. are capitalized. Risks and losses for the period whose existence Depreciation is calculated on a straight-line basis became known after the date of the financial state- at rates deemed representative of the residual use- ments and before the preparation of the financial ful life of the assets. In the first year, coinciding statements, were also kept into account. We under- with the coming into operation of the asset, depre- line that for these financial statements there was ciation rates are reduced by half. Depreciation no departure from Article 2423 para. 4 of the rates applied are shown in the Notes under Assets. Italian Civil Code. In the case of permanent impairment (with respect Main valuation criteria used in the preparation of to its net book value), the asset is written down the present report at December 31, 2004 are descri- accordingly through the accrual of a related provi- bed below: sion. Where such impairment is reversed in subsequent accounting periods, the original value of the Intangible assets asset is restored. Intangible assets are recorded at acquisition or production cost, inclusive of any auxiliary cost. Equity investments They are amortized over their expected useful life. Investments are valued at the acquisition or under- In particular: writing cost. The book value of the investment is written-down in case of a permanent impairment. • “concessions, licenses and trademarks” are amor- The original value is restored in subsequent finan- tized on a straight-line basis over five years; cial periods in case of a reversal. Certain equity investments were written- up pur- • newspaper la Repubblica is amortized over 40 suant to Law no. 72, March 19, 1983. years, according to its nature and expected residual useful life; Long-term investments Long-term investments are recorded at cost, adju- • “other intangible assets” relate prevalently to sted where necessary in the case of permanent capitalized leasehold improvement costs, amorti- impairment. Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 103

Own shares Accrued income and prepaid expenses, Within the limits set by article 2357 of the Italian accrued liabilities and deferred income Civil Code and in accordance with the terms resol- These are costs and revenues whose effect spans ved by the Shareholders’ Meeting, own shares are over one or more years, costs and revenues rela- recorded at the acquisition cost, adjusted in case of ting to future accounting periods incurred in the permanent impairment, and included under long- current one, and whose amount varies over time. term financial assets. Pursuant to article 2357 ter, paragraph 3 of the Ita- Provisions for risks and charges lian Civil Code, a reserve for own shares was Provisions for risks and charges include accruals accrued using a part of the share premium reserve. other than those representing adjustments to asset items, aimed at covering losses or payables whose Inventories nature and existence are certain or likely, for which Raw material inventories are recorded at the lower at the date of the financial statements the amount between acquisition cost, based on the weighted or the expiration date cannot be determined. average method, and the expected realizable value, Accruals to the provisions reflect the best estimate set equal to the market value at year-end. made based on information available. Finished goods and work in progress are valued at Employee severance provision the production cost or the expected realizable value. The reserve includes accruals aimed at covering Inventories of videotapes and DVDs to be sold are amounts, net of advances, due to employees upon valued at the acquisition cost. Unsold inventories of termination of their employment up to the date of the same to be demagnetized or destroyed are the financial statements, calculated in accordance valued at the expected realizable value. Inventories with the provisions of article 2120 of the Italian of music CDs and DVDs are valued at the acquisi- Civil Code, collective labor contracts and inde- tion cost, written-down for possible loss in value. pendent agreements with the company. Write-downs are reversed in subsequent accounting periods in case of a reversal. Bonds Bonds issued by the company are recorded at face Receivables and payables value. Discounts and issue costs are classified Receivables are recorded at face value, written- among accrued liabilities. They are deferred and down to reflect their expected realizable value. amortized over the life of the bond issue to which Payables are recorded at face value. they relate. Interest accrued at the end of the period is recorded under accrued liabilities. Marketable securities Marketable securities are valued at the lower be- Loans and financing tween cost and market value. Loans and financing received are recorded at face Interest accrued at the time of acquisition and at value. Interest accrued at the end of the year is the date of the financial statements is recorded recorded under accrued liabilities. under “Accrued income”. Hedging instruments Cash and cash equivalents Hedging instruments held to hedge against the risk They are represented by cash on hand, demand of fluctuations in the value of specific assets or lia- and short-term bank and post office deposits. They bilities are valued at cost, in line with assets and are recorded at the lower of face value and the liabilities hedged. Positive and negative differences expected realizable value. accrued on hedging contracts on assets or liabilities that generate interest flows are recorded in the 104 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

Income Statement applying the matching principle. Income taxes Gains/losses on “paper swap” transactions are The new Income Tax Code (TUIR) introduced the recorded to increase/decrease the supply cost. possibility for companies of a same Group to determine an overall profit corresponding in principle to Conversion of amounts originally the algebraic sum of taxable profits of each com- expressed in foreign currencies pany (parent company and companies controlled Transactions denominated in foreign currencies are directly and/or indirectly with a share over 50%) recorded in euro at the exchange rate applicable at and, consequently, to determine a single income tax the time of the transaction. At the time at which liability for the whole Group. On October 20, receivables and payables denominated in foreign 2004, the Board of Directors of Gruppo Editoriale currencies are collected or paid out, exchange rate L’Espresso SpA resolved the participation of the differences are recorded in the income statement. company to CIR’s “Tax consolidation” and a gene- Payables and receivables denominated in foreign ral agreement regulating the rights and obligations currencies at the date of the financial statements are of CIR and consolidated companies (thus including recorded in the same at the exchange rate at the Gruppo Editoriale L’Espresso SpA) with respect to same date. Gains and losses resulting from the con- the participation in the tax consolidation was version of individual credits and debits are credited underwritten. As a result of the participation in the and debited as appropriate to the income statement. tax consolidation of the Group, income taxes are calculated on the expected taxable profit for the Cost and revenue recognition year and represents a liability towards the consoli- Criteria used in recording costs and revenues rela- dating company. Such liability is therefore recorded ting to ordinary operations are the following: in the balance sheet as a payable to parent company • revenues from the sale of publications are recogni- CIR, net of advances and withholding taxes already zed at the time of shipping, net of related returns; paid in 2004. • revenues from the sale of advertising space are recognized at the time the advertising is published. Regional income taxes on productive activities Grants are recorded separately under “Other reve- (Irap) payable are recorded in the balance sheet nues” in the Income Statement at the time the right among taxes payable, net of advances paid. to receive them arises. Deferred and prepaid taxes arising from timing Capital grants, including those in the form of tax differences between the profit reported in the credits, are recorded in the period in which the financial statements and that reported for tax pur- related capital investment is made, and credited poses are also recorded. to the Income Statement over a period correlated with the residual life of the assets to which they Prepaid taxes are recorded in accordance with pru- relate, in line with the period over which they are dent criteria, pursuant to Article 2423 bis of the Ita- amortized. The share relating to future years is lian Civil Code, and where there exists reasonable recorded as deferred income. certainty of their recovery in future years. Deferred Costs are recorded in the financial statements ap- taxes are not recorded in case it is considered unlike- plying the same criteria used for revenues, and in ly that the liability shall arise in the future. Deferred any case in accordance with the accrual method. and prepaid taxes are calculated based on the expected tax rate applicable in the period in which the Dividends timing difference is expected to be reabsorbed and are reviewed every year to keep into account chan- Dividends are recorded at the time their distribu- ges in the financial position and operations of the tion is resolved by the distributing company. company and changes in tax rates. Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 105

Balance sheet assets over 40 years. La Repubblica’s Genoa edition sup- plement il Lavoro was acquired for €103 thousand A - Receivables from shareholders at the end of the 1999 financial year and is fully At December 31, 2004 no amount was due by amortized. shareholders as capital not paid-in. The €5,333 thousand decline is due entirely to the B - Fixed assets amortization expense for the period.

Intangible assets Other intangible assets Dec. 31, 2003 Dec. 31, 2004 The breakdown and changes in intangible assets are Leasehold improvements 191 6,743 shown in Attachment 1. At December 31, 2004, intangible assets amounted to €154,431 thousand Expenditure in the year amounted to €7,427 thou- (up from €153,745 thousand at December 31, sand due primarily to work for the renovation of the 2003). Expenditure on intangible assets in 2004 new via C. Colombo Rome offices (€3,458 thou- amounted to €8,371 thousand, reclassifications of sand), in addition to the renovation of la Repubbli- intangible assets were equal to €87 thousand and ca’s Milan (€2,583 thousand) and Bari (€1,229 amortization charges to €7,772 thousand. thousand) printing centers as a result of the coming into operation of full color printing presses. The Concessions, licenses amortization expense was equal to €875 thousand. and trademarks Dec. 31, 2003 Dec. 31, 2004 Software 3,150 2,797 Tangible assets Other rights 43 63 The breakdown and changes in tangible assets are Total 3,193 2,860 shown in Attachment 2.

Expenditure on software for the year amounted to In the past the company carried out revaluations €1,001 thousand and relates prevalently to the of assets pursuant to Law no. 72, March 19, 1983 development of editing, administrative and distri- and Law no. 413, December 30, 1991. Assets still bution systems. The amortization expense for the owned at December 31, 2004 revalued pursuant year amounts to €1,350 thousand and write-downs to the above laws are listed in Attachment 3. to €4 thousand. At December 31, 2004, tangible assets amounted € € Item “Other rights” includes the registration cost of to 69,878 thousand (up from 67,458 thousand trademarks for editorial projects: trademarks regi- at December 31, 2003). Expenditure in the year € stered in the year amounted to €30 thousands, amounted to 16,681 thousand, the amortization € while the depreciation expense amounted to €10 expense to 10,906 thousand, write-downs were € thousand. equal to 2,492 thousand and net divestments and reclassifications amounted to €863 thousand. Goodwill on publications Dec. 31, 2003 Dec. 31, 2004 La Repubblica 150,341 144,828 The item breaks down as follows: Il Lavoro 20 - Land and buildings Dec. 31, 2003 Dec. 31, 2004 Total 150,361 144,828 2,735 4,240

Newspaper la Repubblica was recorded in the Land and buildings consist primarily of the building financial statements as a result of the merger on located in Milan, Via de Alessandri, in which the December 10, 1991 between Cartiera di Ascoli SpA Milan branch of newspaper la Repubblica and and Editoriale la Repubblica SpA, and is amortized magazine L’espresso are located, in addition to the 106 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

building located in Bologna where la Repubblica is ment no longer utilized by la Repubblica, to be printed, both purchased at the expiration of the transferred to newspaper la Nuova Sardegna, publi- financial lease under which they were held. shed by subsidiary Editoriale Nuova Sardegna.

Expenditure in the year amounted to €441 thou- • Generic plant and air conditioning equipment: sand. Reclassifications from work in progress in the expenditure in the year amounted to €564 thou- context of the renovation of the Bologna printing sand, relating primarily to new offices and depre- center due to the full color project amounted to ciation amounting to €131 thousand €315 thousand. The depreciation expense for the year was €185 thousand. Furniture, equipment and motor vehicles Dec. 31, 2003 Dec. 31, 2004 The further €934 thousand increase is due to the Furniture and fixtures 425 1,568 reclassification among non-distributasble reserves Electronic equipment 6,471 7,846 of the accumulated depreciation of the capital gain Motor vehicles 270 191 realized in 1985, reinvested pursuant to article 54 Total 7,166 9,605 of Presidential Decree no. 597/73. The item increases by €2,439 thousand due to new Plant and machinery Dec. 31, 2003 Dec. 31, 2004 expenditure in the year amounting to €5,617 thou- Rotary and automatic sand, depreciation expense of €3,089 thousand and printing presses 10,941 55,132 disposals equal to €89 thousand. Generic plant and air conditioning equipment 328 761 Expenditure relates primarily to furniture and elec- Editorial system 148 66 tronic equipment for the new offices (€3,225 thou- Total 11,417 55,959 sand), network equipment (€494 thousand) and the update of Group administrative and editing Expenditure on plant and machinery in year systems (€1,429 thousand). amounts to €10,488 thousand, reclassifications from work in progress to €45,689 thousand due to Other assets Dec. 31, 2003 Dec. 31, 2004 the coming into operation of the new full color 49 74 rotary presses, and the depreciation expense is equal to €7,532 thousand. In the same period, Other assets grow by €25 thousand due to expendi- write-downs amounted to €2,482 thousand and net ture amounting to €135 thousand, amortization divestments were equal to €1,621 thousand. The expense for the year equal to €100 thousand and detail is provided below: write-downs amounting to €10 thousand.

• Rotary and automatic printing presses: the comple- Work in progress and advances Dec. 31, 2003Dec. 31, 2004 tion of the full color project for the printing in color 46,091 - of the entire newspaper la Repubblica involved new expenditure amounting to €9,924 thousand and Work in progress and advances decline to zero due to reclassifications from work in progress amounting the coming into operation of full color presses for to €45,689 thousand. Depreciation in the year the printing of newspaper la Repubblica in color. amounted to €7,319 thousand, while write-downs relating to obsolete plant and equipment of the Tangible asset depreciation – detailed in Attach- Rome and Milan printing centers were equal to ment 2 – was calculated applying rates representing €2,482 thousand. Disposals amounted to €1,621 the estimated residual useful life of the assets. thousand and relate primarily to plant and equip- Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 107

Rates applied for main categories of assets are tions and of frequencies held by subsidiaries and shown below: affiliated companies.

Industrial buildings 3% Receivables Printing plant 15.5% Long-term receivables amount to €1,511 thousand Printing presses 10%-20% (€1,890 thousand at December 31, 2003). Receiva- Editorial systems 25% bles by maturity are shown in Attachment 7. The Air conditioning systems 20% breakdown of the item is shown below: Generic plant 10% Electronic equipment 20% Dec. 31, 2003 Dec. 31, 2004 Furniture and fixtures 12% Guarantee deposits 580 594 Motor vehicles 25% Tax credits for advances on personal Sundry equipment 25% income tax payable on employee severance indemnities 1,310 917 Total 1,890 1,511 Depreciation rates of assets acquired that became operational in the period are reduced by half. Guarantee deposits relate primarily to lease contracts. New rotary presses that went into operation in the year in accordance with the full color plan that Tax credits for advances on personal income tax on allows to print the newspaper in full color in all employee severance indemnities are made up of tax printing centers, are depreciated over an estimated advances paid pursuant to Law 140/97 on amounts useful life of ten years. accrued by employees upon termination of employment at December 31, 1997, revalued yearly. Uses Some plant and machinery is encumbered with of the provision amounted to €109 thousand, while liens in favor of Banca Intesa Mediocredito against revaluations amounted to €22 thousand. subsidized loans extended pursuant to Law 416/81, as reported under item “bank loans”. Own shares The Company acquired, starting from financial Financial assets year 2001, a total of 4,800,000 shares (of which 1,600,000 in 2004) to service stock option plans. Investments Over the course of time, rights to a total of Investments at December 31, 2004 amounted to 1,500,000 shares (of which 1,000,000 in 2004) €256,086 thousand, up €21,460 thousand on were exercised, bringing the number of own shares €234,626 thousand at December 31, 2003. Capital held to 3,300,000. Own shares at December 31, increases were carried out in the year by subsidia- 2004 are recorded at €13,192 thousand (€8,663 ries Kataweb (€20,000 thousand) and A.Manzo- thousand at December 31, 2003), net of a write- ni&C. (€7,000 thousand), while write-downs due down of €820 thousand carried out in 2002. to losses reported by subsidiary Kataweb amounted to €5,540 thousand.

C - Current assets Changes in the year and the breakdown of invest- Inventories ments at December 31, 2004 are detailed respectively in Attachments 4 and 5. Main positive diffe- Inventories at December 31, 2004 amounted to € rences between the book value of investments and 25,791 thousand and are made up as follows: its valuation in accordance with article 2426 of the Italian Civil Code relate to the value of publica- 108 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

Dec. 31, 2003 Dec. 31, 2004 given in an attachment showing the relations Paper 22,772 22,545 between Gruppo Editoriale L'Espresso SpA and Publications 3,578 3,246 other Group companies included in the Report of Total 26,350 25,791 the Board of Directors.

Paper inventories are in line with the previous year. Dec. 31, 2003 Dec. 31, 2004 Receivables from subsidiaries Publications inventories consist primarily of the first • Trade receivables 88,395 90,673 issues of periodicals to be distributed in the first • Financial receivables 47,269 30,454 week of January 2005 and to products distributed • VAT receivable 900 3,983 optionally with Group publications. Total 136,564 125,110

Receivables Receivables from affiliated companies Current receivables amount to €189,193 thousand • Trade receivables 205 492 (€186,735 thousand at December 31, 2003). The Total 205 492 breakdown of receivables by maturity is shown in TOTAL 136,769 125,602 Attachment 7. Trade receivables include €89,615 thousand (€88,110 Trade receivables thousand at December 31, 2003) of receivables Trade receivables amount to €12,084 thousand from A.Manzoni&C., exclusive concessionaire for (€12,608 thousand at December 31, 2003), down the sale of advertising on the Group’s publications. €524 thousand. The breakdown is shown below: The €1,505 thousand increase on the previous year is due primarily to the growth in advertising sales. Trade receivables Dec. 31, 2003 Dec. 31, 2004 Newsstands and distributors 9,116 9,441 Financial receivables from subsidiaries amount to Sundry trade receivables 3,492 2,643 €30,454 thousand (€47,269 thousand at Decem- Total 12,608 12,084 ber 31, 2003) and relate to financing extended at market conditions to subsidiaries through the cen- Receivables from newsstands and distributors grew by tralized current account used for cash management €325 thousand on December 31, 2003 due to the purposes. higher number of sales initiatives in conjunction with Group publications at the end of the year. Receivables from parent company Receivables from parent company CIR amount to Sundry trade receivables include primarily receivables €4,360 thousand and consist of advances paid on for the sale of paper to be recycled, the sale of account of income taxes in excess of the tax expen- videotapes to be demagnetized and receivables from se for the year, paid to the parent company as a subscribers of Group publications. The €849 thou- result of the participation in the tax consolidation sand decline is due primarily to the lower number of of CIR. unsold videotapes by L’espresso to be demagnetized, as a result of the gradual abandonment of this kind Tax receivables of product sold in conjunction with the magazine. Pursuant to article 2424 of Legislative Decree no. 6/2003, the item “Tax receivables” was reported as Receivables from subsidiaries a separate item under Receivables. The correspon- and affiliated companies ding amount for the previous year was reclassified They amount to €125,602 thousand (€136,769 accordingly. Tax receivables amount to €25,700 thousand at December 31, 2003). A breakdown is thousand and are made up as follows: Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 109

Dec. 31, 2003 Dec. 31, 2004 suant to article 8, Law no. 62/2001 on investments Regional income tax on productive made between 2001 and 2004. Law 62/2001 provi- activities receivable 855 736 des that capital expenditure eligible for contributions Corporate and local tax credits for receives a 3% tax credit per year for five years. which a refund has been requested 15,075 15,263 Increases in the period amounted to €4,401 thou- Tax credit – Law no. 350/2003 art. 4 - 4,036 sand, while uses amounted to €2,008 thousand. Tax credit – Law no. 62/2001 art. 8 3,787 5,300 VAT receivable 1,815 281 VAT receivable declines by €1,534 thousand due to Other tax credits 84 84 higher advance paid in December. Total 21,616 25,700 Prepaid taxes Regional income tax on productive activities (Irap) Article 2424 of Legislative Decree no. 6/2003 pro- receivable consists of advances paid in 2004. vides for the reporting of prepaid taxes under a separate item in the Consolidated Balance Sheet. Corporate and local tax credits for which a refund has The corresponding amount for the previous year been requested include tax credits relating to pre- was reclassified accordingly. Prepaid taxes amount vious years, inclusive of interest, for which a refund to €15,380 thousand (€14,336 thousand at Decem- has been requested. The increase on the previous ber 31, 2003) and represent the balance of tempo- year is due to interest accrued in the year. rary differences between balance sheet entries and amounts recognized for tax purposes. Changes in Tax credits under Law no. 350/2003 art. 4 represent the year are shown in Attachments 9 and 10. tax credits recorded in the year pursuant to article 4, paragraph 181 and following, of Law no. 350, Other receivables December 24, 2003 that subsidizes paper purchases Other receivables amount to €6,067 thousand of paper used in the year, providing a 10% tax cre- (€1,406 thousand at December 31, 2003). The dit on the total cost of paper consumed. The law €4,661 thousand increase is due primarily to the € sets an overall limit of 95 million of contributions payment of a €5,000 thousand advance on the for year 2004. Since the tax credit granted to the acquisition of national TV network Rete A. Other Company has not been defined, as the number of receivables are detailed below. applications is unknown at this stage, we estimate the amount of the subsidy based on information Dec. 31, 2003 Dec. 31, 2004 available on paper consumption for 2003 at about Advances to personnel and associates 441 432 half the normal tax credit on the Group’s paper con- Advances to suppliers 114 5,125 sumption for 2004. The table that follows shows Other financial receivables 61 66 paper purchases for 2004, the portion eligible for Other receivables 790 444 subsidies pursuant to the mentioned law and the Total 1,406 6,067 related estimated tax credit recorded: Dec. 31, 2004 Marketable securities € Paper purchases 103,226 Marketable securities consist of 20,142 thousand of Paper consumption eligible for subsidies 80,722 securities detailed in Attachment 6 to the Consolida- 10% tax credit (applied for) 8,072 ted Financial Statements. These securities are recor- Expected tax credit recorded (50% of amount applied for) 4,036 ded at December 31, 2004, net of the write-down of €181 thousand carried out to bring their book value in line with current market prices. Part of these secu- Tax credits pursuant to article 8, Law no. 62/2001 (law rities, amounting to €2,523 thousand, are pledged as on Publishing) relate to tax credits provided pur- guarantees against subsidized loans. 110 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

Cash and cash equivalents D - Accrued income and prepaid expenses Cash and cash equivalents amount to €372,577 These amount to €12,498 thousand (€2,577 thou- thousand (€58,449 thousand at December 31, sand at December 31, 2003) and are made up as 2003) and include: follows:

Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Bank and Post Office demand deposits 1,901 3,727 Accrued income Time deposits 56,500 368,800 • Interest 220 4,129 Cash on hand 48 50 • Other 2 1 Total 58,449 372,577 Total accrued income 222 4,130 Prepaid expenses The strong increase in time deposits on December • Bond issue costs 494 692 31, 2004 is due mainly to the investment of cash • Other prepaid expenses 1,861 7,676 generated through the bond issue launched on Total prepaid expenses 2,355 8,368 October 8, 2004 which, awaiting to be used for the TOTAL 2,577 12,498 repayment of €200 million of bonds expiring on August 1, 2005, was invested in time deposits with banks. The breakdown at December 31, 2004 is Accrued interest includes €2,738 thousand of intere- provided in the table below: st on interest rate swap transactions used to exchange the original fixed rate on the bond issue with a Bank Expiration Rate Amount variable rate, and €1,170 thousand of interest on € ’000 bank and intragroup current accounts. Banco di Brescia January 27, 2005 2.10% 18,000 Banco di Brescia January 17, 2005 2.10% 6,500 Bond issue costs consist of issue discounts and Banco di Brescia January 12, 2005 2.00% 4,000 costs incurred in the organization and placement Banca Intesa January 17, 2005 2.07% 10,000 of bonds issued. They are amortized over the life Banca Intesa August 1, 2005 2.18% 80,000 of the relating bond issue. B.N.L. January 3, 2005 2.20% 2,000 B.N.L. January 7, 2005 2.12% 1,200 The increase in other prepaid expenses is due prima- B.N.L. January 7, 2005 2.13% 2,000 rily to the acquisition of rights for the publishing B.N.L. January 13, 2005 2.10% 4,000 of products that will be sold optionally with la B.N.L. January 17, 2005 2.10% 5,000 Repubblica and L’Espresso in the future, and rent B.N.L. January 27, 2005 2.10% 10,000 relating to 2005. B.N.L. August 1, 2005 2.18% 50,000 M.P.S. January 5, 2005 2.17% 3,000 M.P.S. January 5, 2005 2.12% 1,100 M.P.S. January 10, 2005 2.15% 8,000 M.P.S. January 27, 2005 2.13% 40,000 M.P.S. January 31, 2005 2.12% 4,000 M.P.S. August 1, 2005 2.19% 40,000 Unicredit January 10, 2005 2.12% 5,000 Unicredit January 10, 2005 2.11% 10,000 Unicredit January 13, 2005 2.08% 5,000 Unicredit January 27, 2005 2.10% 30,000 Unicredit August 1, 2005 2.17% 30,000 Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 111

Liabilities and Shareholders’ Equity Other reserves Other reserves are made up as follows: A - Shareholders’ equity A Statement of Changes in Shareholders’ Equity Voluntary reserve is provided in Attachment 6, while a breakdown It amounts to €10,857 thousand (€271 thousand at of Shareholders’ Equity with reference to the part December 31, 2003) and increases, pursuant to the of reserves that is available and the part that may resolution of the Shareholders’ Meeting dated April be distributed is included in Attachment 6 bis. 21, 2004, by €10,611 thousand as a result of the allocation of part of net income for 2003 to the Share capital reserve, and a €25 thousand decline due to an The share capital amounts to €64,896,058.20 and accrual to the Legal Reserve. is made up of 432,640,388 shares with par value of €0.15 each. The €127,196.25 increase on December Reserve for grants 31, 2003 is due to the issue of shares to service the It amounts to €17,840 thousand (€17,831 thou- Group’s stock option plans for employees. sand at December 31, 2003) and includes capital grants pursuant to Law no. 416/81 (€11,914 thou- Share premium reserve sand), and grants pursuant to Law no. 67/87 It amounts to €61,958 thousand (€63,991 thou- (€5,926 thousand). The €9 thousand increase on sand at December 31, 2003) and represents the the previous year is due to grants received pur- premium paid by shareholders on capital increases suant to the Law on Publishing by magazines carried out over time. It declines by €2,033 thou- National Geographic, Limes and Micromega. sand on December 31, 2003 due to the transfer of €4,529 thousand to the Reserve for own shares, Dividend equalization reserve offset by the share premium of €2,496 thousand It amounts to €3,869 thousand and is unchanged paid for the above-mentioned capital increase. from December 31, 2003.

Restatement reserve Reserve under art. 55 of Presidential It amounts to €786 thousand (unchanged on Decree no. 597/73 € December 31, 2003) and relates to the revalua- It amounts to 490 thousand and is unchanged tion pursuant to Law 413/1991. from December 31, 2003.

Legal reserve Merger differences € It amounts to €12,979 thousand and increases by The reserve amounts to 7,870 thousand and is €25 thousand on December 31, 2003 due to the unchanged from December 31, 2003. accrual to legal reserve up to its reaching 20% of Reserve under art. 54 of Presidential the share capital, as provided by law. Decree no. 597/73 It amounts to €934 thousand and consists of the Reserve for own shares reclassification of the accumulated depreciation The reserve, accrued pursuant to article 2357 ter, provision relating to the capital gain realized in paragraph 3 of the Italian Civil Code, amounts to 1985, reinvested pursuant to article 54 of Presi- € € 13,192 thousand (as compared with 8,663 dential Decree no. 597/73. thousand at December 31, 2003), corresponding to the book value of 3,300,000 shares acquired on Net profit for the year the regulated market, net of the write-down of Net profit for the year includes profit, equal to € 820 thousand. The reserve was accrued by with- €70,423 thousand, net of the tax expense for the drawing from the share premium reserve. year. 112 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

B - Provisions for risks and charges ves, tax contestation on premium transactions, and other risks. Provision for retirement benefits The provision amounts to €5,954 thousand (€5,129 C - Employee severance provision thousand at December 31, 2003). The provision amounts to €39,321 thousand (€37,336 thousand at December 31, 2003). Chan- Dec. 31, Accruals Uses Dec. 31, 2003 2004 ges occurred in the year are shown below: Seniority indemnity 757 42 (36) 763 Dec. 31, Accruals Uses Dec. 31, Fixed indemnity 4,372 1,190 (371) 5,191 2003 2004 Total 5,129 1,232 (407) 5,954 Employee severance provision 37,336 5,283 (3,298) 39,321

The retirement provision, accrued according to The provision covers amounts accrued by person- amounts payable pursuant to labor contracts in nel at December 31, 2004 pursuant to current laws force, includes indemnities for journalists and and regulations. Uses of the provision relate to managers. Accruals for the year relate to amounts indemnities paid to personnel terminating their set aside for employees, while uses relate to settle- employment with the company and advances to ments of amounts due to employees who left their employees on severance indemnities. employment with the Group. Changes in personnel in the year are shown below: Tax provision The provision amounts to €327 thousand and Dec. 31, Hirings Terminations Dec. 31,Average for 2003 2004 the period was accrued under Shareholders’ Equity pursuant Journalists 527 19 (17) 529 531 to article 54 of Presidential Decree no. 597/73. Managers 32 3 - 35 34 Provisions for risks and charges Office workers 344 7 (7) 344 345 Total 903 29 (24) 908 910 Dec. 31, Accruals Uses Dec. 31, 2003 2004 Legal proceedings 11,217 1,569 (1,720) 11,066 The data above relates only to employees on an Sundry risk 2,061 278 (998) 1,341 open-ended contract. Taking into account person- Total 13,278 1,847 (2,718) 12,407 nel hired on a fixed-term contract, the average number of employees is equal to 942. The provision for legal proceedings is accrued against the risk of potential charges resulting from legal D - Payables proceedings and litigation. The provision was Payables amount to €765,112 thousand (€448,421 accrued according to prudent criteria, keeping into thousand at December 31, 2003). The breakdown account the particular nature of the activity carried of payables by maturity (within one year, over one out, despite the difficulty encountered in assessing year, over 5 years) is included in Attachment 8. the amount of potential charges relating to each pending proceeding. In addition to potential libel Bonds claims, affecting all publishers, it also includes On October 8, 2004, the Company placed on the risks relating to commercial and labor issues, in market through Banca Caboto, JP Morgan Securi- addition to possible social security audits. ties, Lehman Brothers International and Medioban- ca as lead managers, a €300 million 10-year fixed- The provision for sundry risks at December 31, 2004 rate bond issue. The bond was very well received included provisions for early retirement incenti- on the market with requests for over 5 times the Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 113

amount on issue. Bonds are listed on the Luxem- The above loans are subsidized pursuant to the bourg Stock Exchange and pay an annual 5.125% Law on Publishing (Law no. 416/81 and subse- coupon, equal to a 10-year mid-swap rate plus 105 quent amendments and integrations). basis points. The full amount of the issue was swapped into a Secured loans were extended against liens on 10-year floating-rate through swap transactions plant and equipment at the following terms and having a term matching that of the bond issue conditions: through which the Espresso Group pays a 6-month • Banca Intesa Mediocredito: amount extended in Euribor rate and receives a 5.125% fixed-rate paya- 1999: €3,293 thousand; interest rate 2.35%; ble to bondholders. The fair market value of swap expiration December 30, 2007; contracts at December 31, 2004 amounts to €5,435 thousands. The contracts were closed in • Banca Intesa Mediocredito: amount extended in March 2005 resulting in a gain. 2002: €5,190 thousand; interest rate 2.80%; The caption includes a €200 million 2000-2005 5- expiration December 31, 2011; year bond issue, expiring August 1, 2005. • Banca Intesa Mediocredito: amount extended in 2002: €5,037 thousand; interest rate 2.80%; Banks expiration December 31, 2011; Bank loans amount to €15,000 thousand (€17,242 thousand at December 31, 2003) and are made up • Banca Intesa Mediocredito: amount extended in as follows: 2002: €1,965 thousand; interest rate 2.80%; Dec. 31, 2003 Dec. 31, 2004 expiration December 31, 2011; Short-term Unsecured loans consist of: Overdrafts 2,614 2,669 Current portion of secured loans 1,600 1,643 • Efibanca: amount extended in 1997: €5,177 Current portion of unsecured loans 697 722 thousand; interest rate 3.65%; expiration June Total short-term loans 4,911 5,034 30, 2007; Long-term • Banca Intesa Mediocredito: amount extended in Secured loans 10,476 8,833 1997: €1,071 thousand; interest rate 3.65%; Unsecured loans 1,855 1,133 expiration June 30, 2007. Total long-term loans 12,331 9,966 TOTAL 17,242 15,000 Interest rates are reported net of subsidies provided for by the Law, equal to 50% of the original rate. Loans consist of the following: The loan extended by Efibanca is secured by a Dec. 31, Short-term Long-term 2004 bank guarantee issued by Banca Commerciale Ita- Banca Intesa Mediocredito, 1999 1,237 403 834 liana (now Banca Intesa) in favor of the company. € Banca Intesa Mediocredito, 2002 1,494 198 1,296 Such guarantee is also partly secured by 2,500 thousand of BTP 3.5% (long-term Treasury Banca Intesa Mediocredito, 2002 3,935 527 3,408 Bonds), maturing September 15, 2005, recorded Banca Intesa Mediocredito, 2002 3,810 515 3,295 under “Marketable securities”. Total secured loans 10,476 1,643 8,833 Efibanca 1,537 598 939 Trade payables Banca Intesa Mediocredito, 1997 318 124 194 Trade payables amount to €125,827 thousand, up Total unsecured loans 1,855 722 1,133 €20,576 thousand on €105,251 at December 31, 2003. 114 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

The item is made up as follows: The item is made up as follows:

Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Paper 28,038 36,653 Payables to subsidiaries Printing 20,950 27,811 • Trade payables 14,655 24,356 Transport and distribution 4,480 5,027 • Financial payables 85,546 71,116 Capital goods 12,716 11,046 • VAT payable 1,838 360 Freelance work 2,893 3,615 Total 102,039 95,832 Promotion 6,592 8,727 Payables to affiliated companies Sundry supplies 29,582 32,948 • Trade payables 585 423 Total 105,251 125,827 Total 585 423 TOTAL 102,624 96,255 Paper payables grow by €8,615 thousand due to the higher number of publishing initiatives pro- Trade payables relate to subsidiaries duced in-house in the year. • CPS and Rotosud for the typesetting of weekly Payables for printing services increase by €6,861 magazine L’espresso and supplements of newspa- thousand due primarily to costs for the comple- per la Repubblica; tion, in the second half of the year, of la Repub- blica’s full color project and the in-house produc- • Finegil Editoriale and La Nuova Sardegna for the tion of publishing initiatives. pre-printing and printing of newspaper la Repub- blica; Capital goods decline by €1,670 thousand due mainly to purchases in 2003 of new rotary presses • A.Manzoni&C. for the sale of advertising on and equipment relating to the full color project. publications;

Payables for promotions grow by €2,135 thousand • Kataweb for advertising the newspaper on its due the launch at the end of 2004 of the Touring Internet sites and Ksolutions for the provision of Club Guide book series by la Repubblica and technological services; new multimedia products sold in conjunction with L’espresso • Somedia for the sale of arrear issues of la Repub- blica and, from 2002, to subscriptions, in addition Other trade payables grow by €3,366 thousand, due to arrear issues and promotional campaigns of ma- primarily to the optimization of payment terms. gazines L’espresso and National Geographic.

Payables to subsidiaries and affiliated companies Financial payables consist of cash of subsidiaries They amount to €96,255 thousand and decline by held through the intragroup current account, €6,369 thousand on €102,624 thousand at remunerated at market conditions. December 31, 2003. The breakdown is given in an attachment showing the relations between Taxes payable Gruppo Editoriale L’Espresso SpA and other Taxes payable amount to €7,843 thousand (€4,471 Group companies included in the Report of the thousand at December 31, 2003) and are made up Board of Directors. as follows: Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 115

Dec. 31, 2003 Dec. 31, 2004 E - Accrued liabilities and deferred income Income taxes payable 3,776 3,845 They amount to €26,083 thousand (€17,434 thou- VAT payable 516 3,821 sand at December 31, 2003). Other taxes payable 179 177 Total 4,471 7,843 Dec. 31, 2003 Dec. 31, 2004 Accrued liabilities • Interest 5,449 10,010 VAT payable relates to Group VAT payments for • Deferred compensation 813 844 December (€3,464 thousand) and the accrual of Total 6,262 10,854 taxes on the number of copies published subject Deferred income to fixed VAT (€357 thousand). • Prepaid subscriptions 7,543 7,839 • Deferred contributions pursuant Health and social security institutions to art. 8, Law 62/2001 3,597 7,358 Payables to social security institutions amount to • Other deferred income 32 32 €5,243 thousand (€5,175 thousand at December Total 11,172 15,229 31, 2003) and are made up mainly of social secu- TOTAL 17,434 26,083 rity contributions on salaries paid to employees in December 2004. Accrued interest payable includes mainly the share Other payables in the interest expense relating to the 2000-2005 Other payables amount to €14,944 thousand bond issue (€5,449 thousand) and the 2004-2014 (€13,658 thousand at December 31, 2003) and are bond issue (€2,738 thousand). The item includes made up as follows: also interest accrued on interest rate swap contracts relating to the new bond issue. Dec. 31, 2003 Dec. 31, 2004 Payable to personnel for Prepaid subscriptions includes prepaid subscrip- salary and cost reimbursements 4,887 4,589 tions of L’espresso, National Geographic and la Payable to personnel for paid leave 8,073 9,177 Repubblica relating to 2005 issues. Other payables 698 1,178 Total 13,658 14,944 Deferred contributions pursuant to article 8 of Law no. 62/2001 consist of contributions relating to future years in line with the depreciation of assets to Payables to personnel for paid leave increase by which they relate. €1,104 thousand on December 31, 2003 due to automatic pay increases on days of vacation accrued and not taken by Group employees.

Other payables to personnel relate to retribution, Sunday indemnities, overtime and contractual agreements. 116 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

Memorandum accounts Other guarantees granted Among guarantees granted is a “binding” letter Guarantees of patronage to S.I.A.E. for an amount of €35 Guarantees consist of the following: thousand in favor of subsidiary Elemedia.

Dec. 31, 2003 Dec. 31, 2004 Other memorandum accounts In favor of subsidiaries Other memorandum accounts include €26 thou- Rotosud 5,766 5,766 sand of “third party securities and deposits held” Finegil Editoriale 17,770 17,191 relating to a distribution contract. S.E.T.A. 1,192 1,192 EAG 1,736 1,728 Radio Deejay Kft 100 100 Radio Bonton 200 200 Esperya 510 510 Studio Vit 64 66 In favor of third parties Italmedia soc. coop.r.l. 775 775 Italia Radio soc. coop.a r.l. in liquidation 245 245 Total 28,358 27,773

The guarantee in favor of Rotosud was granted against a subsidized loan pursuant to Law 416/81 and subsequent amendments and integrations.

Guarantees in favor of Finegil Editoriale, S.E.T.A. and EAG were granted against ordinary and subsidized loans pursuant to Law 416/81, subsequent amendments and integrations.

Guarantees in favor of Esperya were granted against leasing contracts and VAT refunds.

Guarantees in favor of Radio Deejay Kft and Radio Bonton were granted against the opening of credit lines with respectively the Central European International Bank (Budapest) and the Vseobecnà Uverovà Banka (Prague).

Commitments At December 31, 2004, commitments amounted to €112,472 thousand, consisting primarily of the €110 million commitment resulting from the underwriting of the agreement for the acquisition of national TV network Rete A and commitments for the purchase of new printing equipment for the printing of newspaper la Repubblica (€2,472 thousand). Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 117

Income statement Circulation of the magazine was equal to an average of 390 thousand copies per issue. A- Production value Net advertising revenues decline by €4,307 thou- Revenues from sales and services sand due primarily to the lower circulation of la Total revenues from sales and services amount to Repubblica’s supplements. €656,416 thousand, up €7,937 thousand on 2003. The breakdown is shown in the table below: Revenues from the sale of returns and rejects declined by €1,231 thousand due to lower quantities of unsold videotapes and DVD returns recorded 2003 2004 by L’espresso. Circulation revenues 367,859 380,826 Net advertising revenues 271,636 267,329 Change in inventories of work in process, Sale of returns and rejects 3,179 1,948 semi-finished and finished goods € Provision of services to subsidiaries The 332 thousand decline is due both to finished and affiliated companies 3,885 4,541 products to be distributed in 2005 and inventories Other revenues 1,920 1,772 at December 31, 2004. Total 648,479 656,416 Other revenues Other revenues increase by €5,219 thousand and Net circulation revenues grew by €12,967 thou- are made up as follows: sand over 2003 thanks primarily to the success of products sold optionally with la Repubblica and 2003 2004 L’espresso. Rent received 434 441 Extraordinary gains 2,086 2,069 Circulation revenues of newspaper la Repubblica Sundry revenues 109 671 € grew by 2.6 million on the previous year due to Recovery of costs 2,891 4,391 the continuing success of l’Enciclopedia di Repub- Reimbursements 253 223 blica and La Storia, registering an average circula- Grants received 1,521 4,883 tion of over 283 thousand copies per issue. Circu- Other revenues and income 213 48 lation of the newspaper was stable on 2003 at an Total 7,507 12,726 average of 625 thousand copies per issue.

Revenues of magazine L’espresso grew by about The €562 thousand increase in sundry revenues is €10.4 million on the previous year, aided by the due to the sale of obsolete paper inventories. exceptional level of sales reached by products sold optionally with the magazine. Among products sold Grants received include €847 thousand relating to in conjunction with L’espresso, each of the different the share accrued in the year of tax credits provided art-book series sold in the year almost 60 thousand on capital expenditure (Law no. 62, March 7, average copies and the La Storia Generale della Let- 2001, art. 8), and €4,036 thousand of contribu- teratura Italiana series sold an average of over 65 tions provided for by Law no. 350, December 23, thousand copies per issue. L’espresso also managed 2003 on paper purchases. to acquire rights for the newsstand distribution of one of the most successful and controversial movies of the year, Fahrenheit 9/11, selling over 182 thousand copies between DVDs and videotapes. 118 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

B - Production costs The most significant changes include the cost of printing and other work carried out by others, up Raw materials, auxiliaries and goods €32,470 thousand due to costs connected with full 2003 2004 color printing and the choice of contracting the Paper 104,415 103,226 printing of products sold in conjunction with Printing supplies 1 1,306 Group publications outside. Products sold optionally with publications 17,504 11,440 Publications 1,262 1,337 Editing costs grew by €1,260 thousand due prima- Office supplies and other consumables 434 470 rily to extraordinary costs incurred in conjunction Total 123,616 117,779 with the news coverage of the Olympics.

Paper purchases decline by €1,189 thousand due to Promotional expenses and transport costs increased the average 5% decline of paper prices on the pre- by €4,733 thousand and €1,664 thousand respec- vious year. The company is currently a counterpart tively due to the higher number of products sold in in a paper swap contract through which it has conjunction with Group publications. fixed the price of part of its paper supplies for its newspapers up to the end of 2005. The fair value Other operating services grew by €1,416 thousand of the contract at December 31, 2004 is negative due primarily to the increase in the cost of consul- by €3,480 thousand, widely compensated by the ting services, cleaning and security, as a result of impact of the decline in the price of paper. the transfer to the new office location in Rome.

Purchases of printing materials includes the cost of Leases and rentals spare parts for new full color rotary presses that 2003 2004 came into operation in the year. Reproduction rights, copyrights and royalties 36,403 30,993 Products sold optionally with publications include the Rights on promotions 29 - cost for the purchase of products sold optionally Rent and condominium costs 5,043 7,261 with la Repubblica and L’espresso. The €6,064 Other costs 1,015 1,045 thousand reduction is due to the choice not to Total 42,490 39,299 acquire finished products for resale in conjunction with publications, buying instead the paper and Reproduction rights, copyrights and royalties costs contracting only the printing outside. declined by €5,410 thousand on 2003 due to lower royalties paid for products sold optionally with Services Group publications. 2003 2004 Printing and other work carried out by others 120,834 153,304 Rent and condominium costs grew by €2,218 thou- Editing costs 32,591 33,851 sand and include rent for the new Rome offices. Promotional services 31,082 35,815 Transports 20,933 22,597 Personnel Postage and telephone 8,034 8,345 The detail of the item is included in the balance Agents’ fees 3,395 3,245 sheet. Personnel costs amount to €104,027 thou- Maintenance and utilities 2,654 3,054 sand, up from €98,043 thousand in 2003. The Other operating services 21,277 22,693 €5,984 thousand increase is due to automatic pay Total 240,800 282,904 progression mechanisms and the growth in early retirement incentive costs.

The item increased by €42,104 thousand. Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 119

Depreciation, amortization and write-downs South-East Asia and €398 thousand costs for the Amortization of intangible assets declined slightly relocation to the new offices in Rome. from €7,771 thousand to €7,768 thousand. Financial income and charges Depreciation of tangible assets grew from €8,899 Income from investments amount to €27,231 thou- thousand in 2003 to €10,906 thousand in 2004. sand (€34,493 thousand at December 31,2004). Write-downs of fixed assets in the year amounted to The breakdown is provided below: €2,496 thousand. 2003 2004 Intangible and tangible asset amortization/depre- Dividends ciation and write-downs for 2004 are shown in • from subsidiaries Attachments 1 and 2. Finegil Editoriale 14,529 16,345 SELPI 197 157 Write-downs of current receivables amounted in the year to €958 thousand (€1,183 thousand at Decem- Editoriale Fvg 2,427 2,426 ber, 31 2004). Elemedia - 4,500 Rotosud 4,433 2,860 Change in inventories CPS 390 520 Raw materials and merchandise inventories grew S.E.T.A. 99 319 in 2004 by €227 thousand. • from affiliated companies Le Scienze - 104 Provisions for risks and charges Total dividends 22,075 27,231 2003 2004 Tax credit on dividends 12,416 - Accruals to the risk provision 5,911 1,576 Capital gains on sale of investments 2 - Total 34,493 27,231 The accrual mainly refer to amounts prudentially set aside to cover risk that might arise form litiga- Other financial income and tion underway. At December 31, 2003 these inclu- income other than the above ded the accrual for disputes on social security mat- 2003 2004 ters which took into account the restructuring plan Other income from long-term receivables to the provision for labor litigation made to take • From others 42 25 into account the restructuring plan of STEC, the Other income from marketable securities Roman printer of la Repubblica. • Interest 5,050 742 Sundry operating costs Sundry income from parent companies, subsidiaries and affiliates • Interest on intragroup current 2003 2004 account balances 1,763 1,128 Taxes and duties payable 258 315 Total 6,855 1,895 Public relations and gift expenses 445 483 Income other than the above Membership fees 444 451 • Interest on current accounts and Other charges 486 1,389 short-term deposits 799 46 Capital losses - 27 • Interest on tax credits 193 274 Extraordinary losses 1,639 1,735 • Financial income from swap transactions 8,512 2,738 Total 3,272 4,400 • Sundry financial income 907 2,790 Total 10,411 5,848 Sundry operating costs include €500 thousand of TOTAL 17,266 7,743 gifts in favor of the victims of the earthquake in 120 | Gruppo Editoriale L’Espresso 2004 | Notes to the Financial Statements

Interest and other financial charges 2003 2004 The item was restated due to the creation of new Write-down of investments caption “Foreign – exchange gains (losses)”, as pro- Kataweb 20,851 - vided for by article 2425 of Legislative Decree no. Rotocolor 674 - 6/2003. The item breaks down as follows: EleTV 270 - Total 21,795 - 2003 2004 Coverage of previous years’ losses From subsidiaries and affiliates Kataweb 4,116 5,540 • Interest on intragroup current account balances: Le Scienze 20 - Subsidiaries 1,778 1,508 Somedia 1 - Affiliates and other companies 1 - Rotocolor 88 - Total 1,779 1,508 Other (former Publietas) 1 - From third parties Total 4,226 5,540 • Interest on current account overdrafts 26 20 Total write-downs and loss coverage 26,021 5,540 • Interest on loans and financing 529 404 • Interest on bond issues 13,000 15,738 • Costs and commissions Write-down of marketable securities on bond issues 240 276 Write-down of marketable securities amounted in • Financial expense on the year to €181 thousand and relate to the write- swap transactions 26,497 1,823 down of BTPs (Treasury bonds) recorded on the • Other financial charges 2,844 315 basis of the lower between cost and market value. Total 43,136 18,576 Total interest and other E - Extraordinary items financial charges 44,915 20,084 Extraordinary charges The decline in financial charges on 2003 amounts Extraordinary charges amount to €1,065 thousand to €24,831 thousand and is due primarily to the and relate prevalently to charges on the decommis- negative market value of interest rate hedging tran- sioning of obsolete plant and equipment (€710 sactions concluded in July 2003. thousand). The item includes the accrual to the provision for deferred taxes carried out as a result of the Foreign exchange gains (losses) elimination of tax-related entries from the financial statements, involving the provision for reinvested 2003 2004 capital gains recorded under Shareholders’ Equity. Foreign exchange gains 121 102 Foreign exchange losses (155) (102) Taxes Total foreign exchange gains (losses) (34) – Taxes payable for the year amounted to €34,152 thousand, net of €1,066 thousand of prepaid and deferred taxes. They are made up of current taxes D - Adjustments to the value of financial assets amounting to €35,218 thousand, of which €26,026 thousand of corporate income taxes (Ires) and Write-downs of investments €9,192 thousand of regional income tax on produc- Changes in investments are detailed in Attachment tive activities (Irap). The detail of the item is shown 4. Write-downs of investments in 2004 amounted to in Attachment 9. €5,540 thousand and consisted of the following: Notes to the Financial Statements | Gruppo Editoriale L’Espresso 2004 | 121

Other informations INCOME STATEMENT (thousands of euro) The Company is subject to the direction and coor- 2002 2003 dination of parent company CIR, as resulting from A - Production value 7,926 6,129 the accounts and correspondence of the company, B - Production costs 15,538 16,103 as well as from the registration made by its Direc- C - Financial income (expense) 55,654 144,739 tors on September 28, 2004 with the Company D - Value adjustments to financial assets 21,579 (53,344) Register. Pursuant to article 2497-bis, paragraph 4 E - Extraordinary items (53) 8,918 of the Italian Civil Code, the present report inclu- Income taxes (1,400) (27,500) des the key financial figures of CIR’s latest approved financial statements, as shown below. NET PROFIT 68,167 62,839

For a correct and complete understanding of the financial position of CIR at December 31, 2003, in addition to the Income Statement of the company for the year ended at such date, we refer to the Financial Statements of CIR, inclusive of the Audi- ting Report, which is available at the company’s registered office and at the Italian Stock Exchange.

BALANCE SHEET (thousands of euro) ASSETS Dec. 31, 2002 Dec. 31, 2003 A - Receivables from Shareholders - - B - Fixed assets 712,816 705,652 C - Net current assets 208,194 241,734 D - Accrued income and prepaid expenses 3,572 804 TOTAL ASSETS 924,581 948,190

LIABILITIES AND SHAREHOLDERS’ EQUITY A - Shareholders’ Equity: Share capital 385,186 385,186 Reserves 370,311 403,084 Profits (losses) carried forward 25,089 23,548 Net profit (loss) 68,167 62,839 B - Provisions for risks and charges 7,730 5,226 C - Employee severance provision 1,226 1,348 D - Payables 61,898 66,576 E - Accrued liabilities and deferred income 4,974 383 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 924,581 948,190

Attachments 124 | Gruppo EditorialeL’Espresso 2004

Changes in assets occurred during the year ended December 31, 2004 ATTACHMENT 1 - INTANGIBLE ASSETS

(in thousands of euro) OPENING BALANCE CHANGES IN THE YEAR CLOSING BALANCE Cost Accumulated depreciation and revaluations and write-downs

Cost Reval. Write- Accum. Beginning Increases Decreases Reclass. Increases Decreases Reclass. Cost Reval. Write- Accum.| Balance at downs depre- balance downs depre-Attachments Dec. 31, 2004 ciation ciation Incorporation costs 521 - - (521) ------521 - - (521) - Industrial patents and intellectual property rights 516 - - (516) ------516 - - (516) - Concessions, licenses and trademarks 13,112 - - (9,919) 3,193 1,031 - - (1,364) - - 14,143 - (4) (11,279) 2,860 Goodwill on publications 220,661 - - (70,300) 150,361 - - - (5,533) - - 220,661 - - (75,833) 144,828 Work in progress and advances ------

Other intangible assets 13,956 - (4) (13,761) 191 7,340 (7) 87 (875) 7 - 21,376 - (4) (14,629) 6,743 TOTAL 248,766 - (4) (95,017) 153,745 8,371 (7) 87 (7,772) 7 - 257,217 - (8) (102,778) 154,431

ATTACHMENT 2 - TANGIBLE ASSETS Land and buildings 4,809 609 - (2,683) 2,735 441 - 315 (185) 934 - 5,565 609 - (1,934) 4,240 Plant and equipment 102,736 9 (258) (91,070) 11,417 10,488 (4,950) 45,689 (10,014) 3,329 - 153,963 9 (2,740) (95,273) 55,959 Other assets 30,871 259 (67) (23,848) 7,215 5,752 (99) - (3,199) 10 - 36,524 259 (77) (27,027) 9,679

Work in progress and advances 46,091 - - - 46,091 - - (46,091) ------TOTAL 184,507 877 (325) (117,601) 67,458 16,681 (5,049) (87) (13,398) 4,273 - 196,052 877 (2,817) (124,234) 69,878 Attachments | Gruppo Editoriale L’Espresso 2004 | 125

Assets at december 31, 2004 revalued in accordance with specific laws

ATTACHMENT 3 (in thousands of euro) COST REVALUATIONS Historical cost Historical cost Law no. Law no. Total Total of assets of revalued 72, 1983 413, 1991 revaluation at historical cost not revalued assets end of the year and revaluations TANGIBLE ASSETS Land and buildings 3,132 2,433 15 594 609 6,174 Plant, machenery and editing system 153,920 43 9 - 9 153,972 Other assets 36,346 178 259 - 259 36,783 Work in progress and advances ------TOTAL FIXED ASSETS 193,398 2,654 283 594 877 196,929

EQUITY INVESTMENTS Subsidiaries 298,061 11,943 65 - 65 310,069 Affiliated and other companies 3,615 17 1 - 1 3,633 TOTAL INVESTMENTS 301,676 11,960 66 - 66 313,702 TOTAL 495,074 14,614 349 594 943 510,631 126 | Gruppo Editoriale L’Espresso 2004 | Attachments Dec. 31, 2004 balance Cost Reval. Write-downs Beginning Increases Decreases Reval. Write-downs Cost Reval. Write-downs Balance at ACHMENT 4 T Changes in equity investments 2004 AT (in thousands of euro) Ele Tv SpA SUBSIDIARIESTOTAL COMPANIES: AFFILIATED Saire SrlLe Scienze SpA 283,004 COMPANIES AFFILIATED TOTAL OTHER COMPANIES 5,462 65Ansa Scrl 1,679AGF Srl (51,773) -Consuledit Srl 1,656 -E-Ink Corporation 231,296 23 OTHER COMPANIESTOTAL (3,632) -TOTAL (295) 27,000 1,830 - 1,861 1,384 362 (295) 1,481 - 1 17 93 92 1,361 ------1 286,544 (8) 23 - (5,540) - - - 158 - 1,946 (8) - 310,004 - 454 (52,076) 1,481 - - - 234,626 10 65 1 ------27,000 (57,313) - - - - 5,462 - 252,756 - - - - 1,679 - - - - - 1,656 - - - - - (3,632) - - (5,540) - - - (295) 23 313,544 1,830 1,861 - - (295) 1,481 - 1,384 362 158 93 17 92 1,361 (57,616) - 1 - (8) 1 256,086 - - - 1,946 23 (8) 1,481 - 454 10 1 SUBSIDIARIES: Finegil Editoriale SpAA.Manzoni & C. SpASomedia SpAElemedia SpASelpi SpA 87,752 SpAS.E.T.A. 11,943Rotocolor SpA -Rotosud SpA 65C.P.S.SpA 1,393 (21,339)Kataweb SpA 8,559Editoriale FVG SpA (4,312) 66,413 - 2,241 8,640 - 23,000 7,696 5,104 (965) - - 101,531 - - 26,600 7,000 779 - - 428 - (674) - - 8,559 - - - - 22,326 (20,851) - 2,241 8,640 - - - - - 5,749 - 5,104 101,531 - - - - - 20,000 779 ------87,752 - 18,943 ------65 ------(21,339) (5,540) - - (4,312) 1,393 - - 8,559 - 66,413 46,600 23,000 14,696 - - - 2,241 8,640 - - - - 101,531 5,104 (965) - - (26,391) - - (674) - 779 428 20,209 - - 22,326 - 8,559 - - 2,241 8,640 101,531 - 5,104 779 Attachments | Gruppo Editoriale L’Espresso 2004 | 127 1,384 5331,946 (851) 1,946 - 252,756 355,361 102,605 256,086 357,840 101,754 Share Share 4 C.C. par. value Capital owned at Dec. 31, 2004 at Dec. 31, 2004 value art. 2426 on book ACHMENT 5 T Direct equity investments at december 31, 2004 AT Name SeatEle Tv SpA SUBSIDIARIES TOTAL Share COMPANIES AFFILIATED Saire SrlLe Scienze SpA COMPANIES AFFILIATED TOTAL %OTHER COMPANIES Ansa Scrl Milan Sh. EquityAGF SrlConsuledit SrlE-Ink Corporation Rome Milan OTHER COMPANIES TOTAL Net profitTOTAL 2,120Note: Amounts are in thousands of euros unless otherwise specified Book Rome Milan Cambridge (MA) Valuation Rome 103 95 47 Difference 43,284,224 $ USA 12,539 0,43 50 2,382 50 20 102 3,14 n.a. 185 6,62 348 552 10 n.a. 1,830 n.a. n.a. 121 n.a. 21 2,396 1,481 1,361 n.a. 23 566 n.a. 1,481 n.a. 454 185 348 1 10 (1,176) - 454 325 1 10 - - - SUBSIDIARIES Finegil Editoriale SpAA. Manzoni & C. SpASomedia SpAElemedia SpASelpi SpA SpAS.E.T.A. RomeRotocolor SpA MilanRotosud SpA SpAC.P.S. Kataweb SpA MilanEditoriale FVG SpA Milan 18,161 Rome Bolzano Rome 15,000 Oricola 100 Rome Udine Rome 500 3,000 100 3,202 775 23,000 68,246 100 2,860 100 16,242 87,960 25,000 520 70 71 100 23,005 100 41,452 593 91,95 990 100 66,413 100 2,998 22,707 3,651 14,696 10,562 15,197 122,346 96,065 20,209 8 1,734 17,732 8,559 55,933 269 381 493 3,059 428 5,793 22,326 2,241 3,036 40,916 (5,540) 8,640 5,104 527 101,531 20,209 593 32,357 22,707 2,998 7,566 10,562 779 105,564 20,247 165 (1,074) 381 757 5,458 1,734 4,033 38 955 128 | Gruppo Editoriale L’Espresso 2004 | Attachments

Statement of changes in the Consolidated Shareholders’ Equity

ATTACHMENT 6

Share Share Legal Merger Other Reserve Restatement Net capital premium reserve differences reserves for own reserve profit/(loss) Total (in thousands of euro) shares BALANCE AT DEC. 31, 2002 64,599 118,900 12,920 - 56,030 8,231 786 49,875 311,341 Allocation of net profit: Dividends ------(42,756) (42,756) Accrued to reserves - - - - 7,119 - - (7,119) - Extraordinary dividend - (57,783) - - (40,662) - - - (98,445) Capital increases 170 3,306 ------3,476 Merger - - - 7,870 - - - - 7,870 Grants - - - - 6 - - - 6 Transfers between reserves - (432) 34 - (34) 432 - - - Net profit ------57,725 57,725 BALANCE AT DEC. 31, 2003 64,769 63,991 12,954 7,870 22,459 8,663 786 57,725 239,217

Allocation of net income: Dividends ------(47,114) (47,114) Accrued to reserves - - - - 10,611 - - (10,611) - Capital increases 127 2,496 ------2,623 Grants - - - - 10 - - - 10 Transfers between reserves - (4,529) 25 - 910 4,529 - - 935 Net profit ------70,423 70,423 BALANCE AT DEC. 31, 2004 64,896 61,958 12,979 7,870 33,990 13,192 786 70,423 266,094 Attachments | Gruppo Editoriale L’Espresso 2004 | 129

Availability and distribution of consolidated shareholders' equity items for years 2002, 2003 and 2004

ATTACHMENT 6/bis Description Total Uses Share Summary of operations carried amount allowed available out in the past three years (in thousands of euro) loss coverage other EQUITY 64,896 EQUITY RESERVES: Reserve for own shares (where equity reserve) 13,192 - - - Share premium reserve 61,958 ABC 61,958 - 57,783 Restatement reserve 786 ABC 786 - - Merger difference (where eq. reserve) 7,870 ABC 7,870 - - Capital grants 17,840 ABC 17,840 - - Dividend equalization reserve 3,869 ABC 3,869 - - EQUITY RESERVES 105,515 92,323 - 57,783

RETAINED EARNINGS RESERVES: Legal reserve 12,979 B 12,979 - - Reserve for reinvested capital gains 934 ABC 934 - - Statutory reserves - - - 40,662 Other voluntary reserves 10,857 ABC 10,857 - - Reserve ex Law 675, art.55 490 ABC 490 - - RETAINED EARNINGS RESERVES 25,260 12,281 - 40,662 RETAINED PROFITS (LOSS) - - - -

TOTAL EQUITY AND RESERVES 195,671 104,604 - 98,445 of which: Not available share - - Residual share that may be distributed - 104,604 - -

Note: A - capital increases B- coverage of losses C- distribution to shareholders 130 | Gruppo Editoriale L’Espresso 2004 | Attachments

Receivables by maturity and nature at December 31, 2004 ATTACHMENT 7

2003 2004 Maturing Maturing Maturing Total at Maturing Maturing Maturing Total at in the year over over Dec. 31, in the year over over Dec. 31, (in thousands of euro) one year 5 years 2003 one year 5 years 2004 LONG -TERM RECEIVABLES From others - 1,310 - 1,310 - 917 - 917 Guarantee deposits 30 193 357 580 64 193 337 594 Total 30 1,503 357 1,890 64 1,110 337 1,511

SHORT-TERM RECEIVABLES Trade receivables 12,608 - - 12,608 12,084 - - 12,084 From subsidiaries 136,564 - - 136,564 125,110 - - 125,110 From affiliated companies 205 - - 205 492 - - 492 From parent company - - - - 4,360 - - 4,360 Tax receivables 6,542 15,074 - 21,616 6,697 19,003 - 25,700 Prepaid taxes - - - 14,336 - - - 15,380 Other receivables 1,406 - - 1,406 6,067 - - 6,067 Total 157,325 15,074 - 186,735 154,810 19,003 - 189,193 TOTAL 157,355 16,577 357 188,625 154,874 20,113 337 190,704 Attachments | Gruppo Editoriale L’Espresso 2004 | 131

Payables by maturity and nature at December 31, 2004 ATTACHMENT 8

2003 2004 Maturing Maturing Maturing Total at Maturing Maturing Maturing Total at in the year over over Dec. 31, in the year over over Dec. 31, (in thousands of euro) one year 5 years 2003 one year 5 years 2004 PAYABLES Bonds - 200,000 - 200,000 200,000 - 300,000 500,000 Banks 4,911 8,264 4,067 17,242 5,034 7,283 2,683 15,000 Trade payables 105,251 - - 105,251 125,827 - - 125,827 Subsidiaries 102,039 - - 102,039 95,832 - - 95,832 Affiliated companies 585 - - 585 423 - - 423 Tax payables 4,471 - - 4,471 7,843 - - 7,843 Payable to health and social security institutions 5,175 - - 5,175 5,243 - - 5,243 Other payables 13,658 - - 13,658 14,944 - - 14,944 TOTAL 236,090 208,264 4,067 448,421 455,146 7,283 302,683 765,112 132 | Gruppo Editoriale L’Espresso 2004 | Attachments

Reconciliation between reported reconciliation between reported tax expense and expected tax expense ATTACHMENT 9

(in thousands of euro) 2004 Tax rate

IRES Profit before taxes 104,575 Expected tax rate 34,510 33% Increases (decreases): Temporary differences deductible in future years 7,630 Permanent differences in the year 13,439 Temporary differences from previous years (14,543) Dividends (25,869) Non-taxable profits (5,146) Taxable income 80,086 Adjustment due to participation in tax consolidation procedure (1,219) Current income tax (IRES) for the year 26,026 25%

IRAP Difference between value of production and costs 96,473 Non-deductible costs for the purposes of IRAP (personnel, associates, receivables and other costs) 115,167 IRAP deductions (1,770) Total 209,870

Expected tax expense 8,919 4.25% Net tax adjustments on revenues 1,570 Net tax adjustments on costs 4,841 Net value of production 216,281 Current local tax on productive activities (IRAP) on value of production 9,192 4.38% Attachments | Gruppo Editoriale L’Espresso 2004 | 133

Deferred and prepaid taxes ATTACHMENT 10

2003 2004

Temporary Tax Tax Temporary Tax Tax (in thousands of euro) differences rate effect differences rate effect

Balance Sheet Prepaid taxes: Write-down of receivables 600 33% 198 1,951 33% 644 Provision for legal costs, advances 5,660 37.25% 2,108 6,637 37.25% 2,472 Provision for social security and labor litigation 7,756 33% 2,559 7,854 33% 2,592 Write-down of tangible assets - - - 2,492 37.25% 928 Other fixed-asset write-down 25,876 33% 8,539 21,225 33% 7,004 Write-down of inventories 2,310 37.25% 860 4,452 37.25% 1,659 Public relations expenses 190 37.25% 71 218 37.25% 81 Total 42,392 14,335 44,829 15,380 Deferred taxes: Provision for reinvested capital gains - - - 876 37.25% (326) Total - - - 876 (326) Net deferred (prepaid) taxes 14,335 15,054

Net effect 718 of which: included under item current, deferred and (prepaid) taxes 1,066 included under extraordinary gains (charges) (348)

Temporary differences excluded from the determination of (prepaid) and deferred taxes: Fixed indemnity for managers pursuant to National Labor Contract 546 33% 180 799 33% 268 Net 180 268

Reclassified Financial Statements 136 | Gruppo Editoriale L’Espresso 2004 | Reclassified Financial Statements

Reclassified Balance Sheet

(in thousands of euro) Dec. 31, 2003 Dec. 31, 2004

Net fixed assets 67,458 69,878 Capitalized costs 3,385 9,604 Goodwill on publications 150,361 144,828 Net investments 234,626 256,086 Own shares 8,663 13,192

Trade receivables, net 101,209 107,608 Inventories 26,350 25,791 Trade payables (107,775) (139,560) Net current assets 19,784 (6,161)

Income taxes (payable)/receivable 25,251 25,764 Other taxes (payable)/receivable 5,291 10,770 Payables to personnel, health and social security institutions (18,136) (19,009) Employee severance indemnities and similar (42,465) (45,275) Other reserves (13,278) (12,408) (Payable)/receivable on capital expenditure (12,717) (11,046) Other assets/(liabilities) (12,318) (7,252) Net capital employed 415,905 428,971

Short-term financial assets 126,101 423,240 Short-term debt (90,459) (76,151) Long-term debt (212,330) (509,966) Net financial position (176,688) (162,877)

Share capital 64,769 64,896 Other reserves 116,723 130,775 Net profit 57,725 70,423

Shareholders' Equity 239,217 266,094 Reclassified Financial Statements | Gruppo Editoriale L’Espresso 2004 | 137

Reclassified Income Statement

(in thousands of euro) 2003 2004

REVENUES Circulation 367,859 380,826 Advertising 271,636 267,329 Other revenues 8,984 8,261 TOTAL REVENUES 648,479 656,416

PRODUCTION COSTS Paper (83,264) (78,043) Printing and other supplies (97,017) (111,349) Maintenance and technological costs (2,898) (3,149) Other production costs (57,193) (75,776) TOTAL PRODUCTION COSTS (240,372) (268,317)

OPERATING COSTS Promotion (38,036) (44,309) Distribution (21,726) (23,527) Publisher fees (7) (18) Copyrights (36,432) (30,994) Other operating costs (71,470) (68,338) TOTAL OPERATING COSTS (167,671) (167,186)

Labor costs (98,094) (103,711) Gross operating profit 142,342 117,202

Depreciation of fixed assets (11,135) (13,140) Amortization of goodwill (5,534) (5,534) Operating profit 125,673 98,528

Financial income/(expense) (27,403) (12,523) Income/(expense) on investments (4,246) 21,690 Extraordinary income/(charges) (1,313) (3,120) Profit before taxes 92,711 104,575

Taxes (34,986) (34,152) NET PROFIT 57,725 70,423 138 | Gruppo Editoriale L’Espresso 2004 | Reclassified Financial Statements

Statement of Cash Flows

(in thousands of euro) Dec. 31, 2003 Dec. 31, 2004

NET FINANCIAL POSITION AT THE BEGINNING OF THE YEAR (114,789) (176,688)

Net profit 57,725 70,423 Depreciation and amortization 16,669 18,674 Net change in employee severance and retirement reserves 4,885 2,810 Capital (gains)/losses 366 (106) (Revaluations)/Write-downs 26,258 8,036 CASH GENERATED FROM OPERATING ACTIVITIES BEFORE CHANGES IN CURRENT ASSETS 105,903 99,837

(Increase)/Decrease in net trade receivables (5,870) (6,399) (Increase)/Decrease in inventories (2,610) 559 Increase/(Decrease) in trade payables 12,045 31,785 Change in net current assets 3,565 25,945

Change in income taxes payable (23,580) (513) Change in other taxes payable/receivable (2,487) (5,479) Change in employee severance indemnities 3,231 873 Change in other provisions 3,213 (870) Change in other assets/liabilities 9,757 (5,066) CASH GENERATED FROM FINANCIAL ACTIVITIES 99,602 114,727

Net equity investments 1,194 (31,528) Net investments in fixed assets (32,845) (25,841) Net cash used in investing activities (31,651) (57,369)

Grants received 6 10 Dividends distributed (141,201) (47,114) Other changes in provisions and share capital 11,345 3,557

CHANGE IN NET FINANCIAL POSITION (61,899) 13,811

NET FINANCIAL POSITION AT THE END OF THE YEAR (176,688) (162,877) Report of the Board of Statutory Auditors

Report of the Board of Statutory Auditors | Gruppo Editoriale L’Espresso 2004 | 141

To our Shareholders: 114, paragraph 2 of Legislative Decree no. 58/98, in the year closed December 31, 2004 we carried which were found to be adequate to the structure out monitoring activities provided by the Law, in and size of the Group. No corrective action was application of principles adopted by the Italian deemed necessary; accounting profession and regulations issued by • attests that the Board of Directors and the offi- Consob with regard to the same. cers of the Company complied with all Law requirements, with particular reference to Con- With regard to its activity, the Board of Statutory sob regulations; Auditors: • acknowledged the activity carried out by the • attended all Board of Directors’ Meetings held independent auditors, aimed at verifying the regu- in the year in which, pursuant to Legislative lar upkeep of the Company’s accounts and the cor- Decree no. 58/98 and the provisions of article 19 rect recording of operating transactions so as to of the By-laws, receiving from Directors periodi- allow the preparation of the financial statements as cal information on main operations of economic required by Law. More specifically, it requested and financial relevance carried out by the Com- and obtained extensive information from the inde- pany and its subsidiaries, verifying compliance pendent auditors regarding work carried out in the with the Law and the By-laws. Such operations context of the preparation of the financial state- are detailed by the Board of Directors in the rela- ments considered here. In meetings held, there did ted Report. The Board of Statutory Auditors also not emerge aspects of relevance; obtained information in an informal way and • verified compliance with laws on the preparation ensured that operations resolved and/or carried and format of the financial statements and the out were not imprudent, did not involve an Report of the Board through direct verifications excessive degree of risk, were not in contrast with and, as mentioned, using information obtained resolutions taken or in potential conflict of inte- from the independent auditors at meetings held rest and, on the contrary, were in line with cor- pursuant to article 150 of Legislative Decree no. rect management principles; 58/98. The content of the financial statements was • acquired information, as relevant and appro- reviewed and the adoption of correct accounting priate, and monitored the adequacy of the orga- principles was verified; nizational structure of the Company, its appro- priateness in relation to the size of the same and With reference to the guidelines provided by Con- the activity carried out, and the respect of correct sob, within the scope of our task, we can attest that: management principles through direct observa- • information supplied by the Board of Directors on tion, gathering of information and meetings with operations is to be deemed complete. We acknow- the independent auditors involving exchange of ledge the full information provided by the same data and relevant informations; pursuant to Consob Regulation no. 11971/199 on • evaluated the adequacy of the internal auditing stock option plans for employees of the Company system and of the administrative and accounting and of its subsidiaries; system, in addition to the reliability of the latter • the Balance Sheet at December 31, 2004 and in providing a fair representation of the Com- the 2004 Income Statement are consistent with pany’s operations, by obtaining information on those prepared in the previous year. In complian- an ongoing basis from persons responsible for ce with Legislative Decree no. 6 dated January each sector, also reviewing results of work carried 17, 2003, the following were performed: out by independent auditors. In particular, it - tax-related entries were eliminated in the finan- monitored the effectiveness of the control system cial statements and the effect of such operation of subsidiaries and affiliates and the adequacy of was disclosed in the notes to the accounts; instructions imparted, also pursuant to article - a breakdown of Shareholders’ Equity compo- 142 | Gruppo Editoriale L’Espresso 2004 | Report of the Board of Statutory Auditors

nents by origin, availability for distribution and financial position, the profit and consolidated pro- uses in previous years was included in the finan- fit of the Company. We therefore expect that the cial statements; final auditing report will not contain exceptions; - the effect of the accounting of leasing contracts • in 2004 we attended all Board of Directors mee- as financial leases was reported in the notes to tings (7) and all of those of the Executive Commit- the financial statements; tee (2). The Board of Statutory Auditors held 4 - as provided by paragraph 4 of article 2497 bis of meetings, of which 2 with the independent auditors the Italian Civil Code, main financial data of parent and 1 with the Internal Audit Committee; company CIR SpA was included in the notes to the • the Board of Statutory Auditors did not receive financial statements. The position of the parent any report pursuant to article 2408 of the Italian company, exercising a directing and controlling role Civil Code or has any knowledge of any other on the Company, is shown by the records and cor- denunciation pursuant to the same received by respondence of the Company, in addition to its regi- others; stration in the Company Register; • during the year the Company appointed inde- • the Board of Statutory Auditors was constantly pendent auditors PricewaterhouseCoopers SpA to kept informed on pertinent matters pursuant to carry out agreed upon procedures in connection Legislative Decree no. 58/98; with the issue of a €300 million bond, the com- • periodical verifications and checks that we perfor- pensation for which amounted, net of expenses med on the Company did not uncover any atypical and VAT, to €35,000; and/or unusual operation carried out with third • in the year the Board of Statutory Auditors did parties, related parties or Group companies; not issue any opinions pursuant to the Law; • in the Report on operations and the notes to the • the Company adopted a corporate governance accounts of Gruppo Editoriale L’Espresso SpA, to system in line with the recommendations contained which we make express reference, the Board of in the Code of Conduct prepared by the Committee Directors provided adequate information with for Corporate Governance of Listed Companies regard to ordinary transactions carried out with and promoted by the Italian Stock Exchange (Borsa other Group companies and other related parties, Italiana). acknowledging that such transactions were carried The corporate government system is updated out at standard market conditions and in the intere- whenever changes are resolved. In particular, in st of the Company and the Group. The Board of the course of the year, the Company: Statutory Auditors agrees with such position; - amended its By-laws, already in compliance • on October 20, 2004 the Board of Directors with provisions of Legislative Decree no. 58/98, approved the participation of Gruppo Editoriale in compliance with new regulations introduced Espresso Spa in the tax consolidation of CIR, as by new Company Law reform (Legislative Decree allowed by the new Testo Unico (income tax no. 6/2003 and subsequent amendments); code) regulation. - complied with disclosure requirements of article On the same date CIR and its consolidated com- 2497 bis of the Italian Civil Code, stating its subor- panies signed a general agreement regulating dination to the direction and coordination of parent rights and obligations deriving from the partici- company CIR. Similarly, companies controlled pation to the tax consolidation of CIR; directly and indirectly by Gruppo Editoriale L’E- • the provisional report issued on February 22, spresso SpA indicated the Company as the subject 2005 by independent auditor PricewaterhouseCoo- that exercises direction and coordination activities. pers S.p.A. attests, on the basis of controls carried For a more detailed description of the corporate out up to such date, that the Statutory Accounts governance system, we refer to the report prepa- and the Consolidated Financial Statements at red yearly by the Board of Directors and availa- December 31, 2004 truly and fairly represent the ble at the Italian Stock Exchange; Report of the Board of Statutory Auditors | Gruppo Editoriale L’Espresso 2004 | 143

- adopted an organizational, management and con- verifying the compliance with law provisions regu- trol model pursuant to Legislative Decree no. lating the preparation and format of the financial 231/2001, which includes (i) a list of sensitive statements for the year, we believe the Financial areas; (ii) a Code of Conduct (already approved by Statements for the 2004 financial year and the pro- the Board of Directors in 2003); (iii) conduct gui- posed allocation of the 2004 net profit, as formu- delines; (iv) general principles of Internal Audit, lated by the Board of Directors in their Report, to and (v) control protocols. A Monitoring Board be worthy of your approval. made up by independent Directors that are already members of the Internal Audit Committee and the Internal Auditing Director of the CIR Group oversees the adequacy of the mentioned model. The Company has moreover introduced less important changes to its corporate governance system which is currently organized as follows: - non-executive and independent Directors are 5, out of a total of 17 members of the Board; - the Board of Directors created out of its members a Committee for Internal Audit, made up exclusively of independent Directors, and a Remuneration Committee, comprising prevalently non-executive Directors; - a specific function ensures the necessary relations with institutional investors and other shareholders; - the Company adopts an internal procedure for the publication outside the Company of documents and news, with particular reference to price sensitive information; - the Company adopts norms of conduct for the carrying out of transactions with related parties; - the Company adopts norms of conduct regulating information flows regarding transactions involving shares in the Company carried out by “relevant persons” – persons who, due to their position in the Company, have access to information that, if made public, would influence the price of the stock. The Company has also appointed a person in charge of the implementation of such code; - the Company adopts guidelines for the execution of financial transactions.

In pronouncing an overall positive opinion on the monitoring activities carried out and having no further proposals to make pursuant to article 153, paragraph 2, of Legislative Decree no. 58/98, after

Report of the Independent Auditors

Report of the Independent Auditors | Gruppo Editoriale L’Espresso 2004 | 147

Financial highlights of subsidiaries

| Gruppo Editoriale L’Espresso 2004 | 151

Financial highlights of subsidiaries

(in thousands of euro) Shareholders' Net financial Net Revenues Gross Operating Net Equity position capital operating profit profit employed profit

Finegil Editoriale 68,246 (13,998) 82,244 132,605 31,533 24,527 23,005 Editoriale La Nuova Sardegna 21,985 4,432 17,553 32,020 10,379 8,958 6,658 E A G 9,419 8,541 878 18,653 3,807 3,010 2,126 S.E.T.A. 5,142 4,016 1,126 18,838 2,672 1,933 694 Edizioni Nuova Europa 935 1,257 (322) 2,110 424 373 255 Editoriale La Città 838 698 140 2,749 (279) (336) (290) Editoriale FVG 104,472 25,692 78,780 53,040 13,924 9,347 5,793 Edigraf 562 531 31 1,087 170 117 53 Elemedia 41,452 6,885 34,567 67,371 33,646 25,149 15,197 EleTv 2,507 1,814 693 1,891 880 661 581 Deejay Budapest kft 294 - 294 382 (1,041) (1,086) (1,126) Radio Bonton a.s. (85) (199) 114 755 (63) (93) (104) A. Manzoni & C. 16,242 (7,025) 23,267 551,306 5,696 5,061 990 Rotosud 10,562 (12,528) 23,090 30,949 11,726 6,097 3,059 C.P.S. 1,734 1,611 123 3,736 1,118 910 527 Rotocolor 22,707 (5,376) 28,083 6,883 1,935 456 381 Selpi 4,283 2,262 2,021 1,234 899 584 384 Somedia 593 839 (246) 6,178 531 99 8 Kataweb 20,209 17,741 2,468 12,637 (2,135) (2,870) (5,540) Kataweb News 12 21 (9) - (11) (11) (11) Ksolutions 398 (5,511) 5,909 11,573 (766) (1,258) (2,617) Esperya 1,230 76 1,154 706 (783) (822) (1,275) Studio Vit 110 35 75 584 56 44 39

Report on Corporate Governance

Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 155

Information on Corporate Governance and on the adoption of Self Discipline Code pursuant to Section IA.2.13 of Italian Stock Exchange Regulations

Foreword lar reference to the conditions, limits and terms of Gruppo Editoriale L’Espresso S.p.A. (hereinafter its exercise (article 8), was added. the “company” or “GELE”) adopted a corporate b) The text of the powers to issue bonds granted governance model in line with the recommenda- to the Board of Directors by the Shareholders’ tions contained in the Self Discipline Code prepa- Meeting of April 6, 2001 was modified and rever- red by the Corporate Governance Committee of ted to the provisions of article 7 of the By-laws, to companies listed on the Italian Stock Exchange keep into account new provisions of article 2410 of and promoted by Borsa Italiana S.p.A. (hereinaf- the Italian Civil Code pursuant to which, barring ter also the “Code”). other law provisions or as otherwise determined in GELE makes available information relating to the the By-laws, the issuance of bonds is resolved direc- corporate governance model adopted and other tly by the Board of Directors. The amendment aims documents of interest to the market both on its therefore at limiting the said powers only to the institutional site www.gruppoespresso.it, in a sec- issuance of convertible and cum warrant bonds. tion dedicated to corporate governance, and to Section III “Meetings the Italian Stock Exchange. a) The publication of notices of meetings on new- Information is updated whenever changes occur spaper la Repubblica in addition and as an alterna- and is available also in English. tive to their publication on the Gazzetta Ufficiale della Repubblica Italiana was provided for. The maximum term set pursuant to article 2364 of the Main changes in the corporate governance Italian Civil Code for the calling of the Ordinary system occurred in the year Shareholders’ Meeting approving the financial statements was also changed from 4 months to 120 Amendments to the By-laws days, extendable to 180 days instead of the pre- GELE’s by-laws were amended by the company’s vious six months in case the conditions set by the Shareholders’ Meeting of April 21, 2004 to bring Italian Civil Code apply. them into line with the new company law (Legisla- b) New regulations regarding the right to interve- tive Decree 6/2003 and subsequent amendments ne at meetings and representation at the same (arti- and modifications). Main changes consisted in: cle 11), in addition to a new formulation of terms Section I “Incorporation of the Company” for the constitution of meetings and the validity of a) The Registered Office and Secondary Office of resolutions were added (article 12). the company are indicated making reference only Section IV “Administration and Company represen- to the city (and no longer to the street and num- tation ber, as previously required); a) The exclusion of Directors of the company b) The Board of Directors was empowered to from the application of non-competition clauses create, change and suppress also secondary offices. pursuant to article 2390 of the Italian Civil Code c) The address resulting from the Shareholders’ was resolved (article 15, last paragraph). Register was set as the address at which all rela- b) On the basis of the option provided by article tionships with the company are to be kept (article 2365 of the Italian Civil Code, the possibility for 2 of the By-laws). the Board of Directors to resolve on reductions in Section II “Share capital, shares, bonds, the share capital, the amendment of the By-laws to right to put the shares back to the company comply with binding law provisions, the transfer a) A new article regulating Shareholders’ right to of the registered office within the national territory put their shares back to the company, with particu- and the merger into the parent company of a 156 | Gruppo Editoriale L’Espresso 2004 | Report on Corporate Governance

wholly-owned subsidiary or one in which it owns by the Board in 2003); (iii) conduct guidelines; (iv) at least 90% (ninety percent) of the share capital general principles of internal audit, and (v) audit (article 18, last comma) was provided for. protocols. The Organizational model aims at pre- c) Provisions of the By-laws regarding the periodi- venting actions contrary to the law for which the cal information provided to the Board of Statutory company may be held responsible under criminal or Auditors by Directors (article 19) were amended in civil law. A Monitoring Body made up by indepen- compliance with new regulations issued for listed dent directors that are already members of the companies. Additional terms for the calling of Internal Audit Committee and the Director of Board of Directors’ meetings were also introduced. Internal Auditing of CIR oversees the application Section V “Board of Statutory Auditors of the Organizational model. and Accounting Audit” a) It was resolved to: (i) reduce from five to two Information on the Company’s Corporate days the term within which to deposit at the registe- Governance structure red office the list of candidates for the position of The Company operates in accordance with the pro- Auditor; (ii) to specify among requisites for the visions of the Italian Civil Code regarding joint- appointment of auditors of the company, in addition stock companies and special regulations relating to to the professionalism and honorability of the candi- companies with shares listed in regulated markets. date, also his/her independence, and (iii) to limit to The Board of Directors (hereinafter also the five the number of appointments that each auditor “Board”) is invested with ordinary and extraordi- may have in listed companies, regardless of the nary management powers and is empowered to belonging of some of these to the Group. carry out any action it deems necessary towards the b) The possibility of holding Board of Statutory achievement of the corporate goal, with the exclu- meetings through video and audio conferencing was sion of those specifically reserved to the Sharehol- introduced. ders’ Meeting by law and/or by the By-laws. c) A new article (article 23) specifying that the The Board normally remains in office for three years, auditing of the company’s accounts is to be carried though the Shareholder’ Meeting may establish a out by independent auditors, as provided by law. shorter term, and all its members may be reelected. The Board formed an Executive Committee, an Compliance with provisions of article 2497 of the Internal Audit Committee, made up by the sole Italian Civil Code independent directors, and a Remuneration Com- The company complied with disclosure requirements mittee. These committees report periodically to the pursuant to article 2497 bis of the Italian Civil Code, Board on activities carried out. reporting that it is subject to the direction and coor- The Board of Directors moreover delegated the dination of parent company CIR SpA. Chairman and Managing Directors powers to con- In the same way, companies controlled directly and duct ordinary business on the use of which it is indirectly by Gruppo Editoriale l’Espresso SpA periodically informed. indicated the same as the entity that exercises direc- ___ tion and coordination activities. The Board of Statutory Auditors is made up by Approval of Organizational Model pursuant to three members and three substitute members and is Legislative Decree 231/2001 appointed on the basis of the lists submitted by Sha- In 2004, the Board of Directors approved the reholders that hold at least 5% of the share capital. “Organizational model” pursuant to Legislative Where more than one list exists, an auditor and a Decree 231/2001 and subsequent amendments and substitute auditor are reserved to minority Sharehol- modifications, which includes (i) a map of sensitive ders. Auditors may be reelected. areas; (ii) the Code of Conduct (already approved Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 157

To be eligible, auditors must attest the absence of ting by law and/or by the By-laws. The Board of causes for ineligibility pursuant to current regula- Directors reserved to its own judgment any decision tions and must possess the requisites of honorabi- regarding transactions with related parties having a lity, professionalism and independence, as provided significant economic, equity or financial impact, as by the new formulation of the Italian Civil Code. described more in detail further on in this Report (transactions with related parties). The Board of Statutory Auditors operates in accordance with the Testo Unico Financial Law (Draghi The By-laws of the Company provide for the Board Law) and meets in the course of the year with of Directors to be called quarterly by its Chairman independent auditors to exchange information. or any time the Company’s business so requires, also upon request of at least two Directors or the Board Main companies of the Espresso Group have ap- of Statutory Auditors or at least two Auditors, after pointed independent auditors for the auditing of notice is given to the Chairman of the Board. their accounts. Statutory Auditors of these subsidiaries carry out the activity provided for by the In accordance with the By-laws, the Board of Testo Unico Financial Law. Directors is called by its Chairman or the person acting in his capacity, by certified letter with ___ return receipt, telegram, fax, e-mail or equivalent The company adopted regulations for the means, at least five days prior to the date of the management of Shareholders Meetings, setting in meeting. In case of urgency, the term for the noti- place a procedure for the treatment of confidential ce will be reduced to two days. information and one that regulates conduct to be kept in case of transactions with related parties, Board of Directors’ meetings are chaired by its on which more detailed information will be Chairman or, in case he is absent, by one of the provided in the second part of this Report. Vice-Chairmen, if appointed, or, in case neither of them is available, by the Company’s Managing An Internal Dealing Code was also adopted to Director. Board meetings may be held by audio or regulate flows of information of transactions video conference. involving securities of the company carried out by relevant persons. The Chairman is also required to deliver to the Directors, according to the terms and manner esta- Finally, as mentioned in the introduction of the blished in agreement with the Managing Director present Report, in 2004 the Board approved the and in good time before the meeting – with the “Organizational model” pursuant to Legislative exception of those cases in which the nature, confi- Decree 231/2001. dentiality and urgency of the resolutions to be taken at the meeting otherwise requires – all documents Information on the implementation of the and information necessary to allow the Board of Code of Conduct Directors to take fully informed resolutions on matters submitted to its examination and approval. Composition and role of the Board of Directors (Art.1-5) The By-laws provide for the Board of Directors to Directors of Gruppo Editoriale L’Espresso SpA are be invested with ordinary and extraordinary mana- aware of the tasks and responsibilities inherent to gement powers and to be empowered to carry out their office and the Managing Director is responsi- any action it deems necessary towards the achieve- ble for reporting to the Board of Directors on any ment of the corporate goal, with the exclusion of legislative and regulatory change relating to the those specifically reserved to the Shareholders’ Mee- Company and its corporate bodies. 158 | Gruppo Editoriale L’Espresso 2004 | Report on Corporate Governance

The Board of Directors regulated the flow of infor- with the approval of the financial statements for mation from the Chairman, Managing Director the 2005 financial year. and Executive Committee to the Board, providing The Board of Directors currently in office is made for the same to report periodically on the exercise up by: Carlo Caracciolo (Chairman), Marco Bene- of the functions for which they hold proxies, with detto (Managing Director), Oliviero Maria Brega a frequency set in relation to the activity carried (non-executive), Cristina Busi (independent), Giulia out, which should at least be quarterly. Maria Crespi Mozzoni (independent), Carlo De Benedetti (non-executive), Rodolfo De Benedetti The By-laws contain provisions regulating the (non-executive), Francesco Dini (non-executive co- flow of information to the Board of Statutory opted by the Board of Directors on April 21, 2004), Auditors. Directors are required in fact to report Pierluigi Ferrero (non-executive), Milvia Fiorani without delay, and in any case at least quarterly, (independent), Franco Girard (non-executive), to the Board of Statutory Auditors on the most Paolo Mancinelli (independent), Gianluigi Melega important economic and financial activities of the (non-executive), Alberto Milla (independent), Piero Company, and in particular on operations that Ottone (non-executive), Alberto Piaser (non-execu- may result in a potential conflict of interest. Infor- tive), Vittorio Ripa di Meana (non-executive). mation may be supplied directly, either in writing Some directors act also as directors in the boards or verbally, also by telephone, whenever it is pre- of other companies listed on a regulated market, ferable to do so due to urgency. of finance companies, insurance companies, banks Directors are required to communicate to other and unlisted companies of a relevant importance. directors and to the Board of Statutory Auditors of A list of such positions is included in the table any interest, either direct or on behalf of third par- attached to the present Report. ties, they may hold in any particular operation. On February 23, 2005, the Board of Directors In 2004 the Board of Directors met seven times, examined the position of independent directors, registering an average attendance, either physical or verifying for each of them the respect of criteria in audio-conference, of about 80% of Directors. established by the “Code”. Two of these meetings were held to implement the ___ mandate given by the Shareholders’ Meeting to increase the Company’s capital in compliance with In accordance with the provisions of the By-laws, stock option plans. At all meetings, the Chairman the Board of Directors appointed among its mem- and Managing Director informed the Board of acti- bers Carlo Caracciolo as Chairman and Marco vities carried out pursuant to mandates given, brin- Benedetto as Managing Director. The Board ging Directors up to date on major company issues, appointed also an Executive Committee made up by measures taken and transactions concluded, inclu- the Chairman, Managing Director and non- ding those carried out with related parties or for executive directors Oliviero Maria Brega, Rodolfo which a potential conflict of interest could arise. De Benedetti and Alberto Piaser. ___ The Executive Committee was attributed powers to In accordance with the By-laws, the Board of conduct both ordinary and extraordinary business, Directors is made up by between seven and with the exception of the acquisition of property nineteen members. worth over €2.5 million, the hiring and removal of the heads of publications and/or general managers, The current Board of Directors is made up by in addition to operations with related parties. The seventeen members. Its three-year term will expire Executive Committee reports to the Board of Direc- Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 159

tors on its resolutions at the first available occasion. tion is made. In case the cumulative value of tran- In 2004, the Executive Committee met twice, with sactions carried out by an individual in the quarter 70% of the members attending. examined is between €50,000 and €250,000, the communication takes place at the end of the quar- The Board of Directors delegated the Chairman ter. When the cumulative value of transactions car- and Managing Directors powers to conduct ordi- ried out by an individual in a quarter exceeds nary business, establishing nature and limit of €250,000, the communication must be made within spending powers, both individual and joint. five stock market trading days subsequent to the conclusion of the transaction that causes the said Handling of confidential information (art.6) limit to be exceeded. The company adopted an internal regulation for communicating information and delivering docu- The Code of Conduct includes among transactions ments outside the Company, with particular refe- subject to communication requirements also the rence to price sensitive information. exercise of stock options or other option rights. Finally, the Board of Directors reserved to itself the The Managing Director is in charge of handling right, delegating it also to its Chairman, to bar or confidential information. In this capacity, the limit at particular times the carrying out by rele- Managing Director makes use of the External vant persons of transactions involving financial Relations office for press releases, and of the Inve- instruments issued by the company. stor Relations office for communications with institutional investors. Appointment of Directors (art. 7) The appointment of Directors takes place according All other directors, who are bound to confidentia- to the Law, based on proposals made by Sharehol- lity by current regulations, are required to keep ders. The Board of Directors has not deemed it confidential the documents and information necessary to establish an internal committee to acquired in carrying out their office and to abide review proposals for the appointment of Directors, to internal procedures regarding confidentiality. as the proposal of candidates to the Shareholders’ Meeting is normally made by the majority sharehol- In compliance with the Borsa Italiana Regula- der. It is customary to deposit curricula of candida- tions, the Company adopted a “Code of Con- tes to the post of Director in good time before the duct” relating to transactions carried out by rele- Company’s Shareholders’ Meeting so that the com- vant persons on financial instruments or instru- pany can make the information available to Sha- ments whose underlying asset is a financial instru- reholders before the meeting. ment issued by Gruppo Editoriale L’Espresso S.p.A. or any other Group company. The Board of Directors resolves directly in full ses- sion on proposals for the co-opting of new direc- More specifically, relevant persons, consisting of tors that take the place of resigning ones. persons holding top positions in the parent company or its subsidiaries, must communicate to the Director compensation (art. 8) company all transactions carried out by the third In accordance with the By-laws, compensation due stock market opening day after the conclusion of to members of the Board of Directors are determi- the transaction, so that the company may commu- ned by the Shareholders’ Meeting. Expenses incur- nicate them to the market in the appropriate man- red by Directors in the context of their office are ner and timing. If the cumulative value of transac- reimbursed. tions carried out by an individual in the quarter Pursuant to the By-laws and in accordance with examined is lower than €50,000, no communica- article 2389, 2nd comma, of the Italian Civil Code, 160 | Gruppo Editoriale L’Espresso 2004 | Report on Corporate Governance

compensation of administrators holding specific pursuant to Legislative Decree 231/2001, due to positions provided for by the Company’s Incorpora- the strong identification between the two functions. tion Deed, is determined by the Board of Directors To provide a better coordination of supervisory in agreement with the Board of Statutory Auditors. and control activities, some members of GELE’s audit committee, in their capacity of members of The Board of Directors created an internal Com- the parent company’s audit committee, are also pensation Committee made up by the Chairman, part of the respective audit committees of main Carlo Caracciolo, the Managing Director, Marco Group companies. Benedetto, non-executive Directors Rodolfo De Benedetti, Franco Girard and Pierluigi Ferrero, The Company implemented an internal audit determining its responsibilities pursuant to article 8 system enabling it to verify that internal operating of the Code. and administrative procedures are followed. Such system is also at the root of the procedures indica- Whenever the Committee discusses arguments ted in the “Organizational model” mentioned in regarding directly the Chairman and/or Managing the present Report. Director, these leave the meeting, and the related The audit system reflects the Group’s structure, resolutions are taken by the remaining members of organized into business areas made up by compa- the committee. nies and operating divisions having own administrative and separate control departments. In the year, the Compensation Committee met twice to determine, among other things, the emolu- The Company, moreover, elaborated a reporting ment to be paid to the Chairman of the Board for and management control system allowing to mana- 2004, submitting to the approval of the Board of ge procedures and information flows, providing Directors a stock option plan in favor of employees management with managerial and financial repor- of the Company and its subsidiaries, parent compa- ting at least monthly. nies and affiliated companies, in addition to a stock The Managing Director appointed Mr. Fabio Tac- option plan for the Managing Director, described in ciaria, General Manager of the Group’s parent the Annual Report. company and thus hierarchically independent from the heads of operating divisions, as Director of The Committee reviewed also top management Internal Audit. retributions, providing incentives contingent upon the achievement of specific targets. The Internal Audit Committee met five times in 2004, verifying through periodical meetings with Internal audit (art. 9 - 10) department heads, the Board of Statutory Auditors The responsibility for internal audit falls on the and the Independent Auditors, the efficacy and Board of Directors that sets its guidelines and veri- effectiveness of management procedures, the relia- fies its adequacy and proper functioning. To carry bility of financial information and the respect of out its task in this context, the Board of Directors applicable norms. No issue worth of note emerged established an Internal Audit Committee made up from such verifications. by independent directors Cristina Busi, Milvia Fiora- ni, Paolo Mancinelli and Alberto Milla, determining Transactions with related parties (art. 11) its responsibilities pursuant to article 10 of the Code. The Board of Directors approves in advance all transactions involving related parties, as defined by As mentioned in this Report, independent auditors Consob, including transactions within the Group, that make up the Internal Audit Committee were with the exception of typical or customary transac- appointed also to the Audit Committee created tions and those carried out at standard conditions. Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 161

Typical or customary transactions are those car- In 2004 the activity was carried out through inter- ried out in the normal course of business of the national road shows in all main international Company and those that do not pose, in conside- financial centers, in addition to frequent conferen- ration of their characteristics, risk or critical fac- ce calls and individual meetings. tors. Transactions carried out at standard conditions are those concluded at the same conditions Shareholders’ Meetings (art. 13) applied by the Company to any other party. The Company adopted a set of Rules, that is not part of the By-laws, regulating the orderly and The Board of Directors receives adequate infor- functional holding of Shareholders’ Meetings, both mation on the nature of the correlation, terms of ordinary and extraordinary, of the Company. the execution, conditions, also economic, for the The Rules uphold the right of any Shareholder to conclusion and evaluating process adopted for all intervene in the discussion relating to the business transactions subject to its approval. Where the in agenda. nature, amount or characteristics of the operation so require, the Board of Directors seeks the aid of Board of Statutory Auditors (art. 14) independent experts. According to the By-laws, the Board of Statutory Auditors is made up by three Auditors and three In operations with related parties that are subject to Substitute Auditors, appointed for a term of three the approval of the Board of Directors, directors years. Auditors may be re-appointed. Minority finding themselves in a potential conflict of interest shareholders are entitled to the appointment of inform in good time and in full the Board with one Auditor and one Substitute Auditor. regards to the existence of the same and the related circumstances. After the discussion, the said direc- The appointment of the Board of Directors takes tor leaves the meeting in view of voting or, in case place from lists submitted by shareholders in the majority of directors present so requires, which candidates are indicated next to a numeral. remains in the room but abstains from voting. Only shareholders who, either individually or in groups represent at least 5% of the voting shares For transactions with related parties, including are entitled to submit a list of candidates. those involving other Group companies, that are Lists submitted by Shareholders must be deposited not subject to the approval of the Board of Direc- together with related curricula and documents pro- tors as either typical, customary or carried out at ving that they possess the requirements to be sub- standard conditions, executive Directors will ensure mitted, at the Company’s Registered Office at least that adequate information, also relating to specific five days prior to the date set for the Shareholders’ types or group of operations, regarding their natu- Meeting on first call, so that the notice of the mee- re, terms and conditions, including economic, of ting shall include mention of such lists being submit- execution is kept on record. ted. Together with each list, within the same term, candidates submit declarations with which candida- Relations with institutional investors tes accept the candidacy and attesting, under their and Shareholders in general (art. 12) own responsibility, that there does not exist any rea- The person responsible for relations with sharehol- son preventing the appointment or any conflict rela- ders in general and, in particular, with institutional ting to the same, in addition to the existence of the investors, is Mr. Alessandro Alacevich, Director of requisites for the appointment to the respective offi- Investor Relations, who, together with the Com- ces provided either in the By-laws or other regula- pany’s Managing Director and top management, tions. Lists that do not possess the above requisites entertained in the year continuous relationships will be considered as not submitted. with institutional investors. 162 | Gruppo EditorialeL’Espresso 2004

Table 1 - Composition of Board of Directors and Committees

Board of Directors Internal Audit Remuneration Optional Optional Committee Committee Appointments Committee Executive Committee Post Directors executive non independent *** Number of ** *** ** *** ** *** ** *** executive other posts * Chairman Carlo Caracciolo X 100% 1 X 100% X 50%

Managing Director Marco Benedetto X 86% - X 100% X 100% | Director Oliviero Brega X 100% 1 X 100% Report onCorporateGovernance Director Cristina Busi X 57% - X 60% Director Giulia Maria Crespi X 14% - Director Carlo De Benedetti X 29% 7 Director Rodolfo De Benedetti X 100% 6 X 100% X 50% Director Francesco Dini (1) X 100% 1 Director Pierluigi Ferrero X 100% 3 X 100% Director Milvia Fiorani X 100% - X 100% Director Franco Girard X 57% 5 X 50% Director Paolo Mancinelli X 100% 1 X 80% Director Gianluigi Melega X 86% - Director Alberto Milla X 71% 6 X 60% Director Pierleone Mignanego X 86% - Director Alberto Piaser X 100% 2 X 50% Director Vittorio Ripa di Meana X 43% 6

Number of meetings in the year BoD: 7 Internal Audit Committee: 5 Remuneration Committee: 2 Executive Committee: 3

NOTES * This column shows the number of Director or Auditor posts held by the related person in other companies listed in regulated markets either domestic or international, in finance companies, banks, insurance companies or other companies of relevant size. In the Corporate Governance Report, posts are indicated in full. ** The symbol "X" in this column indicates that the Director is a member of the related Committee. *** The column indicates the percentage attendance of Directors respectively to Board and Committee meetings. (1) Co-opted by the BoD on April 21, 2004 in replacement of Director Antonio Grigolini. Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 163

Table 2 - Board of Statutory Auditors

Post Member Percentage attendance Number of other posts ** to Board meetings

Chairman Vittorio Bennani 100% 2 Auditor * Claudio Berliri 100% - Auditor Federico Gamna 100% 3 Substitute Auditor * Alessandro Bandiera - - Substitute Auditor Giancarlo Benedetti - - Substitute Auditor Riccardo Zingales - -

Number of meetings held in the year: 4

Quorum required for the presentation of lists by minority shareholders for the appointment of one or more member of the Board of Statutory Auditors (pursuant to art. 148 of the Testo Unico Law): 5%

NOTES * The asterisk indicates that the Auditor was designated through lists submitted by minority shareholders. ** This column shows the number of Director or Auditor posts held by the related person in other companies listed in domestic regulated markets. 164 | Gruppo Editoriale L’Espresso 2004 | Report on Corporate Governance

Table 3 - Other provisions contained in the Code of Conduct YES NO Reasons for possible discrepancy from recommendations of the Code Proxies and related parties Has the BoD given proxies defining their: a) limits X b) exercise X c) and reporting frequency? X Has the BoD reserved to itself the review and approval of transactions transactions having a particular economic and financial relevance (including those with related parties)? X Did the BoD define guidelines and criteria for the identification of "significant" transactions? X Are the above guidelines and criteria described in the Report? X Has the BoD defined appropriate procedures for the review and approval of transactions with related parties? X Are procedures for the approval of transactions with related parties described in the Report? X

Procedures for the most recent appointment of Directors and Statutory Auditors Has the deposit of names of candidates for the position of Director taken place at least ten days prior to the voting? X Were names of candidates to the position of Directors accompanied by adequate information? X Were names of candidates to the position of Directors accompanied by the indication of the qualifications necessary for the candidate to qualify as independent? X Has the deposit of names of candidates for the position of Auditor taken place at least ten days prior to the voting? X Were names of candidates to the position of Auditor accompanied by adequate information? X

Meetings Has the company approved a set of Meeting Regulations? X Are Meeting Regulations attached to the Report (or is there an indication of where they are available/downloadable)? X

Internal Audit Has the company appointed internal auditors? X Are internal auditors hierarchically independent of operating departments? X Organizational unit in charge of internal control (pursuant to art. 9.3 of the Code): Parent Company's Directors's Office X

Investor Relations Has the company appointed a head of investor relations? X Organizational unit and references of the Investors Relations Head: Investor Relations Director's Office X Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 165

List of positions held by directors of Gruppo Editoriale L'Espresso SpA in other companies listed on a regulated market, finance companies, insurance companies, banks and unlisted companies of a relevant importance.

Carlo Caracciolo Director of Cofide SpA Oliviero Brega Director of Sogefi SpA Carlo De Benedetti Chairman of Cofide SpA, CIR SpA, Sogefi SpA and Cdb Web Tech SpA, Director of Banca Intermobiliare, Pirelli SpA and Valeo S.A. Rodolfo De Benedetti Chairman of Energia SpA Managing Director of Cofide SpA and CIR SpA Director of RAS SpA, Sogefi SpA and Altin S.A. Francesco Dini Director of Energia SpA Pierluigi Ferrero Director of Cofide SpA, CIR SpA and Sogefi SpA Franco Girard Vice Chairman of Cdb Web Tech SpA Director of Cofide SpA, CIR SpA, Sogefi SpA and Aedes SpA Paolo Mancinelli Director of CIR SpA Alberto Milla Chairman of Euromobiliare S.I.M. SpA Vice Chairman of Banca Euromobiliare SpA Director of Credito Emiliano SpA, Euromobiliare Asset Management S.G.R. SpA, Banca Euromobiliare (Suisse) S.A. and Argus Fund Sicav Alberto Piaser Director of Sogefi SpA and Energia SpA Vittorio Ripa di Meana Chairman of Fingold SpA e IPSE 2000 SpA Director of Generali SpA, Sigma Tau Finanziaria SpA, Sir Rocco Forte Roma and Firenze Spa, Agenzia Ansa