Annual Report and Financial Statements at December 31, 2007 RCS MediaGroup S.p.A. Via San Marco, 21 – 20121 Milan Share capital €762,019,500 – Company Register, Tax Code & VAT number 12086540155 Business Register number 1524326 This is an English translation of the Italian annual report, which is the sole authoritative version 2 LETTER TO SHAREHOLDERS To our shareholders, The RCS Group considerably increased its international presence during 2007. In fact, in April 2007 it acquired Recoletos, a Spanish media group which publishes Marca, a sports daily, and Expansion, a financial daily, both of which Spain's leaders in their respective sectors. The Group also intensified its penetration of the New Media market, not only through DADA's expansion abroad, particularly in the business solutions and domain and hosting markets, but also through the acquisition of Digicast and the development of innovative digital activities both for newspapers and magazines, resulting in a major increase in traffic on our newspaper websites. A three-year business plan for 2008-2010 was approved in July 2007; its underlying strategy is based on integrating the Group's different areas of business and media, on multimediality and international expansion, by consolidating our presence particularly in France and Spain. The RCS Group reported good results in 2007 despite little growth in the economy at large. In such a context, the RCS Group's revenues increased by 15% on 2006, also thanks to consolidation of the Recoletos group and Digicast as from April, both acquired during the year, revealing our ability to develop and innovate in a fast-changing market like the media one, where multimedia and multiplatform publishing systems are increasingly the trend relative to the printed word. Advertising revenues were 21.9% higher, with like-for-like growth of 7.7% ie. ignoring the Recoletos group's contribution, with all sectors of the business generally outperforming the market. Distribution revenues were lower, in line with the sector's general trend, particularly where add-on products were concerned, as a result of predicted, gradual market saturation. Corriere della Sera and La Gazzetta dello Sport retained their market leadership. In particular, La Gazzetta dello Sport, whose circulation grew once more in 2007, was the most read newspaper in Italy; Corriere della Sera reported a clear reversal of trend relative to its direct competitor, even though its circulation was lower. El Mundo increased its circulation, closing the gap still further on the market leader. Circulation of Marca increased after being restyled in the second half of the year. Book revenues were higher also thanks to the particular success of titles such as La casta (The caste) by Sergio Rizzo and Gianantonio Stella, Scusa ma ti chiamo amore (Sorry but I'm calling you darling) by Federico Moccia and Gesù di Nazareth (Jesus of Nazareth) by Pope Benedict XVI. In 2007 your Group earned around 40% of its revenues from abroad, compared with 33% in 2006. The Group continued during 2007 to make its products even more competitive by investing in full-color printing for La Gazzetta dello Sport, which unveiled its new format at the start of April 2008. A series of corporate actions were also taken during the year, giving the Group 34.6% of Gruppo Finelco, which runs the national radio stations of Radio 105 Network and Radio Monte Carlo, as well as Virgin Radio (formerly Play Radio, previously controlled by the RCS Group). One year from the launch of Corriere di Bologna, the start of 2008 saw the birth of Corriere Fiorentino, available from newsstands together with Corriere della Sera, and of Atcasa, an interior design portal accessed through www.corriere.it. 3 Despite the signs of global economic slowdown, we hope that the positive results and particular developments reported by the Group in 2007 will let it carry on improving its profitability in 2008, as well as developing its publishing media and products, including multimedia and multiplatform ones, such as to ensure our titles the continued opportunity of operating on the basis of our traditional values, in an authoritative and independent context. With the due caution advised by the current economic situation and the resulting uncertainties on the advertising market, we currently expect this year's results to be broadly in line with forecast. Piergaetano Marchetti 4 NOTICE OF AGM The shareholders are called to a general meeting to be held in ordinary session at 10.30 am on April 28, 2008 in first call, in the company's offices in Via Balzan 3, Milan, and if necessary, on April 29, 2008 in second call, at the same time and place, to vote on the following: Agenda 1. Financial statements at December 31, 2007; Directors' report on operations; Report by the Board of Statutory Auditors. Allocation of net income for the year. Related resolutions. 2. Proposed authorization for buyback and disposal of treasury shares; consequent revocation of the shareholders' resolution dated April 27, 2007 relating to the authorization to buy back and dispose of treasury shares. Ordinary shareholders are entitled to take part in the meeting, in accordance with the law and the company's by-laws, provided the company has received the required certificate, issued by their respective intermediaries confirming their ownership of the shares, at its registered office at least two business days before the date set for the meeting. The documentation relating to the matters on the agenda and required by prevailing law will be filed within the prescribed deadlines at the company's registered office and at Borsa Italiana S.p.A. for viewing by the shareholders and the general public; in fact, the draft Group and Individual Annual Reports and Financial Statements at 31 December 2007 (with the related reports by the Board of Directors) will be filed by 28 March 2008, also in accordance with art. 82.2.b) of the Regulations adopted in CONSOB Resolution 11971/1999 and subsequent amendments and additions. Shareholders are entitled to obtain a copy of this documentation, which will also be published on the company's website at www.rcsmediagroup.it. on behalf of the Board of Directors Piergaetano Marchetti Chairman 5 Contents Corporate officers 7 Group structure of RCS MediaGroup 9 Brief description of the Group 11 Information about the shares 12 Consolidated financial highlights of RCS Mediagroup 14 Directors' report on group operations by RCS MediaGroup 15 Group performance in the fourth quarter 16 Group performance in 2007 19 Segment performance 27 Significant events during the year 47 Significant subsequent events 50 Outlook for the current year 51 Treasury shares 52 Transactions with related parties 52 Management of financial risks 52 Personal data protection plan 52 Ownership structure and corporate governance 53 Consolidated financial statements 100 Consolidated income statement 101 Consolidated balance sheet 102 Consolidated cash flow statement 103 Statement of changes in consolidated capital and reserves 104 Explanatory notes 107 Certification by Head of Financial Reporting and Chief Executive Officer 180 RCS MediaGroup S.p.A. Annual Report and Financial Statements 181 Directors' report on parent company operations 182 Significant events during the year 185 Significant subsequent events 185 Outlook for the current year 185 Treasury shares 185 Transactions with related parties 185 Management of financial risks 185 Personal data protection plan 185 Shares held by directors and statutory auditors 186 Proposed resolutions 187 Parent company financial statements 188 Income statement 189 Balance sheet 190 Cash flow statement 191 Statement of changes in capital and reserves 192 Explanatory notes 193 Certification by Head of Financial Reporting and Chief Executive Officer 230 Attachments 231 List of group equity investments 232 Exchange rates against the euro 238 Quarterly consolidated income statements 240 Tables attached to the financial statements of RCS MediaGroup S.p.A. 242 Investments at December 31, 2007 and their movements 243 List of "other equity investments" and "other securities" not recorded as fixed assets and their movements 246 Reclassified income statement for holding companies 247 Independent Auditors’ Report 248 Independent Auditors’ Report on the Statutory Financial Statement 250 Report by the Board of Statutory Auditors 252 6 CORPORATE OFFICERS Honorary Chairman Cesare Romiti Board of Directors (^) Piergaetano Marchetti (*) Chairman Gabriele Galateri di Genola Deputy Chairman Antonio Perricone (*) (°) Chief Executive Officer Raffaele Agrusti Director Roberto Bertazzoni Director Claudio De Conto Director Diego Della Valle Director John P. Elkann (*) Director Giorgio Fantoni Director Franzo Grande Stevens Director Berardino Libonati Director Jonella Ligresti Director Paolo Merloni Director Andrea Moltrasio Director Renato Pagliaro (*) Director Corrado Passera Director Alessandro Pedersoli Director Carlo Pesenti (*) Director Virginio Rognoni Director (^) The current Board of Directors was appointed on April 27, 2006 to hold office for financial years 2006-2007-2008 and therefore until the AGM called to approve the annual report and financial statements for the last of these years. It should be noted that Franzo Grande Stevens continued to be suspended from office during part of 2007, under an administrative penalty ordered by Consob (Italy's stockmarket regulator) pursuant to article 187-quater of Decree 58/1998. (*) Member of the Executive Committee. (°) Also