200Financial Statements 7 Financial Statements as of 31.12.2007 05 Letters to the Shareholders 08 Sopaf Group: Key Developments 011 The Sopaf Group: Key Figures 012 Corporate Governance Sopaf 016 Performance of the Sopaf S.p.A. shares 019 Report on Operating Performance 04 7 Consolidated Financial Statements 149 Sopaf S.p.A. Financial Statements Sopaf Table of Contents Table 05 > Letter to the Shareholders To the Shareholders: On 28 March 2008, the Sopaf S.p.A. board of directors elected to avail itself of the longer term of 180 days from year end for the approval of the financial statements as of 31 December 2007, as permitted by Article 2364 of the Italian Civil Code and in conformity with the provisions of the corporate by-laws (Article 13). The board made such decision in light of the complexity of various non-recurring transactions and the Group’s restructuring in 2007. The year of 2007 was marked by strong turbulence in the financial markets, essentially due to the so-called “sub-prime crisis” that Alan Greenspan has defined as “the most acute market crisis since the end of World War II.” More specifically, starting in July 2007, the global financial system experienced a shock as the insolvencies in the high-risk, sub-prime mortgage loan market in the United States wielded their effects on stock markets around the world. From a macroeconomic perspective, the growth of the global economy slowed, with a slight deceleration in Europe countered by a more pronounced slowdown in Japan and more importantly, in the United Stated. The scant indications set out above do not fully account for the sudden transformation of the world’s financial markets that has been inappropriately dubbed the “sub-prime mortgage crisis”. In reality, we are up against a scenario that has not only changed drastically, but has affected the actual capacity of banks and financial institutions to survive. We believe that scenario will continue for some time ahead. We can somewhat proudly say that the Company’s management proved adept at anticipating this negative shift rather than falling victim to it, and did so by adopting a series of measures that are summarized below, starting in the second half of 2006: • Divestiture of industrial shareholdings deemed ripe for sale; • Divestiture of most of the Group’s real estate portfolio; • Reduction of bank debt from € 160 million as of 30 June 2006 to € 115 million as of 31 December 2007; • Stabilization of the holding company’s financial debt through the issue of 5-year convertible bonds and execution of financing to support medium-/long term investments; • Acquisition of 100% of two funds management companies (with the latest acquisition finalized in the first few months of 2008 consisting of the buyout of the minority interests held in the subsidiary company, PWM Sgr) with the assets under management growing to equal to roughly € 250 million; • Acquisition of the shareholdings in Banca Bipielle Net S.p.A. (now known as Banca Network Investimenti S.p.A.), Area Life International Assurance Ltd. and Aviva Previdenza S.p.A. (purchased in January 2008) for a total outlay of roughly € 83 million; • Launch of the investment vehicle, China Opportunity Fund, with capitalization of € 33.5 million; • Reinforcement of the managerial structure; • Absence of off-balance-sheet financial risks. Sopaf 06 As a result of these measures, the year of 2007 ended with consolidated net profit of € 35.8 million, with re- flected growth of 21% compared with the aggregate earnings for the 18-month period from 30 June 2005 to 31 December 2006 (the period in which the fiscal year end was changed from 30 June to 31 December). The net profit for 2007 represents the strongest earnings performance in Sopaf’s history, and serves to substanti- ate the validity of the decisions made, particularly in view of the inclusion of some € 13.4 million of charges to the carrying value of the affiliate company, Coronet (whose book value has been reduced to zero) and € 2 million booked as Sopaf’s share of the losses of Banca Network Investimenti which was acquired during the year. It is also noted that Sopaf wrote down the book value of Coronet by € 4.3 million during the 2005-2006 period. After inclusion of the annual profit, consolidated shareholders’ equity comes to € 175 million, whereas the shareholders’ equity of Sopaf S.p.A. is equal to € 131 million. As of 31 December 2006, the balances were € 156 million and € 83 million, respectively. After taking into account the acquisitions made during the year and the issuance of convertible bonds, the consolidated net financial position as of 31 December 2007 was € 152 million versus € 122 million as of 31 December 2006. > Prospects Sopaf is well positioned to capitalize on the new challenges and the new opportunities that the changing market scenario offers. At this point, we have a structure that is complete from an operational perspective, a motivated and unified management team, investments in high-growth sectors, a balanced financial position, and a strong balance sheet. During the current year, it is the firm commitment of management to continue with the plan to sell off assets that do not offer, including as a result of changing economic trends, returns that are compatible with the ob- jective that Sopaf has set, and to redeploy part of the resources obtained from the divestitures in investments that can be purchased at prices more indicative of the current market prices. At the same time, management is proceeding with a rigorous review of overhead costs with the aim of freeing up resources that can be directed toward expanding our business. From an operational perspective, we are concentrating on three initiatives: -Enhancing the value of the assets to which the Group’s resources have been channelled, actively participat- ing in the operational management thereof; - Growing assets under management by creating new investment vehicles; - Careful, but conservative, evaluation of new investment opportunities that will inevitably arise as a result of the trend of the markets. Based on these considerations, the results achieved, and the reasonable hope that we shall be able to repro- duce satisfactory earnings for the current year despite the deterioration of the framework of reference for our business, the board of directors is proposing that the holding company’s earnings of € 20.1 million be used for reducing the accumulated losses of € 22.8 million. We wish to extend our warmest thanks to Francesco Micheli for his active participation in Sopaf’s govern- Sopaf ance, regretfully accepting his resignation for personal reasons. We also would like to give a warm welcome 07 to Mario Rey, who was appointed as a director at the board meeting held on 29 February 2008. Similarly, we wish to thank Paolo Gualtieri for his valuable work as a statutory auditor for the Company. Finally, we would like to express our special thanks to the regulatory authorities for their active collaboration in working with us in virtually any circumstance. The results for the year would not have been possible without the ongoing and intense commitment of all of the senior managers and free-lance professionals working with Sopaf, and we thus extend our thanks to them. To the shareholders we confirm our continuing commitment to move ahead with the efforts to strengthen and to grow the Company. Giorgio Cirla Giorgio Magnoni Chairman Vice Chairman and Managing Director Sopaf 08 > Mission Sopaf is an investment company that invests its own capital and capital of third parties, with the objective of generating returns that (i) are better than industry averages and (ii) have the least possible correlation with market trends. Sopaf employs a multi-strategy approach. Pursuant to its investment policy, Sopaf seeks out high-potential niche businesses and concentrates on their enhancing their value. Often, these businesses are undervalued, or not well known to the market. Sopaf invests in very diverse areas of business, without exclud- ing any sectors a priori. > Macroeconomic overview The year of 2007 was marked by strong turbulence in the financial markets, which was essentially due to the so-called “sub-prime crisis”, which Alan Greenspan has defined as “the most acute market crisis since the end of World War II.” More specifically, starting in July 2007, the global financial system experienced a shock as the insolvencies in the high-risk, sub-prime mortgage loan market in the United States wielded their effects on stock markets around the world. From a macroeconomic perspective, the year of 2007 was marked by a decrease in the rate of growth of the global economy. According to estimates prepared by the International Monetary Fund, the gross domestic product (GDP) of the global economy was up by 5.2%, compared with a rate of expansion of 5.4% in 2006. In Europe, the economy decelerated slightly while the slowdown was more marked in Japan, and even more so in the United States. The average annual growth of oil prices in 2007 was around 9.6%, putting the price per barrel at close to USD 75.00 versus the average of USD 66.20 in 2006, when the price rose by 20.3%. > Sopaf Group: Key Developments As a result of a plan launched in 2006 to streamline its operations, the Sopaf Group is currently equipped with an organizational structure that is well suited for developing future business via investment funds or invest- ment vehicles managed by funds management companies, where the accent is on sharing the investment risks and returns with customers. As of 31 December 2007, Sopaf had shareholdings in four product companies active in the securities markets and real estate business; these will be the instruments through which the future investment vehicles will be promoted.