Annual Reports at December 31, 2006 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 LETTER TO SHAREHOLDERS Dear Shareholders, The Group reported positive results in 2006 in a macroeconomic scenario that showed some signs of recovery in the latter part of the year but with declining consumption. The 8.6% growth in consolidated revenues, equal to €2,379.7 million, is testimony to the company’s and the staff ’s ability to adapt in a proactive and dynamic way to a fast paced and evolving market. This result is even more significant if we consider that the Group did not loose sight of its objectives – from the development of the publishing products to value creation - despite significant changes and innovations in terms of both organization and production. Total advertising revenues grew by 10.2%, well above the reference market average. In regard to publishing products - although add-on sales slowed down as predicted in both Italy and Spain – revenues for all our other products increased. Corriere della Sera and La Gazzetta dello Sport basically maintained their respective positions in terms of circulation and El Mundo, contrary to the trend in the Spanish market, increased its circulation, confirming its position as the second largest Spanish newspaper and considerably closing the gap on the market leader. The total revenues for books and magazines increased, thanks also to continuous renewal of the title portfolio as well as the multi-media products. Integration of the Dada Group, who in the year that just ended reported excellent results thanks also to the strengthening of its international presence, continued successfully. In 2006, in Italy, RCS further benefited from the positive effects of the advertising revenues attributable to the completion in 2005 of the full color Corriere della Sera project, the launch of the new afternoon free press title Corriere della Sera – Anteprima which was hugely successful with the general public and the magazines M and Corriere Enigmistica, in addition to the restyled “A” – Anna. In Spain the magazine Siete Leguas was restyled and the start-up of A Esfera dos Livros was completed in Portugal. The Group’s online sector reached an important agreement with Digital Bros and launched a new e-commerce site GazzaTown as well as the website casa.corriere.it. The first part of 2007 featured the birth of Corriere Bologna, the start-up of La Gazzetta dello Sport’s full color project and the launch of the magazines Io Cucino in Italy and OKS Salud in Spain. The latter part of the year also featured initiatives designed to promote the Group’s development in the multimedia sector through important endeavours in new areas of business as well as high quality products and development in foreign markets, confirming the previously announced interest in this development strategy. The acquisition of the Recoletos Group, in particular, will further consolidate RCS international presence, with foreign sales reaching an estimated 40% of total sales. The strategic guidelines for the 2008-2010 three year business plan will be presented next July. Thanks to the Group’s results and growth in 2006, we are confident that it will be possible to further strengthen and improve profitability in every area and country in 2007 while also developing all media channels and publishing products. These sound foundations will allow our titles to continue to operate as independent, respected publications rooted in our traditional values. Looking at 2007, even with a somewhat prudent view of the macroeconomic context, at the moment we expect that we will be able to deliver operating results that show slight improvement over the year that just ended. Piergaetano Marchetti 1 ANNUAL GENERAL MEETING The shareholders are called to a general meeting to be held in ordinary and extraordinary session at 10.30 am on April 27, 2007 in first call, to be held in the company's offices in Via Balzan 9, Milan, and if necessary, on April 30, 2007 in second call, at the same time and place, to vote on the following: Agenda Ordinary session 1. Financial statements at December 31, 2006; Directors' report on operations; Report by the Board of Statutory Auditors; Allocation of net income for the year; Bonus grant of treasury shares to shareholders. Related resolutions. 2. Appointment of new directors to the Board of Directors. Related resolutions. 3. Proposed authorization for buyback and disposal of treasury shares; consequent revocation of the shareholders' resolution dated April 27, 2006 relating to the authorization to buy back and dispose of treasury shares. Extraordinary session 1. Grant of authority to the Board of Directors for a period of five years from the date of the related resolution: (i) pursuant to article 2443 of the Italian Civil Code, to increase share capital on a bonus basis and/or for cash, on one or more occasions, in a divisible manner and with a possible premium, by a maximum total amount of €200 million at par through the issue of ordinary and/or saving shares in the company to be granted and/or reserved under option to those so entitled; (ii) pursuant to article 2420-ter of the Italian Civil Code, to issue, on one or more occasions, bonds convertible into and/or with warrants to subscribe to ordinary and/or savings shares in the company, to be reserved under option to those so entitled, for a maximum total amount of €800 million, provided the individual issues do not exceed legal limits, and with the power to approve the corresponding increase in share capital servicing the conversion and/or exercise of warrants by a maximum total amount of €200 million at par; the maximum total amount of the capital increases for cash (including any premium) and the bond issues may not exceed €800 million; consequent amendment of article 5 of the company's by-laws. Related resolutions. 2. Proposed amendment of articles 11, 12, 14 and 20 of the company's by-laws and introduction of a new article 20 (Head of Financial Reporting), with a consequent renumbering of the subsequent articles and revision of the references to the renumbered articles contained in articles 6 and 10, also in compliance with the requirements of Law 262/2005 as amended by Decree 303/2006. Related resolutions. Ordinary shareholders are entitled to take part in the meeting, in accordance with the law and the company's by-laws, provided the company has received the required certificate, issued by their respective intermediaries confirming their ownership of the shares, at its registered office at least two business days before the date set for the meeting. The documentation relating to the matters on the agenda and required by prevailing law will be filed within the prescribed deadlines at the company's registered office and at Borsa Italiana for viewing by the shareholders and the general public. The draft Company and Group Annual Reports (containing the related reports by the directors) will be filed in these places in compliance with article 82.2.b) of the Regulations approved by Consob Resolution 11971/1999 and subsequent amendments and additions thereto. Shareholders are entitled to obtain a copy of all this documentation. The draft Company and Group Annual Reports, containing the related reports by the directors, statutory auditors and the independent auditors, as well as reports by the directors on the individual items on the agenda will be available on the company's website at www.rcsmediagroup.it. on behalf of the Board of Directors Chairman Piergaetano Marchetti 2 Contents Corporate officers 4 Group structure of RCS MediaGroup 7 Brief description of the group 8 Information about the shares 9 Consolidated financial highlights of RCS MediaGroup 11 Directors' report on group operations by RCS MediaGroup 12 Group performance in the fourth quarter 13 Group performance in year ended December 31, 2006 15 Segment performance 22 Significant events during the year 38 Significant subsequent events 40 Outlook for the current year 42 Treasury shares 42 Transactions with related parties 42 Management of financial risks 42 Security plan 42 Corporate governance 43 Consolidated financial statements 75 Consolidated income statement 76 Consolidated balance sheet 77 Consolidated cash flow statement 78 Statement of changes in consolidated capital and reserves 79 Explanatory notes 82 RCS MEDIAGROUP S.p.A. 148 Accounting standards used 149 Directors' report on parent company operations 150 Significant events during the year 153 Significant subsequent events 153 Outlook for the current year 153 Treasury shares 153 Transactions with related parties 153 Management of financial risks 153 Security plan 153 Equity investments held by directors and statutory auditors 154 Proposed resolutions 155 Parent company financial statements 157 Income statement 158 Balance sheet 159 Cash flow statement 160 Statement of changes in capital and reserves 161 Explanatory notes 162 Attachments 191 Report on the transition to IAS/IFRS 192 List of group equity investments 203 Exchange rates against the euro 208 Quarterly consolidated income statements 210 Tables attached to the financial statements of RCS MediaGroup S.p.A.: 212 Portfolio of equity investments at December 31, 2006 and their movements 213 List of "other equity investments" and "other securities" not recorded as fixed assets and their movements 216 Reclassified income statement for holding companies 217 Independendent auditor’s report 218 Report by the board of statutory auditors 221 3 CORPORATE OFFICERS Honorary Chairman Cesare Romiti Board of Directors (Ø) Piergaetano Marchetti (*) Chairman Gabriele Galateri di Genola Deputy Chairman Antonio Perricone (*) (°) (1) Chief Executive Officer Raffaele Agrusti Director Roberto Bertazzoni Director Claudio De Conto (2) Director Diego Della Valle Director John P.