Financial Statements 05 Letter to Shareholders 07 Sopaf Group: Key Developments 010 The Sopaf Group in Figures 011 Corporate Governance and Management Sopaf Sopaf 014 Performance of the Sopaf S.p.A. Shares 017 Report in Operations 043 Consolidated Financial Statements Sopaf S.p.A. Financial Statements 145 Sopaf Sopaf Table of Contents This is an English language translation of an original Italian document, provided solely for the convenience of international readers. In the event of any discrepancy between the English language version of the document and the Italian language version, the latter shall prevail. 05 > Letter to Shareholders To the Shareholders, The year 2008, which began in the wake of a year that has witnessed the outbreak of the so-called sub-prime mortgage crisis, was marked in particular by the sharp worsening of world economic scenarios, experienced in the months of September and October, and by the virulent escalation of difficulties initially linked to the financial markets but which soon spread to the industrial segment. Following bankruptcy of the US investment bank Lehman Brothers, a sequence of interlinked events led to a shift in the coordinates of world economy. One of the earliest consequences was “a new shake-up” in the US financial sector, immediately followed by collapse of the world stock markets, a loss of trust in the financial system, a squeeze on liquidity and the need for many governments to launch important “anti-crisis” measures, including nationalisation of many banks. In our previous report addressed to shareholders at the meeting held on 28 June 2008, we already highlighted the difficulties that could be glimpsed on the horizon and which did indeed occur. The signs indicating the extent, complexity and radical nature of changes, that were immediately recognised as worthy of note, still constitute important factors to be considered in defining the company’s business enhancement strategies. Against this backdrop, the management of Sopaf has strived to finalise the market repositioning programme that commenced with the merger implemented in 2005, so that the company is able to respond to the changed and adverse market conditions. As in 2007, your Company was able to anticipate the changes underway and to take suitable measures to safeguard the creation of value, and specifically: • by disposing of investments that were no longer strategic; • by exploiting opportunities created through investment transactions and subsequent placement on the market of financial assets; • by strengthening and, at the same time, streamlining the Group organisational structure through activation of latent synergies between Group companies and strict reduction of operating costs. In accordance with the above, the main initiatives completed in 2008 were the following: • disposal of the investment held in Management & Capitali; • dissolution of the joint venture undertaken with AIG in the asset management segment, which was followed by refund of the units held in the PWM AIGGIG Multimanager Fund; • assignment of the real estate leasing contracts for the building in which the company has its head office; • disposal of some industrial investments in a newly established private equity fund entitled “Vintage Fund” while maintaining management of said fund, through management delegation awarded to Sopaf Capital Management SGR; • establishment of Adenium Sicav, a SICAV governed by Luxembourg law, of which distribution was commenced in the early months of 2009 by Banca Network Investimenti and which will be managed through delegation assigned to Sopaf Capital Management SGR; • several purchase and sale transactions on the secondary market of units of a real estate fund with complex settlements which generated significant capital gains; • drawing up of a plan for a significant cut in the operating expenses of the Parent Company and subsidiaries alike. While on one hand these transactions have laid the groundwork for expansion of future business that should increase assets under management, on the other they allowed the Group to generate liquidity, a quintessential condition in the current market climate and an essential element to its endeavour to achieve objectives such as reducing the Parent Company’s net financial position and strengthening the capital of some investments deemed strategic, like Banca Network Investimenti, Sopaf Real Estate Opportunity I (formerly Fondo Tergeste), Essere, China Opportunity and Sopaf Capital Management SGR. Sopaf 06 Hence the year 2008 closed with Sopaf S.p.A. posting a net profit of EUR 35.2 million. The Parent Company’s shareholders’ equity, including profit for the year, is equal to EUR 139 million and compares to the EUR 131 million recorded as at 31 December 2007. With regard to the Group consolidated financial statements, net profit is equal to EUR 3.6 million, while consolidated shareholders’ equity, including profit for the year, is equal to EUR 146.3 million and compares with the EUR 175 million recorded as at 31 December 2007. The figure posted for the consolidated net financial position is equal to EUR 146.9 million, down on the EUR 151.6 million of December 2007. This change is mainly due to improvement in the Parent Company’s borrowings, partially offset by a simultaneous increase in the borrowings of Fondo Tergeste by approximately EUR 19 million due to acquisition of real estate. This fund will probably be deconsolidated by the end of 2009 following further capital increases subscribed by third parties. This result takes into account a series of adjustments that we deemed advisable to make in order to provide a fairer view of the values that are currently recoverable according to our estimates (alignment of the value of Banca Network Investimenti S.p.A., Fondo Tergeste and Essere S.p.A.). We cannot conceal our satisfaction at having achieved positive results at both Parent Company and consolidated level even in 2008. This proves that the operating model on which your company is founded, based on investment flexibility and on a capacity for revenue diversification, is still valid despite the changed economic scenario. > Outlook We believe that the heightened tension characterising the financial markets will persist in the year underway. It is therefore imperative to respond with initiatives that will have a stabilising effect on your Group’s profitability, by expanding recurring revenues and continuing the process to create the resources required to exploit the opportunities that such a volatile market may offer. In order to achieve this objective the main focus must be placed on the management of strategic investments. This will concern the product companies (asset management companies), through increase of assets under management with review of the products and services of offer, as well as the distribution networks, among which we specifically mention Banca Network Investimenti which is expected to complete its turnaround phase by the end of 2009. The other pertinent initiatives that we intend to take include the following: • continued reduction of the bank borrowings through disposal of further non-strategic investments; • continuation of the operating costs reduction plan; • careful assessment of the opportunities that the information asymmetry in such volatile and unstable markets may offer. We firmly believe in the validity of these initiatives that we trust can be implemented despite the difficult market context. The Board of Directors proposes that the Shareholders’ Meeting resolves to distribute the profit for the year of EUR 35,203,622 as follows: • EUR 1,760,181 to legal reserve; • EUR 2,083,542 as dividend of EUR 0.005 by 416,708,392 ordinary shares; • EUR 31,359,899 to be carried forward. We thank all the senior managers and consultants for the commitment and professionalism shown in such difficult times and we also express our heartfelt thanks to the Control and Supervisory Bodies for the valuable collaboration provided in all circumstances. Lastly we confirm our commitment to achieving the set targets, necessary to guarantee that your company can continue its growth path. Giorgio Cirla Giorgio Magnoni Chairman Vice Chairman and Managing Director Sopaf Sopaf 07 > Mission Sopaf employs a multi-strategy approach. Pursuant to its investment policy Sopaf operates in a wide variety of business areas, seeking out and enhancing the value of high-potential niche opportunities that are often undervalued or overlooked by the market. > Macroeconomic Overview 2008 was a very difficult year for the financial markets in which events took both financial operators and political institutions by surprise. The crisis, triggered at the end of 2007 by a series of defaults in a marginal financial services segment, because of the US real estate bubble, rapidly extended to almost all the financial institutes becoming a world event and accelerating an abrupt adjustment of the macro imbalances that have been apparent in world economies over the last decade. In 2008 the macroeconomic backdrop was characterised by two completely separate periods. The first half of the year saw monetary policies focus on keeping inflationary pressures, arising mainly from the high prices of raw materials, under control, while the second part of the year saw major financial institutions overwhelmed by the risks of insolvency, forcing governments to intervene with timely measures to nationalise several banks. At the same time, working with their respective Central Banks, they introduced common measures to inject liquidity into the markets, through a drastic reduction of interest rates, and to offer the abundant resources necessary to fund the world financial system. In the last quarter the financial crisis extended to the industrial segment where the main effects are expected to be felt in 2009. > Sopaf Group: key developments Given the uncertainty characterising 2008 and the financial markets liquidity crisis, Sopaf continued the careful review of its assets, taking steps to dispose of investments deemed non-strategic and in which the Parent Company was no more than a financial investor with a return on investment that did not justify the cost of maintaining the investment.