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Gruppo Editoriale L’Espresso Società per azioni

Annual Report 2004

(Translation from the original issued in Italian)

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 theEspresso 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 | 5

Company Gruppo Editoriale L’EspressoSocietà 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, 149Secondary office Rome, Via Cristoforo Colombo, 90

Board of Directors: Chairman Carlo Caracciolo

Managing Director Marco Benedetto

Directors Oliviero Maria BregaCristina BusiGiulia Maria Crespi MozzoniCarlo De BenedettiRodolfo De BenedettiFrancesco DiniPierluigi FerreroMilvia FioraniFranco GirardPaolo MancinelliGianluigi MelegaAlberto MillaPiero OttoneAlberto PiaserVittorio Ripa di Meana

Executive Committee: Carlo CaraccioloMarco BenedettoOliviero Maria BregaRodolfo De BenedettiAlberto Piaser

Board of Statutory Auditors:Chairman Vittorio Bennani

Auditors Claudio BerliriFederico Gamna

Independent Auditors PricewaterhouseCoopers SpA



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

The Espresso Group closed the 2004 financial yearreporting a consolidated net profit of €87.7 mil-lion, up from €67.8 million in 2003, on consolida-ted revenues equal to €1,079.8 million (up from€1,051.1 million in 2003). Consolidated operatingprofit amounted to €177.4 million (16.4% of mar-gin revenues), against €175.1 million in 2003(16.7% of margin revenues).

Net financial debt at December 31, 2004 declinedto €131.1 million from €149.5 million at the endof the previous year thanks to cash flow genera-ted by operations that more than offset capitalexpenditure and dividends distributed.

Shareholders’ Equity grew from €332 million atthe end of 2003 to €375.2 million at December31, 2004.

Main events in 2004 included the completion ofthe full color project by la Repubblica (involvingalso the construction of a new printing center inRome), the transfer of all Group companies basedin Rome to a new location, the good performanceof products sold optionally in conjunction with laRepubblica and L’espresso, the growth of radioaudiences and the successful completion of restruc-turing in the Internet area.

Along with the strengthening of the Group’s corebusiness, efforts were devoted also to development:new publishing activities, such as the launch of amagazine devoted to TV programs (TV magazine)and the restyling of the magazine Musica with itsconversion to a monthly magazine, in addition tothe signing of an important agreement for theacquisition of a national TV network Rete A. Thisis a network aimed at a very young public that iscurrently registering a growth in audience andadvertising sales and will be able to develop furtherby exploiting the trademarks and know-how ofGroup’s radio stations, in addition to the technolo-gical support provided by the Internet area.

Growth in the advertising market continued to bemodest, though showing signs of a recovery in thelast quarter also as a result of full color advertisingoffered by la Repubblica. With the coming intooperation of the new rotary presses on schedule andone year in advance of competitors, la Repubblicais currently the only national newspaper able tooffer color advertising pages and formats withoutsaturation constraints. The new offer was wellreceived by the market: in December, 73% of alladvertising published by the newspaper was incolor, as compared with 49.4% in the same periodin 2003; in 2004, national color advertising of laRepubblica grew by 12.3%, as compared with7.5% for the market as a whole (source: FCP,December 2004). In the first months of 2005, thereplacement of black and white advertising withcolor continues, with good prospects for sales andmargin growth.

Sales of products sold optionally in conjunctionwith Group publications confirmed once againthat there now exists a sustainable, well consoli-dated market accounting for a stable proportionof revenues and profits of the Group.In 2004, revenues from products sold optionallyin conjunction with Group publications reached€227.2 million, with a margin exceeding 35%. In2004, sales benefited from the good reception bythe public of the l’Enciclopedia di Repubblica andLa Storia series, that sold a total of over 9.6 mil-lion volumes with an average circulation of over280 thousand copies per issue. Sales initiatives ofL’espresso and local newspapers also reportedgood results.

Circulation of newspapers and periodicals were inline with 2003: la Repubblica had an average cir-culation of 625 thousand copies per issue, localnewspapers one of 488 thousand copies and L’e-spresso an average circulation of 390 thousandcopies per week.The last Audipress report (2004/II), released at thebeginning of the current year, rewards la Repub-

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


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

blica, placing it at the top position of Italian new-spapers (2.9 million readers).Radio stations registered further gains in terms ofaudience, reaching a total of 8.4 million averagedaily listeners and a 20.5 million weekly audience(source: Audiradio 2004 annual data). RadioDeejay climbed to 5.6 million average daily liste-ners, confirming its ranking as first radio stationin terms of audience for the whole week with 12.7million listeners; Radio Capital’s audience grew toalmost 2 million average daily listeners and 5.6million average weekly listeners, while m2o, aimedat a younger public, doubled its audience in thelast two years to almost 1 million average dailylisteners. Advertising revenues of the three radiosgrew by 18.9% on the previous year.

After the completion of the critical phase of therestructuring process, the Internet area begun toexploit new sources of revenue and growth. In2004 Kataweb sharply reduced its operating lossfrom €9 million in 2003 to €2.9 million.

_____

Financial charges declined significantly from€28.6 million at the end of 2003, to €12.9 mil-lion at the end of 2004; financial charges in theprevious year were negatively affected by costsincurred in the unwinding and termination ofinterest rate hedging transactions.

After having made public its “BBB-” Stan-dard&Poor’s rating with a positive outlook, onOctober 8 the Company placed a 10 year, €300 mil-lion bond with institutional investors. The bond wasvery well received on the market with requests forover 5 times the amount on issue. Bonds are listedon the Luxembourg Stock Exchange and pay anannual 5.125% coupon, equal to a 10 year mid-swap rate plus 105 basis points.

Capital expenditure, namely on new full colorprinting presses, the update of a number of prin-ting centers – some of which were completelyrebuilt – and the renovation of the new offices

hosting the Group in Rome, amounted to €94.3million (as compared with €70.8 million in 2003).

At December 31, 2004, the consolidated net finan-cial position showed an indebtness of €131.1 mil-lion, improving from €149.5 million at December31, 2003 thanks to the strong cash flow generatedin the year (€162 million) that allowed to financecapital expenditure and the payment of €47.1 mil-lion in dividends.

At the end of 2004, the Group employed 3,271persons, including personnel under term con-tracts, as compared with 3,166 at December 31,2003. The increase is due to the decision to mana-ge directly the pre-printing and printing of laRepubblica in Rome, involving the hiring of per-sonnel by subsidiary Rotocolor.

Below are finally reported 2004 main results,compared with previous year statements:

(€million) 2003 2004 ch. %

Revenues 1,051.1 1,079.8 +2.7%

of which:

• Circulation 482.8 496.4 +2.8%

• Advertising 534.0 546.1 +2.3%

Gross operating profit 231.5 231.5 -

Operating profit 175.1 177.4 +1.3%

Financial income/(expense) (28.6) (12.9)

Net profit 67.8 87.7

Shareholders’ Equity 332.0 375.2

Net financial position (149.5) (131.1)

Employees 3,166 3,271

Parent company Gruppo Editoriale L’Espresso

(€million) 2003 2004 ch. %

Revenues 648.5 656.4 +1.2%

of which:

• Circulation 367.9 380.8 +3.5%

• Advertising 271.6 267.3 -1.6%

Gross operating profit 142.3 117.2 -17.7%

Operating profit 125.7 98.5 -21.6%



Shareholders’ Equity 239.2 266.1


Employees 920 940

Operating results of the parent company are illu-strated in the Operating Divisions Review; in thesection that follows, we comment upon the finan-cial performance of the parent company and ofits equity investments.

In 2004, net revenues from equity investmentsamounted to €21.7 million (as compared with anet expense of €4.2 million in 2003); higher divi-dends received from subsidiaries and affiliatedcompanies (€27.2 million) more than offset write-downs and the coverage of losses incurred by sub-sidiaries, amounting to €5.5 million.

The positive cash flow (€114.7 million) due to thegood operating performance and the containmentof net current assets, allowed to achieve a reduc-tion in debt from €176.7 million at December 31,2003, to €162.9 million at the end of 2004, aftercapital expenditure amounting to €57.4 millionand the distribution of €47.1 million in dividends.

Espresso Division

(€million) 2003 2004 ch. %

Revenues 110.9 121.0 +9.1%

of which:

• Circulation 75.9 86.3 +13.6%

• Advertising 32.4 33.2 +2.5%

Gross operating profit 14.3 17.4 +21.6%


Figures for the division include the share in revenues and coststhat may not be attributed to a specific activity

Circulation was in line with 2003 at an average ofabout 390 thousand copies per issue, as were pro-ducts sold optionally with the magazine: in 2004,L’espresso sold a total of 4.2 million books, 2.4million DVDs and 2.5 million CD-ROMs andmusic CDs.

The increase in advertising sales, out of line withrespect to the weak advertising market for otherperiodicals, and of margins on products sold optio-nally with the magazine, coupled with the reductionin production and subscription promotional costs,represented a determining factor in the improve-ment of the operating profit, up from €13.4 millionin 2003 (a 12.1% margin on sales), to €16.8 mil-lion in 2004 (a 13.9% margin on sales).

Other publications of the division continued toperform well both in terms of circulation andmargins: the monthly magazine National Geo-graphic sold over 123 thousand copies per issue,while magazines Limes and Micromega recordedan average circulation of 19 thousand and 20thousand copies per issue respectively. In 2004,the total contribution of these publications to theoperating profit of the division amounted toabout €2.7 million.

Among publications of affiliated company LeScienze SpA, periodical Mente & Cervello rea-ched an average circulation of 25 thousandcopies per issue, while monthly magazine LeScienze reported an average circulation of 61thousand copies per issue.


Repubblica Division

(€million) 2003 2004 ch. %

Revenues 537.6 535.4 -0.4%

of which:

• Circulation 292.0 294.6 +0.9%

• Advertising 239.3 234.2 -2.1%

Gross operating profit 128.0 99.8 -22.1%

Operating profit 112.3 81.7 -27.2%

Figures for the division include the share in revenues and coststhat may not be attributed to a specific activity

The year was characterized for la Repubblica by thechange in the graphic design spurred by the cominginto operation of the new full color rotary presses: inDecember, color pages represented 85% of the new-spaper. Color was used to highlight major news andevents and its potential was exploited in full in newsupplements l’Almanacco dei libri and la Domenicadi Repubblica. Starting in November, the newspa-per includes in fact eight pages dedicated to reviewsand sales figures of the best selling books, publishedevery Saturday, and 20 pages of investigations,reportages and in-depth coverage of major currentevents, published on Sunday.

Moreover, in 2004 sales and revenues from pro-ducts sold optionally with the newspaper reached apeak. Two sales initiatives contributed most to theseresults: l’Enciclopedia di Repubblica, whose appen-dix volumes sold in the first four months of the yearover 4.8 million copies, and La Storia, which soldan average of 283 thousand copies per issue.

A new book series, L’Italia, was launched onDecem-ber 28. The series is a collection of guidebooks of major Italian cities and regions, consistingof 23 volumes published in cooperation with the Ita-lian Touring Club. The first issue, after a free intro-ductory one, was dedicated to Rome and went intoreprint after over 300 thousand copies were sold.

La Repubblica’s new Rome printing plant becameoperational at the end of August. The printing ofthe newspaper had previously been carried out by

a third party. The in-house printing and offset ofthe newspaper will allow to achieve higher pro-duction efficiency and significant cost savings.

Higher launch and production costs linked to theincreased number of products sold optionally withthe newspaper in the year, the growth in printingcosts and higher depreciation charges relating tothe new color rotary presses were reflected on theoperating profit that declined from €112.3 million(20.9% of sales) in the previous year, to €81.7million (15.3% of sales) in 2004.

The Internet site of the newspaper, www.Repubbli-ca.it, registered in the last year a constant growthin unique users, continuing to rank first amongdomestic information sites and among the first inEurope (source: Audiweb 2004). In December2004, www.Repubblica.it had almost 3.5 millionunique users and page views were about 164.7million. In the aftermath of the catastrophe that hitSouth-East Asia, the Internet site experimentedwith a strong success an online news update servi-ce 24 hours on 24.

Results of main subsidiaries

Local newspapers

(€million) 2003 2004 ch. %

Revenues 244.3 254.3 +4.1%

of which:

• Circulation 118.9 119.1 +0.1%

• Advertising 105.6 107.7 +2.0%



Financial income/(expense) 0.7 0.5


Net financial position 58.7 31.2

The Local Newspapers area includes Finegil Edi-toriale and its subsidiaries (Editoriale la NuovaSardegna, Eag, Ene, Editoriale la Città), Seta andEditoriale FVG. The Espresso Group publishesthrough its subsidiaries 16 newspapers and a bi-


weekly magazine, reaching daily a total of 3.1million readers.

Average circulation of local newspapers in 2004was 488 thousand copies per issue, just above2003: circulation of individual newspapers fol-lowed the same trend, with the exception of thosein the Veneto Region whose sales grew by 4.7%,with a 7% increase in market share, and newspa-per Il Centro di Pescara (whose circulation grewby 2.0%), favored by the launch of the new Lan-ciano local edition.

The sale of publications and products in conjunc-tion with some local newspapers (Nuova Sarde-gna, Mattino di Padova, Tribuna di Treviso, Mes-saggero Veneto and Piccolo) continued with aseries of books dedicated to regional authors:sales averaged about 30 thousand copies per issue.The first joint publishing initiative involving alllocal newspapers of the Group was launched inApril, with the publication of a series of 20 booksfor teenagers whose sales reached an average of28 thousand copies per issue.

Advertising revenues, though still far from registe-ring strong growth rates, is undergoing a gradualchange in the breakdown of advertising spacessold. The 19% increase in sales of color adverti-sing and the parallel 4.2% reduction in black andwhite advertising sales confirm the migration ofadvertisers towards color. In this framework theMantova and Sassari printing centers increasedtheir color printing capacity.

Gross operating profit amounted to €62.6 mil-lion, up from €56.8 million in the previous year,thanks to the decline in the price of paper and thecontainment of operating costs. Operating profitgrew also from €40.3 million in 2003, to €46million in 2004: in the same period, its marginimproved from 16.5% to 18.1%.

The net financial position declined from positive€58.7 million at December 31, 2003, to positive€31.2 million at the same date in 2004, after the

distribution of €19.1 million in dividends andcapital expenditure amounting to €46.3 million,relating primarily to the implementation of laRepubblica’s full color project.

Elemedia

(€million) 2003 2004 ch. %

Revenues 55.3 67.4 +21.8%




Net profit 4.6 15.2

Net financial position (5.2) 6.9

The increase in advertising revenues, the conti-nuing effort to improve productive efficiency andthe containment of promotional expenses resul-ted in an improvement in the operating profitthat almost doubled from €13.8 million in theprevious year, to €25.1 million in 2004. The ope-rating margin also improved sharply from 25%in 2003 to 37.3% in 2004.

Exploiting the Deejay trademark and the popula-rity of its characters, a DVD titled Natale a CasaDeejay was distributed at newsstands at Christmasselling over 125 thousand copies. The promotion ofGroup radio station trademarks had already beenexperimented with success with the distribution ofmusic compilations produced by m2o, that conti-nued in the year reaching top sales positions.

Thanks to the good cash flow generated by ope-rations, the net financial position improved froman indebtness of €5.2 million at December 31,2003, to positive €6.9 million at the end of 2004.

At the end of the year, the broadcasting networkconsisted of 843 stations, up from 834 at the endof 2003. The good signal coverage achieved bythe radio stations allowed to limit work on broad-casting equipment to ordinary maintenance.


In 2004, Deejay Television completed its first fullyear of broadcasting on the Sky Italia platform.The inclusion in the Sky bouquet of programsand the consequent containment of broadcastingcosts resulted in a marked improvement in EleTV’s results: revenues grew by 19% and opera-ting profit reached €0.7 million, representing a35% margin on sales.

A.Manzoni&C.

(€million) 2003 2004 ch. %

Gross advertising revenues 591.1 604.7 +2.3%

Net revenues 538.5 551.3 +2.4%

Gross operating profit 2.6 5.7 n.s.

Operating profit 1.8 5.1 n.s.


Net profit (0.5) 1.0


After a strong performance at the beginning of theyear, the advertising market slowed down conside-rably in the last quarter for all media (press, TV,radio, cinema and outdoors). Gross advertisingrevenues grew by 7.3%, but once again adverti-sing expenditure concentrated on television, up10.4%, and radio, registering a 21.7% increase inadvertising revenues. Advertising on printed mediaremains weak, with periodicals registering a 0.3%increase and newspapers a 2.4% growth (source:Nielsen Media Research).

The different growth rates in advertising revenuesamong media resulted in a 2.3% growth in Man-zoni’s gross advertising revenues that reached€604.7 million. Almost all sectors in which theGroup is active registered an improvement: radiostations reported an excellent performance, recor-ding an 18.9% growth, while local newspaperswere up 2.3%, L’espresso 1.8% and Internet sitesregistered a 2.8% increase in revenues. Adverti-sing sales of la Repubblica declined slightly(down 2.3%) due primarily to difficulties registe-red by its supplements.

The increase in sales revenues, the ongoing moni-toring of major cost items and the streamlining ofsales channels reflected positively on the operatingprofit that grew from €1.8 million in 2003 to €5.1million in 2004.

At December 31, 2004, the net indebtedness amoun-ted to €7 million, improving from €20 million atDecember 31, 2003 as a result of €6.5 million gene-rated by operations and the €7 million capitalincrease carried out in the year.

Kataweb In 2004, the Group’s sites registered a stronggrowth in audience: in December, the networkregistered 5.9 million unique users and 246.4 mil-lion page views, up about 30% on the sameperiod in 2003.

Numerous activities were launched in 2004 withqualified partners. New activities are aimed atoffering new services such as the printing of digi-tal photos, the online sale of books, shopping, thedownload of music and Internet telephony servi-ces. Revenues were streamlined, new activitieswere launched and a number of projects aimed atpromoting advertising on sites were launched inthe last part of the year. These efforts resulted inan improvement of Kataweb’s operating profitfrom a loss of €9 million in 2003, to a loss of€2.9 million in 2004. The €5.5 million net lossreflects the share in the loss for the year of subsi-diaries (€3.9 million).

The net financial position improves from positive€5.7 million at December 31, 2003, to positive€17.7 million at the end of 2004 thanks to €20million in contributions made by the Parent com-pany in 2004.

Printing In 2004 Rotosud, the company managing therotary press center for the Espresso Group perio-dicals, reported a turnover of €30.9 million,down 4.3% on the previous year due to the lower


circulation and number of pages per issue of laRepubblica’s supplements. The decline in turno-ver resulted in a reduction in the operating profitfrom €7.2 million to €6.1 million, while net pro-fit was in line with 2003 at €3.1 million.

The net financial position at December 31, 2004amounted to an indebtness of €12.5 million (€17million at the end of 2003), after capital expendi-ture amounting to €2.4 million and the paymentof €2.9 million in dividends.

CPS, active in preparing the Espresso Group maga-zines for printing and the setting of la Repubbli-ca’s advertising, closed 2004 reporting sales of€3.7 million, up 5.4% due to the higher numberof color advertising pages produced as a result ofthe launch of the full color project. Operatingprofit amounted to €0.9 million and net profit to€0.5 million, in line with the previous year.

The net financial position improved slightly frompositive €1.5 million at the end of 2003, to €1.6million at December 31, 2004.

Since August 26, subsidiary Rotocolor carries outthe printing of la Repubblica in Rome in additionto the pre-printing of all newspaper editions, pre-viously carried out by a third party. Two new fullcolor rotary presses were installed and were ope-rational since September. Personnel previouslyworking for STEC, the former printer of the new-spaper in Rome (122 persons), was transferred tothe new plant upon its coming into operation.

In 2004 the company reported an operating profitof €0.5 million on sales amounting to €6.9 million.Results are not comparable with the previous yearas the plant came into operation only in 2004.

Capital expenditure in the year amounted to €15.4million, used primarily in the renovation of theplant, the purchase of rotary presses and the con-struction of typeset equipment.

At December 31, 2004, net debt amounted to €5.4million, after net expenditure described above.

SomediaSomedia represents today the reference point in theGroup for all direct marketing and customer careactivities promoted by Group.

In addition to the fulfilment of subscriptions andthe traditional activities, with the publication of theCarrer Book, the company is active in the organiza-tion of personnel training seminars and conferen-ces, among which the university degree program inenginering organized cooperation with the MilanPolytechnic, that continued with success.

Thanks to the good performance of the differentbusiness areas, turnover reached €6.2 million, up2% on 2003. Operating profit amounted to €0.1million.

The net financial position at December 31, 2004was positive €0.8 million, down slightly on €1.4million at the end of 2003.

Subsequent events and outlookIn the first months of 2005, advertising on theGroup’s media grew steadily as a result primarily ofthe increase of color advertising on la Repubblica.

Products sold optionally in conjunction with publi-cations showed a strong performance: the firstissues of the Touring Club guides with la Repub-blica sold an average of over 255 thousand copies,while Stanley Kubrick’s complete work DVD seriesdistributed in conjunction with L’espresso sold anaverage of almost 100 thousand copies per issue.

New bi-weekly magazine TV magazine dedicated toTV programming was launched on January 10. Themagazine uses a successful formula already adoptedin Germany and France, offering a guide to TV pro-grams for the two weeks following its publication.

La Repubblica’s new digital radio, broadcastingthree hours a day on the Internet as part of thenewspaper’s site, www.Repubblica.it, was laun-ched on February 14. The radio is dedicated enti-rely to news, in-depth analysis, opinions and deba-


tes, and may represent a first nucleus of a futuredigital channel once the technology will be in usewithin the radio sector.

On February 10, 2005, the Authority for Tele-communications issued a favorable opinion onthe acquisition of national TV network Rete A,while approval from the Antitrust Authority isexpected soon.

At the end of January, the Lazio Regional RevenueService Office accepted the appeal submitted toobtain a waiver on the application of tax elusionregulations in the context of the merger of Eleme-dia SpA, Ele TV SpA and Studio Vit SpA intoKataweb SpA. The operation will allow the Espres-so Group to merge activities in the radio, televisionand Internet sectors, thus benefiting from synergiesbetween Group companies operating in the multi-media sector.

Relationships with related partiesTransactions between Group companies and rela-ted parties, including intragroup transactions, arecarried out in the normal course of business and aresettled at market rates; in the period under conside-ration there were no atypical or unusual transac-tions falling outside the scope of ordinary businessto report.

The economic and financial effect of transactionsbetween consolidated companies are eliminatedin the consolidated financial statements, while theeffect on the consolidated statements of transac-tions with other related parties are immaterial.

The parent company, Gruppo Editoriale L'Espres-so SpA, holds with its subsidiaries and affiliatedcompanies both trade relationships and relation-ships involving the provision of services and ofoperating and financial advice. Among the mostimportant trade relation are those held with subsi-diary A.Manzoni&C. SpA, concessionaire for theadvertising space of L’espresso and la Repubblica,those with the subsidiary Kataweb SpA for adver-tising on the Internet and the management of

sites, and those held with subsidiaries RotosudSpA and CPS SpA, supplying typeset and printingservices. Gruppo Editoriale L'Espresso SpA alsomanages a current account for transactions withinthe Group to which most subsidiaries and affilia-ted companies participate according to individualdebit and credit positions.

Gruppo Editoriale L'Espresso SpA receives in turnfrom its parent company CIR SpA, services andadvice on strategic, administrative, financial andtax matters. It is to be noted that the provision ofsuch services on the part of the parent company isdeemed as preferable to the provision of the sameon the part of a third party thanks, among otherthings, to the wide knowledge and experience CIRSpA has acquired over time on the company andthe sector in which Gruppo Editoriale L'EspressoSpA operates.

The new Testo Unico tax law (TUIR) introducedthe possibility for companies of a same Group todetermine an overall profit corresponding in prin-ciple to the algebraic sum of taxable profits of eachcompany (parent company and companies control-led directly and/or indirectly with a share over50%) and, consequently, to determine a singleincome tax liability for the whole Group. OnOctober 20, 2004, the Board of Directors of Grup-po Editoriale L’Espresso SpA resolved the partici-pation of the company to CIR’s “Tax consolida-tion” and a general agreement regulating the rightsand obligations of CIR and consolidated compa-nies (thus including Gruppo Editoriale L’EspressoSpA) with respect to the participation in the taxconsolidation, was underwritten.

The table below shows the operating and financialdata concerning Gruppo Editoriale L'Espresso SpAand its parent companies, subsidiaries and affilia-ted companies. Individual items are commentedupon in the notes to the financial statements ofGruppo Editoriale L'Espresso SpA.



(€ thousand) Costs Revenues Financial Financial Receivables Payables Guaranteesexpense 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

Other informationOwn shares held by the Parent Company atDecember 31, 2004 were 3.3 million and represen-ted 0.8% of the share capital.

____

Pursuant to Legislative Decree no.196, it is ack-nowledged that Gruppo Editoriale L’Espresso, incompliance with current regulations, has updatedthe “safety protocol” for the year 2004. In com-pliance with the provisions of the Code on the Pri-vacy of Personal Information the Company hasmoreover taken steps to make such document com-patible with law provisions requiring the adoptionof “new safety measures” by June 30, 2005.

Adoption of international accounting principlesThe Espresso Group has reached an advanced stagein the review of the project for the adoption ofinternational accounting principles (IAS, currentlyIFRS - International Financial Reporting Stan-dards), which will have to be adopted by Europeancompanies whose shares are traded on a regulatedmarket starting with the consolidated financial sta-tements for the 2005 financial year.

In 2004 the Company assessed main differencesbetween the accounting principles currently adop-ted by the Group and IFRS, and has selected thoseoptions that allow a better representation of theeconomic and financial structure of the Company.A Company Accounting Principles Manual is cur-rently being drafted and in the immediate future allGroup companies will be required to identify andquantify differences between previously adoptedaccounting principles and those contained in theManual so as to determine the effect of the adop-tion of new principles.

As highlighted in the diagnostics phase, the areasthat are most affected by the adoption of the newprinciples are Intangible assets, Financial assetsand liabilities, Personnel benefits (particularly theaccounting treatment of stock options) and infor-mation contained in the financial statements.

With regards to the adoption of new accountingprinciples, as allowed by IFRS1, the Group deci-ded to opt for the “estimated cost” for the initialvaluation of tangible assets, the exemption on theapplication of the international accounting princi-ple for combinations of companies formed beforeJanuary 1, 2004, and the adoption of IAS32 andIAS 39 from January 1, 2005.

The Company is also evaluating, in agreementwith parent company CIR SpA and as recommen-ded by CONSOB, whether to adopt IAS princi-ples already from the 1st Quarter of 2005 or topostpone their application to the Half-year Reportat June 30, 2005.


Allocation of net profit for the year endedDecember 31, 2004

To our Shareholders:the Financial Statements of Gruppo EditorialeL’Espresso SpA that we submit to your approvalclose reporting a net profit of €70,423,331.54.

We propose to distribute a dividend of €0.13 toeach of the 428,990,388 ordinary shares in circula-tion (keeping into account the 3,650,000 own sha-res held by the Company) and to allocate theremainder to the voluntary reserve, having the LegalReserve already reached an amount equal to 20%of the share capital. Thus we propose to allocate:

• €55,768,750.44 to ordinary dividends to bedistributed to shareholders in a proportion of€0.13 for each share in circulation, to be paid outon May 26, 2005, with an ex-dividend date ofCoupon no. 9 on May 23, 2005;

• €14,654,581.10 to voluntary reserve.

The proposed allocation of net profit keeps intoaccount the provisions of article 2357 ter., 2nd

paragraph of the Italian Civil Code, providing fordividends accrued by own shares to be distributedproportionally to other shares.

The exact amount to be destined to the distributionof dividends and to voluntary reserve may varyaccording to the number of own shares held at thedate of the Meeting or according to the possibleissue, on March 31, 2005, of a maximum of4,650,850 shares with rights accruing January 1,2004 as part of applicable stock option plans.

Rome, February 23, 2005

Allocation of net profit for the year endedDecember 31, 2004 resolved by the Shareholders’ Meeting of April, 20, 2005

The Shareholders’ Meeting held on April 20,2005 having acknowledged the proposal of theBoard of Directors and the issue on March 31,2005 of 495,900 ordinary shares of par value€0.15 each, with rights accruing from January 1,2004, issued to service current stock option plan,resolved the following allocation of the 2004 netprofit of Gruppo Editoriale L’Espresso SpA, amoun-ting to €70,423,331.54:

• €55,833,217.44 as ordinary dividends of €0.13to each of the 429,486,288 ordinary shares in circu-lation (keeping into account the 3,650,000 ownshares held by the Company) with rights accruingJanuary 1, 2004, to be paid out on May 26, 2005,upon the clipping of Coupon no. 9 on May 23,2005;

• €14,590,114.10 to voluntary reserve.

The proposed allocation of net profit keeps intoaccount the provisions of article 2357 ter., 2nd

paragraph of the Italian Civil Code, providing fordividends accrued by own shares to be distributedproportionally to other shares.

Rome, April 20, 2005


Information required by Consob - resolution 11971/1999

Stock option plans for managers of the parentcompany and its subsidiaries holding strategicpositions within the Group assign the right toexercise at a pre-determined price and for a setterm an option for the underwriting of new sharesto be issued by the company pursuant to the rela-ted stock option plan resolutions. The related rulesregulate, among other terms and conditions, alsothe case in which the assignee of the said optionsceases for whatever reason to be employed by thecompany. Starting from 2001, ad hoc stock optionplans were assigned to the Managing Director ofthe company, Marco Benedetto, giving him theright to acquire from the company at a pre-deter-mined price and for a set term, a number of sharesequal to the options already assigned to him. Cur-rent stock option plans are:

“2000” stock option planOn February 23, 2000, the Board of Directors, inapplication of the proxy assigned by the Sharehol-ders’ Meeting on April 29, 1996, resolved a capitalincrease pursuant to article 2441, last paragraph,of the Italian Civil Code, for a total of 2,155,000shares at a price of €25.60, of which €0.15 ofnominal value and €25.45 of premium over par,determined in relation to the higher between theofficial price and the listed price on the ItalianStock Market (Borsa Italiana S.p.A.) on February22, 2000, for the purposes of the “2000” stockoption plan. The stock option plan provides forthe options to be exercised by each assignee in thefollowing periods: a) up to a maximum of 12% ofthe total options assigned starting from September30, 2000 and at subsequent quarterly intervalsuntil September 30, 2010; b) up to a maximum foreach quarter of 6% of the total options assigned inthe period between December 31, 2000 andMarch 31, 2004, and at subsequent quarterlyintervals until September 30, 2010; c) the residual4% of the total options assigned starting fromJune 30, 2004 and up until September 30, 2010.To date no option has been exercised and, pur-suant to the stock option plan, 540,000 options

have expired. The residual number of shares isthus 1,615,000.

“April 24, 2001” stock option planOn April 24, 2001, the Board of Directors, in appli-cation of the proxy assigned by the Shareholders’Meeting on April 6, 2001, resolved a capital increa-se pursuant to article 2441, last paragraph, of theItalian Civil Code, for a total of 930,000 shares ata price of €6.25, of which €0.15 of nominal valueand €6.10 of premium over par, determined in rela-tion to the provision of article 9, paragrapf IV ofthe Income Tax Code that makes reference to thesimple arithmetic mean of official stock market pri-ces of the company’s shares in the previous month,for the purposes the “April 24, 2001” stock optionplan. The stock option plan provides for theoptions to be exercised by each assignee in the fol-lowing periods: a) up to a maximum of 12% of thetotal options assigned starting from September 30,2001 and at subsequent quarterly intervals untilSeptember 30, 2011; b) up to a maximum for eachquarter of 6% of the total options assigned in theperiod between December 31, 2001 and March 31,2005, and at subsequent quarterly intervals untilSeptember 30, 2011; c) the residual 4% of the totaloptions assigned starting from June 30, 2005 andup until September 30, 2011. To date no option has been exercised and, pur-suant to the stock option plan, 150,000 optionshave expired. The residual number of shares isthus 780,000.

“October 24, 2001” stock option planOn October 24, 2001, the Board of Directors, inapplication of the proxy assigned by the Sharehol-ders’ Meeting on April 6, 2001, resolved a capitalincrease pursuant to article 2441, last paragraph, ofthe Italian Civil Code, for a total of 885,000 sharesat a price of €2.51, of which €0.15 of nominalvalue and €2.36 of premium over par, determinedin relation to the provision of article 9, paragraphIV of the Income Tax Code that makes reference tothe simple arithmetic mean of official stock market

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

Information on stock option plans

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

prices of the company’s shares in the previousmonth, for the purposes the “October 24, 2001”stock option plan. The stock option plan providesfor the options to be exercised by each assignee inthe following periods: a) up to a maximum of 12%of the total options assigned starting from March31, 2002 and at subsequent quarterly intervals untilMarch 31, 2012; b) up to a maximum for eachquarter of 6% of the total options assigned in theperiod between June 30, 2002 and September 30,2005, and at subsequent quarterly intervals untilMarch 31, 2012; c) the residual 4% of the totaloptions assigned starting from December 31, 2005and up until March 31, 2012.To date 501,900 options have been exercised and,pursuant to the stock option plan, 10,200 optionshave expired. The residual number of shares is thus372,900.

“March 6, 2002” stock option planOn March 6, 2002, the Board of Directors, inapplication of the proxy assigned by the Sharehol-ders’ Meeting on April 6, 2001, resolved a capitalincrease pursuant to article 2441, last paragraph, ofthe Italian Civil Code, for a total of 1,330,000 sha-res at a price of €3.30, of which €0.15 of nominalvalue and €3.15 of premium over par, determinedin relation to the provisions of article 9, paragraphIV of the Income Tax Code that makes reference tothe simple arithmetic mean of official stock marketprices of the company’s shares in the previousmonth, for the purposes of the “March 6, 2002”stock option plan. The stock option plan providesfor the options to be exercised by each assignee inthe following periods: a) up to a maximum of 12%of the total options assigned starting from Septem-ber 30, 2002 and at subsequent quarterly intervalsuntil September 30, 2012; b) up to a maximum foreach quarter of 6% of the total options assigned inthe period between December 31, 2002 and March31, 2006, and at subsequent quarterly intervalsuntil September 30, 2012; c) the residual 4% of thetotal options assigned starting from June 30, 2006and up until September 30, 2012.To date 549,750 options have been exercised and,pursuant to the stock option plan, 51,400 options

have expired. The residual number of shares is thus728,850.

“July 24, 2002” stock option planOn July 24, 2002, the Board of Directors, in appli-cation of the proxy assigned by the Shareholders’Meeting on April 6, 2001, resolved a capital increa-se pursuant to article 2441, last paragraph, of theItalian Civil Code, for a total of 1,322,500 shares ata price of €3.36, of which €0.15 of nominal valueand €3.21 of premium over par, determined in rela-tion to the provision of article 9, paragraph IV ofthe Income Tax Code that makes reference to thesimple arithmetic mean of official stock market pri-ces of the company’s shares in the previous month,for the purposes the “July 24, 2002” stock optionplan. The stock option plan provides for theoptions to be exercised by each assignee in the fol-lowing periods: a) up to a maximum of 12% of thetotal options assigned starting from December 31,2002 and at subsequent quarterly intervals untilDecember 31, 2012; b) up to a maximum for eachquarter of 6% of the total options assigned in theperiod between March 31, 2003 and June 30,2006, and at subsequent quarterly intervals untilDecember 31, 2012; c) the residual 4% of the totaloptions assigned starting from September 30, 2006and up until December 31, 2012.To date 440,475 options have been exercised and,pursuant to the stock option plan, 47,050 optionshave expired. The residual number of shares is thus834,975.

“February 26, 2003” stock option planOn February 26, 2003, the Board of Directors, inapplication of the proxy assigned by the Sha-reholders’ Meeting on April 6, 2001, resolved acapital increase pursuant to article 2441, lastparagraph, of the Italian Civil Code, for a total of1,367,500 shares at a price of €2.86, of which€0.15 of nominal value and €2.71 of premiumover par, determined in relation to the provisionof article 9, paragraph IV of the Income Tax Codethat makes reference to the simple arithmeticmean of official stock market prices of the com-pany’s shares in the previous month, for the pur-


poses of the “February 26, 2003” stock optionplan. The stock option plan provides for theoptions to be exercised by each assignee in thefollowing periods: a) up to a maximum of 12%of the total options assigned starting from Sep-tember 30, 2003 and at subsequent quarterlyintervals until September 30, 2013; b) up to amaximum for each quarter of 6% of the totaloptions assigned in the period between December31, 2003 and March 31, 2007, and at subsequentquarterly intervals until September 30, 2012; c)the residual 4% of the total options assigned star-ting from June 30, 2007 and up until September30, 2013. To date 320,850 options have been exercised and,pursuant to the stock option plan, 61,200 optionshave expired. The residual number of shares isthus 985,450.

“July 23, 2003” stock option planOn July 23, 2003, the Board of Directors, in appli-cation of the proxy assigned by the Shareholders’Meeting on April 6, 2001, resolved a capital increa-se pursuant to article 2441, last paragraph, of theItalian Civil Code, for a total of 1,332,500 sharesat a price of €3.54, of which €0.15 of nominalvalue and €3.39 of premium over par, determinedin relation to the provision of article 9, paragraphIV of the Income Tax Code that makes reference tothe simple arithmetic mean of official stock marketprices of the company’s shares in the previousmonth, for the purposes of the “July 23, 2003”stock option plan. The stock option plan providesfor the options to be exercised by each assignee inthe following periods: a) up to a maximum of 12%of the total options assigned starting from Decem-ber 31, 2003 and at subsequent quarterly intervalsuntil December 31, 2013; b) up to a maximum foreach quarter of 6% of the total options assigned inthe period between March 31, 2004 and June 30,2007, and at subsequent quarterly intervals untilDecember 31, 2013; c) the residual 4% of the totaloptions assigned starting from September 30, 2007and up until December 31, 2013.To date 202,725 options have been exercised and,pursuant to the stock option plan, 45,100 options

have expired. The residual number of shares is thus1,084,675.

“February 25, 2004” stock option planOn February 25, 2004, the Board of Directors, inapplication of the proxy assigned by the Sharehol-ders’ Meeting on April 6, 2001, resolved a capitalincrease pursuant to article 2441, last paragraph,of the Italian Civil Code, for a total of 1,485,000shares at a price of €4.95, of which €0.15 of nomi-nal value and €4.80 of premium over par, determi-ned in relation to the provision of article 9, para-graph IV of the Income Tax Code that makes refe-rence to the simple arithmetic mean of officialstock market prices of the company’s shares in theprevious month, for the purposes of the “February25, 2004” stock option plan. The stock optionplan provides for the options to be exercised byeach assignee in the following periods: a) up to amaximum of 12% of the total options assignedstarting from September 30, 2004 and at subse-quent quarterly intervals until September 30, 2014;b) up to a maximum for each quarter of 6% of thetotal options assigned in the period betweenDecember 31, 2004 and March 31, 2008, and atsubsequent quarterly intervals until September 30,2013; c) the residual 4% of the total options assi-gned starting from June 30, 2008 and up until Sep-tember 30, 2014. To date no option has been exercised and, pur-suant to the stock option plan, 45,000 optionshave expired. The residual number of shares isthus 1,440,000.

“July 28, 2004” stock option planOn July 28, 2004, the Board of Directors, in appli-cation of the proxy assigned by the Shareholders’Meeting on April 6, 2001, resolved a capitalincrease pursuant to article 2441, last paragraph,of the Italian Civil Code, for a total of 1,450,000shares at a price of €4.80, of which €0.15 of nomi-nal value and €4.65 of premium over par, determi-ned in relation to the provision of article 9, para-graph IV of the Income Tax Code that makes refe-rence to the simple arithmetic mean of officialstock market prices of the company’s shares in the

| Gruppo Editoriale L’Espresso 2004 | Information required by Consob - resolution 11971/199930

previous month, for the purposes the “July 28,2004” Stock Option Plan. The stock option planprovides for the options to be exercised by eachassignee in the following periods: a) up to a maxi-mum of 12% of the total options assigned startingfrom December 31, 2004 and at subsequent quar-terly intervals until December 31, 2014; b) up to amaximum for each quarter of 6% of the totaloptions assigned in the period between March 31,2005 and June 30, 2008, and at subsequent quar-terly intervals until December 31, 2014; c) the resi-dual 4% of the total options assigned startingfrom September 30, 2008 and up until December31, 2014.To date no option has been exercised.

“April 24, 2001”, “October 24, 2001”, “March 6,2002”, “July 24, 2002”, “February 26, 2003”,“July 23, 2003”, “February 25, 2004” and “July28, 2004” stock option plans attributed to MarcoBenedetto, Managing Director of the companyIn 2004, 1,200,000 options for the purchase of anequivalent number of ordinary shares of the com-pany pursuant to the terms and conditions of thestock option plans for previous years were assignedto Marco Benedetto, Managing Director of thecompany. More specifically, at the meeting held onFebruary 25, 2004, the Board of Directors assignedto Marco Benedetto 600,000 options at a strikeprice of €4.95, and at the meeting held on July 28,2004 it assigned him a further 600,000 options at astrike price of €4.80. Marco Benedetto will be enti-tled to exercise the 1,200,000 stock options startingfrom March 31, 2006 on a daily basis until March31, 2009. At the meeting held on February 25,2004, the Board of Directors assigned to MarcoBenedetto further 400,000 stock options of extraor-dinary nature for the brilliant results achieved bythe company in 2003. Such stock options, assignedat a price of €4.95, were exercisable betweenMarch 1, 2004 and December 31, 2004, but expi-red without being exercised. Stock options assigned in 2004 are in addition tothose assigned in 2001, 2002 and 2003. In 2001,the Board of Directors assigned him at its mee-ting held on April 24, 500,000 stock options

giving the right to purchase an equivalent numberof ordinary shares of Gruppo Editoriale L’Espres-so S.p.A. at a price of €6.25 each, and further500,000 stock options at a price of €2.51 each atthe meeting held on October 24. Stock optionsassigned on October 24, were exercised in full onSeptember 30, 2003, while those assigned onApril 24, are still exercisable on a daily basisuntil April 30, 2006. In 2002, the Board of Direc-tors assigned him at its meeting held on March 6,500,000 stock options giving the right to purcha-se an equivalent number of ordinary shares ofGruppo Editoriale L’Espresso S.p.A. at a price of€3.30 each, and further 500,000 stock options ata price of €3.36 each at the meeting held on July24. Both stock option assignments were exercisedin full on December 16, 2004. In 2003, the Boardof Directors assigned him at its meeting held onFebruary 26, 600,000 stock options giving theright to purchase an equivalent number of ordinaryshares of Gruppo Editoriale L’Espresso S.p.A. at aprice of €2.86 each, and further 600,000 stockoptions at a price of €3.54 each at the meetingheld on July 23. These options may be exercisedfrom March 31, 2005 on a daily basis untilMarch 31, 2008.The exercise prices of the above stock optionplans are all determined in relation to the provi-sion of article 9, paragraph IV of the Income TaxCode that makes reference to the simple arithme-tic mean of official stock market prices of thecompany’s shares in the previous month.The company has committed itself to purchase anequivalent number of shares for the purposes of thestock option plans in favor of Marco Benedetto.

Stock options giving the right to underwrite ordi-nary shares of the company in circulation atDecember 31, 2004Based on the above, at the present date unexerci-sed stock options giving the right to purchaseshares of the company amount to 9,291,850,representing 2.14% of the overall share capital ofthe company.


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Consolidated Financial Statements at December 31, 2004

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

Investmentsin subsidiaries 114 97 in affiliated companies 21,598 21,530 in other companies 3,885 3,771

Receivablesshort-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

36 | Gruppo Editoriale L’Espresso 2004 | Consolidated Financial Statements



ASSETS Dec. 31, 2003 Dec. 31, 2004

C - Current assetsI. 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

Subsidiariesshort-term 7 7

Affiliated companiesshort-term 205 492

Parent companyshort-term - 1,734

Grants receivableshort-term 767 969 long-term 1,621 886

Tax receivablesshort-term 14,967 10,965 long-term 20,478 28,774

Prepaid taxes 19,539 19,860

Other receivablesshort-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 expensesAccrued 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

Consolidated Financial Statements | Gruppo Editoriale L’Espresso 2004 | 37



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





D - Payables

Bonds 200,000 500,000

Banks short-term 12,703 12,360 long-term 27,119 22,187

Advancesshort-term 614 169

Trade payablesshort-term 179,867 208,901

Subsidiariesshort-term 7 7

Affiliated companiesshort-term 585 423

Tax payablesshort-term 16,159 16,481

Health and social security institutionsshort-term 13,607 14,032

Other payablesshort-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


Consolidated Income Statement


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




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

Principles of consolidationThe Consolidated Financial Statements include thestatutory accounts at December 31, 2004 ofGruppo Editoriale L’Espresso SpA, the parent com-pany and the companies in which it holds, eitherdirectly or indirectly, a majority share (higher than50%) of voting rights. Subsidiaries under liquida-tion were recorded at cost. Other investments arerecorded at equity or cost, as specified in the para-graphs that follow.

The financial statements are presented in accor-dance with the format provided for by the ItalianCivil Code.

In the Balance Sheet and Income Statement, nume-rals and small letters have been omitted and entrieswith a zero balance in the two years under conside-ration have not been reported.

The Balance Sheet and Income Statement have beenprepared in thousands of euro, with no decimals.

In the notes to the accounts, amounts are expressedin thousands of euro, as and where relevant.

To provide a more complete information and clea-rer understanding of the financial statements, areclassified Balance Sheet and Income Statementhave been enclosed, in addition to a Statement ofCash Flows and a Statement of Changes in theConsolidated Shareholders’ Equity.

Financial data of subsidiaries relate to amountscontained in the respective companies’ statutoryaccounts, prepared according to current applicableregulations by the Boards of Directors of individualcompanies.

A reconciliation between net profit and sharehol-ders’ equity of the parent company and consolida-ted net profit and shareholders’ equity is providedin the table below:

Notes to the Consolidated Financial Statements

Net profit Shareholders’ Equityat 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

Area of consolidationA list of companies included in the consolidationarea is enclosed in the financial statements asAttachment 5.No change in the consolidation area or owner-ship shares occurred in 2004.

Accounting principlesConsolidation principles applied in the preparationof the Balance Sheet and the Income Statement arein line with those adopted in previous years, withthe exception of regulatory changes introduced byLegislative Decree no. 6, dated January 17, 2003,and subsequent amendments commented andinterpreted in Document 1 issued by the ItalianAccounting Board (OIC 1). More specifically:1. the present financial statements were the objectof the “elimination of tax-related entries”: thementioned Legislative Decree no. 6/2003 amendedparagraph 2 of article 2426 of the Italian CivilCode, eliminating the possibility of “carrying outvalue adjustments and accruals exclusively for taxreporting purposes”. Interpreting such amend-ment, OIC 1 requested the “elimination of possiblevalue adjustments or accruals made in the incomestatement in previous years pursuant to previouslyapplicable article 2426 paragraph 2 of the ItalianCivil Code”. The elimination of tax-related entriesdid not have a significant effect on the consolida-ted financial statements;2. as set out in paragraph 7-bis of article 2427 ofthe Italian Civil Code, a table showing for eachitem of Shareholders’ Equity, the origin, possibilityof usage and distribution, in addition to their pos-sible usage in previous years, was included; 3. as provided for by paragraph 22, article 2427 ofthe Italian Civil Code, the effect of leasing con-tracts existing at December 31, 2004 recorded asfinancial leases, were included;4. as provided for by paragraph 4, article 2497-bisof the Italian Civil Code, summary financial infor-mation of parent company CIR SpA was includedin the notes to the accounts of Gruppo EditorialeL’Espresso SpA. CIR SpA is required by law to pre-pare consolidated financial statements.

Consolidation principlesMain consolidation principles adopted were:

• the value of investments held by the parent com-pany and other companies included in the consoli-dation was netted against the relating portion ofShareholders’ Equity of the consolidated company,according to the line-by-line method. The premiumpaid over the value of the Shareholders’ Equityacquired at the time of the acquisition is recordedas merger difference or, in the case of publishingcompanies, a part is entered as the goodwill ofpublications up to their fair market value, and theremainder as goodwill on consolidation;

• payables and receivables, costs and revenuesand all significant inter-company transactions areeliminated;

• minority interests in consolidated companies arerecorded in a specific item under liabilities, whilethe relating share in the net profit of such compa-nies is reported separately in the consolidated inco-me statement;

• the underwriting of capital increases in consoli-dated companies or companies valued at equitycarried out through the issue of new shares candetermine, in the case of minority interests, achange in the share of ownership held by theGroup’s parent company. In the case of a reduc-tion in the ownership share and where the transac-tion can be considered as a sale, the resulting eco-nomic effect is debited or credited to the consoli-dated income statement. In case of an increase inthe share, the resulting economic effect is recordedas goodwill on consolidation;

• balance sheets expressed in foreign currencies areconverted at current exchange rates; individual assetand liability items are translated at the exchangerate at the balance sheet date. Shareholders’ Equityitems are converted at the historical exchange rateand income statement items at the average exchan-ge rate for the period. Foreign exchange differen-ces are recorded under “Other reserves” of Sha-reholders’ Equity.

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

Valuation criteriaIntangible assetsIntangible assets are recorded at acquisition orproduction cost, inclusive of any auxiliary cost.They are amortized over their expected useful life. The item includes goodwill on publications, corre-sponding to the premium paid on their acquisitionwith respect to the portion of Shareholders’ Equityacquired at the date of the purchase, which is attri-buted to publications up to their fair market value.The item includes goodwill on publications, corre-sponding to the premium paid on their acquisitionwith respect to the portion of Shareholders’ Equityacquired at the date of the purchase, which is attri-buted to publications up to their fair market value.Publications are amortized over a period of 40years from their acquisition, according to their resi-dual useful life. Such term is periodically reviewedin light of the expected future economic perfor-mance of subsidiaries.Intangible assets also include goodwill arising onconsolidation, which reflects the difference betweenthe acquisition cost of subsidiaries and affiliatedcompanies and the portion of Shareholders’ Equityacquired, not attributable to specific asset and liabi-lity items of the company to which it relates.Goodwill arising on consolidation is amortizedover 10 years from the date of acquisition, accor-ding to the asset estimated residual useful life. Incase such differences relate to publications, they areamortized over 40 years, as described further on.Costs incurred in the start-up phase in the Internetsector relating to specific projects are amortizedover three years in accordance with the principle ofprudence and the expected recovery of costs. If,therefore, during the amortization period an invest-ment reaches its full operation stage or the possibi-lity of recovering costs incurred ceases to exist, theunamortized portion is charged to the income sta-tement in the period in which such event occurs.

Tangible assetsTangible assets are recorded at cost, adjustedupwards in the case of certain assets according tothe provisions of Law no. 72 of March 19, 1983,Law no. 413 of December 31, 1991 and Law no.

342 of November 21, 2000. Depreciation is calcu-lated on a straight line basis, according to the ratesshown below, deemed representative of the resi-dual useful life of the assets:

Buildings 3%

Plant, machinery and equipment 10% - 20%

Furniture, office equipment and motor vehicles 12% - 25%

Depreciation rates of assets acquired in the periodare reduced by half. Assets whose value is less than€516.46 are expensed in the period in which theyare acquired.New rotary presses that went into operation in theyear in accordance with the full color plan whoseimplementation allows to print the newspaper enti-rely in full color in all printing centers, are depre-ciated over an estimated useful life of ten years.In the case of permanent impairment, the asset iswritten down accordingly. Where such impair-ment is reversed in subsequent years, the originalvalue of the asset is restored, net of accumulateddepreciation.

Equity investmentsInvestments in unconsolidated companies, on whichthe parent company exercises either directly or indi-rectly significant influence (generally with anownership share between 20% and 50%), arevalued at equity. Other investments (generally heldwith a share below 20%) are recorded at cost, writ-ten down where appropriate to keep into accountpermanent impairment. The original value is resto-red in subsequent financial periods in case of areversal. Subsidiaries that have not yet become ope-rational and those whose accounts are not relevant,are excluded from consolidation and valued at cost.

Long-term investmentsLong-term investments are recorded at cost, adju-sted where necessary in the case of permanentimpairment.

Own sharesWithin the limits set by article 2357 of the ItalianCivil Code and in accordance with the terms resol-ved by the Shareholders’ Meeting, own shares are


recorded at cost, adjusted in case of permanentimpairment, and included under long-term finan-cial assets.Pursuant to article 2357 ter, paragraph 3 of theItalian Civil Code, a reserve for own shares wasaccrued using a part of the share premium reserve.

InventoriesRaw material inventories are recorded at the lowerbetween acquisition cost, determined based on theweighted average method, and the expected reali-zable value, set equal to the market value at theclosing date of the financial period.Finished goods and work in process are valued atthe lower of the acquisition or production costand the expected realizable value.Work in progress is recorded based on the percenta-ge of completion method. Costs, revenues and pro-fits on contract work are recognized according tothe stage of completion of the productive process.

ReceivablesReceivables are recorded at face value, adjusteddownward to reflect their expected realizable value.

Marketable securitiesInvestments and other securities are recorded at thelower between cost and market value. Marketablesecurities are also valued at the lower between costand market value. Interest accrued at the time ofacquisition and the date of the financial statementsis recorded under “Accrued income”.

Cash and cash equivalentsThey are represented by cash on hand, demand andshort-term bank and post office deposits. They arerecorded at the lower of face value and the expec-ted realizable value.

Accrued income and prepaid expenses,accrued liabilities and deferred incomeThese are costs and revenues whose effect spansover one or more years, costs and revenues relatingto future accounting periods incurred in the currentone, and whose amount varies according to time.

Provisions for risks and chargesThe provisions for risks and charges cover lossesor payables whose nature and existence are certainor likely, for which at the date of the financial sta-tements the amount or the expiration date cannotbe determined.

Employee severance provisionThe reserve covers amounts, net of advantages, dueto employees upon termination of their employ-ment according to current regulation, collectivelabor contracts and independent agreements withthe company.

PayablesPayables are recorded at face value.

BondsBonds issued by the company are recorded at facevalue. Discounts and issue costs are classifiedamong accrued liabilities. They are deferred andamortized over the life of the bond issue to whichthey relate. Interest accrued at the end of theperiod is recorded under accrued liabilities.

Loans and financingLoans and financing received are recorded at facevalue which corresponds to the actual liability ofthe principal. Interest accrued at the end of theperiod is recorded under accrued liabilities.

Hedging instrumentsHedging instruments held to hedge against the riskof fluctuations in the value of specific assets or lia-bilities are valued at cost, in line with assets andliabilities hedged and valued at cost. Positive andnegative differences accrued on hedging contractson assets or liabilities that generate interest flowsare recorded in the Income Statement applying thematching principle. Gains/losses on “paper swap”transactions are recorded to increase/decrease thesupply cost.

Cost and revenue recognitionCriteria used in recording costs and revenues rela-ting to ordinary operations are the following:


• revenues from the sale of publications are recogni-zed at the time of shipping, net of related returns;• revenues from the sale of advertising space arerecognized at the time at which the advertising ispublished.Costs are recorded in the financial statements ap-plying the same criteria used for revenues, and inany case, in accordance with the accrual method.Grants are recorded separately in the Income State-ment under “Other revenues”.Capital grants, including those in the form of taxcredits, are recorded in the period in which therelated capital investment is made, and credited tothe Income Statement under “Other revenues”over a period correlated with the residual life of theassets to which they relate and with the samedepreciation rate. The share relating to future yearsis recorded as deferred income.

Income taxesThe provision for income taxes is accrued in accor-dance with the expected tax liability.Individual tax liabilities are recorded in the Balan-ce Sheet .Deferred and prepaid taxes arising from timing dif-ferences between the profit reported in the finan-cial statements and that reported for tax purposesare also recorded. Prepaid taxes are recorded inaccordance with prudent criteria, pursuant to arti-cle 2423-bis of the Italian Civil Code, and wherethere exists reasonable certainty of their recovery infuture years. The new Income Tax Code (TUIR) introduced thepossibility for companies of a same Group to deter-mine an overall profit corresponding in principle tothe algebraic sum of taxable profits of each com-pany (parent company and companies controlleddirectly and/or indirectly with a share over 50%)and, consequently, to determine a single income taxliability for the whole Group. In October, the Boardsof 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 Vitresolved their participation to CIR’s “Tax consoli-

dation” and a general agreement regulating therights and obligations of CIR and of the mentionedconsolidated companies with respect to the partici-pation in the tax consolidation was underwritten.

Conversion of amounts originally expressed in foreign currenciesTransactions denominated in foreign currencies arerecorded in euro at the exchange rate applicable atthe time of the transaction. At the time at whichreceivables and payables denominated in foreigncurrencies are collected or paid out, exchange ratedifferences are recorded in the income statement.Payables and receivables denominated in foreigncurrencies at the closing date of the financial state-ments are recorded in the same at the exchangerate in force at the date of the financial statements.Gains and losses resulting from the conversion ofindividual credits and debits are credited and debi-ted as appropriate to the income statement, kee-ping into account hedging transactions.

Explanation added for translation into EnglishThe consolidated financial statements and the rela-ted notes have been translated into English from theoriginal Italian version. They have been prepared inaccordance with Italian accounting principles,which differ in certain aspects from the accountingprinciples of other countries.


Balance sheet assets

A – Receivable from shareholdersAt December 31, 2004 no amount was due byshareholders as capital not paid- in.

B – Fixed assets

Intangible assetsThe breakdown and changes in intangible assetsare shown in Attachment 1. At December 31,2004, intangible assets amounted to €329,052thousand, declining by €7,293 thousand onDecember 31, 2003 (€336,345 thousand).

Expenditure on intangible assets in 2004 amoun-ted to €13,748 thousand, net divestments to€365 thousand, reclassifications of intangibleassets were equal to €92 thousand, amortizationcharges to €20,546 thousand and write-downs to€222 thousand.

The item breaks down as follows:

Incorporation and start-up costs Dec. 31, 2003 Dec. 31, 2004

- 11

Incorporation and start-up costs are made up ofnotary public fees incurred by subsidiary Rotoco-lor. The depreciation expense for the year amountsto €4 thousand.

Industrial patents and intellectual property rights Dec. 31, 2003 Dec. 31, 2004

236 172

The item consists mainly of software developedfor Internet applications of subsidiary Ksolutions(€87 thousand).

Expenditure in the year amounted to €156 thou-sand, reclassifications from assets under develop-ment amounted to €187 thousand and amortiza-tion expense was equal to €407 thousand.

Concessions, licensesand trademarks Dec. 31, 2003 Dec. 31, 2004

6,354 4,943

The item relates mainly to licenses for the use ofsoftware packages expected to have a useful lifespanning over several years.

Expenditure in the period amounted to €1,456thousand, while net divestments amounted to€139 thousand, write-downs and reclassificationsto €192 thousand and amortization charges wereequal to €2,536 thousand.

The most significant investments were made by:

• the parent company (€1,031 thousand), due pri-marily to the development of editing, managementand distribution systems, in addition to networkand transmission software for printing centers;

• local newspapers (€222 thousand) for the repla-cement of editorial software and the renovation ofdistribution systems.

Write-downs amount to €67 thousand and relateto proprietary and licensed software of subsidiaryEsperya, no longer used.

Goodwill on publications Dec. 31, 2003 Dec. 31, 2004

la Repubblica 160,684 154,917

Local newspapers 44,144 42,571

Free press 2,307 2,222

Il Piccolo 26,139 25,371

Messaggero Veneto 42,968 41,704

Total 276,242 266,785

The decline of €9,457 thousand on December 31,2003 is due exclusively to the amortization expen-se for the year.

Goodwill arising on consolidation Dec. 31, 2003 Dec. 31, 2004

Radio sector companies 654 436

Friuli Venezia Giulia companies 22,696 22,029

Total 23,350 22,465


The €885 thousand decline is due entirely to theamortization expense for the period.

Goodwill on other assets Dec. 31, 2003 Dec. 31, 2004

26,740 22,117

It relates primarily to goodwill paid by Groupradio stations for the acquisition of broadcast fre-quencies. In the year, subsidiary Elemedia acquiredfrequencies for a total amount of €491 thousandand sold frequencies for a total net value of €225thousand. The amortization expense for the yearamounts to €4,734 thousand, while write-downsamounted to €155 thousand.

Work in progress and advances Dec. 31, 2003 Dec. 31, 2004

361 1,066

The €705 thousand increase on December 31,2003 is due primarily to investments made by Ele-media for the renovation of the Rome and Milanoffices (€923 thousand).

Other intangible assets Dec. 31, 2003 Dec. 31, 2004

Leasehold improvements 2,434 11,157

Other 628 336

Total 3,062 11,493

Leasehold improvements relate primarily to therestructuring of leased offices in which Group com-panies are based. Investments in the year amountedto €10,483 thousand relating primarily to work forthe Milan and Bari printing centers, the renovationof la Repubblica and L’espresso’s new Rome offi-ces, the renovation of radio production studios inRome and Milan and the renovation of the newlocation of newspaper il Centro in Pescara. Theamortization expense was equal to €2,051 thou-sand, while reclassifications of assets under deve-lopment amounted to €291 thousand.

Other intangible assets include mainly accessorycosts (stamp duties, notary public expenses) incur-red by Elemedia for the acquisition of new busi-nesses (€115 thousand). Investments for the year

amounted to €91 thousand, while reclassificationswere equal to €89 thousand and the amortizationexpense to €472 thousand.

Tangible assetsThe breakdown and changes in tangible assetsare shown in Attachment 2.

At December 31, 2004, tangible assets amountedto €233,235 thousand, growing by €51,577 thou-sand on December 31, 2003 (€181,658 thousand).They are made up by capital goods, buildings andoffice furniture, owned by consolidated companiesused in ordinary business activities.

Expenditure in the year amounted to €89,667 thou-sand, while net divestments were equal to €1,771thousand, the amortization expense to €33,552thousand and write-downs to €2,767 thousand.

The most significant investments relate to:

• the parent company (€16.7 million) for projectsaimed at increasing color printing capacity andfor the upgrade of editing systems and of infor-mation and network systems;

• local newspapers (€50.8 million), for the upgradeof production and printing plants in the context ofla Repubblica’s full color project (€33.9 million),for the increase in color printing capacity at theMantova and Sassari printing centers (€15.2 mil-lion), for the update of editorial and informationsystems (€1.4 million) and for the maintenance ofoffices (€0.3 million);

• subsidiary Rotocolor (€17.4 million) for the reno-vation of its printing complex, the construction ofprinting plant and the purchase of new full colorrotary presses for the printing of la Repubblica;

• subsidiary Elemedia (€2.7 million), for environ-mental work and the update of equipment for thetransmission and reception of radio signal.

Write-downs in the year amounted to €2,767 thou-sand relating prevalently to printing plant of theold Rome and Milan printing complexes.


Some subsidiaries make use of leased assets.

In the past, a number of subsidiaries have carriedout revaluations of tangible assets pursuant to spe-cial laws.

Guarantees have been granted on some tangibleassets in favor of banks that have extended subsidi-zed loans to subsidiaries, as reported in the relativesections of the balance sheet and in the memoran-dum accounts.

Assets held under financial leasesAssets held under a financial lease are reported inAttachment 3 that provides a detail showing theeffect on the Consolidated Shareholders’ Equityand the Consolidated Income Statement that wouldhave been produced, had been the same assets ac-counted for as a financial leases.

Financial assetsFinancial assets at December 31, 2004 amount to€42,540 thousand (€39,111 thousand at December31, 2003), declining by €3,429 thousand.

InvestmentsInvestments at December 31, 2004 amount to€25,398 thousand (€25,597 thousand at Decem-ber 31, 2003). Main changes in the year are shownin the table that follows:

Investments in companies valued at equity

% ownership Book value

Dec. 31, Dec. 31, Dec. 31, Dec. 31,2003 2004 2003 2004

Le Scienze 50% 50% 167 185

Saire 50% 50% 327 348

Editoriale Libertà 35% 35% 20,450 20,335

Altrimedia 35% 35% 653 661

Total investments valued at equity 21,597 21,529

• The book value of the investment in Le Scienzegrew by €18 thousand due to net profit for theyear amounting to €121 thousand, partly offset bythe distribution of €103 thousand in dividends.

• The book value of the investment in Saire increa-sed by €21 thousand due to the share in net inco-me reported for the period.

• The book value of the investment in EditorialeLibertà declined by €115 thousand due to thedistribution of €875 thousand in dividends, partlyoffset by the share in net income for the period,adjusted to take into account the amortization ofgoodwill, equal to €760 thousand.

• The book value of the investment in Altrimediagrew by €8 thousand due to the share in net inco-me for the period adjusted to take into account theamortization of goodwill, equal to €148 thousand,that more than offset the distribution of €140thousand in dividends.

Investments valued at cost

% ownership Book value

Dec. 31, Dec. 31, Dec. 31, Dec. 31,2003 2004 2003 2004

Sandalyawebnot operational 100% 100% 75 75

Ansa Soc. Coop.a r.l. 16.68% 16.97% 2,209 2,209

E Ink Corporation Inc. 0.69% 0.43% 1,481 1,481

DAB Servizi 12.5% - 114 -

Trento Press Service 14.4% 14.4% 37 37

A.G.F. 10% 10% 10 10

Audiradio 4% 4% 26 26

Other investments 48 31

Total investments valued at cost 4,000 3,869

• The equity interest held in E-Ink CorporationInc. declined due to the decision of the parentcompany not to underwrite its share in the capi-tal increase carried out by the company.

• Company DAB Servizi was liquidated in the year.

• The book value of other investments declinesdue to the write-down in the investment in Alsoftand Uhuru Multimedia.


Receivables

Dec. 31, Dec. 31, of which 2003 2004 expiring

over 5 years

Guarantee deposits 1,547 1,572 377

Tax credits for advances on personal income tax payable onemployee severance indemnities 3,300 2,371 -

Other long-term financialreceivables 4 7 -

Total 4,851 3,950 377

Guarantee deposits at December 31, 2004 relateprimarily to lease contracts.

Tax credits for advances on personal income tax onemployee severance indemnities are made up of taxadvances paid pursuant to Law 140/97 on amountsaccrued by employees upon termination of employ-ment at December 31, 1997, revalued yearly. Thenet decline of €929 thousand on December 31,2003 is due to the use of the provision for person-nel terminating employment in the year, partly off-set by the revaluation carried out.

Own sharesThe Company acquired, starting from the fiscalyear 2001, a total of 4,800,000 shares (of which1,600,000 in 2004) to service stock option plans.Over the course of time, rights to a total of1,500,000 shares (of which 1,000,000 in 2004)were exercised, bringing the number of own sharesheld to 3,300,000. Own shares at December 31,2004 are recorded at €13,192 thousand (€8,663thousand at December 31, 2003), net of a write-down of €820 thousand carried out in 2002.

Pursuant to article 2357 ter, paragraph 3 of the Ita-lian Civil Code, the reserve for own shares wasincreased through a transfer from the share pre-mium reserve.

C - Current assets

Inventories

Dec. 31, 2003 Dec. 31, 2004

Paper 24,064 23,846

Materials for typesetting and printing 1,673 2,179

Other goods 1,581 912

Publications 3,642 3,252

Contract work in progress 5,508 6,385

Total 36,468 36,574

Paper inventories are in line with December 31, 2003.

Materials for typesetting and printing grow by €506thousand due to purchases made as a result of thecoming into operation of new full color rotarypresses.

Other goods amount to €912 thousand and consistmainly of software and hardware acquired by Kso-lutions for resale, in addition to products for saleon the Internet. The €669 thousand decline is dueto the discontinuation of activities by subsidiaryEsperya.

Inventories of publications at December 31, 2004 rela-te primarily to the first issue of National Geographicand the supplements of la Repubblica, in addition toproducts sold in conjunction with Group magazi-nes and newspapers distributed in the first monthsof 2005.

Contract work in progress relates to work undercompletion by subsidiary Ksolutions. The €877thousand increase is due to higher contract workcarried out for the Public Administration.


Receivables

Trade receivables Dec. 31, 2003 Dec. 31, 2004

Newsstands and distributors 13,146 12,783

Advertising receivables 213,105 215,946

Sundry receivables 5,034 3,636

Total 231,285 232,365

Receivables from newsstands and distributors declineby €363 thousand due to changes in collectionterms.

Advertising receivables grow by €2,841 thousanddue to increased advertising sales.

Sundry receivables include mainly receivables forthe sale of rejects and returns, the sale of videota-pes to be demagnetized, printing services provi-ded to third parties, receivables from subscribersof Group publications and revenues from websolutions and e-commerce activities. The €1,398thousand decline is due primarily to the lowernumber of unsold videotapes by L’espresso to bedemagnetized, as a result of the gradual abandon-ment of this kind of product sold in conjunctionwith the magazine.

Receivables from subsidiaries, affiliated companies, parent companies and otherGroup companiesThese amount to €2,233 thousand (€212 thou-sand at December 31, 2003) and consist for €492thousand of trade receivables of the parent com-pany from Le Scienze and €1,734 thousand rela-ting to income tax (IRES) receivable from parentcompany CIR resulting from the participation inthe tax consolidation of the same.

Grants receivable Grants receivable amount to €1,855 thousand(€2,388 thousand at December 31, 2003) and rela-te primarily to subsidiary Rotosud on contribu-tions provided by the Presidency of the Council ofMinisters pursuant to Law 416/81 on the leasingcontract stipulated with Intesa Leasing in 1998.

Tax receivablesPursuant to article 2424 of Legislative Decree no.6/2003, the item “Tax receivables” was reportedas a separate item under “Receivables”. The corre-sponding amount for the previous year was reclas-sified accordingly. At December 31, 2004 taxreceivables amount to €39,793 thousand (up from€35,445 thousand at December 31, 2003), andare made up as follows:

Dec. 31, 2003 Dec. 31, 2004

Corporate and local taxes receivable 3,734 958

Corporate and local tax receivables for which a refund has been requested 10,245 10,345

VAT receivable 5,041 552

Other tax credits 16,425 27,884

Total 35,445 39,739

Due to the participation in the tax consolidationof parent company CIR, corporate and local taxesreceivable at December 31, 2004 include only pre-vious years’ taxes receivable accounts.

Corporate and local tax receivables for which a refundhas been requested include tax credits relating to pre-vious years, for which a refund has been requested.

VAT receivable declines by €4,489 thousand dueprimarily to the decline in VAT receivable by theparent company as a result of the higher advancepaid in December.

Other tax credits relate primarily to tax receivableson contributions pursuant to Law 62/2001 (Lawon publishing), in addition to contributions onpaper purchases provided for by Law no. 350,December 24, 2003, and interest on tax receivableson taxes for which a refund has been requested. Law 62/2001 provides that capital expenditureeligible for contributions receives a 3% tax creditper year for five years. At December 31, 2004,tax credits relating to the said law amounted to€19,220 thousand; benefits accruing in otheryears, amounting to €18,970 thousand, wererecorded under “deferred income” and are drawn-


down each year over the useful life of the asset towhich they relate. Law no. 350 dated December 24, 2003 providescontributions towards the cost of paper used in2004 for the printing of publishing products, pro-viding a 10% tax credit on the total cost of paperconsumed. The law sets an overall limit of €95million of contributions for year 2004. Since thetax credit granted to the Company has not beendefined, as the number of applications is unk-nown at this stage, we estimate the amount of thesubsidy based on information available on paperconsumption for 2003 at about half the normaltax credit on the Group’s paper consumption for2004. Paper purchase contributions for 2004 arerecorded at €4,858 thousand. The table that fol-lows shows paper purchases for 2004, the portioneligible for subsidies pursuant to the mentionedlaw and the related estimated tax credit recorded:

Dec. 31, 2004

Paper purchases 121,147

Paper consumption eligible for subsidies 97,160

10% tax credit (applied for) 9,716

Expected tax credit recorded (50% of amount applied for) 4,858

Prepaid taxesArticle 2424 of Legislative Decree no. 6/2003 pro-vides for the reporting of prepaid taxes under aseparate item in the Consolidated Balance Sheet.The corresponding amount for the previous yearwas reclassified accordingly. At December 31, 2004prepaid taxes amount to €19,860 thousand (upfrom €19,539 thousand at December 31, 2003)and correspond to the difference generated bytiming differences between taxes recorded in thebalance sheet and amounts reported for tax pur-poses. A detail of changes in the year is includedunder Attachments 7 and 8.

Other receivables

Dec. 31, 2003 Dec. 31, 2004

Advances to personnel, suppliers, agents 1,788 7,009

Social security receivables 484 372

Other receivables 1,995 2,181

Total 4,267 9,562

Advances to suppliers include the €5,000 thousanddeposit paid on the agreement for the acquisitionof national TV network Rete A.

Other receivables include:• trade receivables amounting to €2,047 thousand; • current receivables amounting to €134 thousandconsisting of deposits held with the Post Office.

Marketable securitiesMarketable securities consist of Government secu-rities held by the parent company (€20,142 thou-sand). A detail is included in Attachment 6. Thesesecurities are recorded at December 31, 2004, netof the write-down of €181 thousand carried outto bring their book value in line with currentmarket prices. Part of these securities, amountingto €2,523 thousand, are pledged as guaranteesagainst subsidized loans.

Cash and cash equivalentsCash and cash equivalents amount to €383,214thousand (€69,815 thousand at December 31,2003). The breakdown is provided in the tablebelow:

Dec. 31, 2003 Dec. 31, 2004

Current accounts 69,580 383,026

Checks 55 21

Cash on hand 180 167

Total 69,815 383,214

The €313,399 thousand increase on December 31,2004 is due mainly to the investment in short-termbank deposits of €300 million generated throughthe new bond issue described under “Bonds”.


Investments in short-term bank deposits are carriedout prevalently by the parent company (€368,800thousand). The breakdown at December 31, 2004is provided in the table below:

Bank Maturity Rate Amount(€’000)

Banco di Brescia January 27, 2005 2.10% 18,000Banco di Brescia January 17, 2005 2.10% 6,500Banco di Brescia January 12, 2005 2.00% 4,000Banca Intesa January 17, 2005 2.07% 10,000Banca Intesa August 1, 2005 2.18% 80,000B.N.L. January 3, 2005 2.20% 2,000B.N.L. January 7, 2005 2.12% 1,200B.N.L. January 7, 2005 2.13% 2,000B.N.L. January 13, 2005 2.10% 4,000B.N.L. January 17, 2005 2.10% 5,000B.N.L. January 27, 2005 2.10% 10,000B.N.L. August 1, 2005 2.18% 50,000M.P.S. January 5, 2005 2.17% 3,000M.P.S. January 5, 2005 2.12% 1,100M.P.S. January 10, 2005 2.15% 8,000M.P.S. January 27, 2005 2.13% 40,000M.P.S. January 31, 2005 2.12% 4,000M.P.S. August 1, 2005 2.19% 40,000Unicredit January 10, 2005 2.12% 5,000Unicredit January 10, 2005 2.11% 10,000Unicredit January 13, 2005 2.08% 5,000Unicredit January 27, 2005 2.10% 30,000Unicredit 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

Accrued interest includes primarily interest accruedon interest rate swap transactions used to exchan-ge the original fixed rate on the bond issue with avariable rate, in addition to interest accrued onbank deposits.

Rents and leases relate primarily to subsidiaryRotosud and consist of the residual portion ofleasing payments and pre-leasing service costs ofa rotary press. The decline over the end of 2003is due to the portion paid in the year.

Bond issue costs consist of issue discounts andcosts incurred in the organization and placementof bonds issued. They are amortized over the lifeof the relating bond issue.

Other prepaid expenses include mainly costs relatingto 2005 for agency fees, market research and insu-rance, in addition to maintenance, Internet connec-tion fees and production costs. The €6,117 thou-sand increase is due to the acquisition of rights forthe publishing of products that will be sold optio-nally with la Repubblica and L’Espresso in futureyears and to the rents relating to 2005.


Liabilities and Shareholders’ Equity

A - Shareholders’ equityChanges in the Consolidated Shareholders’ Equityin the year are detailed in Attachment 4, while adetail of Shareholders’ Equity reserves and therelated portions that are available or may be distri-buted is included under Attachment 4-bis.

Share capitalThe share capital amounts to €64,896,058.20 and ismade up of 432,640,388 shares with par value of€0.15 each. The €127,196.25 increase on December31, 2003 is due to the issue of 847,975 shares to ser-vice the Group’s stock option plans for employees.

Share premium reserveIt amounts to €61,958 thousand (€63,991 thou-sand at December 31, 2003) and represents thepremium paid by shareholders on capital increasescarried out over time. It declines by €2,033 thou-sand on December 31, 2003 due to the transfer of€4,529 thousand to the Reserve for own shares,offset by the share premium of €2,496 thousandpaid for the above mentioned capital increase.

Restatement reserveIt amounts to €2,560 thousand (€2,533 thousandat December 31, 2003). The €27 thousand increa-se is due to the accrual to the reserve carried outby Edigraf.

Legal reserveIt amounts to €12,979 thousand and increases by€25 thousand on December 31, 2003 due to theaccrual to legal reserve up to its reaching 20% ofthe share capital, as provided for by law.

Reserve for own sharesThe reserve, accrued pursuant to article 2357 ter,paragraph 3 of the Italian Civil Code, amounts to€13,192 thousand (as compared with €8,663thousand at December 31, 2003), correspondingto the book value of 3,300,000 shares acquired onthe regulated market, net of the write-down of€820 thousand.

The reserve was accrued by withdrawing from theshare premium reserve.

Other reservesOther reserves amount to €131,941 thousand(€111,259 thousand at December 31, 2003). The€20,682 thousand increase on December 31,2003 is due mainly to the allocation to reserves ofpart of the 2003 net income, as resolved by theShareholders’ Meeting on April 21, 2004.

Net profit (loss) for the yearNet profit (loss) for the year amounts to €87,723thousand (€67,838 thousand at December 31,2003).

Minority interestsThe €10,098 thousand balance (€9,853 thousandat December 31, 2003) represents the portion of theShareholders’ Equity held by minority shareholders.

Dec. 31, 2003 Dec. 31, 2004

Editoriale FVG 8,256 8,390

Edigraf 184 217

Seta 1,413 1,491

Total 9,853 10,098


Dec. 31, Accruals Uses Dec. 31, 2003 2004

Retirement provision 7,849 1,027 (538) 8,338

Tax provision 5,409 131 (1,490) 4,050

Provision for legalproceedings 19,648 2,938 (3,391) 19,195

Provision for contractrenewal 141 - (141) -

Provision for sundry risks 6,144 501 (2,046) 4,599

Total 39,191 4,597 (7,606) 36,182

The retirement provision, accrued according toamounts payable pursuant to labor contracts inforce, includes indemnities for journalists andmanagers. Accruals for the period relate to amountsset aside for employees, while uses relate to settle-


ments of amounts due to managers who left theiremployment with the Group.

The tax provision includes primarily accelerateddepreciation adjustments carried out in the conso-lidated financial statements.

The provision for legal proceedings is accrued againstthe risk of potential charges resulting from legalproceedings and litigations. The provision has beenaccrued according to prudent criteria, keeping intoaccount the particular nature of the activity carriedout, despite the difficulty encountered in assessingthe amount of potential charges relating to eachindividual legal proceeding underway. In additionto potential libel claims, affecting all publishers, itincludes also risks relating to commercial and laborissues, in addition to possible social security audits.

The provision for sundry risks includes provisions forearly retirement incentives, tax contestation on pre-mium transactions and other risks.

C - Employee severance reserveThe provision covers amounts accrued by person-nel at December 31, 2004 pursuant to current lawsand regulations. Changes occurred in the periodare shown below:

Dec. 31, 2003 Accruals Uses Dec. 31, 2004

90,607 14,613 (10,336) 94,884

Uses of the provision relate to indemnities paid topersonnel terminating their employment with theGroup and advances to employees on severanceindemnities. The table below shows the averagenumber of employees by category:

2003 2004Journalists 1,181 1,189

Manual workers 411 431

Office workers 1,413 1,378

Managers 108 105

Fixed-term employees 96 102

Total 3,209 3,205

D – Payables

BondsOn October 8, 2004, the Company placed on themarket through Banca Caboto S.p.A., JP MorganSecurites Ltd, Lehman Brothers International andMediobanca as lead managers, a €300 million 10-years fixed-rate bond issue. Bonds are listed on theLuxembourg Stock Exchange and pay an annual5.125% coupon, equal to a 10-year mid-swap rateplus 105 basis points. The full amount of the issuewas swapped into a 10-year floating-rate throughswap transactions having a term matching that ofthe bond issue through which the Espresso Grouppays a floating-rate equal to the 6-months Euriborrate and receives a 5.125% fixed rate. The fairmarket value of swap contracts at December 31,2004 amounts to €5,435 thousand. The contractswere closed in March 2005 resulting in a gain.The item includes a €200 million 2000-2005 5-year bond issue, expiring August 1, 2005.

Banks

Dec. 31, 2003 Dec. 31, 2004Short-term

Overdrafts 6,424 7,436

Current portion of secured loans 5,369 4,195

Current portion of unsecured loans 910 729Total short-term loans 12,703 12,360

Long-term

Secured loans 25,256 21,054

Unsecured loans 1,863 1,133

Total long-term loans 27,119 22,187

TOTAL 39,822 34,547

At December 31, 2004, short-term bank debt wasmade up primarily of advances on receivables ofsubsidiary A.Manzoni&C. in the context of liqui-dity management.

Secured loans are extended against liens on equip-ment financed and other company assets. Theybenefit from subsidies provided for by Italian legi-slation on publishing.


Unsecured loans are extended against liens on secu-rities and financial assets pledged and recorded inthe balance sheet among “Other securities”.A total of €6,287 thousand of debts was reimbur-sed in 2004 while no new debt was assumed.

AdvancesAdvances received amount to €169 thousand (€614thousand at December 31, 2003). They are made upprimarily of advances received by the Udine Divi-sion of Editoriale FVG in accordance with the con-tract for the printing of newspaper Il Sole 24 Ore.

Trade payables

Dec. 31, 2003 Dec. 31, 2004Paper 32,835 41,319

Printing 25,039 32,229

Capital goods 24,341 31,089

Promotion 13,460 12,157

Other 84,192 92,107

Total 179,867 208,901

Paper payables grow by €8,484 thousand due tothe conclusion of a higher number of publishinginitiatives.

Payables for printing services increase by €7,190thousand due primarily to publications sold optio-nally in conjunction with la Repubblica and L’e-spresso, and costs for the implementation of thenew full color technology.

Capital goods grow by €6,748 thousand due mainlyto purchases by the Repubblica division, local new-spapers and Rotocolor of new rotary presses andequipment relating to the full color project.

Payables for promotion decline by €1,303 thousanddue to the failure to repeat the advertising cam-paign involving cinema and television carried outby Elemedia in the last quarter of the previousyear. The item includes the promotion for thelaunch at the end of the year of the Touring Clubguide book series distributed with la Repubblicaand the new multimedia products sold in conjunc-tion with L’espresso.

Other trade payables grow by €7,915 thousand, dueprimarily to the optimization of payment terms.

Payables to subsidiaries and affiliated companiesThey amount to €430 thousand (€592 thousand atDecember 31, 2003) and relate primarily to theparent company’s trade payables to Le Scienze.

Taxes payable

Dec. 31, 2003 Dec. 31, 2004Income taxes payables 4,852 1,608

Withholding taxes on personnel salaries payable 9,222 9,305

Other taxes payable 274 233

VAT payable 1,811 5,335

Total 16,159 16,481

As a result of the participation in CIR’s tax conso-lidation procedure, income taxes payable at Decem-ber 31, 2004 include regional income tax on pro-ductive activities (Irap) payable by all subsidiariesand income taxes (Ires) of companies that do notparticipate in the tax consolidation procedure(Editoriale FVG, Seta, Edigraf and Ksolutions).

VAT payable increases by €3,524 thousand due pri-marily to the settlement of Group VAT payables inDecember.

Health and social security institutionsPayables to social security institutions amount to€14,032 thousand (€13,607 thousand at December31, 2003) and are made up mainly of social secu-rity contributions on salaries paid to employees inDecember 2004.

Other payables

Dec. 31, 2003 Dec. 31, 2004Payable to personnel for paid leave 12,795 14,209

Other payables to personnel 13,926 13,306

Payables for purchase of equityinvestments 54 -

Other payables 3,014 3,153

Total 29,789 30,668


Payables to personnel for paid leave relate to the daysof vacation accrued and not enjoyed by Groupemployees.

Other payables to personnel relate to retribution, Sun-day indemnities, overtime and contractual agree-ments.

Other payables include amounts due to directors,statutory auditors and shareholders.

E - Accrued liabilities and deferred income

Dec. 31, 2003 Dec. 31, 2004

Accrued liabilities

• Interest 5,449 10,010

• Other 2,849 2,681

Total accrued liabilities 8,298 12,691

Deferred income 21,969 31,532

Total 30,267 44,223

Accrued interest payable includes mainly the sharein the interest expense relating to the 2000-2005bond issue (€5,449 thousand) and the 2004-2014bond issue (€2,738 thousand). The item includesalso interest accrued on interest rate swap con-tracts relating to the new bond issue.

Other accrued liabilities relate mainly to deferredcompensations.

Deferred income relates mainly to the early collec-tion of subscription fees for L’espresso, la Repub-blica, National Geographic and local newspapers. The item includes also deferred income on tax cre-dits under Law 62/2001 for grants on investments,amounting to €18,970 thousand, relating to theportion to be recorded in future years, in accor-dance with amortization charges for the invest-ments they relate to.

Memorandum accounts

GuaranteesAt December 31, 2004 guarantees amount to€2,379 thousand and consist primarily of gua-rantees provided by Kataweb, Elemedia andA.Manzoni&C. for the lease of their respectiveoffices.

Other commitmentsAt December 31, 2004, other commitments amountto €122,336 thousand, growing by €74,567 thou-sand on December 31, 2003 due mainly to the€110 million commitment resulting from theunderwriting of the agreement for the acquisitionof the national network Rete A. They consist of:

• Commitments relating to contracts for the acqui-sition of plant and equipment (€6,032 thousand),primarily for Repubblica, Finegil Editoriale andEditoriale La Nuova Sardegna, in the context ofthe full color project.

• A commitment to acquire television networkRete A (€110 million).

• Risks connected to an injunction relating to liti-gation of Editoriale FVG (€1,269 thousand).

• Leasing payments (€4,599 thousand), with prin-cipal amounting to €4,255 thousand.

• Guarantees and other minor commitments (€436thousand).


Income Statement

A- Production valueIn 2004 production value amounted to €1,099,529thousand (€1,064,932 thousand in 2003).

Revenues from sales and servicesIn 2004, the consolidated revenues from sales andservices amounted to €1,079,832 thousand (up2.7% on 2003), as shown in the table below.

2003 2004

Net circulation revenues 482,751 496,434

Net advertising revenues 534,030 546,148

Hardware and software products 671 3,029

Internet services and software development 4,386 4,071

E-commerce products 1,231 683

Other products 464 790


Total 1,051,069 1,079,832

Net circulation revenues increase by €13,683 thou-sand on 2003 (up 2.8%). The growth in revenuescan be attributed primarily to the sale of productssold optionally in conjunction with Group publica-tions. In 2004, la Repubblica published appendixvolumes to the l’Enciclopedia collection, La Storiaseries of volumes and a number of comics bookseries. L’espresso published the La Storia Generaledella Letteratura Italiana series, an art book seriesand DVD, music CD and CD-ROM series.

Circulation of Group publications was in line with2003. La Repubblica had an average circulation of625 thousand copies per issue, local newspaperssold an average of 488 thousand copies per issue,while L’espresso recorded an average of 390 thou-sand copies per week.

Net advertising revenues grew in the period by2.3% on 2003, up €12,118 thousand. The perfor-mance of the advertising market has already beendiscussed in the Report of the Board of Directors.

Revenues from the sale of hardware and software,Internet services and software development grew by€2,043 thousand on the previous year and relatedto the activity of subsidiary Ksolutions.

Revenues from e-commerce products relate primarilyto subsidiary Esperya. The €548 thousand declineon 2003 can be attributed to sale of the company’sbusiness in July 2004.

Other revenues related to advisory services suppliedby Internet companies, Somedia’s business in theorganization of conferences and training courses,the sale of paper and unsold inventories for paperrecycling, and to the residual activities of publi-shing companies and the advertising concessionai-re A.Manzoni&C.. Other revenues increased by€1,141 thousand on 2003.

Change in inventories of work in progress,semi-finished and finished goods The change amounts to €373 thousand andincludes primarily the difference between closingand opening product inventories of the parentcompany (€331 thousand).

Other revenues

2003 2004

Grants received 1,558 9,427

Extraordinary gains 4,586 3,743

Recovery of costs 2,177 2,877

Capital gains on the disposal of assets 95 361

Rent received 697 507

Other revenues and income 2,691 2,272

Total 11,804 19,187

Grants received include the share accrued in theyear of tax credits provided by Law 350/2003 onpaper purchases and those provided on capitalexpenditure (Law 62/2001), in addition to thereimbursement of expenses for news agencies’fees and discounts on electricity and telephonecosts of radio stations (Law 250/90). The amountof €9,427 thousand received in the year relatesprimarily to the parent company (€4,883 thou-


sand), local newspapers (€1,372 thousand), Ele-media (€484 thousand) and Ksolutions for capi-tal grants on costs incurred in long-term researchprojects (€1,999 thousand).

Extraordinary gains relate to the parent company(€2,070 thousand) mainly due to the adjustment ofsale figures; to local newspapers (€691 thousand);to A.Manzoni&C. (€647 thousand) for the collec-tion of receivables already recorded as losses and toVAT on liquidation proceedings; to Elemedia (€226thousand) and to Kataweb (€109 thousand).

Recovery of costs includes mainly amounts chargedby A.Manzoni&C. to agents for the use of com-pany assets, and amounts charged to customers,agencies and other publishers for uncollectibles.

B- Production costs

Raw materials, auxiliaries and goods purchases

2003 2004

Paper 123,510 121,620

Printing supplies 11,034 15,801

Other consumables 4,119 4,936

Products sold optionally with publications 20,133 14,464

E-commerce goods 740 145

Other goods 618 2,943

Total 160,154 159,909

Paper purchases declined by €1,890 thousand(down 1.5% on 2003), thanks to the reduction inthe average price of paper that more than offsethigher consumption due to new sales initiatives inthe year (books, encyclopedia and other products).

Purchases of printing materials grew by €4,767thousand due to costs incurred for the start of ope-ration of the new full color printing presses andthe choice not to acquire products for resale inconjunction with publications already finished,buying instead the paper and contracting only theprinting outside.

Other consumables include the purchase of booksand newspapers, stationary and other materials.

Purchases of products sold optionally with publicationsinclude costs incurred for the purchase of productssold optionally in conjunction with Group publica-tions. The €5,669 thousand decline is due to lowerquantities acquired from third parties.

E-commerce goods purchases declined by €595thousand as a result of the sale by Esperya of itsonline sales business.

Other goods purchases grew by €2,325 thousand dueto the higher purchases of hardware and softwareproducts for resale by subsidiary Ksolutions.

Services

2003 2004

Printing and other workcarried out by others 94,883 114,254

Editing costs 63,635 63,023

Publishers’ fees 19,041 20,109

Transport 26,490 28,065

Commissions and agents’ fees 27,914 28,429

Advertising and promotional services 34,106 38,647

Postage, telephone and data transmission 14,873 15,282

Maintenance and utilities 16,528 17,862

TV production and Internet sites’ technical services 6,882 8,629

Other services 37,447 40,345

Total 341,799 374,645

The cost of printing and other work carried out byothers increased by €19,371 thousand due to theprinting of products sold optionally with the publi-cations of the Group and to higher costs for theprinting of la Repubblica in full color.

Editorial costs include the cost of photographs, free-lance editorial work, travel expenses and newsagencies. They decline by €612 thousand on theprevious year.


Publishers’ fees grew by €1,068 thousand, due tohigher advertising sales.

Transport costs increased by €1,575 thousand,mainly due to higher quantities of products sold inconjunction with la Repubblica and L’espresso.

Commissions and agents’ fees grow by €515 thou-sand due to stronger advertising sales in the periodand the consequent higher costs incurred by A.Man-zoni&C. for fees, prizes and incentives to agentsand agencies.

Advertising and promotional expenses grow by€4,451 thousand on 2003 due mainly to thehigher cost of products sold optionally with Grouppublications.

TV production and Internet sites’ technical service costsrelate to the Internet area. The €1,747 thousandincrease on 2003 is due to the growth in turnoverregistered by Ksolutions for services provided.

Other services increased by €2,898 thousand on2003 due mainly to higher consulting costs incur-red by the parent company and for work carriedout at the new Rome offices of the Group. Theitem includes, among other things, costs formarket surveys and research, insurance, auditingand certification, in addition to receivable collec-tion and portfolio management costs.

Leases and rentals

2003 2004

Reproduction and copyrights 39,512 34,559

Rents 14,835 16,342

Leases 1,365 1,434

Other costs 6,011 5,214

Total 61,723 57,549

Copyright costs relate primarily to royalties paid forthe publication of products sold with L’espressoand la Repubblica, radio rights and reproductionrights for Internet site contents. The decline of

€4,953 thousand on 2003 is due mainly to lowerrights paid for products sold optionally with Grouppublications.

Rents grew by €1,507 thousand due primarily tothe transfer into the new Via Cristoforo ColomboRome offices of Group companies.

Leases are in line with 2003 and relate to contractsstipulated by Rotosud and A.Manzoni&C..

Other costs include motor vehicle leasing costs, thelease of satellites for radio broadcasting, Internetconnection fees and the rental of office equipment.The €797 thousand decline is due mainly to theagreement signed by EleTV for the broadcasting ofthe DeeJay TV signal via satellite through Sky Ita-lia that bears transmission costs from the secondhalf of 2003.

Personnel The cost of personnel amounts to €258,327 thou-sand, growing by €9,103 thousand, up 3.7% on2003 (€249,224 thousand) due mainly to automa-tic contractual adjustments and the increase inpersonnel due to the hiring by subsidiary Rotoco-lor of the personnel of STEC, the former printer ofnewspaper la Repubblica in Rome.

Depreciation, amortization and write-downsDepreciation, amortization and write-downsamount to €61,854 thousand (€73,304 thousand atDecember 31, 2003).

Intangible and tangible asset amortization/deprecia-tion and write-downs for 2004 are shown in Atta-chments 1 and 2.

2003 2004

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

Write-down of receivables 4,585 4,767

Total 73,304 61,854


Intangible asset amortization declines by €1,825thousand with respect to 2003 due primarily to adecline in capital expenditure of companies opera-ting in the Internet area.

Tangible asset depreciation declines by €412 thou-sand due to lower investments in the Internet area,partly offset by higher depreciation charges as aresult of the coming into operation of la Repubbli-ca’s new full color rotary presses.

Write-downs of intangible and tangible assets amountto €2,989 thousand and relate primarily to theparent company for obsolete printing plant andequipment.

Write-down of receivables grew by €182 thousandon 2003 due to higher accruals made by A.Man-zoni&C..

Change in inventoriesRaw materials and merchandise inventories in2004 amount to €383 thousand.

Provisions for risks and chargesProvisions for risk and charges amount to €3,439thousand (€9,051 thousand in 2003) and includemainly accruals made against risks relating to tax,legal and social security litigation. At December31, 2003 they included the accrual made againstthe risk deriving from social security litigation onthe restructuring of STEC, printer of la Repubblicain Rome.

Sundry operating costs

2003 2004

Taxes and duties payable 1,629 1,273

Public relations and gift expenses 906 1,219

Membership fees 908 971

Transactions and reimbursements 446 608

Other charges 1,422 2,369

Extraordinary losses 3,304 2,559

Total 8,615 8,999

Sundry operating costs grew by €384 thousand on2003. Major increases relate to item “Other char-ges” and include costs incurred by the parent com-pany for free contributions to the victims of theearthquake in South-East Asia.


Income from investmentsIncome from investments amounts to €41 thou-sand and relates primarly to dividends receivedfrom subsidiary Seta.

Other financial income andincome other than aboveOther financial income and income other thanabove amount to €6,993 thousand (€15,941 thou-sand in 2003). The item includes mainly interest onfinancial investments, interest on securities andinterest on tax credits.

Interest and other financial chargesThe item was restated due to the creation of a newcaption “Foreign- exchange gains (losses)”, as provi-ded for by article 2425 of Legislative Decree no.6/2003.Interest and other financial charges amount to€19,812 thousand (€45,056 thousand in 2003).The decline on 2003 amounts to €25,244 thou-sand and is due primarly to the negative marketvalue of interest rate hedging transactions conclu-ded in July 2003. The item includes also interest payable on currentaccounts held with banks and on other short-termfinancing amounting to €135 thousand, interest onlong-term loans amounting to €949 thousand andinterest on bonds issued amounting to €15,738thousand.

Foreign exchange gains (loss)Foreign exchange gains amount to €123 thou-sand, down €123 thousand on the previous year.



Revaluations Revaluations of investments amount to €1,051thousand and relate to the share in net profit of theaffiliated companies Editoriale Libertà (€761 thou-sand), Altrimedia (€148 thousand), Le Scienze(€121 thousand) and Saire (€21 thousand).

Write-downsWrite-downs amount to €198 thousand resultingfrom the write-down of Government Bonds (BTPs)recorded by the parent company under currentassets (€181 thousand) on the basis of the lowerbetween cost and market value, in addition towrite- downs carried out by subsidiary Ksolutions(€17 thousand).


Extraordinary profitsExtraordinary profits amount to €696 thousand (in2003 they amounted to €1,091 thousand) and con-sist primarily of extraordinary gains recorded bysubsidiary Esperya on the sale of products that hadbeen previously written-down upon the sale of thebusiness.

Extraordinary chargesExtraordinary charges amount to €3,366 thousand(in 2003 they amounted to €4,115 thousand) andinclude primarily extraordinary charges on earlyretirement incentives provided in the context of therestructuring of Internet subsidiaries Esperya andKsolutions (€1,085 thousand), charges incurred bythe parent company for the decommissioning ofobsolete printing plant and equipment (€717 thou-sand), in addition to extraordinary charges incur-red by A.Manzoni&C. in connection with the taxamnesty scheme (€370 thousand).

___

TaxesTaxes payable for the period amount to €71,641thousand (as compared with €64,993 thousand in2003) and are made up of current taxes amounting

to €73,775, of which €53,729 thousand of corpo-rate income taxes (Ires) and €20,046 thousand ofregional income tax on productive activities (Irap),net of €2,134 thousand of deferred taxes. Thedetail of the item is shown in Attachment 7.


Attachments

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| Gruppo Editoriale L’Espresso 2004 | Attachments68

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 Netamount 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, 2004of 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)

Statement of changes in the Consolidated Shareholders’ Equity

ATTACHMENT 4

(in thousands of euro)

Share Share Legal Other Reserve for Net Totalcapital 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


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

70 | Gruppo Editoriale L’Espresso 2004 | Attachments


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

ATTACHMENT 4/bis


Nature / description Total Uses Share Summary of operations carriedamount 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


Group Companies

ATTACHMENT 5

Company and Seat Capital % Shares activity stock owned owned by

PARENT COMPANYGruppo Editoriale L’Espresso SpA Rome 64,896publishing

SUBSIDIARIES CONSOLIDATED LINE-BY-LINE

Finegil Editoriale SpA Rome 18,161 100 Gruppo Editoriale L’Espresso SpApublishing

Editoriale La Nuova Sardegna SpA Sassari 776 100 Finegil Editoriale SpApublishing

EAG SpA Pavia 815 100 Finegil Editoriale SpApublishing

Edizioni Nuova Europa SpA Ivrea 104 100 Finegil Editoriale SpApublishing (TO)

Editoriale La Città SpA Salerno 774 100 Finegil Editoriale SpApublishing

S.E.T.A. SpA Bolzano 775 71 Gruppo Editoriale L’Espresso SpApublishing

Editoriale FVG SpA Udine 87,960 91.95 Gruppo Editoriale L’Espresso SpApublishing

Edigraf Srl Trieste 312 66.67 Editoriale FVG SpAprinting

A.Manzoni&C. SpA Milan 15,000 100 Gruppo Editoriale L’Espresso SpAadvertising concessionaire

Elemedia SpA Milan 3,000 100 Gruppo Editoriale L’Espresso SpAradio broadcasting

EleTV SpA Milan 2,120 95 Gruppo Editoriale L’Espresso SpAdigital TV 5 Elemedia SpA

Radio Deejay Kft Budapest 50,000 (,000) HUF 95 Elemedia SpAradio broadcasting Hungary 5 EleTV SpA

Radio Bonton a.s. Prague 12,000 (,000) CZK 100 Elemedia SpAradio broadcasting Czech Republic

Somedia SpA Milan 500 100 Gruppo Editoriale L’Espresso SpAservices

Rotosud SpA Oricola 2,860 100 Gruppo Editoriale L’Espresso SpAprinting (AQ)

C.P.S. SpA Rome 520 100 Gruppo Editoriale L’Espresso SpApre-printing

Rotocolor SpA Rome 23,000 100 Gruppo Editoriale L’Espresso SpAprinting

Selpi SpA Rome 3,202 70 Gruppo Editoriale L’Espresso SpApublishing and services 30 Finegil Editoriale SpA

Note: in thousands of euro unless otherwise specified



Kataweb SpA Rome 25,000 100 Gruppo Editoriale L’Espresso SpAinternet publishing and services

Kataweb News Srl Rome 10 100 Kataweb SpAinternet publishing

Ksolutions SpA San Giuliano 1,000 100 Kataweb SpAinternet services Terme (PI)

Esperya SpA Porto Recanati 500 100 Kataweb SpAe-commerce (MC)

Studio Vit Srl Rome 25 100 Kataweb SpAinternet services

AFFILIATED COMPANIES CONSOLIDATED ON EQUITY

Le Scienze SpA Rome 103 50 Gruppo Editoriale L'Espresso SpApublishing

Saire Srl Milan 47 50 Gruppo Editoriale L'Espresso SpAprinting

Editoriale Libertà SpA Piacenza 1,000 35 Finegil Editoriale SpApublishing

Altrimedia SpA Piacenza 517 35 Finegil Editoriale SpAadvertising concessionaire

AFFILIATED COMPANIES AND UNCONSOLIDATED SUBSIDIARIES

Benedettine Srl in liquidation Piacenza 255 35 Finegil Editoriale SpAreal estate

Alsoft Srl in liquidation San Giuliano 52 100 Ksolutions SpAinternet services Terme (PI)

Uhuru Multimedia Srl not operational Rome 10 100 Ksolutions SpAinternet services

SandalyaWeb srl not operational Sassari 75 51 Editoriale La Nuova Sardegna SpAe-commerce 49 Kataweb SpA

Enotrya Srl in liquidation Rome 78 70 Kataweb SpAe-commerce

Zivago SpA in liquidation Milan 3,096 50 Kataweb SpAe-commerce

Cellularmania.com Srl in liquidation Rome 10 100 Kataweb SpAinternet services




MAIN INVESTMENTS IN OTHER COMPANIES

A.G.F. Srl Rome 102 10 Gruppo Editoriale L'Espresso SpAphoto 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 SpA3.14 Editoriale FVG SpA1.89 EAG SpA2.52 S.E.T.A. SpA

Club DAB Italia - consortium Milan 18 14.03 Elemedia SpAradio 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 SpAinternet services (USA)

Consorzio Energia Sassari Sassari 4 12.5 Editoriale La Nuova Sardegna SpApurchase of electricity

Agenzia Informativa Adriatica d.o.o. Capodistria 2,120 (Tallers'000) 19 Editoriale FVG SpAproduction and provision of information Slovenia

Trento Press Service Srl Gardolo di Trento 260 14.4 S.E.T.A. SpAnewspaper distribution (TN)

Immobiliare Editori Giornali Srl Rome 830 0.17 S.E.T.A. SpAreal estate 0.12 Editoriale La Nuova Sardegna SpA

Protagon Periodici SpA under bankruptcy proceedings Perugia 10 Finegil Editoriale SpApublishing

Audiradio Srl Milan 234 4 A. Manzoni & C. SpAmarket research

Consuledit Srl Milan 20 6.62 Gruppo Editoriale L'Espresso SpAmarket research 3.99 Finegil Editoriale SpA

0.62 Editoriale La Nuova Sardegna SpA0.39 EAG SpA0.49 S.E.T.A. SpA0.47 Editoriale FVG SpA



Marketable securities

ATTACHMENT 6Gruppo Editoriale L'Espresso SpA (in thousands of euro)

Issuer Security Nominal Expiration Interest Amountvalue 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 TreasuryCo. 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

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%


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 sheetPrepaid 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 managerspursuant to National Labor Contract 15,274 33% 5,170 15,727 33% 5,427

Net 5,170 5,427


Reclassified Consolidated Financial Statements

| Gruppo Editoriale L’Espresso 2004 | Reclassified Consolidated Financial Statements80

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 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


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)


Taxes (64,993) (71,641)

Profit before minority interests 68,268 88,311

Minority interests (430) (588)

NET PROFIT 67,838 87,723

| Gruppo Editoriale L’Espresso 2004 | Reclassified Consolidated Financial Statements82

Consolidated Statement of Cash Flows


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 ACTIVITIESBEFORE 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

| Gruppo Editoriale L’Espresso 2004 | Revenues, Group personnel, Circulation84

Consolidated revenues


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 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

| Gruppo Editoriale L’Espresso 2004 | Revenues, Group personnel, Circulation86

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 Stampa2004 - 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

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

Investmentsin 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

Receivablesshort-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

92 | Gruppo Editoriale L’Espresso 2004 | Financial Statements

Balance Sheet

euro

ASSETS Dec. 31, 2003 Dec. 31, 2004

C - Current assetsI. 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

Subsidiariesshort-term 136,564,391 125,109,960

Affiliated companiesshort-term 205,071 491,957

Parent companyshort-term - 4,360,495

Tax receivablesshort-term 6,542,219 6,697,134 long-term 15,074,351 19,003,381

Prepaid taxesshort-term 14,335,346 15,379,852

Other receivablesshort-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

Financial Statements | Gruppo Editoriale L’Espresso 2004 | 93


euro


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


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



euro


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 payablesshort-term 105,250,651 125,826,794

Subsidiariesshort-term 102,038,502 95,832,256

Affiliated companiesshort-term 585,293 422,518

Taxes payableshort-term 4,470,968 7,842,881

Health and social security institutionsshort-term 5,174,916 5,242,714

Other payablesshort-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


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


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



euro

2003 2004


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


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)


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

Form and content of the Financial StatementsThe financial statements at December 31, 2004have been prepared in accordance with the provi-sions of the Italian Civil Code, as interpreted andintegrated by accounting standards adopted bythe Italian accounting profession. They consist ofa Balance Sheet, an Income Statement and Notesto the financial statements.

To provide a more complete information and clea-rer understanding of the financial statements, areclassified Balance Sheet and Income Statementin addition to a Statement of Cash Flows havealso been enclosed.

The Balance Sheet and Income Statement havebeen prepared in euro, with no decimals, as provi-ded for by article 2423, comma 5 of the ItalianCivil Code. Amounts stated in the Notes areexpressed in thousands of euro, as relevant.

Criteria used in the preparation of the NotesA column reporting the corresponding amountsfor the previous year was included beside thecolumn for the current accounting period in theBalance Sheet and Income Statement.

Where necessary, figures for the same period inthe previous year were adjusted for consistencypurposes. Adjustments or the lack of consistencybetween the two periods with regards to indivi-dual figures are reported in the related notes.

Adjustments made to the Balance Sheet andIncome Statement format provided for by LawAs allowed by article 2423 ter of the Italian CivilCode, in order to provide a clearer representation ofthe economic and financial performance of the Com-pany, additional items were included in the samewith respect to the format provided for by Law.

Additional captions included are:

AssetsB.I Goodwill of publications

B.II Furniture, equipment, motor vehicles

C.III Other financial assets

Income statementA. Circulation revenues

A. Advertising revenues

A. Sundry revenues

To provide a more appropriate reporting, item“Electronic equipment” was reclassified within Tan-gible Assets under “Furniture, equipment and motorvehicles”, reducing “Other assets” to residual inve-stments in sundry equipments.

Numerals and capital letters in the leftmost columnwere eliminated from the Balance Sheet and IncomeStatement. Items having a zero balance in the twoperiods were not reported.

Accounting principles Accounting principles applied in the preparationof the Balance Sheet and the Income Statement arein line with those adopted in previous years, withthe exception of regulatory changes introduced byLegislative Decree no. 6, dated January 17, 2003,and subsequent amendments, commented andinterpreted in Document 1 issued by the ItalianAccounting Board (OIC 1). More specifically:

1. the present financial statements were the objectof the “elimination of tax-related entries”: the men-tioned Legislative Decree no. 6/2003 amendedparagraph 2 of article 2426 of the Italian CivilCode, eliminating the possibility of “carrying outvalue adjustments and accruals exclusively for taxreporting purposes”. Interpreting such amendment,OIC 1 requested the “elimination of possible valueadjustments or accruals made in the income state-ment in previous years pursuant to previouslyapplicable article 2426 of the Italian Civil Code”.The elimination of tax-related entries did not pro-

Notes to the Financial Statements

duce relevant effects on the financial statements ofthe Company;

2. as set out in paragraph 7-bis of article 2427 ofthe Italian Civil Code, a table showing for eachitem of Shareholders’ Equity, the origin, possibilityof usage and distribution, in addition to their pos-sible usage in previous years was included;

3. as set out in paragraph 4 of article 2497 of theItalian Civil Code, summary financial informa-tion of parent company CIR SpA was included inthe notes to the accounts. CIR is required by lawto prepare consolidated financial statements.

Valuation criteriaIndividual items were valued in accordance with theprinciple of prudence, while different items includedunder the same caption were valued individually.Risks and losses for the period whose existencebecame known after the date of the financial state-ments and before the preparation of the financialstatements, were also kept into account. We under-line that for these financial statements there wasno departure from Article 2423 para. 4 of theItalian Civil Code.

Main valuation criteria used in the preparation ofthe present report at December 31, 2004 are descri-bed below:

Intangible assetsIntangible assets are recorded at acquisition orproduction cost, inclusive of any auxiliary cost.They are amortized over their expected useful life.In particular:

• “concessions, licenses and trademarks” are amor-tized on a straight-line basis over five years;

• newspaper la Repubblica is amortized over 40years, according to its nature and expected resi-dual useful life;

• “other intangible assets” relate prevalently tocapitalized leasehold improvement costs, amorti-

zed on a straight-line basis over the term of thelease contract.

Advertising costs are expensed in the period inwhich they are incurred.

Tangible assetsTangible assets are recorded at cost, inclusive ofaccessory costs, adjusted upwards in the case of cer-tain assets in accordance to the provisions of Lawno. 72 of March 19, 1983 and Law no. 413 ofDecember 30, 1991. Assets still owned revaluedpursuant to the above laws are listed in a separateattachment.

Maintenance and repair costs are charged to theincome statement for the year in which they areincurred, with the exception of costs resulting fromthe extension of the useful life of the assets, whichare capitalized.

Depreciation is calculated on a straight-line basisat rates deemed representative of the residual use-ful life of the assets. In the first year, coincidingwith the coming into operation of the asset, depre-ciation rates are reduced by half. Depreciationrates applied are shown in the Notes under Assets.

In the case of permanent impairment (with respectto its net book value), the asset is written downaccordingly through the accrual of a related provi-sion. Where such impairment is reversed in subse-quent accounting periods, the original value of theasset is restored.

Equity investments Investments are valued at the acquisition or under-writing cost. The book value of the investment iswritten-down in case of a permanent impairment.The original value is restored in subsequent finan-cial periods in case of a reversal. Certain equity investments were written- up pur-suant to Law no. 72, March 19, 1983.

Long-term investmentsLong-term investments are recorded at cost, adju-sted where necessary in the case of permanentimpairment.

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

Own sharesWithin the limits set by article 2357 of the ItalianCivil Code and in accordance with the terms resol-ved by the Shareholders’ Meeting, own shares arerecorded at the acquisition cost, adjusted in case ofpermanent impairment, and included under long-term financial assets.Pursuant to article 2357 ter, paragraph 3 of the Ita-lian Civil Code, a reserve for own shares wasaccrued using a part of the share premium reserve.

InventoriesRaw material inventories are recorded at the lowerbetween acquisition cost, based on the weightedaverage method, and the expected realizable value,set equal to the market value at year-end.

Finished goods and work in progress are valued atthe production cost or the expected realizable value.

Inventories of videotapes and DVDs to be sold arevalued at the acquisition cost. Unsold inventories ofthe same to be demagnetized or destroyed arevalued at the expected realizable value. Inventoriesof music CDs and DVDs are valued at the acquisi-tion cost, written-down for possible loss in value.Write-downs are reversed in subsequent accountingperiods in case of a reversal.

Receivables and payables Receivables are recorded at face value, written-down to reflect their expected realizable value.Payables are recorded at face value.

Marketable securitiesMarketable securities are valued at the lower be-tween cost and market value.Interest accrued at the time of acquisition and atthe date of the financial statements is recordedunder “Accrued income”.

Cash and cash equivalentsThey are represented by cash on hand, demandand short-term bank and post office deposits. Theyare recorded at the lower of face value and theexpected realizable value.

Accrued income and prepaid expenses,accrued liabilities and deferred incomeThese are costs and revenues whose effect spansover one or more years, costs and revenues rela-ting to future accounting periods incurred in thecurrent one, and whose amount varies over time.

Provisions for risks and chargesProvisions for risks and charges include accrualsother than those representing adjustments to assetitems, aimed at covering losses or payables whosenature and existence are certain or likely, for whichat the date of the financial statements the amountor the expiration date cannot be determined.Accruals to the provisions reflect the best estimatemade based on information available.

Employee severance provisionThe reserve includes accruals aimed at coveringamounts, net of advances, due to employees upontermination of their employment up to the date ofthe financial statements, calculated in accordancewith the provisions of article 2120 of the ItalianCivil Code, collective labor contracts and inde-pendent agreements with the company.

BondsBonds issued by the company are recorded at facevalue. Discounts and issue costs are classifiedamong accrued liabilities. They are deferred andamortized over the life of the bond issue to whichthey relate. Interest accrued at the end of the periodis recorded under accrued liabilities.

Loans and financingLoans and financing received are recorded at facevalue. Interest accrued at the end of the year isrecorded under accrued liabilities.

Hedging instrumentsHedging instruments held to hedge against the riskof fluctuations in the value of specific assets or lia-bilities are valued at cost, in line with assets andliabilities hedged. Positive and negative differencesaccrued on hedging contracts on assets or liabilitiesthat generate interest flows are recorded in the


Income Statement applying the matching principle. Gains/losses on “paper swap” transactions arerecorded to increase/decrease the supply cost.

Conversion of amounts originallyexpressed in foreign currenciesTransactions denominated in foreign currencies arerecorded in euro at the exchange rate applicable atthe time of the transaction. At the time at whichreceivables and payables denominated in foreigncurrencies are collected or paid out, exchange ratedifferences are recorded in the income statement.Payables and receivables denominated in foreigncurrencies at the date of the financial statements arerecorded in the same at the exchange rate at thesame date. Gains and losses resulting from the con-version of individual credits and debits are creditedand debited as appropriate to the income statement.

Cost and revenue recognitionCriteria used in recording costs and revenues rela-ting to ordinary operations are the following:• revenues from the sale of publications are recogni-zed at the time of shipping, net of related returns; • revenues from the sale of advertising space arerecognized at the time the advertising is published.

Grants are recorded separately under “Other reve-nues” in the Income Statement at the time the rightto receive them arises.

Capital grants, including those in the form of taxcredits, are recorded in the period in which therelated capital investment is made, and creditedto the Income Statement over a period correlatedwith the residual life of the assets to which theyrelate, in line with the period over which they areamortized. The share relating to future years isrecorded as deferred income.

Costs are recorded in the financial statements ap-plying the same criteria used for revenues, and inany case in accordance with the accrual method.

DividendsDividends are recorded at the time their distribu-tion is resolved by the distributing company.

Income taxesThe new Income Tax Code (TUIR) introduced thepossibility for companies of a same Group to deter-mine an overall profit corresponding in principle tothe algebraic sum of taxable profits of each com-pany (parent company and companies controlleddirectly and/or indirectly with a share over 50%)and, consequently, to determine a single income taxliability for the whole Group. On October 20,2004, the Board of Directors of Gruppo EditorialeL’Espresso SpA resolved the participation of thecompany to CIR’s “Tax consolidation” and a gene-ral agreement regulating the rights and obligationsof CIR and consolidated companies (thus includingGruppo Editoriale L’Espresso SpA) with respect tothe participation in the tax consolidation wasunderwritten. As a result of the participation in thetax consolidation of the Group, income taxes arecalculated on the expected taxable profit for theyear and represents a liability towards the consoli-dating company. Such liability is therefore recordedin the balance sheet as a payable to parent companyCIR, net of advances and withholding taxes alreadypaid in 2004.

Regional income taxes on productive activities(Irap) payable are recorded in the balance sheetamong taxes payable, net of advances paid.

Deferred and prepaid taxes arising from timingdifferences between the profit reported in thefinancial statements and that reported for tax pur-poses are also recorded.

Prepaid taxes are recorded in accordance with pru-dent criteria, pursuant to Article 2423 bis of the Ita-lian Civil Code, and where there exists reasonablecertainty of their recovery in future years. Deferredtaxes are not recorded in case it is considered unlike-ly that the liability shall arise in the future. Deferredand prepaid taxes are calculated based on the expec-ted tax rate applicable in the period in which thetiming difference is expected to be reabsorbed andare reviewed every year to keep into account chan-ges in the financial position and operations of thecompany and changes in tax rates.


Balance sheet assets

A - Receivables from shareholdersAt December 31, 2004 no amount was due byshareholders as capital not paid-in.

B - Fixed assets

Intangible assetsThe breakdown and changes in intangible assets areshown in Attachment 1. At December 31, 2004,intangible assets amounted to €154,431 thousand(up from €153,745 thousand at December 31,2003). Expenditure on intangible assets in 2004amounted to €8,371 thousand, reclassifications ofintangible assets were equal to €87 thousand andamortization charges to €7,772 thousand.

Concessions, licensesand trademarks Dec. 31, 2003 Dec. 31, 2004

Software 3,150 2,797

Other rights 43 63

Total 3,193 2,860

Expenditure on software for the year amounted to€1,001 thousand and relates prevalently to thedevelopment of editing, administrative and distri-bution systems. The amortization expense for theyear amounts to €1,350 thousand and write-downsto €4 thousand.

Item “Other rights” includes the registration cost oftrademarks for editorial projects: trademarks regi-stered in the year amounted to €30 thousands,while the depreciation expense amounted to €10thousand.

Goodwill on publications Dec. 31, 2003 Dec. 31, 2004

La Repubblica 150,341 144,828

Il Lavoro 20 -

Total 150,361 144,828

Newspaper la Repubblica was recorded in thefinancial statements as a result of the merger onDecember 10, 1991 between Cartiera di Ascoli SpAand Editoriale la Repubblica SpA, and is amortized

over 40 years. La Repubblica’s Genoa edition sup-plement il Lavoro was acquired for €103 thousandat the end of the 1999 financial year and is fullyamortized.

The €5,333 thousand decline is due entirely to theamortization expense for the period.

Other intangible assets Dec. 31, 2003 Dec. 31, 2004

Leasehold improvements 191 6,743

Expenditure in the year amounted to €7,427 thou-sand due primarily to work for the renovation of thenew via C. Colombo Rome offices (€3,458 thou-sand), in addition to the renovation of la Repubbli-ca’s Milan (€2,583 thousand) and Bari (€1,229thousand) printing centers as a result of the cominginto operation of full color printing presses. Theamortization expense was equal to €875 thousand.

Tangible assetsThe breakdown and changes in tangible assets areshown in Attachment 2.

In the past the company carried out revaluationsof assets pursuant to Law no. 72, March 19, 1983and Law no. 413, December 30, 1991. Assets stillowned at December 31, 2004 revalued pursuantto the above laws are listed in Attachment 3.

At December 31, 2004, tangible assets amountedto €69,878 thousand (up from €67,458 thousandat December 31, 2003). Expenditure in the yearamounted to €16,681 thousand, the amortizationexpense to €10,906 thousand, write-downs wereequal to €2,492 thousand and net divestmentsand reclassifications amounted to €863 thousand.

The item breaks down as follows:

Land and buildings Dec. 31, 2003 Dec. 31, 2004

2,735 4,240

Land and buildings consist primarily of the buildinglocated in Milan, Via de Alessandri, in which theMilan branch of newspaper la Repubblica andmagazine L’espresso are located, in addition to the


building located in Bologna where la Repubblica isprinted, both purchased at the expiration of thefinancial lease under which they were held.

Expenditure in the year amounted to €441 thou-sand. Reclassifications from work in progress in thecontext of the renovation of the Bologna printingcenter due to the full color project amounted to€315 thousand. The depreciation expense for theyear was €185 thousand.

The further €934 thousand increase is due to thereclassification among non-distributasble reservesof the accumulated depreciation of the capital gainrealized in 1985, reinvested pursuant to article 54of Presidential Decree no. 597/73.

Plant and machinery Dec. 31, 2003 Dec. 31, 2004

Rotary and automatic printing presses 10,941 55,132

Generic plant and airconditioning equipment 328 761

Editorial system 148 66

Total 11,417 55,959

Expenditure on plant and machinery in yearamounts to €10,488 thousand, reclassificationsfrom work in progress to €45,689 thousand due tothe coming into operation of the new full colorrotary presses, and the depreciation expense isequal to €7,532 thousand. In the same period,write-downs amounted to €2,482 thousand and netdivestments were equal to €1,621 thousand. Thedetail is provided below:

• Rotary and automatic printing presses: the comple-tion of the full color project for the printing in colorof the entire newspaper la Repubblica involved newexpenditure amounting to €9,924 thousand andreclassifications from work in progress amountingto €45,689 thousand. Depreciation in the yearamounted to €7,319 thousand, while write-downsrelating to obsolete plant and equipment of theRome and Milan printing centers were equal to€2,482 thousand. Disposals amounted to €1,621thousand and relate primarily to plant and equip-

ment no longer utilized by la Repubblica, to betransferred to newspaper la Nuova Sardegna, publi-shed by subsidiary Editoriale Nuova Sardegna.

• Generic plant and air conditioning equipment:expenditure in the year amounted to €564 thou-sand, relating primarily to new offices and depre-ciation amounting to €131 thousand

Furniture, equipment and motor vehicles Dec. 31, 2003 Dec. 31, 2004

Furniture and fixtures 425 1,568

Electronic equipment 6,471 7,846

Motor vehicles 270 191

Total 7,166 9,605

The item increases by €2,439 thousand due to newexpenditure in the year amounting to €5,617 thou-sand, depreciation expense of €3,089 thousand anddisposals equal to €89 thousand.

Expenditure relates primarily to furniture and elec-tronic equipment for the new offices (€3,225 thou-sand), network equipment (€494 thousand) andthe update of Group administrative and editingsystems (€1,429 thousand).

Other assets Dec. 31, 2003 Dec. 31, 2004

49 74

Other assets grow by €25 thousand due to expendi-ture amounting to €135 thousand, amortizationexpense for the year equal to €100 thousand andwrite-downs amounting to €10 thousand.

Work in progress and advances Dec. 31, 2003Dec. 31, 2004

46,091 -

Work in progress and advances decline to zero due tothe coming into operation of full color presses forthe printing of newspaper la Repubblica in color.

Tangible asset depreciation – detailed in Attach-ment 2 – was calculated applying rates representingthe estimated residual useful life of the assets.


Rates applied for main categories of assets areshown below:

Industrial buildings 3%

Printing plant 15.5%

Printing presses 10%-20%

Editorial systems 25%

Air conditioning systems 20%

Generic plant 10%

Electronic equipment 20%

Furniture and fixtures 12%

Motor vehicles 25%

Sundry equipment 25%

Depreciation rates of assets acquired that becameoperational in the period are reduced by half.

New rotary presses that went into operation in theyear in accordance with the full color plan thatallows to print the newspaper in full color in allprinting centers, are depreciated over an estimateduseful life of ten years.

Some plant and machinery is encumbered withliens in favor of Banca Intesa Mediocredito againstsubsidized loans extended pursuant to Law 416/81,as reported under item “bank loans”.

Financial assets

InvestmentsInvestments at December 31, 2004 amounted to€256,086 thousand, up €21,460 thousand on€234,626 thousand at December 31, 2003. Capitalincreases were carried out in the year by subsidia-ries Kataweb (€20,000 thousand) and A.Manzo-ni&C. (€7,000 thousand), while write-downs dueto losses reported by subsidiary Kataweb amountedto €5,540 thousand.

Changes in the year and the breakdown of invest-ments at December 31, 2004 are detailed respecti-vely in Attachments 4 and 5. Main positive diffe-rences between the book value of investments andits valuation in accordance with article 2426 of theItalian Civil Code relate to the value of publica-

tions and of frequencies held by subsidiaries andaffiliated companies.

ReceivablesLong-term receivables amount to €1,511 thousand(€1,890 thousand at December 31, 2003). Receiva-bles by maturity are shown in Attachment 7. Thebreakdown of the item is shown below:

Dec. 31, 2003 Dec. 31, 2004

Guarantee deposits 580 594

Tax credits for advances on personal income tax payable on employee severance indemnities 1,310 917

Total 1,890 1,511

Guarantee deposits relate primarily to lease contracts.

Tax credits for advances on personal income tax onemployee severance indemnities are made up of taxadvances paid pursuant to Law 140/97 on amountsaccrued by employees upon termination of employ-ment at December 31, 1997, revalued yearly. Usesof the provision amounted to €109 thousand, whilerevaluations amounted to €22 thousand.

Own sharesThe Company acquired, starting from financialyear 2001, a total of 4,800,000 shares (of which1,600,000 in 2004) to service stock option plans.Over the course of time, rights to a total of1,500,000 shares (of which 1,000,000 in 2004)were exercised, bringing the number of own sharesheld to 3,300,000. Own shares at December 31,2004 are recorded at €13,192 thousand (€8,663thousand at December 31, 2003), net of a write-down of €820 thousand carried out in 2002.

C - Current assets

InventoriesInventories at December 31, 2004 amounted to€25,791 thousand and are made up as follows:


Dec. 31, 2003 Dec. 31, 2004

Paper 22,772 22,545

Publications 3,578 3,246

Total 26,350 25,791

Paper inventories are in line with the previous year.

Publications inventories consist primarily of the firstissues of periodicals to be distributed in the firstweek of January 2005 and to products distributedoptionally with Group publications.

ReceivablesCurrent receivables amount to €189,193 thousand(€186,735 thousand at December 31, 2003). Thebreakdown of receivables by maturity is shown inAttachment 7.

Trade receivablesTrade receivables amount to €12,084 thousand(€12,608 thousand at December 31, 2003), down€524 thousand. The breakdown is shown below:

Trade receivables Dec. 31, 2003 Dec. 31, 2004

Newsstands and distributors 9,116 9,441

Sundry trade receivables 3,492 2,643

Total 12,608 12,084

Receivables from newsstands and distributors grew by€325 thousand on December 31, 2003 due to thehigher number of sales initiatives in conjunctionwith Group publications at the end of the year.

Sundry trade receivables include primarily receivablesfor the sale of paper to be recycled, the sale ofvideotapes to be demagnetized and receivables fromsubscribers of Group publications. The €849 thou-sand decline is due primarily to the lower number ofunsold videotapes by L’espresso to be demagnetized,as a result of the gradual abandonment of this kindof product sold in conjunction with the magazine.

Receivables from subsidiariesand affiliated companiesThey amount to €125,602 thousand (€136,769thousand at December 31, 2003). A breakdown is

given in an attachment showing the relationsbetween Gruppo Editoriale L'Espresso SpA andother Group companies included in the Report ofthe Board of Directors.

Dec. 31, 2003 Dec. 31, 2004

Receivables from subsidiaries

• Trade receivables 88,395 90,673

• Financial receivables 47,269 30,454

• VAT receivable 900 3,983

Total 136,564 125,110

Receivables from affiliated companies

• Trade receivables 205 492

Total 205 492

TOTAL 136,769 125,602

Trade receivables include €89,615 thousand (€88,110thousand at December 31, 2003) of receivablesfrom A.Manzoni&C., exclusive concessionaire forthe sale of advertising on the Group’s publications.The €1,505 thousand increase on the previous yearis due primarily to the growth in advertising sales.

Financial receivables from subsidiaries amount to€30,454 thousand (€47,269 thousand at Decem-ber 31, 2003) and relate to financing extended atmarket conditions to subsidiaries through the cen-tralized current account used for cash managementpurposes.

Receivables from parent companyReceivables from parent company CIR amount to€4,360 thousand and consist of advances paid onaccount of income taxes in excess of the tax expen-se for the year, paid to the parent company as aresult of the participation in the tax consolidationof CIR.

Tax receivablesPursuant to article 2424 of Legislative Decree no.6/2003, the item “Tax receivables” was reported asa separate item under Receivables. The correspon-ding amount for the previous year was reclassifiedaccordingly. Tax receivables amount to €25,700thousand and are made up as follows:


Dec. 31, 2003 Dec. 31, 2004

Regional income tax on productiveactivities receivable 855 736

Corporate and local tax credits for which a refund has been requested 15,075 15,263

Tax credit – Law no. 350/2003 art. 4 - 4,036

Tax credit – Law no. 62/2001 art. 8 3,787 5,300

VAT receivable 1,815 281

Other tax credits 84 84

Total 21,616 25,700

Regional income tax on productive activities (Irap)receivable consists of advances paid in 2004.

Corporate and local tax credits for which a refund hasbeen requested include tax credits relating to pre-vious years, inclusive of interest, for which a refundhas been requested. The increase on the previousyear is due to interest accrued in the year.

Tax credits under Law no. 350/2003 art. 4 representtax credits recorded in the year pursuant to article 4,paragraph 181 and following, of Law no. 350,December 24, 2003 that subsidizes paper purchasesof paper used in the year, providing a 10% tax cre-dit on the total cost of paper consumed. The lawsets an overall limit of €95 million of contributionsfor year 2004. Since the tax credit granted to theCompany has not been defined, as the number ofapplications is unknown at this stage, we estimatethe amount of the subsidy based on informationavailable on paper consumption for 2003 at abouthalf the normal tax credit on the Group’s paper con-sumption for 2004. The table that follows showspaper purchases for 2004, the portion eligible forsubsidies pursuant to the mentioned law and therelated estimated tax credit recorded:

Dec. 31, 2004Paper purchases 103,226

Paper consumption eligible for subsidies 80,722

10% tax credit (applied for) 8,072

Expected tax credit recorded (50% of amount applied for) 4,036

Tax credits pursuant to article 8, Law no. 62/2001 (lawon Publishing) relate to tax credits provided pur-

suant to article 8, Law no. 62/2001 on investmentsmade between 2001 and 2004. Law 62/2001 provi-des that capital expenditure eligible for contributionsreceives a 3% tax credit per year for five years.Increases in the period amounted to €4,401 thou-sand, while uses amounted to €2,008 thousand.

VAT receivable declines by €1,534 thousand due tohigher advance paid in December.

Prepaid taxesArticle 2424 of Legislative Decree no. 6/2003 pro-vides for the reporting of prepaid taxes under aseparate item in the Consolidated Balance Sheet.The corresponding amount for the previous yearwas reclassified accordingly. Prepaid taxes amountto €15,380 thousand (€14,336 thousand at Decem-ber 31, 2003) and represent the balance of tempo-rary differences between balance sheet entries andamounts recognized for tax purposes. Changes inthe year are shown in Attachments 9 and 10.

Other receivablesOther receivables amount to €6,067 thousand(€1,406 thousand at December 31, 2003). The€4,661 thousand increase is due primarily to thepayment of a €5,000 thousand advance on theacquisition of national TV network Rete A. Otherreceivables are detailed below.

Dec. 31, 2003 Dec. 31, 2004Advances to personnel and associates 441 432

Advances to suppliers 114 5,125

Other financial receivables 61 66

Other receivables 790 444

Total 1,406 6,067

Marketable securitiesMarketable securities consist of €20,142 thousand ofsecurities detailed in Attachment 6 to the Consolida-ted Financial Statements. These securities are recor-ded at December 31, 2004, net of the write-down of€181 thousand carried out to bring their book valuein line with current market prices. Part of these secu-rities, amounting to €2,523 thousand, are pledged asguarantees against subsidized loans.


Cash and cash equivalentsCash and cash equivalents amount to €372,577thousand (€58,449 thousand at December 31,2003) and include:

Dec. 31, 2003 Dec. 31, 2004Bank and Post Office demand deposits 1,901 3,727

Time deposits 56,500 368,800

Cash on hand 48 50

Total 58,449 372,577

The strong increase in time deposits on December31, 2004 is due mainly to the investment of cashgenerated through the bond issue launched onOctober 8, 2004 which, awaiting to be used for therepayment of €200 million of bonds expiring onAugust 1, 2005, was invested in time deposits withbanks. The breakdown at December 31, 2004 isprovided in the table below:

Bank Expiration Rate Amount €’000

Banco di Brescia January 27, 2005 2.10% 18,000Banco di Brescia January 17, 2005 2.10% 6,500Banco di Brescia January 12, 2005 2.00% 4,000Banca Intesa January 17, 2005 2.07% 10,000Banca Intesa August 1, 2005 2.18% 80,000B.N.L. January 3, 2005 2.20% 2,000B.N.L. January 7, 2005 2.12% 1,200B.N.L. January 7, 2005 2.13% 2,000B.N.L. January 13, 2005 2.10% 4,000B.N.L. January 17, 2005 2.10% 5,000B.N.L. January 27, 2005 2.10% 10,000B.N.L. August 1, 2005 2.18% 50,000M.P.S. January 5, 2005 2.17% 3,000M.P.S. January 5, 2005 2.12% 1,100M.P.S. January 10, 2005 2.15% 8,000M.P.S. January 27, 2005 2.13% 40,000M.P.S. January 31, 2005 2.12% 4,000M.P.S. August 1, 2005 2.19% 40,000Unicredit January 10, 2005 2.12% 5,000Unicredit January 10, 2005 2.11% 10,000Unicredit January 13, 2005 2.08% 5,000Unicredit January 27, 2005 2.10% 30,000Unicredit August 1, 2005 2.17% 30,000

D - Accrued income and prepaid expensesThese amount to €12,498 thousand (€2,577 thou-sand at December 31, 2003) and are made up asfollows:

Dec. 31, 2003 Dec. 31, 2004Accrued income

• Interest 220 4,129

• Other 2 1

Total accrued income 222 4,130

Prepaid expenses

• Bond issue costs 494 692

• Other prepaid expenses 1,861 7,676

Total prepaid expenses 2,355 8,368

TOTAL 2,577 12,498

Accrued interest includes €2,738 thousand of intere-st on interest rate swap transactions used to exchan-ge the original fixed rate on the bond issue with avariable rate, and €1,170 thousand of interest onbank and intragroup current accounts.

Bond issue costs consist of issue discounts andcosts incurred in the organization and placementof bonds issued. They are amortized over the lifeof the relating bond issue.

The increase in other prepaid expenses is due prima-rily to the acquisition of rights for the publishingof products that will be sold optionally with laRepubblica and L’Espresso in the future, and rentrelating to 2005.


Liabilities and Shareholders’ Equity

A - Shareholders’ equityA Statement of Changes in Shareholders’ Equityis provided in Attachment 6, while a breakdownof Shareholders’ Equity with reference to the partof reserves that is available and the part that maybe distributed is included in Attachment 6 bis.

Share capitalThe share capital amounts to €64,896,058.20 andis made up of 432,640,388 shares with par value of€0.15 each. The €127,196.25 increase on December31, 2003 is due to the issue of shares to service theGroup’s stock option plans for employees.

Share premium reserveIt amounts to €61,958 thousand (€63,991 thou-sand at December 31, 2003) and represents thepremium paid by shareholders on capital increasescarried out over time. It declines by €2,033 thou-sand on December 31, 2003 due to the transfer of€4,529 thousand to the Reserve for own shares,offset by the share premium of €2,496 thousandpaid for the above-mentioned capital increase.

Restatement reserveIt amounts to €786 thousand (unchanged onDecember 31, 2003) and relates to the revalua-tion pursuant to Law 413/1991.

Legal reserveIt amounts to €12,979 thousand and increases by€25 thousand on December 31, 2003 due to theaccrual to legal reserve up to its reaching 20% ofthe share capital, as provided by law.

Reserve for own sharesThe reserve, accrued pursuant to article 2357 ter,paragraph 3 of the Italian Civil Code, amounts to€13,192 thousand (as compared with €8,663thousand at December 31, 2003), corresponding tothe book value of 3,300,000 shares acquired onthe regulated market, net of the write-down of€820 thousand. The reserve was accrued by with-drawing from the share premium reserve.

Other reservesOther reserves are made up as follows:

Voluntary reserveIt amounts to €10,857 thousand (€271 thousand atDecember 31, 2003) and increases, pursuant to theresolution of the Shareholders’ Meeting dated April21, 2004, by €10,611 thousand as a result of theallocation of part of net income for 2003 to thereserve, and a €25 thousand decline due to anaccrual to the Legal Reserve.

Reserve for grantsIt amounts to €17,840 thousand (€17,831 thou-sand at December 31, 2003) and includes capitalgrants pursuant to Law no. 416/81 (€11,914 thou-sand), and grants pursuant to Law no. 67/87(€5,926 thousand). The €9 thousand increase onthe previous year is due to grants received pur-suant to the Law on Publishing by magazinesNational Geographic, Limes and Micromega.

Dividend equalization reserveIt amounts to €3,869 thousand and is unchangedfrom December 31, 2003.

Reserve under art. 55 of PresidentialDecree no. 597/73It amounts to €490 thousand and is unchangedfrom December 31, 2003.

Merger differencesThe reserve amounts to €7,870 thousand and isunchanged from December 31, 2003.

Reserve under art. 54 of PresidentialDecree no. 597/73It amounts to €934 thousand and consists of thereclassification of the accumulated depreciationprovision relating to the capital gain realized in1985, reinvested pursuant to article 54 of Presi-dential Decree no. 597/73.

Net profit for the yearNet profit for the year includes profit, equal to€70,423 thousand, net of the tax expense for theyear.



Provision for retirement benefitsThe provision amounts to €5,954 thousand (€5,129thousand at December 31, 2003).


Seniority indemnity 757 42 (36) 763

Fixed indemnity 4,372 1,190 (371) 5,191

Total 5,129 1,232 (407) 5,954

The retirement provision, accrued according toamounts payable pursuant to labor contracts inforce, includes indemnities for journalists andmanagers. Accruals for the year relate to amountsset aside for employees, while uses relate to settle-ments of amounts due to employees who left theiremployment with the Group.

Tax provisionThe provision amounts to €327 thousand andwas accrued under Shareholders’ Equity pursuantto article 54 of Presidential Decree no. 597/73.

Provisions for risks and charges

Dec. 31, Accruals Uses Dec. 31,2003 2004

Legal proceedings 11,217 1,569 (1,720) 11,066

Sundry risk 2,061 278 (998) 1,341

Total 13,278 1,847 (2,718) 12,407

The provision for legal proceedings is accrued againstthe risk of potential charges resulting from legalproceedings and litigation. The provision wasaccrued according to prudent criteria, keeping intoaccount the particular nature of the activity carriedout, despite the difficulty encountered in assessingthe amount of potential charges relating to eachpending proceeding. In addition to potential libelclaims, affecting all publishers, it also includesrisks relating to commercial and labor issues, inaddition to possible social security audits.

The provision for sundry risks at December 31, 2004included provisions for early retirement incenti-

ves, tax contestation on premium transactions,and other risks.

C - Employee severance provisionThe provision amounts to €39,321 thousand(€37,336 thousand at December 31, 2003). Chan-ges occurred in the year are shown below:


Employee severance provision 37,336 5,283 (3,298) 39,321

The provision covers amounts accrued by person-nel at December 31, 2004 pursuant to current lawsand regulations. Uses of the provision relate toindemnities paid to personnel terminating theiremployment with the company and advances toemployees on severance indemnities.

Changes in personnel in the year are shown below:

Dec. 31, Hirings Terminations Dec. 31, Average for2003 2004 the period

Journalists 527 19 (17) 529 531

Managers 32 3 - 35 34

Office workers 344 7 (7) 344 345

Total 903 29 (24) 908 910

The data above relates only to employees on anopen-ended contract. Taking into account person-nel hired on a fixed-term contract, the averagenumber of employees is equal to 942.

D - PayablesPayables amount to €765,112 thousand (€448,421thousand at December 31, 2003). The breakdownof payables by maturity (within one year, over oneyear, over 5 years) is included in Attachment 8.

BondsOn October 8, 2004, the Company placed on themarket through Banca Caboto, JP Morgan Securi-ties, Lehman Brothers International and Medioban-ca as lead managers, a €300 million 10-year fixed-rate bond issue. The bond was very well receivedon the market with requests for over 5 times the


amount on issue. Bonds are listed on the Luxem-bourg Stock Exchange and pay an annual 5.125%coupon, equal to a 10-year mid-swap rate plus 105basis points.The full amount of the issue was swapped into a10-year floating-rate through swap transactionshaving a term matching that of the bond issuethrough which the Espresso Group pays a 6-monthEuribor rate and receives a 5.125% fixed-rate paya-ble to bondholders. The fair market value of swapcontracts at December 31, 2004 amounts to€5,435 thousands. The contracts were closed inMarch 2005 resulting in a gain.

The caption includes a €200 million 2000-2005 5-year bond issue, expiring August 1, 2005.

BanksBank loans amount to €15,000 thousand (€17,242thousand at December 31, 2003) and are made upas follows:

Dec. 31, 2003 Dec. 31, 2004Short-term

Overdrafts 2,614 2,669

Current portion of secured loans 1,600 1,643

Current portion of unsecured loans 697 722

Total short-term loans 4,911 5,034

Long-term

Secured loans 10,476 8,833

Unsecured loans 1,855 1,133

Total long-term loans 12,331 9,966

TOTAL 17,242 15,000

Loans consist of the following:

Dec. 31, Short-term Long-term2004

Banca Intesa Mediocredito, 1999 1,237 403 834

Banca Intesa Mediocredito, 2002 1,494 198 1,296



Total secured loans 10,476 1,643 8,833

Efibanca 1,537 598 939

Banca Intesa Mediocredito, 1997 318 124 194

Total unsecured loans 1,855 722 1,133

The above loans are subsidized pursuant to theLaw on Publishing (Law no. 416/81 and subse-quent amendments and integrations).

Secured loans were extended against liens onplant and equipment at the following terms andconditions:

• Banca Intesa Mediocredito: amount extended in1999: €3,293 thousand; interest rate 2.35%;expiration December 30, 2007;




Unsecured loans consist of:

• Efibanca: amount extended in 1997: €5,177thousand; interest rate 3.65%; expiration June30, 2007;

• Banca Intesa Mediocredito: amount extended in1997: €1,071 thousand; interest rate 3.65%;expiration June 30, 2007.

Interest rates are reported net of subsidies providedfor by the Law, equal to 50% of the original rate.

The loan extended by Efibanca is secured by abank guarantee issued by Banca Commerciale Ita-liana (now Banca Intesa) in favor of the company.Such guarantee is also partly secured by €2,500thousand of BTP 3.5% (long-term TreasuryBonds), maturing September 15, 2005, recordedunder “Marketable securities”.

Trade payablesTrade payables amount to €125,827 thousand, up€20,576 thousand on €105,251 at December 31,2003.


The item is made up as follows:

Dec. 31, 2003 Dec. 31, 2004

Paper 28,038 36,653

Printing 20,950 27,811

Transport and distribution 4,480 5,027

Capital goods 12,716 11,046

Freelance work 2,893 3,615

Promotion 6,592 8,727

Sundry supplies 29,582 32,948

Total 105,251 125,827

Paper payables grow by €8,615 thousand due tothe higher number of publishing initiatives pro-duced in-house in the year.

Payables for printing services increase by €6,861thousand due primarily to costs for the comple-tion, in the second half of the year, of la Repub-blica’s full color project and the in-house produc-tion of publishing initiatives.

Capital goods decline by €1,670 thousand duemainly to purchases in 2003 of new rotary pressesand equipment relating to the full color project.

Payables for promotions grow by €2,135 thousanddue the launch at the end of 2004 of the TouringClub Guide book series by la Repubblica andnew multimedia products sold in conjunctionwith L’espresso

Other trade payables grow by €3,366 thousand, dueprimarily to the optimization of payment terms.

Payables to subsidiaries and affiliated companiesThey amount to €96,255 thousand and decline by€6,369 thousand on €102,624 thousand atDecember 31, 2003. The breakdown is given inan attachment showing the relations betweenGruppo Editoriale L’Espresso SpA and otherGroup companies included in the Report of theBoard of Directors.

The item is made up as follows:

Dec. 31, 2003 Dec. 31, 2004

Payables to subsidiaries

• Trade payables 14,655 24,356

• Financial payables 85,546 71,116

• VAT payable 1,838 360

Total 102,039 95,832

Payables to affiliated companies

• Trade payables 585 423

Total 585 423

TOTAL 102,624 96,255

Trade payables relate to subsidiaries

• CPS and Rotosud for the typesetting of weeklymagazine L’espresso and supplements of newspa-per la Repubblica;

• Finegil Editoriale and La Nuova Sardegna for thepre-printing and printing of newspaper la Repub-blica;

• A.Manzoni&C. for the sale of advertising onpublications;

• Kataweb for advertising the newspaper on itsInternet sites and Ksolutions for the provision oftechnological services;

• Somedia for the sale of arrear issues of la Repub-blica and, from 2002, to subscriptions, in additionto arrear issues and promotional campaigns of ma-gazines L’espresso and National Geographic.

Financial payables consist of cash of subsidiariesheld through the intragroup current account,remunerated at market conditions.

Taxes payableTaxes payable amount to €7,843 thousand (€4,471thousand at December 31, 2003) and are made upas follows:


Dec. 31, 2003 Dec. 31, 2004

Income taxes payable 3,776 3,845

VAT payable 516 3,821

Other taxes payable 179 177

Total 4,471 7,843

VAT payable relates to Group VAT payments forDecember (€3,464 thousand) and the accrual oftaxes on the number of copies published subjectto fixed VAT (€357 thousand).

Health and social security institutionsPayables to social security institutions amount to€5,243 thousand (€5,175 thousand at December31, 2003) and are made up mainly of social secu-rity contributions on salaries paid to employees inDecember 2004.

Other payablesOther payables amount to €14,944 thousand(€13,658 thousand at December 31, 2003) and aremade up as follows:

Dec. 31, 2003 Dec. 31, 2004

Payable to personnel forsalary and cost reimbursements 4,887 4,589

Payable to personnel for paid leave 8,073 9,177

Other payables 698 1,178

Total 13,658 14,944

Payables to personnel for paid leave increase by€1,104 thousand on December 31, 2003 due toautomatic pay increases on days of vacationaccrued and not taken by Group employees.

Other payables to personnel relate to retribution,Sunday indemnities, overtime and contractualagreements.

E - Accrued liabilities and deferred incomeThey amount to €26,083 thousand (€17,434 thou-sand at December 31, 2003).

Dec. 31, 2003 Dec. 31, 2004

Accrued liabilities

• Interest 5,449 10,010

• Deferred compensation 813 844

Total 6,262 10,854

Deferred income

• Prepaid subscriptions 7,543 7,839

• Deferred contributions pursuant to art. 8, Law 62/2001 3,597 7,358

• Other deferred income 32 32

Total 11,172 15,229

TOTAL 17,434 26,083

Accrued interest payable includes mainly the sharein the interest expense relating to the 2000-2005bond issue (€5,449 thousand) and the 2004-2014bond issue (€2,738 thousand). The item includesalso interest accrued on interest rate swap con-tracts relating to the new bond issue.

Prepaid subscriptions includes prepaid subscrip-tions of L’espresso, National Geographic and laRepubblica relating to 2005 issues.

Deferred contributions pursuant to article 8 of Law no.62/2001 consist of contributions relating to futu-re years in line with the depreciation of assets towhich they relate.


Memorandum accounts

GuaranteesGuarantees consist of the following:

Dec. 31, 2003 Dec. 31, 2004In favor of subsidiariesRotosud 5,766 5,766


S.E.T.A. 1,192 1,192

EAG 1,736 1,728


Radio Bonton 200 200

Esperya 510 510

Studio Vit 64 66

In favor of third partiesItalmedia 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 grantedagainst a subsidized loan pursuant to Law 416/81and subsequent amendments and integrations.

Guarantees in favor of Finegil Editoriale, S.E.T.A.and EAG were granted against ordinary and subsi-dized loans pursuant to Law 416/81, subsequentamendments and integrations.

Guarantees in favor of Esperya were granted again-st leasing contracts and VAT refunds.

Guarantees in favor of Radio Deejay Kft andRadio Bonton were granted against the opening ofcredit lines with respectively the Central EuropeanInternational Bank (Budapest) and the VseobecnàUverovà Banka (Prague).

Commitments At December 31, 2004, commitments amounted to€112,472 thousand, consisting primarily of the€110 million commitment resulting from theunderwriting of the agreement for the acquisition ofnational TV network Rete A and commitments forthe purchase of new printing equipment for the prin-ting of newspaper la Repubblica (€2,472 thousand).

Other guarantees grantedAmong guarantees granted is a “binding” letterof patronage to S.I.A.E. for an amount of €35thousand in favor of subsidiary Elemedia.

Other memorandum accountsOther memorandum accounts include €26 thou-sand of “third party securities and deposits held”relating to a distribution contract.


Income statement

A- Production value

Revenues from sales and servicesTotal revenues from sales and services amount to€656,416 thousand, up €7,937 thousand on 2003.The breakdown is shown in the table below:

2003 2004

Circulation revenues 367,859 380,826

Net advertising revenues 271,636 267,329

Sale of returns and rejects 3,179 1,948

Provision of services to subsidiariesand affiliated companies 3,885 4,541


Total 648,479 656,416

Net circulation revenues grew by €12,967 thou-sand over 2003 thanks primarily to the success ofproducts sold optionally with la Repubblica andL’espresso.

Circulation revenues of newspaper la Repubblicagrew by €2.6 million on the previous year due tothe continuing success of l’Enciclopedia di Repub-blica and La Storia, registering an average circula-tion of over 283 thousand copies per issue. Circu-lation of the newspaper was stable on 2003 at anaverage of 625 thousand copies per issue.

Revenues of magazine L’espresso grew by about€10.4 million on the previous year, aided by theexceptional level of sales reached by products soldoptionally with the magazine. Among products soldin conjunction with L’espresso, each of the differentart-book series sold in the year almost 60 thousandaverage copies and the La Storia Generale della Let-teratura Italiana series sold an average of over 65thousand copies per issue. L’espresso also managedto acquire rights for the newsstand distribution ofone of the most successful and controversial moviesof the year, Fahrenheit 9/11, selling over 182 thou-sand copies between DVDs and videotapes.

Circulation of the magazine was equal to an avera-ge of 390 thousand copies per issue.

Net advertising revenues decline by €4,307 thou-sand due primarily to the lower circulation of laRepubblica’s supplements.

Revenues from the sale of returns and rejects decli-ned by €1,231 thousand due to lower quantitiesof unsold videotapes and DVD returns recordedby L’espresso.

Change in inventories of work in process, semi-finished and finished goodsThe €332 thousand decline is due both to finishedproducts to be distributed in 2005 and inventoriesat December 31, 2004.

Other revenuesOther revenues increase by €5,219 thousand andare made up as follows:

2003 2004

Rent received 434 441

Extraordinary gains 2,086 2,069

Sundry revenues 109 671

Recovery of costs 2,891 4,391

Reimbursements 253 223

Grants received 1,521 4,883

Other revenues and income 213 48

Total 7,507 12,726

The €562 thousand increase in sundry revenues isdue to the sale of obsolete paper inventories.

Grants received include €847 thousand relating tothe share accrued in the year of tax credits providedon capital expenditure (Law no. 62, March 7,2001, art. 8), and €4,036 thousand of contribu-tions provided for by Law no. 350, December 23,2003 on paper purchases.



Raw materials, auxiliaries and goods

2003 2004Paper 104,415 103,226Printing supplies 1 1,306Products sold optionally with publications 17,504 11,440Publications 1,262 1,337Office supplies and other consumables 434 470Total 123,616 117,779

Paper purchases decline by €1,189 thousand due tothe average 5% decline of paper prices on the pre-vious year. The company is currently a counterpartin a paper swap contract through which it hasfixed the price of part of its paper supplies for itsnewspapers up to the end of 2005. The fair valueof the contract at December 31, 2004 is negativeby €3,480 thousand, widely compensated by theimpact of the decline in the price of paper.

Purchases of printing materials includes the cost ofspare parts for new full color rotary presses thatcame into operation in the year.

Products sold optionally with publications include thecost for the purchase of products sold optionallywith la Repubblica and L’espresso. The €6,064thousand reduction is due to the choice not toacquire finished products for resale in conjunctionwith publications, buying instead the paper andcontracting only the printing outside.

Services

2003 2004Printing and other work carried out by others 120,834 153,304Editing costs 32,591 33,851Promotional services 31,082 35,815Transports 20,933 22,597Postage and telephone 8,034 8,345Agents’ fees 3,395 3,245Maintenance and utilities 2,654 3,054Other operating services 21,277 22,693Total 240,800 282,904

The item increased by €42,104 thousand.

The most significant changes include the cost ofprinting and other work carried out by others, up€32,470 thousand due to costs connected with fullcolor printing and the choice of contracting theprinting of products sold in conjunction withGroup publications outside.

Editing costs grew by €1,260 thousand due prima-rily to extraordinary costs incurred in conjunctionwith the news coverage of the Olympics.

Promotional expenses and transport costs increasedby €4,733 thousand and €1,664 thousand respec-tively due to the higher number of products sold inconjunction with Group publications.

Other operating services grew by €1,416 thousanddue primarily to the increase in the cost of consul-ting services, cleaning and security, as a result ofthe transfer to the new office location in Rome.

Leases and rentals

2003 2004

Reproduction rights, copyrights and royalties 36,403 30,993

Rights on promotions 29 -

Rent and condominium costs 5,043 7,261

Other costs 1,015 1,045

Total 42,490 39,299

Reproduction rights, copyrights and royalties costsdeclined by €5,410 thousand on 2003 due to lowerroyalties paid for products sold optionally withGroup publications.

Rent and condominium costs grew by €2,218 thou-sand and include rent for the new Rome offices.

PersonnelThe detail of the item is included in the balancesheet. Personnel costs amount to €104,027 thou-sand, up from €98,043 thousand in 2003. The€5,984 thousand increase is due to automatic payprogression mechanisms and the growth in earlyretirement incentive costs.


Depreciation, amortization and write-downsAmortization of intangible assets declined slightlyfrom €7,771 thousand to €7,768 thousand.

Depreciation of tangible assets grew from €8,899thousand in 2003 to €10,906 thousand in 2004.

Write-downs of fixed assets in the year amounted to€2,496 thousand.

Intangible and tangible asset amortization/depre-ciation and write-downs for 2004 are shown inAttachments 1 and 2.

Write-downs of current receivables amounted in theyear to €958 thousand (€1,183 thousand at Decem-ber, 31 2004).

Change in inventoriesRaw materials and merchandise inventories grewin 2004 by €227 thousand.

Provisions for risks and charges

2003 2004Accruals to the risk provision 5,911 1,576

The accrual mainly refer to amounts prudentiallyset aside to cover risk that might arise form litiga-tion underway. At December 31, 2003 these inclu-ded the accrual for disputes on social security mat-ters which took into account the restructuring planto the provision for labor litigation made to takeinto account the restructuring plan of STEC, theRoman printer of la Repubblica.

Sundry operating costs

2003 2004Taxes and duties payable 258 315Public relations and gift expenses 445 483Membership fees 444 451Other charges 486 1,389Capital losses - 27Extraordinary losses 1,639 1,735Total 3,272 4,400

Sundry operating costs include €500 thousand ofgifts in favor of the victims of the earthquake in

South-East Asia and €398 thousand costs for therelocation to the new offices in Rome.

Financial income and chargesIncome from investments amount to €27,231 thou-sand (€34,493 thousand at December 31,2004).The breakdown is provided below:

2003 2004Dividends

• from subsidiaries


SELPI 197 157

Editoriale Fvg 2,427 2,426

Elemedia - 4,500

Rotosud 4,433 2,860

CPS 390 520

S.E.T.A. 99 319

• from affiliated companies

Le Scienze - 104

Total dividends 22,075 27,231Tax credit on dividends 12,416 -

Capital gains on sale of investments 2 -

Total 34,493 27,231

Other financial income andincome other than the above

2003 2004

Other income from long-term receivables• From others 42 25Other income from marketable securities• Interest 5,050 742

Sundry income from parent companies, subsidiaries and affiliates• Interest on intragroup current

account balances 1,763 1,128

Total 6,855 1,895

Income other than the above• Interest on current accounts and

short-term deposits 799 46• Interest on tax credits 193 274• Financial income from

swap transactions 8,512 2,738• Sundry financial income 907 2,790

Total 10,411 5,848

TOTAL 17,266 7,743


Interest and other financial chargesThe item was restated due to the creation of newcaption “Foreign – exchange gains (losses)”, as pro-vided for by article 2425 of Legislative Decree no.6/2003. The item breaks down as follows:

2003 2004

From subsidiaries and affiliates

• Interest on intragroup current account balances:

Subsidiaries 1,778 1,508

Affiliates and other companies 1 -

Total 1,779 1,508

From third parties

• Interest on current account overdrafts 26 20

• Interest on loans and financing 529 404

• Interest on bond issues 13,000 15,738

• Costs and commissionson bond issues 240 276

• Financial expense on swap transactions 26,497 1,823

• Other financial charges 2,844 315

Total 43,136 18,576

Total interest and other financial charges 44,915 20,084

The decline in financial charges on 2003 amountsto €24,831 thousand and is due primarily to thenegative market value of interest rate hedging tran-sactions concluded in July 2003.

Foreign exchange gains (losses)

2003 2004

Foreign exchange gains 121 102

Foreign exchange losses (155) (102)

Total foreign exchange gains (losses) (34) –


Write-downs of investmentsChanges in investments are detailed in Attachment4. Write-downs of investments in 2004 amounted to€5,540 thousand and consisted of the following:

2003 2004

Write-down of investments

Kataweb 20,851 -

Rotocolor 674 -

EleTV 270 -

Total 21,795 -

Coverage of previous years’ losses

Kataweb 4,116 5,540

Le Scienze 20 -

Somedia 1 -

Rotocolor 88 -

Other (former Publietas) 1 -

Total 4,226 5,540

Total write-downs and loss coverage 26,021 5,540

Write-down of marketable securitiesWrite-down of marketable securities amounted inthe year to €181 thousand and relate to the write-down of BTPs (Treasury bonds) recorded on thebasis of the lower between cost and market value.


Extraordinary chargesExtraordinary charges amount to €1,065 thousandand relate prevalently to charges on the decommis-sioning of obsolete plant and equipment (€710thousand). The item includes the accrual to the pro-vision for deferred taxes carried out as a result of theelimination of tax-related entries from the financialstatements, involving the provision for reinvestedcapital gains recorded under Shareholders’ Equity.

TaxesTaxes payable for the year amounted to €34,152thousand, net of €1,066 thousand of prepaid anddeferred taxes. They are made up of current taxesamounting to €35,218 thousand, of which €26,026thousand of corporate income taxes (Ires) and€9,192 thousand of regional income tax on produc-tive activities (Irap). The detail of the item is shownin Attachment 9.


Other informationsThe Company is subject to the direction and coor-dination of parent company CIR, as resulting fromthe accounts and correspondence of the company,as well as from the registration made by its Direc-tors on September 28, 2004 with the CompanyRegister. Pursuant to article 2497-bis, paragraph 4of the Italian Civil Code, the present report inclu-des the key financial figures of CIR’s latest appro-ved financial statements, as shown below.

For a correct and complete understanding of thefinancial position of CIR at December 31, 2003, inaddition to the Income Statement of the companyfor the year ended at such date, we refer to theFinancial Statements of CIR, inclusive of the Audi-ting Report, which is available at the company’sregistered 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:


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

INCOME STATEMENT (thousands of euro)

2002 2003

A - Production value 7,926 6,129

B - Production costs 15,538 16,103

C - Financial income (expense) 55,654 144,739

D - Value adjustments to financial assets 21,579 (53,344)

E - Extraordinary items (53) 8,918

Income taxes (1,400) (27,500)

NET PROFIT 68,167 62,839


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| Gruppo Editoriale L’Espresso 2004 | Attachments124


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


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Statement of changes in the Consolidated Shareholders’ Equity

ATTACHMENT 6

Share Share Legal Merger Other Reserve Restatement Netcapital 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


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



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

ATTACHMENT 6/bis

Description Total Uses Share Summary of operations carriedamount 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

Receivables by maturity and nature at December 31, 2004

ATTACHMENT 7

2003 2004

Maturing Maturing Maturing Total at Maturing Maturing Maturing Total atin 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


Payables by maturity and nature at December 31, 2004

ATTACHMENT 8

2003 2004

Maturing Maturing Maturing Total at Maturing Maturing Maturing Total atin 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 socialsecurity 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


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%


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 SheetPrepaid 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 managerspursuant to National Labor Contract 546 33% 180 799 33% 268

Net 180 268


Reclassified Financial Statements

Reclassified Balance Sheet


Net fixed assets 67,458 69,878

Capitalized costs 3,385 9,604


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)


Other reserves 116,723 130,775

Net profit 57,725 70,423

Shareholders' Equity 239,217 266,094

| Gruppo Editoriale L’Espresso 2004 | Reclassified Financial Statements136

Reclassified Income Statement


REVENUES

Circulation 367,859 380,826

Advertising 271,636 267,329


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)


Taxes (34,986) (34,152)

NET PROFIT 57,725 70,423

Reclassified Financial Statements | Gruppo Editoriale L’Espresso 2004 | 137

Statement of Cash Flows


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 ACTIVITIESBEFORE 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)

| Gruppo Editoriale L’Espresso 2004 | Reclassified Financial Statements138

Report of the Board of Statutory Auditors

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

To our Shareholders:

in the year closed December 31, 2004 we carriedout monitoring activities provided by the Law, inapplication of principles adopted by the Italianaccounting profession and regulations issued byConsob with regard to the same.

With regard to its activity, the Board of StatutoryAuditors:• attended all Board of Directors’ Meetings heldin the year in which, pursuant to LegislativeDecree no. 58/98 and the provisions of article 19of the By-laws, receiving from Directors periodi-cal information on main operations of economicand financial relevance carried out by the Com-pany and its subsidiaries, verifying compliancewith the Law and the By-laws. Such operationsare detailed by the Board of Directors in the rela-ted Report. The Board of Statutory Auditors alsoobtained information in an informal way andensured that operations resolved and/or carriedout were not imprudent, did not involve anexcessive degree of risk, were not in contrast withresolutions taken or in potential conflict of inte-rest and, on the contrary, were in line with cor-rect management principles;• acquired information, as relevant and appro-priate, and monitored the adequacy of the orga-nizational structure of the Company, its appro-priateness in relation to the size of the same andthe activity carried out, and the respect of correctmanagement principles through direct observa-tion, gathering of information and meetings withthe independent auditors involving exchange ofdata and relevant informations;• evaluated the adequacy of the internal auditingsystem and of the administrative and accountingsystem, in addition to the reliability of the latterin providing a fair representation of the Com-pany’s operations, by obtaining information onan ongoing basis from persons responsible foreach sector, also reviewing results of work carriedout by independent auditors. In particular, itmonitored the effectiveness of the control systemof subsidiaries and affiliates and the adequacy ofinstructions imparted, also pursuant to article

114, paragraph 2 of Legislative Decree no. 58/98,which were found to be adequate to the structureand size of the Group. No corrective action wasdeemed necessary;• attests that the Board of Directors and the offi-cers of the Company complied with all Lawrequirements, with particular reference to Con-sob regulations;• acknowledged the activity carried out by theindependent auditors, aimed at verifying the regu-lar upkeep of the Company’s accounts and the cor-rect recording of operating transactions so as toallow the preparation of the financial statements asrequired by Law. More specifically, it requestedand obtained extensive information from the inde-pendent auditors regarding work carried out in thecontext of the preparation of the financial state-ments considered here. In meetings held, there didnot emerge aspects of relevance;• verified compliance with laws on the preparationand format of the financial statements and theReport of the Board through direct verificationsand, as mentioned, using information obtainedfrom the independent auditors at meetings heldpursuant to article 150 of Legislative Decree no.58/98. The content of the financial statements wasreviewed and the adoption of correct accountingprinciples was verified;

With reference to the guidelines provided by Con-sob, within the scope of our task, we can attest that:

• information supplied by the Board of Directors onoperations is to be deemed complete. We acknow-ledge the full information provided by the samepursuant to Consob Regulation no. 11971/199 onstock option plans for employees of the Companyand of its subsidiaries;• the Balance Sheet at December 31, 2004 andthe 2004 Income Statement are consistent withthose prepared in the previous year. In complian-ce with Legislative Decree no. 6 dated January17, 2003, the following were performed:- tax-related entries were eliminated in the finan-cial statements and the effect of such operationwas disclosed in the notes to the accounts;- a breakdown of Shareholders’ Equity compo-

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

nents by origin, availability for distribution anduses in previous years was included in the finan-cial statements;- the effect of the accounting of leasing contractsas financial leases was reported in the notes tothe financial statements;- as provided by paragraph 4 of article 2497 bis ofthe Italian Civil Code, main financial data of parentcompany CIR SpA was included in the notes to thefinancial statements. The position of the parentcompany, exercising a directing and controlling roleon the Company, is shown by the records and cor-respondence of the Company, in addition to its regi-stration in the Company Register;• the Board of Statutory Auditors was constantlykept informed on pertinent matters pursuant toLegislative Decree no. 58/98;• periodical verifications and checks that we perfor-med on the Company did not uncover any atypicaland/or unusual operation carried out with thirdparties, related parties or Group companies;• in the Report on operations and the notes to theaccounts of Gruppo Editoriale L’Espresso SpA, towhich we make express reference, the Board ofDirectors provided adequate information withregard to ordinary transactions carried out withother Group companies and other related parties,acknowledging that such transactions were carriedout at standard market conditions and in the intere-st of the Company and the Group. The Board ofStatutory Auditors agrees with such position;• on October 20, 2004 the Board of Directorsapproved the participation of Gruppo EditorialeEspresso Spa in the tax consolidation of CIR, asallowed by the new Testo Unico (income taxcode) regulation.On the same date CIR and its consolidated com-panies signed a general agreement regulatingrights and obligations deriving from the partici-pation to the tax consolidation of CIR;• the provisional report issued on February 22,2005 by independent auditor PricewaterhouseCoo-pers S.p.A. attests, on the basis of controls carriedout up to such date, that the Statutory Accountsand the Consolidated Financial Statements atDecember 31, 2004 truly and fairly represent the

financial position, the profit and consolidated pro-fit of the Company. We therefore expect that thefinal auditing report will not contain exceptions;• in 2004 we attended all Board of Directors mee-tings (7) and all of those of the Executive Commit-tee (2). The Board of Statutory Auditors held 4meetings, of which 2 with the independent auditorsand 1 with the Internal Audit Committee;• the Board of Statutory Auditors did not receiveany report pursuant to article 2408 of the ItalianCivil Code or has any knowledge of any otherdenunciation pursuant to the same received byothers;• during the year the Company appointed inde-pendent auditors PricewaterhouseCoopers SpA tocarry out agreed upon procedures in connectionwith the issue of a €300 million bond, the com-pensation for which amounted, net of expensesand VAT, to €35,000;• in the year the Board of Statutory Auditors didnot issue any opinions pursuant to the Law;• the Company adopted a corporate governancesystem in line with the recommendations containedin the Code of Conduct prepared by the Committeefor Corporate Governance of Listed Companiesand promoted by the Italian Stock Exchange (BorsaItaliana).The corporate government system is updatedwhenever changes are resolved. In particular, inthe course of the year, the Company:- amended its By-laws, already in compliancewith provisions of Legislative Decree no. 58/98,in compliance with new regulations introducedby new Company Law reform (Legislative Decreeno. 6/2003 and subsequent amendments);- complied with disclosure requirements of article2497 bis of the Italian Civil Code, stating its subor-dination to the direction and coordination of parentcompany CIR. Similarly, companies controlleddirectly and indirectly by Gruppo Editoriale L’E-spresso SpA indicated the Company as the subjectthat exercises direction and coordination activities.For a more detailed description of the corporategovernance system, we refer to the report prepa-red yearly by the Board of Directors and availa-ble at the Italian Stock Exchange;

142

- adopted an organizational, management and con-trol model pursuant to Legislative Decree no.231/2001, which includes (i) a list of sensitiveareas; (ii) a Code of Conduct (already approved bythe Board of Directors in 2003); (iii) conduct gui-delines; (iv) general principles of Internal Audit,and (v) control protocols. A Monitoring Boardmade up by independent Directors that are alreadymembers of the Internal Audit Committee and theInternal Auditing Director of the CIR Group over-sees the adequacy of the mentioned model.The Company has moreover introduced lessimportant changes to its corporate governancesystem 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 membersa Committee for Internal Audit, made up exclusi-vely of independent Directors, and a RemunerationCommittee, comprising prevalently non-executiveDirectors;- a specific function ensures the necessary rela-tions with institutional investors and other sha-reholders;- the Company adopts an internal procedure forthe publication outside the Company of docu-ments and news, with particular reference toprice sensitive information;- the Company adopts norms of conduct for thecarrying out of transactions with related parties;- the Company adopts norms of conduct regulatinginformation flows regarding transactions involvingshares in the Company carried out by “relevantpersons” – persons who, due to their position in theCompany, have access to information that, if madepublic, would influence the price of the stock. TheCompany has also appointed a person in charge ofthe implementation of such code;- the Company adopts guidelines for the execu-tion of financial transactions.

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

verifying the compliance with law provisions regu-lating the preparation and format of the financialstatements for the year, we believe the FinancialStatements for the 2004 financial year and the pro-posed allocation of the 2004 net profit, as formu-lated by the Board of Directors in their Report, tobe worthy of your approval.

Report of the Board of Statutory Auditors | Gruppo Editoriale L’Espresso 2004 | 143

Report of the Independent Auditors

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

Financial highlights of subsidiaries

Financial highlights of subsidiaries

(in thousands of euro) Shareholders' Net financial Net Revenues Gross Operating NetEquity 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

| Gruppo Editoriale L’Espresso 2004 | 151

Report on Corporate Governance

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

ForewordGruppo Editoriale L’Espresso S.p.A. (hereinafterthe “company” or “GELE”) adopted a corporategovernance model in line with the recommenda-tions contained in the Self Discipline Code prepa-red by the Corporate Governance Committee ofcompanies listed on the Italian Stock Exchangeand promoted by Borsa Italiana S.p.A. (hereinaf-ter also the “Code”). GELE makes available information relating to thecorporate governance model adopted and otherdocuments of interest to the market both on itsinstitutional site www.gruppoespresso.it, in a sec-tion dedicated to corporate governance, and tothe Italian Stock Exchange.Information is updated whenever changes occurand is available also in English.

Main changes in the corporate governancesystem occurred in the year

Amendments to the By-lawsGELE’s by-laws were amended by the company’sShareholders’ Meeting of April 21, 2004 to bringthem into line with the new company law (Legisla-tive Decree 6/2003 and subsequent amendmentsand modifications). Main changes consisted in:Section I “Incorporation of the Company” a) The Registered Office and Secondary Office ofthe company are indicated making reference onlyto the city (and no longer to the street and num-ber, as previously required); b) The Board of Directors was empowered tocreate, change and suppress also secondary offices. c) The address resulting from the Shareholders’Register was set as the address at which all rela-tionships with the company are to be kept (article2 of the By-laws).Section II “Share capital, shares, bonds,right to put the shares back to the companya) A new article regulating Shareholders’ right toput their shares back to the company, with particu-

lar reference to the conditions, limits and terms ofits exercise (article 8), was added. b) The text of the powers to issue bonds grantedto the Board of Directors by the Shareholders’Meeting of April 6, 2001 was modified and rever-ted to the provisions of article 7 of the By-laws, tokeep into account new provisions of article 2410 ofthe Italian Civil Code pursuant to which, barringother law provisions or as otherwise determined inthe By-laws, the issuance of bonds is resolved direc-tly by the Board of Directors. The amendment aimstherefore at limiting the said powers only to theissuance of convertible and cum warrant bonds.Section III “Meetingsa) The publication of notices of meetings on new-spaper la Repubblica in addition and as an alterna-tive to their publication on the Gazzetta Ufficialedella Repubblica Italiana was provided for. Themaximum term set pursuant to article 2364 of theItalian Civil Code for the calling of the OrdinaryShareholders’ Meeting approving the financial sta-tements was also changed from 4 months to 120days, extendable to 180 days instead of the pre-vious six months in case the conditions set by theItalian Civil Code apply.b) New regulations regarding the right to interve-ne at meetings and representation at the same (arti-cle 11), in addition to a new formulation of termsfor the constitution of meetings and the validity ofresolutions were added (article 12).Section IV “Administration and Company represen-tationa) The exclusion of Directors of the companyfrom the application of non-competition clausespursuant to article 2390 of the Italian Civil Codewas resolved (article 15, last paragraph). b) On the basis of the option provided by article2365 of the Italian Civil Code, the possibility forthe Board of Directors to resolve on reductions inthe share capital, the amendment of the By-laws tocomply with binding law provisions, the transferof the registered office within the national territoryand the merger into the parent company of a

155

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

wholly-owned subsidiary or one in which it ownsat least 90% (ninety percent) of the share capital(article 18, last comma) was provided for.c) Provisions of the By-laws regarding the periodi-cal information provided to the Board of StatutoryAuditors by Directors (article 19) were amended incompliance with new regulations issued for listedcompanies. Additional terms for the calling ofBoard of Directors’ meetings were also introduced.Section V “Board of Statutory Auditors and Accounting Audit” a) It was resolved to: (i) reduce from five to twodays the term within which to deposit at the registe-red office the list of candidates for the position ofAuditor; (ii) to specify among requisites for theappointment of auditors of the company, in additionto the professionalism and honorability of the candi-date, also his/her independence, and (iii) to limit tofive the number of appointments that each auditormay have in listed companies, regardless of thebelonging of some of these to the Group.b) The possibility of holding Board of Statutorymeetings through video and audio conferencing wasintroduced.c) A new article (article 23) specifying that theauditing of the company’s accounts is to be carriedout by independent auditors, as provided by law.

Compliance with provisions of article 2497 of theItalian Civil CodeThe company complied with disclosure requirementspursuant to article 2497 bis of the Italian Civil Code,reporting that it is subject to the direction and coor-dination of parent company CIR SpA.In the same way, companies controlled directly andindirectly by Gruppo Editoriale l’Espresso SpAindicated the same as the entity that exercises direc-tion and coordination activities.

Approval of Organizational Model pursuant toLegislative Decree 231/2001In 2004, the Board of Directors approved the“Organizational model” pursuant to LegislativeDecree 231/2001 and subsequent amendments andmodifications, which includes (i) a map of sensitiveareas; (ii) the Code of Conduct (already approved

by the Board in 2003); (iii) conduct guidelines; (iv)general principles of internal audit, and (v) auditprotocols. The Organizational model aims at pre-venting actions contrary to the law for which thecompany may be held responsible under criminal orcivil law. A Monitoring Body made up by indepen-dent directors that are already members of theInternal Audit Committee and the Director ofInternal Auditing of CIR oversees the applicationof the Organizational model.

Information on the Company’s CorporateGovernance structureThe Company operates in accordance with the pro-visions of the Italian Civil Code regarding joint-stock companies and special regulations relating tocompanies with shares listed in regulated markets. The Board of Directors (hereinafter also the“Board”) is invested with ordinary and extraordi-nary management powers and is empowered tocarry out any action it deems necessary towards theachievement of the corporate goal, with the exclu-sion of those specifically reserved to the Sharehol-ders’ Meeting by law and/or by the By-laws.The Board normally remains in office for three years,though the Shareholder’ Meeting may establish ashorter term, and all its members may be reelected.The Board formed an Executive Committee, anInternal Audit Committee, made up by the soleindependent directors, and a Remuneration Com-mittee. These committees report periodically to theBoard on activities carried out.The Board of Directors moreover delegated theChairman and Managing Directors powers to con-duct ordinary business on the use of which it isperiodically informed.

___

The Board of Statutory Auditors is made up bythree members and three substitute members and isappointed on the basis of the lists submitted by Sha-reholders that hold at least 5% of the share capital.Where more than one list exists, an auditor and asubstitute auditor are reserved to minority Sharehol-ders. Auditors may be reelected.

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

To be eligible, auditors must attest the absence ofcauses for ineligibility pursuant to current regula-tions and must possess the requisites of honorabi-lity, professionalism and independence, as providedby the new formulation of the Italian Civil Code.

The Board of Statutory Auditors operates in accor-dance with the Testo Unico Financial Law (DraghiLaw) and meets in the course of the year withindependent auditors to exchange information.

Main companies of the Espresso Group have ap-pointed independent auditors for the auditing oftheir accounts. Statutory Auditors of these subsi-diaries carry out the activity provided for by theTesto Unico Financial Law.

___

The company adopted regulations for themanagement of Shareholders Meetings, setting inplace a procedure for the treatment of confidentialinformation and one that regulates conduct to bekept in case of transactions with related parties,on which more detailed information will beprovided in the second part of this Report.

An Internal Dealing Code was also adopted toregulate flows of information of transactionsinvolving securities of the company carried out byrelevant persons.

Finally, as mentioned in the introduction of thepresent Report, in 2004 the Board approved the“Organizational model” pursuant to LegislativeDecree 231/2001.

Information on the implementation of the Code of Conduct

Composition and role of the Board of Directors (Art.1-5)The By-laws provide for the Board of Directors tobe invested with ordinary and extraordinary mana-gement powers and to be empowered to carry outany action it deems necessary towards the achieve-ment of the corporate goal, with the exclusion ofthose specifically reserved to the Shareholders’ Mee-

ting by law and/or by the By-laws. The Board ofDirectors reserved to its own judgment any decisionregarding transactions with related parties having asignificant economic, equity or financial impact, asdescribed more in detail further on in this Report(transactions with related parties).

The By-laws of the Company provide for the Boardof Directors to be called quarterly by its Chairmanor any time the Company’s business so requires, alsoupon request of at least two Directors or the Boardof Statutory Auditors or at least two Auditors, afternotice is given to the Chairman of the Board.

In accordance with the By-laws, the Board ofDirectors is called by its Chairman or the personacting in his capacity, by certified letter withreturn receipt, telegram, fax, e-mail or equivalentmeans, at least five days prior to the date of themeeting. In case of urgency, the term for the noti-ce will be reduced to two days.

Board of Directors’ meetings are chaired by itsChairman or, in case he is absent, by one of theVice-Chairmen, if appointed, or, in case neither ofthem is available, by the Company’s ManagingDirector. Board meetings may be held by audio orvideo conference.

The Chairman is also required to deliver to theDirectors, according to the terms and manner esta-blished in agreement with the Managing Directorand in good time before the meeting – with theexception of those cases in which the nature, confi-dentiality and urgency of the resolutions to be takenat the meeting otherwise requires – all documentsand information necessary to allow the Board ofDirectors to take fully informed resolutions on mat-ters submitted to its examination and approval.

Directors of Gruppo Editoriale L’Espresso SpA areaware of the tasks and responsibilities inherent totheir office and the Managing Director is responsi-ble for reporting to the Board of Directors on anylegislative and regulatory change relating to theCompany and its corporate bodies.

Report on Corporate Governance | Gruppo Editoriale L’Espresso 2004 | 157

The Board of Directors regulated the flow of infor-mation from the Chairman, Managing Directorand Executive Committee to the Board, providingfor the same to report periodically on the exerciseof the functions for which they hold proxies, witha frequency set in relation to the activity carriedout, which should at least be quarterly.

The By-laws contain provisions regulating theflow of information to the Board of StatutoryAuditors. Directors are required in fact to reportwithout delay, and in any case at least quarterly,to the Board of Statutory Auditors on the mostimportant economic and financial activities of theCompany, and in particular on operations thatmay result in a potential conflict of interest. Infor-mation may be supplied directly, either in writingor verbally, also by telephone, whenever it is pre-ferable to do so due to urgency.

Directors are required to communicate to otherdirectors and to the Board of Statutory Auditors ofany interest, either direct or on behalf of third par-ties, they may hold in any particular operation.

In 2004 the Board of Directors met seven times,registering an average attendance, either physical orin audio-conference, of about 80% of Directors.Two of these meetings were held to implement themandate given by the Shareholders’ Meeting toincrease the Company’s capital in compliance withstock option plans. At all meetings, the Chairmanand Managing Director informed the Board of acti-vities carried out pursuant to mandates given, brin-ging Directors up to date on major company issues,measures taken and transactions concluded, inclu-ding those carried out with related parties or forwhich a potential conflict of interest could arise.

___

In accordance with the By-laws, the Board ofDirectors is made up by between seven andnineteen members.

The current Board of Directors is made up byseventeen members. Its three-year term will expire

with the approval of the financial statements forthe 2005 financial year.

The Board of Directors currently in office is madeup by: Carlo Caracciolo (Chairman), Marco Bene-detto (Managing Director), Oliviero Maria Brega(non-executive), Cristina Busi (independent), GiuliaMaria Crespi Mozzoni (independent), Carlo DeBenedetti (non-executive), Rodolfo De Benedetti(non-executive), Francesco Dini (non-executive co-opted by the Board of Directors on April 21, 2004),Pierluigi Ferrero (non-executive), Milvia Fiorani(independent), Franco Girard (non-executive),Paolo Mancinelli (independent), Gianluigi Melega(non-executive), Alberto Milla (independent), PieroOttone (non-executive), Alberto Piaser (non-execu-tive), Vittorio Ripa di Meana (non-executive).

Some directors act also as directors in the boardsof other companies listed on a regulated market,of finance companies, insurance companies, banksand unlisted companies of a relevant importance.A list of such positions is included in the tableattached to the present Report.

On February 23, 2005, the Board of Directorsexamined the position of independent directors,verifying for each of them the respect of criteriaestablished by the “Code”.

___

In accordance with the provisions of the By-laws,the Board of Directors appointed among its mem-bers Carlo Caracciolo as Chairman and MarcoBenedetto as Managing Director. The Boardappointed also an Executive Committee made up bythe Chairman, Managing Director and non-executive directors Oliviero Maria Brega, RodolfoDe Benedetti and Alberto Piaser.

The Executive Committee was attributed powers toconduct both ordinary and extraordinary business,with the exception of the acquisition of propertyworth over €2.5 million, the hiring and removal ofthe heads of publications and/or general managers,in addition to operations with related parties. TheExecutive Committee reports to the Board of Direc-


tors on its resolutions at the first available occasion.In 2004, the Executive Committee met twice, with70% of the members attending.

The Board of Directors delegated the Chairmanand Managing Directors powers to conduct ordi-nary business, establishing nature and limit ofspending powers, both individual and joint.

Handling of confidential information (art.6)The company adopted an internal regulation forcommunicating information and delivering docu-ments outside the Company, with particular refe-rence to price sensitive information.

The Managing Director is in charge of handlingconfidential information. In this capacity, theManaging Director makes use of the ExternalRelations office for press releases, and of the Inve-stor Relations office for communications withinstitutional investors.

All other directors, who are bound to confidentia-lity by current regulations, are required to keepconfidential the documents and informationacquired in carrying out their office and to abideto internal procedures regarding confidentiality.

In compliance with the Borsa Italiana Regula-tions, the Company adopted a “Code of Con-duct” relating to transactions carried out by rele-vant persons on financial instruments or instru-ments whose underlying asset is a financial instru-ment issued by Gruppo Editoriale L’EspressoS.p.A. or any other Group company.

More specifically, relevant persons, consisting ofpersons holding top positions in the parent com-pany or its subsidiaries, must communicate to thecompany all transactions carried out by the thirdstock market opening day after the conclusion ofthe transaction, so that the company may commu-nicate them to the market in the appropriate man-ner and timing. If the cumulative value of transac-tions carried out by an individual in the quarterexamined is lower than €50,000, no communica-

tion is made. In case the cumulative value of tran-sactions carried out by an individual in the quarterexamined is between €50,000 and €250,000, thecommunication takes place at the end of the quar-ter. When the cumulative value of transactions car-ried out by an individual in a quarter exceeds€250,000, the communication must be made withinfive stock market trading days subsequent to theconclusion of the transaction that causes the saidlimit to be exceeded.

The Code of Conduct includes among transactionssubject to communication requirements also theexercise of stock options or other option rights.Finally, the Board of Directors reserved to itself theright, delegating it also to its Chairman, to bar orlimit at particular times the carrying out by rele-vant persons of transactions involving financialinstruments issued by the company.

Appointment of Directors (art. 7)The appointment of Directors takes place accordingto the Law, based on proposals made by Sharehol-ders. The Board of Directors has not deemed itnecessary to establish an internal committee toreview proposals for the appointment of Directors,as the proposal of candidates to the Shareholders’Meeting is normally made by the majority sharehol-der. It is customary to deposit curricula of candida-tes to the post of Director in good time before theCompany’s Shareholders’ Meeting so that the com-pany can make the information available to Sha-reholders before the meeting.

The Board of Directors resolves directly in full ses-sion on proposals for the co-opting of new direc-tors that take the place of resigning ones.

Director compensation (art. 8)In accordance with the By-laws, compensation dueto members of the Board of Directors are determi-ned by the Shareholders’ Meeting. Expenses incur-red by Directors in the context of their office arereimbursed.

Pursuant to the By-laws and in accordance witharticle 2389, 2nd comma, of the Italian Civil Code,


compensation of administrators holding specificpositions provided for by the Company’s Incorpora-tion Deed, is determined by the Board of Directorsin agreement with the Board of Statutory Auditors.

The Board of Directors created an internal Com-pensation Committee made up by the Chairman,Carlo Caracciolo, the Managing Director, MarcoBenedetto, non-executive Directors Rodolfo DeBenedetti, Franco Girard and Pierluigi Ferrero,determining its responsibilities pursuant to article 8of the Code.

Whenever the Committee discusses argumentsregarding directly the Chairman and/or ManagingDirector, these leave the meeting, and the relatedresolutions are taken by the remaining members ofthe committee.

In the year, the Compensation Committee mettwice to determine, among other things, the emolu-ment to be paid to the Chairman of the Board for2004, submitting to the approval of the Board ofDirectors a stock option plan in favor of employeesof the Company and its subsidiaries, parent compa-nies and affiliated companies, in addition to a stockoption plan for the Managing Director, described inthe Annual Report.

The Committee reviewed also top managementretributions, providing incentives contingent uponthe achievement of specific targets.

Internal audit (art. 9 - 10)The responsibility for internal audit falls on theBoard of Directors that sets its guidelines and veri-fies its adequacy and proper functioning. To carryout its task in this context, the Board of Directorsestablished an Internal Audit Committee made upby independent directors Cristina Busi, Milvia Fiora-ni, Paolo Mancinelli and Alberto Milla, determiningits responsibilities pursuant to article 10 of the Code.

As mentioned in this Report, independent auditorsthat make up the Internal Audit Committee wereappointed also to the Audit Committee created

pursuant to Legislative Decree 231/2001, due tothe strong identification between the two functions.

To provide a better coordination of supervisoryand control activities, some members of GELE’saudit committee, in their capacity of members ofthe parent company’s audit committee, are alsopart of the respective audit committees of mainGroup companies.

The Company implemented an internal auditsystem enabling it to verify that internal operatingand administrative procedures are followed. Suchsystem is also at the root of the procedures indica-ted in the “Organizational model” mentioned inthe present Report.

The audit system reflects the Group’s structure,organized into business areas made up by compa-nies and operating divisions having own admini-strative and separate control departments.

The Company, moreover, elaborated a reportingand management control system allowing to mana-ge procedures and information flows, providingmanagement with managerial and financial repor-ting at least monthly.

The Managing Director appointed Mr. Fabio Tac-ciaria, General Manager of the Group’s parentcompany and thus hierarchically independent fromthe heads of operating divisions, as Director ofInternal Audit.

The Internal Audit Committee met five times in2004, verifying through periodical meetings withdepartment heads, the Board of Statutory Auditorsand the Independent Auditors, the efficacy andeffectiveness of management procedures, the relia-bility of financial information and the respect ofapplicable norms. No issue worth of note emergedfrom such verifications.

Transactions with related parties (art. 11)

The Board of Directors approves in advance alltransactions involving related parties, as defined byConsob, including transactions within the Group,with the exception of typical or customary transac-tions and those carried out at standard conditions.


Typical or customary transactions are those car-ried out in the normal course of business of theCompany and those that do not pose, in conside-ration of their characteristics, risk or critical fac-tors. Transactions carried out at standard condi-tions are those concluded at the same conditionsapplied by the Company to any other party.

The Board of Directors receives adequate infor-mation on the nature of the correlation, terms ofthe execution, conditions, also economic, for theconclusion and evaluating process adopted for alltransactions subject to its approval. Where thenature, amount or characteristics of the operationso require, the Board of Directors seeks the aid ofindependent experts.

In operations with related parties that are subject tothe approval of the Board of Directors, directorsfinding themselves in a potential conflict of interestinform in good time and in full the Board withregards to the existence of the same and the relatedcircumstances. After the discussion, the said direc-tor leaves the meeting in view of voting or, in casethe majority of directors present so requires,remains in the room but abstains from voting.

For transactions with related parties, includingthose involving other Group companies, that arenot subject to the approval of the Board of Direc-tors as either typical, customary or carried out atstandard conditions, executive Directors will ensurethat adequate information, also relating to specifictypes or group of operations, regarding their natu-re, terms and conditions, including economic, ofexecution is kept on record.

Relations with institutional investorsand Shareholders in general (art. 12)The person responsible for relations with sharehol-ders in general and, in particular, with institutionalinvestors, is Mr. Alessandro Alacevich, Director ofInvestor Relations, who, together with the Com-pany’s Managing Director and top management,entertained in the year continuous relationshipswith institutional investors.

In 2004 the activity was carried out through inter-national road shows in all main internationalfinancial centers, in addition to frequent conferen-ce calls and individual meetings.

Shareholders’ Meetings (art. 13)The Company adopted a set of Rules, that is notpart of the By-laws, regulating the orderly andfunctional holding of Shareholders’ Meetings, bothordinary and extraordinary, of the Company. The Rules uphold the right of any Shareholder tointervene in the discussion relating to the businessin agenda.

Board of Statutory Auditors (art. 14)According to the By-laws, the Board of StatutoryAuditors is made up by three Auditors and threeSubstitute Auditors, appointed for a term of threeyears. Auditors may be re-appointed. Minorityshareholders are entitled to the appointment ofone Auditor and one Substitute Auditor.

The appointment of the Board of Directors takesplace from lists submitted by shareholders inwhich candidates are indicated next to a numeral.Only shareholders who, either individually or ingroups represent at least 5% of the voting sharesare entitled to submit a list of candidates.

Lists submitted by Shareholders must be depositedtogether with related curricula and documents pro-ving that they possess the requirements to be sub-mitted, at the Company’s Registered Office at leastfive days prior to the date set for the Shareholders’Meeting on first call, so that the notice of the mee-ting shall include mention of such lists being submit-ted. Together with each list, within the same term,candidates submit declarations with which candida-tes accept the candidacy and attesting, under theirown responsibility, that there does not exist any rea-son preventing the appointment or any conflict rela-ting to the same, in addition to the existence of therequisites for the appointment to the respective offi-ces provided either in the By-laws or other regula-tions. Lists that do not possess the above requisiteswill be considered as not submitted.


Tabl

e 1

- Co

mpo

sitio

n of

Boa

rd o

f D

irect

ors

and

Com

mitt

ees

Boar

d of

Dire

ctor

sIn

tern

al A

udit

Rem

uner

atio

n Op

tiona

l Op

tiona

lCo

mm

ittee

Com

mitt

eeAp

poin

tmen

ts C

omm

ittee

Exec

utive

Com

mitt

ee

Post

Dire

ctor

sex

ecut

ive

non

inde

pend

ent

***

Num

ber o

f**

***

****

***

***

****

*ex

ecut

ive

othe

r pos

ts *

Chai

rman

Carlo

Car

acci

olo

X10

0%1

X10

0%X

50%

Man

agin

g Di

rect

orM

arco

Ben

edet

toX

86%

-X

100%

X10

0%

Dire

ctor

Oliv

iero

Bre

gaX

100%

1X

100%

Dire

ctor

Cris

tina

Busi

X57

%-

X60

%

Dire

ctor

Giul

ia M

aria

Cre

spi

X14

%-

Dire

ctor

Carlo

De

Bene

detti

X29

%7

Dire

ctor

Rodo

lfo D

e Be

nede

ttiX

100%

6X

100%

X50

%

Dire

ctor

Fran

cesc

o Di

ni (1

)X

100%

1

Dire

ctor

Pier

luig

i Fer

rero

X10

0%3

X10

0%

Dire

ctor

Milv

ia F

iora

niX

100%

-X

100%

Dire

ctor

Fran

co G

irard

X57

%5

X50

%

Dire

ctor

Paol

o M

anci

nelli

X10

0%1

X80

%

Dire

ctor

Gian

luig

i Mel

ega

X86

%-

Dire

ctor

Albe

rto M

illa

X71

%6

X60

%

Dire

ctor

Pier

leon

e M

igna

nego

X

86%

-

Dire

ctor

Albe

rto P

iase

rX

100%

2X

50%

Dire

ctor

Vitto

rio R

ipa

di M

eana

X43

%6

Num

ber o

f mee

tings

in th

e ye

arBo

D: 7

Inte

rnal

Aud

it Co

mm

ittee

: 5Re

mun

erat

ion

Com

mitt

ee:2

Exec

utiv

e Co

mm

ittee

: 3

NOTE

S*

This

col

umn

show

s th

e nu

mbe

r of D

irect

or o

r Aud

itor p

osts

hel

d by

the

rela

ted

pers

on in

oth

er c

ompa

nies

list

ed in

regu

late

d m

arke

ts e

ither

dom

estic

or i

nter

natio

nal,

in fi

nanc

e co

mpa

nies

, ban

ks,

insu

ranc

e co

mpa

nies

or o

ther

com

pani

es o

f rel

evan

t size

. In

the

Corp

orat

e Go

vern

ance

Rep

ort,

post

s ar

e in

dica

ted

in fu

ll.

**Th

e sy

mbo

l "X"

in th

is c

olum

n in

dica

tes

that

the

Dire

ctor

is a

mem

ber o

f the

rela

ted

Com

mitt

ee.

***

The

colu

mn

indi

cate

s th

e pe

rcen

tage

atte

ndan

ce o

f Dire

ctor

s re

spec

tivel

y to

Boar

d an

d Co

mm

ittee

mee

tings

.

(1)

Co-o

pted

by t

he B

oD o

n Ap

ril 2

1, 2

004

in re

plac

emen

t of D

irect

or A

nton

io G

rigol

ini.



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 StatutoryAuditors (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.


Table 3 - Other provisions contained in the Code of Conduct

YES NO Reasons for possible discrepancy fromrecommendations of the Code

Proxies and related partiesHas the BoD given proxies defining their:a) limits Xb) exercise Xc) and reporting frequency? X

Has the BoD reserved to itself the review and approval of transactionstransactions having a particular economic and financial relevance(including those with related parties)? X

Did the BoD define guidelines and criteria for theidentification of "significant" transactions? X

Are the above guidelines and criteria described in the Report? X

Has the BoD defined appropriate procedures for the reviewand approval of transactions with related parties? X

Are procedures for the approval of transactions withrelated 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 positionof Director taken place at least ten days prior to the voting? X

Were names of candidates to the position of Directorsaccompanied by adequate information? X

Were names of candidates to the position of Directors accompanied by the indicationof the qualifications necessary for the candidate to qualify as independent? X

Has the deposit of names of candidates for the position of Auditortaken place at least ten days prior to the voting? X

Were names of candidates to the position of Auditoraccompanied by adequate information? X

MeetingsHas the company approved a set of Meeting Regulations? X

Are Meeting Regulations attached to the Report (or is there anindication of where they are available/downloadable)? X

Internal AuditHas the company appointed internal auditors? X

Are internal auditors hierarchically independentof 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 RelationsHas the company appointed a head of investor relations? X

Organizational unit and references of the Investors Relations Head:Investor Relations Director's Office X

List of positions held by directors of Gruppo Editoriale L'Espresso SpA in other companies listed on a regulatedmarket, 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 SpAManaging Director of Cofide SpA and CIR SpADirector 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 SpADirector 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 SpADirector 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 SpADirector of Generali SpA, Sigma Tau Finanziaria SpA,Sir Rocco Forte Roma and Firenze Spa, Agenzia Ansa


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