Financial statements 58 Notes 62 Annexes 119 Report of the Independent Auditors 128

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2 Contents Presentation General information Italcementi S.p.A. Directors, Officers and Auditors 5 Italcementi Group in the world 6 Financial highlights 9 Italcementi S.p.A. on the Stock Exchange 10 Annual Report Directors report Results and significant events for the year 17 The international economy and industry trends 19 Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Consolidated financial statements Financial statements 58 Notes 62 Annexes 119 Report of the Independent Auditors 128 Parent company financial statements Financial statements 130 Report of the Independent Auditors 134 Summary of resolutions 136 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160

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5 The photos represent the cement plants of the Group in North America. Italcementi S.p.A Via G. Camozzi, Bergamo - Italy Share capital e 282,548,942 Bergamo Companies Register Company subject to management control and co-ordination by Italmobiliare S.p.A.

6 Format of the Annual Report This Annual Report has been prepared in English for the convenience of international readers. It is based on the Italcementi S.p.A. consolidated financial statements prepared in Italian and in accordance with the International Financial Reporting Standars (IAS/ IFRS). This document also contains the translation of the statements (balance sheet, income statement, changes in equity and cash flow) drawn up in compliance with IAS/ IFRS of the parent company Italcementi S.p.A., as well as the section Corporate Governance, also part of the separate Annual Report of Italcementi S.p.A. and the Summary of resolutions. The full documentation of the 2006 separate Annual Report of Italcementi S.p.A. is published in Italian on the internet site 4

7 Presentation General information Italcementi S.p.A. Directors, Officers and Auditors 5 Annual Report Italcementi Group in the world 6 Corporate governance Financial highlights 9 Italcementi S.p.A. on the Stock Exchange 10 Italcementi S.p.A. Directors, Officers and Auditors (Positions held at the date of the Shareholders Meeting) Antonio Catani Honorary Chairman Board of Directors (Terms ends on approval of financial statements at ) Giampiero Pesenti 1 Chairman Giovanni Giavazzi Deputy Chairman Pierfranco Barabani 1 Executive Deputy Chairman Carlo Pesenti 1 Chief Executive Officer - CEO Alberto Bombassei 4 Alberto Clô 3-4 Federico Falck 3-4 Danilo Gambirasi Bruno Isabella Karl Janjöri 2-4 Italo Lucchini 2 Sebastiano Mazzoleni Yves René Nanot 1 Massimo Pellegrini 4 Marco Piccinini Ettore Rossi Attilio Rota Emilio Zanetti 2-4 Paolo Santinoli 6 Secretary to the Board Board of Statutory Auditors (Term ends on approval of financial statements at ) Acting Auditors Maria Martellini Chairman Claudio De Re Claudio Cavalli Substitute Auditors Eugenio Mercorio Dino Fumagalli 5 Pietro Curcio Rodolfo Danielli Chief Operating Officer - COO Reconta Ernst & Young S.p.A. Independent Auditors 1 Member of the Executive Committee 2 Member of the Remuneration Committee 3 Member of the Internal Control Committee 4 Independent Director (in accordance with the Code of Conduct) 5 Member of the Compliance Committee 6 Secretary to the Executive Committee 5

8 Italcementi Group in the world (as of 31 December 2006) NORTH AMERICA ESSROC CIMENT QUEBEC ESSROC SAN JUAN RIVERTON MOROCCO CIMENTS DU MAROC EGYPT SUEZ CEMENT TOURAH CEMENT HELWAN RMB TURKEY SET ANADOLU AFYON 6

9 Presentation General information Italcementi S.p.A. Directors, Officers and Auditors 5 Annual Report Italcementi Group in the world 6 Corporate governance Financial highlights 9 Italcementi S.p.A. on the Stock Exchange 10 FRANCE CIMENTS FRANÇAIS CIMENTS CALCIA GSM UNIBÉTON AXIM ITALY ITALCEMENTI CALCESTRUZZI CTG SOCIETÀ DEL GRES AXIM SPAIN FINANCIERA Y MINERA BULGARIA DEVNYA CEMENT VULKAN BELGIUM CCB GREECE HALYPS CEMENT CYPRUS VASSILIKO CEMENT KAZAKHSTAN SHYMKENT CEMENT INDIA ZUARI CEMENT SRI VISHNU TERMINALS Albania, Gambia and Sri Lanka Mauritania (grinding center) THAILAND JALAPRATHAN CEMENT ASIA CEMENT 7

10 Letter to the stakeholders Growth inspired by shared values 2006 was a year of further performance improvements for our Group: revenues gained 17.1% (to 5.85 billion euro), gross operating profit increased by 25.5% (to 1.44 billion euro), operating profit rose by 32.2% (to 1.01 billion euro), and total net profit reached 651 million euro, an improvement of 20.5%. These results have set new records and were achieved through significant contributions from all the lines of business in which the Group s 22,850 employees work. Another important growth factor was the broad geographical base of our international operations, a market diversification trend that is set to continue. Last year s investments in fixed assets (773 million euro) helped us strengthen operations in the emerging nations (Egypt, India and Turkey) and upgrade industrial facilities in the mature countries (Italy, France, Spain and North America). The Group s business growth is accompanied by an ever greater focus on Corporate Governance, which, in our organization, stands for business ethics together with the creation of value in a context of sustainable development. Our progress in this area reached an important milestone last year with the presentation of the Italcementi Group Charter of Values, a document that sets out the fundamental principles of the Italcementi Codes of Governance and the goals of the Group s Sustainable Development strategy, presenting them as a cohesive whole. The Charter of Values is the point at which the individual ethics of each employee converge with the ethics of the corporate body. It encompasses the undertakings assumed by the enterprise and by our workers, placing the individual at the heart of Italcementi s development so that our common growth is fuelled by the contribution of each individual. The values declared by the Charter constitute a force for the growth and progress of a Group active in 19 countries, compatibly with the environment, with human rights, with the unique social and cultural attributes of each population and each country, as part of an on-going commitment for a better quality of life and the advancement of the communities of which the Group is a member. This is our guiding vision as we strive to recognize and enhance the specific characteristics of each community and each individual. Giampiero Pesenti Chairman Carlo Pesenti Chief Executive Officer 8

11 Presentation General information Italcementi S.p.A. Directors, Officers and Auditors 5 Annual Report Italcementi Group in the world 6 Corporate governance Financial highlights 9 Italcementi S.p.A. on the Stock Exchange 10 Financial highlights Breakdown of consolidated revenues by business (in millions of euro) %change Cement 3,161 3, Ready mixed concrete/aggregates 1,618 1, Sales volumes and internal transfers by business * change at constant size 64.0 Other businesses Total 5,000 5, * * changes at constant size and exchange rates +13.4% % % % 63.2% 65.7% +4.1%* +8.1%* +2.3%* 4.4% 4.4% Cement and clinker (Mt) Aggregates (Mt) Ready mixed concrete (Mmc) 32.4% 29.9% Group business and financial highlights (in millions of euro) IFRS IFRS IFRS Revenues 5,854 5,000 4,528 4,285 4,262 Recurring gross operating profit 1,447 1,153 1,091 1,061 1,109 Gross operating profit * 1,434 1,137 1,096 1,061 1,109 Recurring gross operating profit in milions of euro European Union 1,153 1, % 50.6% Operating profit Net profit for the year Group net profit Investments in fixed assets 773 1, Total shareholders equity 4,660 4,356 3,090 2,825 2,837 North America 11.4% 10.8% Group shareholders equity 3,298 3,037 2,399 2,186 2,128 Net debt 2,210 2,215 1,569 1,798 2,086 Other 32.7% 38.6% Number of employees at December 31 22,868 21,854 17,377 17,102 17, * compared with recurring gross operating profit, includes non-recurring income and expense 9

12 Italcementi S.p.A. on the Stock Exchange 1 Share capital and shareholders 1.a Share Capital at At Italcementi S.p.A. share capital was e 282,548,942 represented by 282,548,942 shares with a par value of e 1 each, of which 177,117,564 ordinary shares and 105,431,378 savings shares. Ordinary shares 63% Savings shares 37% Free float % Italmobiliare % Goldman Sachs Goldman Sachs Asset Management 2.968% Schroder Investment Management Limited 2.034% Own Shares 1.898% 1.b Ordinary shares Survey of shareholders with over 2% of the share capital at of the share capital at based on information in the shareholders' register, from Consob, and other available information). 1.c Ordinary shares Breakdown of free float Shareholders listed in the shareholders' register: 15,586. Foreign Banks 18% Private Individuals 22% Foreign Funds 32% Italian Banks 8% Italian Companies 4% Conto Omnibus 3% Italian Insurance Companies 3% Foreign Companies 3% Italian Funds 3% Foreign Insurance Companies 3% Other 1% Ticker symbol Italcementi Italcementi bearer Italcementi registered ordinary shares savings shares savings shares BLOOMBERG: IT IM ITR IM - REUTERS: ITAI.MI ITAIn.MI - ISIN: IT IT IT

13 Presentation General information Italcementi S.p.A. Directors, Officers and Auditors 5 Annual Report Italcementi Group in the world 6 Corporate governance Financial highlights 9 Italcementi S.p.A. on the Stock Exchange 10 2 Share prices and market capitalization Share price Capitalization From to (euro) (milions of euro) at high low at at high low at Ordinary shares ,785 4,274 2,716 4,003 Savings shares ,121 1,659 1,095 1,540 Total 3,906 5,933 3,811 5,543 Ultimo Mibtel index 26,958 33,318 26,543 31,868 S&P/MIB index 35,962 42,993 34,850 41,155 2.a Italcementi share prices, "Ultimo Mibtel" index and "S&P/MIB" index Italcementi shares (euro) 25 48, , , , , , , , , , , , Jan Jan Jan Feb Feb Mar Mar Apr Apr May May June June July July July Aug Aug Sept Sept Oct Oct Nov Nov Dec Dec Jan Jan Jan Feb Feb. 07 "Ultimo Mibtel" and "S&P/MIB" indices Italcementi ordinary shares Italcementi savings shares 2.b Italcementi shares, "Ultimo Mibtel" index and "S&P/MIB" index performance (base = 100) Jan Jan Jan Feb Feb Mar Mar Apr Apr May May June June July July July Aug Aug Sept Sept Oct Oct Nov Nov Dec Dec Jan Jan Jan Feb Feb. 07 Ultimo Mibtel index S&P/MIB index Value Italcementi ordinary shares Italcementi savings shares Ultimo Mibtel index S&P/MIB index 11

14 2.c Average monthly capitalization 5,500,000,000 5,000,000,000 4,500,000,000 4,000,000,000 3,500,000,000 euro 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000, ,000,000 0 January 2006 February March April May June July August September October November December January February 2007 Italcementi savings shares Italcementi ordinary shares Total Capitalization 3 Trading volume on the Italian Stock Exchange (euro) Month Ordinary shares Savings shares Number of Average Number of Average traded monthly Trade traded monthly Trade shares price value shares price value January ,059, ,905,190 5,362, ,948,196 February 12,701, ,711,692 5,188, ,981,762 March 18,975, ,580,766 6,905, ,079,997 April 12,739, ,401,576 4,303, ,700,988 May 28,412, ,226,293 12,896, ,614,144 June 20,005, ,851,113 8,773, ,807,211 July 14,788, ,568,548 3,569, ,331,274 August 14,296, ,399,240 4,034, ,250,089 September 16,975, ,602,397 3,725, ,688,954 October 17,302, ,821,233 6,856, ,895,695 November 14,859, ,244,902 8,420, ,959,196 December 8,913, ,365,401 4,476, ,894,168 January ,186, ,997,964 8,650, ,651,041 February 18,488, ,273,073 6,779, ,190, ,705,115 4,515,949,388 89,941,623 1,170,993,480 12

15 Presentation General information Italcementi S.p.A. Directors, Officers and Auditors 5 Annual Report Italcementi Group in the world 6 Corporate governance Financial highlights 9 Italcementi S.p.A. on the Stock Exchange 10 3.a Turnover euro 600,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 80,000,000 40,000,000 0 January 2006 February March April May June July August September October November December January February 2007 Italcementi savings shares Italcementi ordinary shares 4 Financial indicators (euro) Italcementi S.p.A. Market price (annual average official prices): - Ordinary share Savings share Dividends: - Ordinary share (1) (2) Savings share (1) (2) Dividend yield (on annual average official prices): - Ordinary share 1.87% 2.48% 2.78% 2.82% 2.83% - Savings share 3.10% 3.79% 4.68% 5.31% 6.01% (1) proposal of Board of Directors, March 7, 2007 (2) for 2003 dividend, paid in 2004, an additional extraordinary dividend of 0.05 euro was paid to both classes of share as part of the celebrations marking the company's 140 th anniversary. 13

16 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 14

17 Annual Report 15

18 Directors report Following the adoption by the European Union of Regulation no of 2002, the Italcementi S.p.A. consolidated financial statements for 2006 have been drawn up in compliance with the International Accounting and Financial Reporting Standards (IAS/IFRS), as are the comparatives for financial year 2005, which have already been published. The changes that have taken place in the reporting standards and interpretations compared to 2005 are set out in detail in the notes, in the section Declaration of compliance with the IFRS. According to the aforementioned Regulation, the principles to be adopted do not include the standards and interpretations published by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) at December 31, 2006, but not adopted by the European Union at that date. Furthermore, the European Union adopted additional standards/interpretations, which Italcementi S.p.A. will apply as from January 1, 2007, having decided not to elect early application. A full description of the changes in the consolidation area is provided in the notes. The most important changes compared to 2005 concern the companies in the cement sector in Egypt, which were consolidated on a line-by-line basis for the entire period in 2006 and for only part of the period in 2005: as from April 2005 the companies in the Suez Cement Group; as from August 2005 Helwan Cement Ltd. (previously Asec Cement Company, which merged into the Suez Group). As from June 1, 2006, following acquisition of full control, the Indian company Zuari Cement Ltd. and its subsidiary Sri Visnu Cement Ltd., previously consolidated on a proportionate basis, have been consolidated on a line-by-line basis. As from October 1, 2006 the ready mixed concrete business in Egypt has been consolidated on a line-by-line basis. This business is conducted by Ready Mix Beton Egypt S.A.E. (RMBE) and Ready Mix Beton S.A.E. (RMB). 16

19 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Results and significant events for the year In a still generally upbeat international economic climate, the construction sector as a whole expanded, although growth slowed in the second part of the year, owing to disparate market trends in the so-called mature countries. In this favorable economic scenario, and with the enlargement in the consolidation area, the Group reported record results in 2006, despite the impact of the sustained rise in energy prices and in operating expenses generally, which intensified in the final part of the year. Results Consolidated revenues totaled 5,854.1 million euro, up 17.1% from 2005 (+13.4% at constant size and exchange rates); recurring gross operating profit of 1,446.9 million euro was up by 25.5% from 2005; operating profit, after a sharp rise in amortization and depreciation charges owing to the enlargement in the consolidation area, rose by 32.2% to 1,012.3 million euro; net profit for the year, despite higher finance costs and tax expense, grew by 20.5% to million euro; Group net profit rose by 14.9%, from million euro to million euro. Minority interests, thanks to the contribution from the Egyptian companies, rose by 35.2%. Net debt at December 31, 2006, stood at 2,210.3 million euro, down slightly (4.7 million euro) from the end of 2005 thanks to significant cash flow from operations, which offset the high level of industrial and financial investments and dividends paid. Total shareholders equity, at 4,660.2 million euro, rose by million euro from December 31, 2005, while Group shareholders equity stood at 3,298.5 million euro, up by million euro. Significant events in the year Since January 1, 2006, the international authorities no longer consider Turkey a hyperinflationary country. Therefore, International Accounting Standard 29 (Financial Reporting in Hyperinflationary Economies) is no longer applied to the financial statements of the Group s Turkish companies. At the end of May, through the sub-holding Ciments Français S.A., the Group purchased the interest held by Zuari Industries Ltd. in the equally owned joint venture Zuari Cement Ltd., thus achieving full control of the Indian subsidiary. The investment, including the non-voting preference shares held by Zuari Industries Ltd., was million euro. During 2006, through the French sub-holding SADECIB, the Group acquired for 89.4 million euro an equity investment, consisting of class B shares and representing approximately 29.1% of the entire share capital, in the Turkish company Goltas Cimento. This class of shares has limited rights compared to the other shares- class A -that make up the company s share capital, which entitle holders, inter alia, to appoint the members of the Board of Directors. The investment was undertaken with a view to strengthening the Group in the Mediterranean area and to realizing a possible profitable merger with our industrial facilities in the neighboring region of central Anatolia. Goltas Cimento owns an efficient cement plant in south-west Turkey, with annual production capacity of 2.1 million metric tons of clinker, a controlling interest in a company (Goltas RMC) active in ready mixed concrete, and a significant internal hydroelectric power production capacity. In October, Suez Cement Company formalized the agreement, with an investment of around 11 million euro, to buy an equity investment of 52% in the share capital of Ready Mix Beton Egypt S.A.E. and Ready Mix Beton S.A.E., leading companies in Egypt s ready mixed concrete 17

20 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 sector. The operation will enable the Group to achieve significant synergies with the acquisition of an operator running 9 plants, 5 of which in the Cairo area where the Suez Cement Group has 3 cement plants, in a sector offering good growth prospects. In December, Italcementi S.p.A. signed a partnership agreement with the Mercury Group, one of the leading industrial groups in Kazakhstan, and the Sembol Group, the division of Turkey s Tamince group active in the construction sector, to realize two new cement plants in south-east and west Kazakhstan. The integration of the new plants (equipped with leading-edge technology and each with a production capacity of 1.3 million metric tons) with the Shymkent Cement production facility will create the largest operator in the sector in central Asia with a total capacity of over 3 million metric tons. Italcementi, which will manage the new plants, will have an equity investment of 50%, while the other partners will control the remaining 50%. In December, the cornerstone was laid for the ITCLab, Innovation and Technology Central Laboratory, the Italcementi Group s new research and innovation center located in the Kilometro Rosso science park just outside Bergamo, which will house a variety of interdisciplinary public and private research initiatives. The ITCLab project, assigned to Richard Meier, envisages the construction, by early 2009, of a building on a surface area of 11,000 square meters, of which 7,500 will be set aside exclusively for research laboratories. The building will also be a center of excellence in terms of sustainable architecture and environmental compatibility, with the aim of obtaining certification for compliance with the Leadership in Energy and Environmental Design standards, the most important and exacting American ratings system for energy and the environment in the construction sector. As set out in more detail in notes no. 13 and no. 15, during 2006, to service its stock option plans, Italcementi S.p.A. availed itself of the authorization granted to the Board of Directors by the Shareholders' Meeting of April 13, 2006, to purchase 1,022,538 ordinary treasury shares, representing approximately 0.6% of the ordinary share capital, for an overall amount of approximately 18.9 million euro. Following the exercise during the year of 1,606,057 options by plan beneficiaries, Italcementi S.p.A. sold a corresponding number of ordinary treasury shares at an average unit price of euro, based on the prices set at the option grant dates. As a consequence, at December 31, 2006, Italcementi S.p.A. held 3,361,583 ordinary treasury shares, representing 1.9% of total ordinary share capital. 18

21 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 The international economy and industry trends 2006 saw the consolidation of the upward cycle in the world economy, which, for the fourth consecutive year, recorded growth rates well above the long-term averages; the favorable economic phase also spread to areas, like the euro zone, whose growth rates had long been more limited. In these conditions, the rise in energy prices up until the summer of 2006 produced only a marginal slowdown in the international cycle. Although inflation showed signs of accelerating, it remained broadly under control. The average euro exchange rate with the dollar was substantially stable for the third consecutive year, albeit with widely differing trends during the year. The strengthening in the European economy, especially in Germany, and the more restrictive stance adopted by the European Central Bank caused a gradual appreciation of the euro, while the improvement in internal demand helped to limit the negative impact on euro zone exports. The construction sector continued to benefit from the solid income trend and low interest rates. However, after a long period marked by a common upward trend, conditions began to differ on the individual domestic markets in the mature countries, with fears of market saturation, especially in the residential segments most exposed to speculative bubbles, becoming a significant factor in some countries. In the United States, residential construction went into recession in the second half of The downturn was abrupt and affected the aggregate industry result, despite the continuation of healthy business levels in the private and public non-residential sectors. In the euro zone countries where the Group operates, a slight increase in the Italian construction market was in contrast to excellent trends in all the other markets, particularly Spain and Greece. In the emerging countries where the Group operates, the overall situation was very positive, with various markets enjoying double-digit growth and healthy business activity everywhere; the exception was Thailand, where the uncertain political situation has induced a mood of great caution among domestic and foreign business operators, which has now also affected the construction sector. 19

22 Business and financial performance in 2006 Key consolidated figures % change (in millions of euro) vs Revenues 5, , Recurring gross operating profit 1, , % of revenues Other non-recurring income (expense) (12.4) (16.1) (23.2) Gross operating profit 1, , % of revenues Amortization and depreciation (420.3) (368.5) 14.1 Impairment (1.9) (2.3) (15.4) Operating profit 1, % of revenues Finance income (cost) (105.4) (48.9) Share of results of associates (39.2) Profit before tax % of revenues Income tax expense (266.9) (195.0) 36.9 Net profit for the year % of revenues Group net profit Minority interest Cash flow from operating activities Investments in fixed assets ,209.4 (36.1) Quarterly trend Full year 4Q 3Q 2Q 1Q (in millions of euro) Revenues 5, , , , ,290.2 % change vs Recurring gross operating profit 1, % change vs % of revenues Gross operating profit 1, % change vs % of revenues Operating profit 1, % change vs % of revenues Net profit for the period % of revenues Group net profit % of revenues Net debt 2, , , , ,162.3 (at period end) 20

23 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Fourth quarter 2006 In the fourth quarter of 2006, the Group recorded a positive trend in year-on-year sales volumes in all the core businesses: +3.1% in cement and clinker, +18.1% in aggregates and +6.6% in ready mixed concrete, on a constant size basis. The progress in cement and clinker sales involved all the regions except for North America (-2.0%), and reflected growth in domestic sales volumes (+7.2%), while less profitable exports fell. The trend in cement sales prices was positive, with improvements everywhere, although performance varied significantly from one market to another. Consequently, the fourth quarter saw further significant growth in revenues compared to the same period in 2005 (+14.4%), but progress in operating results was largely annulled by the increase in both variable and fixed operating expenses. The former were particularly influenced by the rise in fuel prices, above all in petroleum coke, one of the Group s main energy sources, and by significant purchases of clinker and cement from third parties to make up for the saturation of available capacity or momentary production shortfalls in some countries. Fixed costs were mainly affected by higher employee expenses largely arising on contractual commitments stipulated in the second half of the year, higher costs for plant maintenance work, and higher general and administrative expenses fourth-quarter net profit was down on the prior-year fourth-quarter result, largely influenced by finance costs, net of finance income and tax expense, whereas significant nonrecurring income was posted in the fourth quarter of Sales volumes and internal transfers Sales volumes by geographical region (*) Cement and clinker Aggregates ** Ready mixed concrete (in millions of metric tons) (in millions of metric tons) (in millions of m 3 ) 2006 % change on % change on % change on 2005 Historic Constant Historic Constant Historic Constant size size size European Union North America 7.0 (1.3) (1.3) 0.2 (6.4) (6.4) Med Rim emerging countries Asia (6.9) (6.9) Trading Eliminations (5.7) n.s. n.s Total European Union: Italy, France, Belgium, Spain, Greece - North America: U.S.A., Canada - Med Rim emerging countries: Egypt (Suez Cement as from April 2006, Asec Cement as from August 2006, RMB and RMBE as from October 2006), Turkey, Bulgaria, Morocco - Asia: India, Thailand, Kazakhstan (*) amounts refer to companies consolidated on a line-by-line basis and, pro-quota, to companies consolidated on a proportionate basis (**) excluding outgoes on work-in-progress account n.s.: not significant 21

24 At constant size, Group sales volumes in 2006 grew in all business sectors. The positive trend in volumes achieved in the first nine months of 2006 continued in the fourth quarter, helped by healthy demand and favorable weather. On a constant size basis, sales volumes of cement and clinker progressed in all the macro regions with the exception of North America, which was negatively affected by the trend in the residential sector in the second half. There was notable growth in Trading and in all the Asian countries, including Thailand which, with a stable domestic market, increased its exports. The limited progress in Med Rim emerging countries reflected significant growth on domestic markets (+10.9% overall), and a consequent fall in volumes available for export. In the European Union, growth was driven by France, Italy and Greece. In the aggregates sector, all the main markets where the Group operates saw progress, especially in the fourth quarter, with the most significant contributions from Spain, France, Italy and Morocco. In ready mixed concrete, thanks to an impressive fourth quarter, sales volumes rose. Growth in the European Union was driven by the positive trend in France. In the other markets, the trend was positive in Turkey and Morocco, while Thailand fell back. Revenues and operating results Contribution to consolidated revenues Change 2006/2005 (in millions of euro) % % % % (*) Line of business Cement and clinker (1-2) 3, , Ready mixed concrete and aggregates (1) 1, , Other Total 5, , Geographical area European Union 3, , North America Med Rim emerging countries (1) 1, Asia (2) Trading Total 5, , (*) at constant size and exchange rates (1) including the Egyptian operations (Suez, Helwan, RMB/RMBE) consolidated in 2006 (2) including line-by-line consolidation of Zuari Cement Group as from June

25 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Revenues and operating results by geographical area (in millions of euro) Revenues Recurring GOP GOP Operating profit 2006 % change 2006 % change 2006 % change 2006 % change vs vs vs vs European Union 3, North America Med Rim emerging countries (1) 1, Asia (2) Cement and clinker trading Other and inter-area eliminations (264.2) n.s. 8.5 n.s. 5.7 n.s. Total 5, , , , (1) including the Egyptian operations (Suez, Helwan, RMB/RMBE) consolidated in 2006 (2) including the line-by-line consolidation of Zuari Cement Group as from June 2006 n.s.: not significant The 17.1% increase in revenues compared to 2005 was due to: - the increase in business volumes for 13.4%; - the changes in the consolidation area, with a positive net effect of 4.4%; - the negative exchange-rate effect for - 0.7%. The improved business performance in all countries driven by the combined effect of volumes and sales prices accounted for more than three quarters of the Group s strong revenue growth. The greatest contribution came from France, Italy, North America (thanks to the price effect and despite the fall in volumes) and Turkey. The effect arising from the enlargement in the consolidation area was mainly due to the line-byline consolidation of the operations in Egypt and India (the latter were previously consolidated on a proportionate basis), while the limited negative exchange-rate effect reflected largely insignificant contrasting trends, dominated ultimately by the depreciation of the Turkish lira against the euro. Recurring gross operating profit (1,446.9 million euro) and gross operating profit (1,434.5 million euro) rose by 25.5% and 26.2% compared to Apart from the consolidation effect, significant on an annual basis, but much less important in the second half than in the first, growth was driven by sales prices and the improvement in volumes which more than offset the negative trend in operating expenses, both fixed (in particular personnel and maintenance) and, above all, variable (purchases of clinker and cement from third parties to meet the high level of consumption in many countries, raw materials and energy). The countries that made the largest contributions were France, Italy and North America, in absolute terms, and Trading, Bulgaria, Kazakhstan and Greece, in percentage terms. The percentage ratio of gross operating profit on revenues increased from 23.1% in 2005 to 24.7%. Gross operating profit was affected by net non-recurring expense of 12.4 million euro (net expense of 16.1 million euro in 2005), consisting mainly of the provisions for the restructuring plans announced in Egypt for Suez Cement and for Tourah of 25.4 million euro overall, and net capital gains of 18.0 million euro. Operating profit (1,012.3 million euro), after a significant rise in amortization and depreciation charges (from million euro in 2005 to million euro), principally due to the 23

26 enlargement in the consolidation area, rose by 32.2%, with a ratio to revenues of 17.3% compared to 15.3% in Even at 2005 exchange rates and size, the growth described above remained at significant levels, with an improvement of 16.8% in recurring gross operating profit and 23.3% in operating profit. Finance costs and other items Finance costs, net of finance income, rose by 56.5 million euro, from 48.9 million euro to million euro; the ratio to revenues was limited (1.8%). Interest expense on debt stood at million euro, up 22.5 million euro from 2005 (83.2 million euro); this was mainly due to the increase in average debt as a result above all of the consolidation for the full year of the Egyptian cement companies. The residual increase of 34.0 million euro in net finance costs was due for approximately 18 million euro to net exchange-rate losses, compared to net gains in 2005, and to lower dividends. In 2005 finance items reflected significant effects (around 16 million euro) from exchange-rate gains on the net monetary position in Turkey, income arising on the Suez Cement share capital transactions, and capital gains on sales of equity investments. The share of results of associates, 11.3 million euro, was lower than in 2005 (18.6 million euro). This was due entirely to the partial inclusion in 2005 of the results of the Suez Cement Group, consolidated with the equity method up to March 31, Net profit Profit before tax in 2006 was million euro, up 24.8% from 2005 (735.5 million euro). Income tax expense, million euro, rose by 36.9% (71.9 million euro) compared to 2005, which benefited from significant non-recurring tax income (relating in particular to the settlement of tax treatment on floating rate subordinated securities in France, with a positive effect of approximately 43 million euro on deferred tax) income tax expense also benefited from positive non-recurring effects due to the resolution of disputes from previous years and the impact on deferred tax of the reduction in tax rates in some countries, for an overall total of around 28 million euro. Group net profit, million euro, grew by 14.9% compared to 2005 (391.2 million euro). The result reflected the greater impact of minority interests which rose from million euro to million euro, mainly as a consequence of the increased contribution of the Egyptian cement companies. 24

27 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Investments in fixed assets Investments by geographical area (*) Financial PP&E and Intangible Total (in millions of euro) assets investment assets investments in property fixed assets European Union North America Med Rim emerging countries Asia Trading Other Total ,208.6 Change in payables for fixed assets 0.3 (1.4) (16.3) (16.0) 0.8 Total investments in fixed assets ,209.4 (*) amounts refer to the area for which the investment is intended Financial and industrial investment was high in 2006, although lower than in 2005 when the acquisitions of Suez Cement and Helwan took place. Overall investments in fixed assets totaled million euro (1,209.4 million euro in 2005). Capital expenditure totaled million euro (452.7 million euro in 2005) and focused on enhancing and rationalizing industrial facilities, mainly in the European Union (a grinding center in Novi Ligure near Alessandria in Italy, a new production line in Malaga in Spain) and North America (a new line at the Martinsburg cement plant). Once again great attention was paid to protection of the environment, safety and improvement of working conditions, with investments accounting for 23% of total capital expenditure. Investments in financial assets of million euro (744.9 million euro in 2005) mainly referred to the acquisitions, described under significant events, in India (Zuari Cement Ltd.), Turkey (Goltas Cimento), and Egypt (RMB / RMBE), as well as the purchase of treasury shares by Ciments Français S.A. for 37.6 million euro. 25

28 Equity structure, cash flows and net debt Condensed balance sheet (in millions of euro) Property, plant and equipment and investment property 4, ,299.0 Goodwill and intangible assets 1, ,860.5 Investments in associates and other assets Non-current assets 6, ,706.6 Current assets 2, ,680.5 Total assets 9, ,387.1 Group shareholders equity 3, ,037.1 Minority interests 1, ,319.0 Total shareholders equity 4, ,356.1 Non-current liabilities 2, ,887.8 Current liabilities 1, ,143.1 Total liabilities 4, ,030.9 Total shareholders equity and liabilities 9, ,387.1 Summary of cash flows (in millions of euro) Net debt at December 31, 2004 (1,569.2) Application of IAS 32 and IAS 39 (166.6) Net debt at January 1, 2005 (1,735.8) Net debt at December 31, 2005 (2,215.0) Cash flow from operating activities Investments: Tangible and intangible assets (504.0) (464.5) Financial assets (269.2) (744.9) Total investments (773.2) (1,209.4) Divestments Dividends paid (209.2) (142.0) Share capital increases subscribed by minorities Increase in treasury shares (4.6) (10.2) Net debt of acquisitions (18.6) (174.3) Other 76.6 (2.3) Change in net debt 4.7 (479.2) Net debt at period end (2,210.3) (2,215.0) 26

29 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Net debt breakdown (in millions of euro) December 31, 2006 December 31, 2005 Cash, cash equivalents and current financial assets (387.6) (471.8) Short-term financing Medium/long-tern financial assets (20.8) (339.6) Medium/long-term financing 2, ,069.4 Net debt 2, ,215.0 Net debt at December 31, 2006, of 2,210.3 million euro, was down by 4.7 million euro compared to December 31, 2005 (the breakdown of the Net financial position is illustrated in the notes). This slight improvement was made possible by significant cash flow from operations (890.5 million euro), which more than offset investments in fixed assets (773.2 million euro). The breakdown of net debt, analyzed in the notes, was influenced by the buy-back of Floating rate subordinated securities by Ciments Français S.A. and Unibéton S.A. in June, for a symbolic amount. This transaction had no impact on the consolidated income statement since the tax treatment of the securities in question had already been accounted for in 2005; it led to the cancellation of million euro of short-term financing and of the associated posting in medium/long-term financial assets. Key financial data (absolute values in millions of euro) December 31, 2006 December 31, 2005 Net debt 2, ,215.0 Consolidated shareholders equity 4, ,356.1 Gearing % Net debt 2, ,215.0 Recurring gross operating profit 1, ,152.7 Leverage December 31, 2006 December 31, 2005 Recurring gross operating profit 1, ,152.7 Net finance costs Coverage Leverage and coverage have been calculated on rolling year income statement data. 27

30 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Shareholders equity Total shareholders equity at December 31, 2006, was 4,660.2 million euro, an increase of million euro from December 31, 2005, of which million euro for Group shareholders equity and 42.7 million euro for minority interests. The changes in total shareholders equity compared to the situation at the start of the year are set out in the Statement of movements in consolidated total shareholders equity. The main increases concerned net profit for the year (651.4 million euro) and changes in the consolidation area (34.2 million euro). The main reductions arose from the decrease in translation reserves (207.0 million euro), mainly due to the revaluation of the euro at the spot exchange rate at the end of the year against the Egyptian lira, US dollar and Turkish lira, and from dividends paid (203.2 million euro). At December 31, 2006, Italcementi S.p.A. held 3,361,583 ordinary treasury shares (1.9% of ordinary share capital) to service stock option plans and 105,500 savings treasury shares (0.1% of the savings share capital). Reconciliation between parent company net profit and shareholders equity and Group net profit and shareholders equity (in millions of euro) 2006 Net profit of the parent company (Italcementi S.p.A.) Consolidation adjustments: - Net profits of the consolidated companies (in accordance with Group accounting principles) 1, Elimination of intragroup dividends received in the year (497.4) - Reversal of impairment (revaluations) in consolidated equity investments (149.0) - Elimination of intracompany (gains) losses and other changes (2.0) - Consolidated net profit Minority interests Group net profit December 31, 2006 Shareholders equity of parent company (Italcementi S.p.A.) 2,195.7 Consolidation adjustments: - Elimination of carrying amount of the consolidated equity investments Carrying amount of the consolidated equity investments (11,084.7) Shareholders equity of consolidated companies in accordance with Group accounting principles 13, Elimination of effects of intragroup transactions (19.5) - Consolidated shareholders equity 4, Minority interests 1, Group shareholders equity 3,

31 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Performance by country and business The Group in 2006 Cement: full-cycle cement plants 60 grinding centers 15 trading terminals 3 Aggregates: quarries 152 Ready mixed concrete: plants 588 Italy EUROPEAN UNION (in millions of euro)* Revenues 1, ,482.4 Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads)** 5,153 5,172 * consolidated country data before intragroup eliminations ** including the personnel of C.T.G. S.p.A. in France and employees of the BravoSolution Group abroad Cement Full-cycle cement plants: 18 Grinding centers: 9 Aggregates quarries: 52 Batching units: 248 (in millions of euro)* Revenues 1, Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 3,022 3,063 * consolidated business data before intragroup eliminations According to our estimates, cement consumption in 2006 reached a new record high, with moderate growth compared to 2005, driven by residential construction and civil construction works, and broad stability in non-residential construction. In regional terms growth was seen in the Center, South and Islands, while demand slackened in the North due to the reduction in consumption on some major projects (Olympic Games in Piedmont and the high-speed railway). Cement and clinker sales volumes were slightly up compared to 2005, with a stronger fourth quarter compared to the corresponding period in 2005, and average unit prices improving 29

32 throughout the country. The positive price trend in the second part of the year was, nonetheless, undermined in some areas by the competitive pressure caused by the entry of a new operator. Against a rise in revenues of 12.0%, recurring gross operating profit increased by 26.5%. The aforementioned volume and price effects contributed to this improvement, although they were offset by significant increases in variable production costs, especially energy costs and employee expenses. Conversely, costs relating to the deficit for CO2 emissions decreased, mainly thanks to the optimization of production factors and the fall, compared to 2005, of prices on the emission rights market. The grinding centers purchased in 2005 in the province of Ravenna and at Montalto di Castro, came fully on line in In September 2006 commissioning began on a new grinding center in Novi Ligure, which substitutes two old centers converted into cement deposits. With regard to environmental activities, Integrated Pollution Prevention and Control approvals were obtained for four cement plants and applications were filed for two other production units. Slight falls are foreseen in cement consumption and sales prices in Ready mixed concrete and aggregates (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) * consolidated business data before intragroup eliminations In 2006, according to our estimates, the ready mixed concrete market saw little change compared to 2005, with an upturn in the second half when weather was more favorable. The reduction in work on the high-speed railway continued in In this scenario Group ready mixed concrete sales were in line with the market and consistent with a sales policy designed to maintain margins; sales of aggregates increased. The positive trend in ready mixed concrete prices and the increase in sales of aggregates were the basis for the slight rise in revenues. At the same time, the negative trend in operating expenses in ready mixed concrete and an unfavorable change in the sales mix in the aggregates sector produced a sharp fall in operating results. 30

33 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 France (in millions of euro)* Revenues 1, ,330.3 Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads)** 3,864 3,847 * consolidated operating data before intragroup eliminations ** excluding the personnel of C.T.G. S.p.A. and BravoSolution in France, including the personnel of Trabel in Belgium Full-cycle cement plants: 9 Grinding centers: 1 Aggregates quarries: 79 Batching units: 197 Cement (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 1,516 1,532 * consolidated business data before intragroup eliminations In 2006 cement consumption made solid progress (+6.1%) at regional level, with the exception of the North-West where growth was slower. In this scenario cement and clinker sales at Ciments Calcia S.A. rose by over 7% compared to 2005, thanks to a favorable regional mix. The trend in sales prices was also positive, if partly offset by higher logistics costs for the distribution network due to strong demand. The saturation of production capacity to meet growing demand led to an increase in cement and clinker purchases with a subsequent sharp rise in operating expenses, including the cost of fuel and lower remuneration for the use of animal meal. The rise in fixed costs was mainly caused by employee expenses, maintenance and general expenses. The solid business performance generated a significant improvement in operating results, compared to Demand is expected to remain positive in 2007, albeit at lower levels compared to 2006, thanks above all to the residential sector and price solidity. 31

34 Ready mixed concrete and aggregates (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 1,391 1,406 * consolidated business data before intragroup eliminations Unibéton sales volumes in the ready mixed concrete sector rose by 6.6% compared to 2005 thanks to a favorable market and the significant contribution of some important infrastructure orders. The solid trend in volumes and prices largely offset the increase in variable costs (raw materials and transport) and the slight rise in fixed costs. GSM performance in the aggregates sector was steady (a 4.4% rise in volumes at constant size). Growth was slower than in cement and ready mixed concrete, owing to an unfavorable regional mix and the contrasting trend in the public works sector compared to construction. The positive trend in sales volumes and a positive consolidation area effect supported progress in operating results. Belgium Full-cycle cement plants: 1 Aggregates quarries: 3 Batching units: 11 (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) * consolidated country data before intragroup eliminations The market made strong progress (+7.5%), but was exposed to the significant impact of imports, which accounted for almost a quarter of consumption according to estimates. Cement sales at Compagnie des Ciments Belges (CCB) on the domestic market rose by 1.1% with a positive trend in sales prices. Fierce competitive pressure limited ready mixed concrete sales (-8.3%) which, nonetheless, benefited from a significant improvement in sales prices; aggregates sales (+6.3%) were buoyed by a sales policy promoting use in the pre-fabrication industry. Overall, the rise in sales prices led to growth in revenues and offset in part the increases in operating expenses in the cement sector (raw materials and electricity) and in the ready mixed concrete sector (raw materials, personnel, maintenance). No significant changes are forecast in the business sectors for the current year. 32

35 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Spain (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) Full-cycle cement plants: 3 Aggregates quarries: 9 Batching units: 39 * consolidated country data before intragroup eliminations In 2006 cement consumption continued to rise (+8%), to approximately 56 million metric tons, but the impact of imports grew (+9%, covering almost a quarter of the market) and trends differed widely in the regions where the Group operates: strong growth in the Basque country, a slight fall in Andalusia. In this scenario Group cement sales volumes rose by 3.2% compared to 2005, thanks to a positive trend in the North of the country. Aggregates sales made impressive progress from 2005 (+16.8%), while sales of ready mixed concrete increased slightly (+1.3%), benefiting from a marked improvement in prices. Overall, the positive trend in volumes and, above all, in sales prices boosted revenues and operating results, despite the latter being affected by the rise in both variable costs (mainly cement and clinker purchases) and fixed costs (personnel and maintenance). Start-up tests for the new production line in Malaga, with a production capacity of approximately 1 million metric tons of clinker per annum, are currently underway. The new line will enable the company to meet demand more effectively and achieve significant savings in production costs and emission levels; it is expected to begin operations in March For 2007 further growth is expected in cement consumption; trends are expected to be broadly stable in the markets where the company operates with investments in civil engineering works offsetting the fall in the residential sector. Greece (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) * consolidated country data before intragroup eliminations In 2006 growth continued in the Greek economy and in the construction sector in particular, driven by lively demand in the residential sector and a limited upturn of public work projects. Domestic cement consumption, according to our estimates, reached a new record high of 11.3 million metric tons. Full-cycle cement plants: 1 Aggregates quarries: 2 Batching units: 8 33

36 In this scenario cement and clinker exports fell to meet the increased demand on the more profitable domestic market. Total cement and clinker sales, including exports, made solid progress of 10.8%. The aggregates and ready mixed concrete sectors also performed well (a rise in sales volumes of 4.1% and 10.1% respectively) despite the fierce competition in aggregates. Helped by the market situation, average sales prices for cement and ready mixed concrete improved; they remained stable in the aggregates sector despite competitive pressures. Overall, the sharp growth in revenues buoyed operating results, which made strong progress despite the rise in operating expenses (raw materials, fuel and personnel in particular). For 2007 cement consumption should stay close to the levels of

37 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 NORTH AMERICA (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 1,704 1,727 * consolidated figures for the geographical area before intragroup eliminations In a still upbeat economy, the construction sector slackened due to the sharp slowdown in the residential sector. Good performance in public works and non-residential private construction failed to offset this trend and cement consumption fell in the second part of the year compared to same period in Group cement sales volumes followed the market trend. After a first quarter with strong growth, helped by particularly favorable weather, sales fell as the year progressed, recording a full-year downturn of 1.3% compared to Despite the fall in volumes, revenues in local currency rose by 10.4% compared to 2005, thanks to strong price rises during the first quarter of This led to an improvement in operating results with recurring gross operating profit, expressed in local currency, up by 21.0%, despite the rise in operating expenses, in particular for electricity, personnel and maintenance. During 2006 purchase orders were issued for the main machinery and work commenced on the new line at the Martinsburg cement plant. The plant will have production capacity of 1.6 million metric tons of clinker per annum and will enable significant improvements in efficiency and production capacity. For 2007 cement consumption in the markets where the Group operates is expected to fall, owing to the continuing weakness of the residential sector. Full-cycle cement plants: 8 Grinding centers: 2 Aggregates quarries 1 Batching units:

38 MED RIM EMERGING COUNTRIES Egypt Full-cycle cement plants: 5 Batching units: 9 (in millions of euro)* ** Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 5,123 4,537 * consolidated country data before intragroup eliminations ** 2005 reflects partial values for the companies in the Suez Group and Helwan, consolidated on a line-by-line basis as from April 1 and August 1, 2005 respectively 2006 was the first year in which the Group companies in Egypt were consolidated on a line-byline basis from the start of the year. As already indicated, following the acquisitions of Suez Cement and Helwan in 2005, a 52% equity investment was purchased in Ready Mix Beton Egypt S.A.E. and Ready Mix Beton S.A.E., leading companies in Egypt s ready mixed concrete industry. Despite a large budget deficit and inflation around 12%, Egypt s economic growth for 2006 is estimated at over 6%, with a positive impact on cement consumption. Driven by the residential sector and tourism infrastructure, cement demand rose by approximately 6%, with a very favorable trend in the first half followed by a more restrained second half. In this scenario Group cement sales on the domestic market rose, on a constant size basis, by 8.6% compared to On the other hand, strong domestic demand limited exports, in particular clinker. The solid sales price trend of the first half also contributed to the improvement in revenues and operating results. The latter were, however, held back by higher operating expenses, in particular energy, employee expenses and maintenance. Energy costs were affected by the sharp rise in oil and gas (+31% compared to 2005). Employee expenses rose sharply as a result of the conclusion of the negotiations linked, among other things, to the introduction of a standard remuneration system for the Group s Egyptian companies. Gross operating profit was also limited by significant non-recurring expenses for the restructuring plans announced for Suez Cement (17.8 million euro) and Tourah (7.6 million euro). Growth is expected to continue in 2007, with rates comparable to those experienced in

39 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Morocco (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 1,040 1,031 * consolidated country data before intragroup eliminations In 2006 the Moroccan economy achieved significant growth with a positive impact on the construction sector, helped by investments in infrastructure, modernization of industrial and tourist sites, and social construction projects. In a market growing at an estimated 10.4%, Group cement sales volumes on the domestic market rose by 9.2% (+ 4.0% overall, including cement and clinker exports) with a favorable trend in sales prices. Sales volumes were also positive in ready mixed concrete (+11.3%), with prices rising faster than operating expenses and, above all, in aggregates (+27.3%), where volumes more than offset the fall in sales prices. Overall, higher sales volumes and prices boosted revenues. Operating results improved, but were affected by a sharp rise in variable costs in the cement sector, in particular energy and raw materials. Following the introduction of town-planning restrictions in the Agadir area where the Group had planned a series of investment projects, in November 2006 a new agreement was signed with the Government of Morocco. The agreement, worth approximately 320 million euro, envisages realization of part of the projects in the area of Ait-Baha about 55 kilometers from Agadir. In October an agreement promoting energy production from renewable sources was signed with the national electricity board (ONE), providing for a wind energy installation with an output of 10 MW. For 2007 demand on the cement market is expected to remain lively, with growth not dissimilar to that recorded in Full-cycle cement plants: 3 Grinding centers: 1 Aggregates quarries: 3 Batching units: 19 Bulgaria (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) Full-cycle cement plants: 2 Aggregates quarries: 2 * consolidated country data before intragroup eliminations The bright prospects linked to entry into the European Union, the growth of domestic demand and the noteworthy influx of foreign capital were the main features of the Bulgarian economy 37

40 during In the construction sector, cement consumption grew by 20%, according to our estimates, driven by the non-residential sector and public works buoyed by loans linked to the EU pre-entry stage. In this scenario Group cement sales on the domestic market grew by 24.5%. On the other hand, cement and clinker exports fell as a consequence of the rise in local demand with higher margins, causing an overall improvement of 5.1% in cement and clinker sales volumes. Average sales prices were boosted by rising demand, especially in the second part of the year. Operating results reached the highest level since acquisition by the Group thanks to the aforementioned impact of volumes and prices, with a limited rise in some operating expenses (fuel, personnel and maintenance in particular). In October 2006 the project for the new production line at the Varna plant was announced, for approximately 185 million euro (one of the most important foreign industrial investments in Bulgaria). This will boost production capacity by approximately 50%. The new line will replace the old, technologically obsolete systems, bringing significant improvements in environmental and industrial performance. At a ceremony held in January 2007 at the Ministry of Industry & Energy in Sofia, the Bulgarian authorities awarded the Group a First Class Investment Certificate, which will ease the approvals procedure to complete the investment. The extremely favorable market conditions of 2006 are expected to continue in Turkey Full-cycle cement plants: 4 Grinding centers: 1 Batching units: 17 (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) * consolidated country data before intragroup eliminations Despite financial conditions subject to some instability, GDP made significant progress with positive repercussions on cement consumption and Group sales volumes on the domestic market (+13.5%); this allowed plants to operate at full capacity (a 10.2% rise in overall cement and clinker sales volumes, including exports). Sales prices recorded a very favorable trend and had a positive impact on revenues and operating results. In the ready mixed concrete sector, the important residential projects launched in the second quarter of 2006 boosted Group sales volumes, up by 7.4% compared to The growth in the market also enabled a more selective sales policy with strong increases in sales prices. Overall, the increase in business volumes, together with the positive price effect, helped revenues and operating results, limiting the impact of the increase in operating expenses, in particular raw materials and fuel. Despite the large public deficit (partly offset by higher foreign investment flows) and uncertain political situation, the 2007 elections and the major civil engineering projects indicate that performance will continue to be positive in

41 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Thailand ASIA (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) 1,158 1,167 * consolidated country data before intragroup eliminations 2006 was a year of political instability resulting in the coup d état of September 19 and the terrorist attacks at the end of the year. Despite the growth of the Thai economy thanks above all to exports, which were not particularly affected by the appreciation of the local currency, the construction sector was hit by the postponement of major infrastructure projects, with a consequent fall in cement consumption. Group sales on the domestic market were largely stable (+0.2%), while cement and clinker exports grew, leading to an overall rise in sales volumes of 4.3%. Sales volumes in the ready mixed concrete sector fell by 6.9% owing to the fall in demand caused by the downsizing of some major projects. Overall, operating results expressed in euro were largely in line with In local currency, a slight downturn was reported, caused, in the cement sector, by the increase in operating expenses (in particular energy and maintenance), which was only partly offset by the positive impact of prices and export volumes; the slackening in ready mixed concrete was caused by the negative impact of sales volumes and above all by the rise in production costs (transport and raw materials), albeit with a positive trend in sales prices. Market demand is expected to slow slightly in 2007, due to the uncertain political situation and postponement of major infrastructure projects. Full-cycle cement plants: 3 Aggregates quarries: 1 Batching units: 35 India (in millions of euro)* 2006** 2005 Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) Full-cycle cement plants: 2 * consolidated country data before intragroup eliminations ** the Indian companies, previously consolidated on a proportionate basis, have been consolidated on a line-by-line basis since June 1, 2006 At the end of May 2006, following the acquisition of a further equity investment of 50% in Zuari Cement Ltd., the Group obtained full control of the company. 39

42 In 2006 the Indian economy continued to expand rapidly, with a positive impact on the construction sector and public works in particular. This favorable situation contributed to the strong increase in cement consumption and Group sales on the domestic market (+12.3%); sales including exports rose by 11.1%. The excellent market trend in South India and the saturation of production capacity also generated a notable increase in average sales prices. The impact of volumes and, above all, the price effect, boosted operating results significantly. Operating expenses, which rose slightly, benefited from the containment of electricity costs as a result of an agreement, effective since August 2005, with a local producer with whom the construction of an electricity power plant is currently underway. New installation initiatives include projects for a new clinker production line with a capacity of 5,500 metric tons/day at Yerraguntla and a grinding center with a capacity of 850,000 metric tons/year at Chennai. Further market growth is expected in 2007, helped by state investments in new infrastructure and expansion in the residential sector. Kazakhstan Full-cycle cement plants: 1 (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) * consolidated country data before intragroup eliminations The economy continued to expand strongly in 2006, as did the construction sector; according to our estimates, cement consumption was 6.4 million metric tons, an increase of 21% compared to Against this favorable background, cement sales at Shymkent rose by 22.2% with a sharp rise in sales prices. Operating results consequently benefited from the strong growth in revenues, but were limited in part by higher operating expenses, in particular energy, personnel and maintenance. As noted, in December a partnership agreement was announced with the Mercury Group and the Sembol Group for construction of two new cement plants in south-east and west Kazakhstan. Market expansion is expected to continue in

43 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Cement and clinker trading Grinding centers: 1 Terminals: 3 (in millions of euro)* Revenues Recurring gross operating profit Gross operating profit Operating profit Capital expenditure Personnel (heads) * consolidated operating data before intragroup eliminations 2006 cement and clinker sales volumes rose strongly (+38.4%) compared to 2005, thanks to growing demand from the Group and third parties. The strong expansion in sales led to a marked improvement in operating results, despite a slight increase in employee expenses. 41

44 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Energy Project During 2006 further progress was made toward obtaining the authorizations for construction of the new thermoelectric plants run by Italgen S.p.A. Among projects still considered active, the main project is Villa di Serio (province of Bergamo). In November 2006, the Region of Lombardy said it was aware of the variation to the gas pipeline route proposed by the local authorities and the Province of Bergamo. Following this communication, forwarded to the Ministry of Economic Development by Italgen S.p.A., on January 22, 2007 a Services Conference was held to include the variation in the authorization procedure. In March 2006, in accordance with the Ministerial Decree of February 6, 2006, Italgen S.p.A. took part in the auction for the recognition of tariff incentives for the production of photovoltaic energy at 359 e/mwh for a period of 20 years. In October the Italian State Electricity Services Agency approved the tariff incentives for the production of two facilities, both located at Italcementi S.p.A. cement plants at Vibo Valentia and Salerno. Each of the two plants will have an installed power capacity of 500 kwp. Among Group initiatives, Italgen S.p.A. is involved in the project to build a wind energy installation with an output of 10 MW in Morocco. In 2006, approximately 93% of available net energy (853 GWh) was sold by Italgen S.p.A. to Group companies in Italy, allowing Italcementi S.p.A. to meet approximately 46% of its requirements. Italgen S.p.A. closed 2006 with revenues of million euro, well up on revenues in 2005 (53.0 million euro), as a result of the expansion of services to all the Italcementi S.p.A. plants, Group companies and associates which previously were not served. 42

45 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Dealings with related parties For the purposes of the consolidated financial statements, dealings with related parties concerned: - the parent company Italmobiliare S.p.A. and its subsidiary companies; - Italcementi S.p.A. subsidiaries not consolidated on a line-by-line basis; - associates; - other related parties. Transactions with related parties reflect Italcementi S.p.A. s interest in leveraging the synergies within the Group to enhance production and commercial integration, employ competencies efficiently and rationalize use of corporate divisions and financial resources. All dealings with related parties, whether financial or relating to the exchange of goods and services, are conducted at normal market conditions. No atypical or unusual transactions took place during the year. Dealings with the parent company Italmobiliare S.p.A. and its subsidiaries Italcementi S.p.A. is subject to management and coordination by Italmobiliare S.p.A. Italcementi S.p.A. provides Italmobiliare S.p.A. and that company s subsidiaries with personnel administration services, and receives and provides services. It also provides Italmobiliare S.p.A. with a share register management service and administration services for shareholders meetings. Following the introduction in the Italian tax system of the tax consolidation regime, Italcementi S.p.A. and a number of its Italian subsidiaries have elected national tax consolidation pursuant to articles of the Consolidated Income Tax Act (TUIR), with Italmobiliare S.p.A. as the consolidating company. Dealings with subsidiaries and associates Dealings with subsidiaries that are not consolidated on a line-by-line basis and with associates are of a trading nature (exchange of goods and/or services) and financial nature. Dealings with other related parties Dealings with other related parties include the administrative, financial, contractual, tax and corporate consultancy services provided by Finsise S.p.A., whose majority shareholder is Italo Lucchini, a director of Italcementi S.p.A. The contractually agreed considerations paid in 2006 for these services amounted to 290 thousand euro. During the year legal and corporate consultancy services were provided by Stefania Giavazzi, a relation in the second degree of consanguinity of the Deputy Chairman Giovanni Giavazzi, for considerations totaling 7 thousand euro; technical services were provided by Gabrio Rossi, a relation in the first degree of consanguinity of the director Ettore Rossi, for considerations totaling 13 thousand euro. In addition, legal services were provided, for considerations totaling 376 thousand euro, by the Dewey Ballantine law office, of which Luca Minoli, a director of the parent company Italmobiliare S.p.A., is a partner. In 2006 Italcementi S.p.A. disbursed an amount of 911 thousand euro to the Italcementi Cav. Lav. Carlo Pesenti foundation to cover management costs and the realization of initiatives falling within the aims of the foundation. 43

46 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 In relation to the contract with the foundation for the supply of administrative and corporate services and the provision of staff, Italcementi S.p.A. charged an amount of 171 thousand euro. CTG S.p.A. provided the foundation with services for 42 thousand euro regarding construction of the professional training center for young students in Sri Lanka. Transactions with related parties and remuneration paid to Directors and the Chief Operating Officer of Italcementi S.p.A. for positions held within the Group are illustrated in the notes. Information on Italcementi S.p.A. s dealings with related parties is provided in the specific sections in the Italcementi S.p.A. directors report and explanatory notes. 44

47 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Information systems The IT division was reorganized to improve management of requirements arising from the review of corporate processes in connection with planned organic and non-organic growth, by capitalizing on the IT investments made in previous years. Further improvements were introduced in the reference model and the procedures for integration of standard Group solutions for new acquisitions or reorganizations. This model will be implemented in early 2007 in the Indian and Kazakh companies. As part of the development of specific solutions aimed at improving efficiency and quality, France and Belgium continued roll-out of the new specialized information system for management of batching units. Other important changes were made to support improvements in administrative and operating processes. In Italy a new system became operational for the management of real estate assets. This is a major upgrade of the previous system, with a view to simpler and more efficient operations. The new organization for international procurements is now supported by a specialized IT system, which integrates and enhances existing systems to extend the functions of the Easy-supplier services portal and ensure effective process integration. The solution, developed with the contribution of BravoSolution systems, will be extended to all Group companies by the end of As part of the on-going cost-cutting drive, the infrastructure of the North American companies is being updated in line with Group standards, the telecommunications infrastructure is being upgraded and service levels are being standardized. 45

48 Sustainable development In 2006 the Group s commitment to environmental protection and social responsibility continued in all countries and business sectors, with initiatives coordinated by the Group s internal Sustainable Development Steering Committee (SDSC). A report has been drawn up on sustainable development activities during 2006 ( Sustainable Development Report 2006 ) and reference should be made to this for analysis of objectives, initiatives and results. As a member of the World Business Council for Sustainable Development (WBCSD), the Group implements the undertakings of the Cement Sustainability Initiative (CSI) protocol, signed jointly with ten other leading cement producers. The undertakings are integrated in a specific action plan distributed to and systematically applied by all Group companies. Since 2002, in line with the strategic objectives of its sustainable development policy, the Group has identified a series of priorities and guidelines. Action taken in 2006 as part of this program was as follows: - monthly monitoring of CO2 emissions, with performance target setting and evaluation and promotion of projects to reduce emissions; - development and promotion of responsible techniques for the use of fuel, raw materials and additives to reduce other types of emission; - proactive involvement in discussions on allocation plans for CO2 emission rights with the participation of Group management; - promotion of continuous measuring systems and formulation of performance indicators for other types of emission (NOX, SOX, powders); - increased controls on the main harmful emissions through testing and application of reduction techniques, with a special focus on Best Available Techniques (BAT); - systematic monitoring and assessment of Sustainable Development awareness and conduct, through internal questionnaires, quarterly reports, visits to all the companies concerned every three years, and implementation of environmental management systems. During 2004, a specific local training program was launched to enhance the Group Sustainable Development values. By 2006 this program had been activated at all Group companies operating in the cement sector, including the newly acquired Egyptian companies. Prevention of environmental risks Environmental risk prevention programs have been introduced by all the Group subsidiaries and environmental management systems (including ISO 14001) have been implemented in many countries. At the end of 2006, 41 cement plants out of 60 had ISO certification: 15 in Italy, 9 in France-Belgium, 3 in Spain, 1 in Greece, 5 in Egypt, 3 in Morocco, 2 in Bulgaria, 1 in Turkey, and 2 in Thailand. In 2007, action is underway to extend certification to 10 more Group cement plants. Raw materials and alternative fuels In 2006, the ratio of alternative fuels to total Group energy consumption was 4.4%, down compared to 2005 (5.5%) owing to the consolidation of the Egyptian companies which currently do not use this energy source. Excluding this effect, the proportion of alternative fuels slightly increased and continued to represent an important element in energy needs for France, Belgium and the USA. In France/Belgium, nine kilns out of ten have been converted to handle alternative fuels. In Italy, numerous initiatives have been launched in various cement plants to broaden the 46

49 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 range of alternative fuels used and reduce the impact of individual price changes, consequently limiting the overall cost. In Bulgaria, Greece, India, Morocco, Spain and Turkey, waste incineration programs are being implemented in cooperation with the local authorities. During 2006, there was a marked reduction in alternative sources in Italy, France and Belgium, where the expected fall in animal meal availability continued. On the other hand, new possibilities are slowly opening up in relation to biomasses: tests and authorization procedures have been successfully completed as for the three cement plants in Thailand. Also in Thailand, the research and development program in cooperation with Thammasart University continued on the new mix for special marine cement applications, using biomass combustion ash as a raw material. Emissions control and reduction During the year the Group continued with its policy to modernize and/or install continuous emissions monitoring systems (CEMS) on its kilns. At the end of 2006, 79% of its kilns (69 out of a total of 87) were equipped with such systems. In conformity with the commitments under the CSI protocol for emissions control, monitoring programs are planned at least on an annual basis for some micro-pollutants; analyses of these substances have been carried out at the plants which use alternative fuels. In relation to the limits set by the European Union for NOX emissions and the regulation for coincineration of waste, tests began on reducing emissions by using the Best Available Techniques (BAT). European Union CO2 emissions trading system The Group has been controlling and documenting its CO2 emissions since 1990, the base year for the Kyoto Protocol; starting with the data for 2006, it submits the main emissions indicators of its companies to an independent certification process. At European Union level, the certification process has been in place since 2005 since the Group s clinker production plants are subject to the Emission Trading directive which has been extended as from 2007 to the plants in Bulgaria. Regarding operations outside the European Union, the Kyoto Protocol recognizes projects to reduce CO2 emissions implemented in countries that adhere to the Protocol but to which emission limits are not applied, through a procedure known as the clean development mechanism (CDM). A European sub-directive (known as the Linking Directive ) allows conversion of credits obtained under the process into emission rights which can be traded on the European emissions market. The Group actively works to identify and develop internal opportunities, in particular in Morocco, Egypt and Thailand. The process for the recognition of credits for implemented operations is currently underway for a 10 Mw wind power installation at the grinding center in Layooune, Morocco. In North America, the strategy of the Canadian government as regards climate change should include intensity targets for greenhouse gas emissions by It is likely that these targets will also be applied to the Essroc plant in Picton (Ontario). For 2006, Group emissions were higher than the assigned quotas, with a deficit of approximately 100,000 metric tons, compared to an allocation of 15.7 million metric tons of CO2. The main reasons were the high business levels and a structural deficit at Italcementi S.p.A., caused by an overall under-allocation to the cement sector in Italy for the period , which made recourse to the emission trading rights market necessary. In relation to the second application period of the Directive ( ), the Group has planned a series of technological measures, 47

50 including plant revamping in Italy and Bulgaria, to reduce average emissions during the period. On the basis of the available allocation plans, currently under review following comments received from the European Commission, and expected performance improvements, the Group quota deficit, for this second period, should be lower than for The Italcementi S.p.A. consolidated accounts recognize the deficits (relating almost exclusively to Italcementi S.p.A.) of the individual companies at market value at December 31, 2006 (based on the Powernext price of 6.48 euro per metric ton). The emission rights price has fallen in recent months (the price per metric ton at the end of February 2007 was approximately 0.9 euro), but the forward prices for rights to be used in the second allocation period are approximately euro per metric ton higher. Within the Group, management of CO2 emissions has been assigned to a central body responsible for monthly monitoring of emissions, forecasting and formulation of trading strategies to limit the economic impact of emissions. The trading strategy includes transfer of emission rights among Group companies, access to the options and spot market and to loans deriving from the Kyoto Protocol mechanisms (e.g., the CDM), after careful consideration of the related level of risk. Zero accidents project In 2006 the Group commitment to safety resulted in a further reduction in the overall accident frequency rate, which fell by 10.8% from This does not include operations in Egypt, given their recent acquisition; Egypt has been monitored since the start of 2006, but there are no comparative figures for The self-assessment process, introduced at individual country level in 2005, was extended to the individual production units in A program to enhance the project with the full involvement of managers at different levels was put into place in Italy and France, while training initiatives continued in various countries, primarily to analyze the causes of accidents. 48

51 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Human resources The breakdown of staff by country is as folllows: (number of employees)* December 31, 2006 % December 31, 2005 % Italy 5, , France 4, , Belgium Spain Greece North America 1, , Egypt 5, , Morocco 1, , Bulgaria Turkey Thailand 1, , India Kazakhstan Trading Other (1) Total 22, , * employees of companies consolidated on a line-by-line or proportionate basis. If proportionate, the number of employees is also proportionate (1) BravoSolution UK The increase of 1,014 heads in Group employees compared to December 31, 2005 was mainly due to the recent acquisitions in Egypt in the ready mixed concrete sector (Ready Mix Beton Egypt S.A.E. and Ready Mix Beton S.A.E.) and the line-by-line consolidation of the Indian companies; previously Indian employees were stated on a proportionate basis. During 2006, staff management and development activities focused on supporting cultural and organizational projects at head office and in subsidiaries, as well as projects to enhance human capital to support the Group s international growth. A review of the rewards system led to an update of the managerial incentives program for key positions; the variable part of remuneration will have an increased weighting, with the aim of raising commitment to company targets and providing additional rewards for top performing management. Important measures were taken to develop, together with the local unions, a new remuneration system in the Egyptian subsidiaries, and to make pay levels more competitive in some developing countries like India, where the situation on the labor market is becoming increasingly critical. Also in Egypt and India, the quantity and quality of local managers was enhanced with a widespread recruitment of highly specialized new managerial resources. An injection of new international resources also concerned the Kazakh subsidiary, while extensive new recruitment programs were introduced in the central technical units, responsible for realizing the Group s investment projects. Among the central functions, procurements underwent a broad reorganization and rationalization, supported by a competence mapping plan for all subsidiaries. A similar plan was completed in the ready mixed concrete sector and the update of the existing plan for the Group s cement plants was completed in over 90% of production units. Work continued to support international integration, in part through overseas secondment of managers with special skills: the number of seconded managers from various subsidiaries has 49

52 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 surpassed one hundred and is growing annually at double-digit figures. In order to make the secondment process more transparent and effective, a policy formalizing procedures and conditions has been introduced. Finally, to improve management of medium/long-term career development, a growth potential assessment system was tested and is now operational: initially the system was applied to young managers with international career prospects, now it is also used for senior management figures. Under organizational development, a Manual of Powers and Responsibilities was finalized to ensure integrated management of the system of company proxies with the Corporate Governance principles of the Organization, Management and Control Model. For each corporate process, the manual contains: a map of powers, lists of powers for positions with powers of signature, organization notices, resolutions of the Board of Directors and proxies. On this basis a review was launched to simplify proxies and bring the entire business processes system (Processes Charter), organization (Organization Notices), authorities and powers (Proxies) into line with the goals of integration, transparency and usability. The project, currently being developed in some Italian companies, will be launched at foreign subsidiaries during To maximize the spread of organizational know-how, an intranet site named B.E.S.T. (Business Excellence Support Tools) has been developed as the Group reference database in this field. Regarding adoption of models within the Group, various initiatives are underway (e.g., in France and Egypt) to promote common development of procedures using the same models, tools and methods. Italcementi S.p.A. administration and control activities were reorganized, with a redefinition of the mission and responsibilities of the Administration & Control Department. This latest reorganization completes the alignment of the entire Italcementi S.p.A. organization with Corporate Governance principles and the Group s new growth needs. Training was provided in accordance with the needs and priorities in the Group s and the subsidiaries strategic plans. The institutional programs for key resources and subsidiary executives were attended by growing numbers of people from the most recently acquired subsidiaries, in particular from Egypt. Training continued for the Corporate Governance, Zero Accidents and Sustainable Development programs in all the subsidiaries, with local courses using centrally developed teaching aids and direct support. Programs to support key projects included realization of a first workshop for the marketing of new products and services, meetings to improve project management, a series of activities on international procurement issues and a seminar on market analysis methods: besides developing skills and promoting exchanges of know-how within specific professional communities, these activities are designed to help the Group achieve its targets for international growth, innovation and industrial and organizational efficiency. Major cooperation projects included: definition of a training model for the start-up of new plants (Malaga); joint development of managerial training programs for managers and directors at FyM, Devnya and Halyps; training for young cement plant engineers (Essroc) and maintenance skills development (CTG). Particular attention was paid to the Egyptian subsidiary, where local technical training courses were started as well as training programs for sales and marketing experts: these programs will be intensified and extended in 2007 and subsequent years. Support for young people in the Group takes the form of welcome programs, internships, training and initial orientation, as well as contacts and cooperation with schools and universities. 50

53 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Engineering, technical support, research and development (CTG S.p.A. - Group Technical Center) During 2006, CTG S.p.A. conducted research and development, engineering and technical support for Group subsidiaries in Italy and abroad, realizing services for 51.3 million euro (+6.3% compared to 2005). Staff at December 31, 2006 numbered 409 heads (399 at December 31, 2005 and 405 at June 30, 2006), of whom 298 in Bergamo and 111 in Guerville. In keeping with its mission, on behalf of Group companies CTG carried out research, engineering, and assistance for the realization of new structures and the modernization of existing plants, assistance with the operation and maintenance of cement and aggregates plants and batching units, as well as R&D projects. Among the main initiatives undertaken in relation to projects for the realization of new installations and constructions: in North America, the new production line with a capacity of 1.6 million metric tons/year at Martinsburg (orders issued for purchase of the main machinery and start-up of site works), in India, the new production line with a capacity of 5,500 metric tons/day at Yerraguntla and the grinding center with a capacity of 850 thousand metric tons/year at Chennai (environmental permits, purchase orders for the main machinery and analytical engineering currently underway). In Spain the revamping project continued on the cement plant in Malaga, which should come into operation in March In reference to cement plant revamping, numerous projects are being defined: Rezzato and Matera in Italy, Devnya in Bulgaria, as well as the new greenfield clinker plant in Morocco and the enhancement of Vassiliko in Cyprus. With reference to assistance, measures were undertaken to improve product quality, technological and production efficiency, and new installations were started up and/or commissioned at a number of Group's cement plants. CTG s research work concentrated on materials and processes. Special attention was given to technology transfers for new ready mixed concrete and special cement application techniques. In additives, new acrylic superfluid formulations were finalized in a pilot plant and subsequently tested on ready mixed concrete, both in the laboratory and in the field, using various types of cement. Tests are underway to synthesize polymers to be applied to prefabricated ready mixed concrete. In extrusion mortars, a new formulation was tested for the production of blocks and panels using white cement. Chemical durability tests were completed on pipes and simple joints were constructed. In high performance lime concretes, tests were carried out with three different types of design and additives mix. Physical and mechanical tests are currently underway in cooperation with CISE universities. In addition, the first European patent for limestone for ready mixed concrete was obtained. Work relating to binders and additives for mortars and photocatalytic ready mixed concrete continues on various fronts. 51

54 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Innovation The Italcementi Group has always been committed to respect for the environment and resource enhancement, and considers its commitment to the research and development of new products and applications as a strategic priority. Improvements in the quality of life require solutions that meet both needs and wellbeing of the community. In this light, as part of its Sustainable Development and Safety policies, the Group has introduced an Innovation Culture project to foster technical know-how and contribute to the creation of value. The gradual integration of the Group businesses, intercompany partnerships and the spread of know-how have all contributed from the very start to the creation of a competitive advantage. On-going research, the development of new ideas and the ability to understand the needs of the market ensure the continuity of these results. Business targets have been achieved in full compliance with the plans drawn up at the start of the year, reflecting, compared to the results obtained in 2005, a significant increase in turnover and margins, as well as the growing involvement of all the countries in the Group. During 2006, the Marketing Innovation Department, together with the Research & Development Department of CTG S.p.A. and the Group Communications Department, were actively involved in the commercial launch and targeted promotion of TX Active, the photocatalytic agent recognized by the European PICADA project (Photocatalytic Innovative Coverings Applications for Depollution Assessment) as capable of reducing organic and inorganic agents in the air. This initiative, which also received the Sodalitas Social Award in the category Socially and environmentally important product innovation and was given the highest number of votes at the World of Concrete Exposition as the Most Innovative New Building Material, has received wide coverage in the international media, including the BBC, National Geographic Channel, International Herald Tribune, New York Times, TF1 and Le Monde. In December, the cornerstone was laid for the ITCLab, the new Italcementi research and innovation center in the Kilometro Rosso Science Park near Bergamo, a tangible example of the Group s commitment to excellence in every sector of construction materials. The next objectives of the Innovation Project will be the consolidation of the products launched in 2006, the gradual increase in the respective market shares of the subsidiaries and the definition of new innovative Group projects for cement, ready mixed concrete, additives and premixed products. 52

55 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Group e-business initiatives In 2006, BravoSolution S.p.A. and its subsidiaries reported a sharp rise in business and continued development of the technological offer, together with a significant improvement in profitability. At consolidated level, BravoSolution S.p.A. achieved revenues of 25.4 million euro, up by 37.2% compared to 2005 (18.5 million euro), gross operating profit of 3.3 million euro (0.6 million euro in 2005), and its first net profit, for 0.8 million euro, compared to a loss of 1.7 million euro in In addition to growth, pursued through geographical expansion and enhancement of the product portfolio, considerable attention was paid to quality with the continuous improvement of the BravoSolution ESoP e-procurement platform (a tailored platform which numbered 70 licenses worldwide at the end of 2006), the high level of the services provided, the increasing focus on development and distribution of proprietary technology and on high value added professional services. Today, the BravoSolution technological platform, now more efficient, safer and more flexible than in the past, and installable at the customer s premises, is one of the best worldwide, as confirmed by the important contracts won in public and private tenders in Italy, France and Great Britain, against extremely well-qualified competitors. With regard to professional services, BravoSolution s offer has been gradually extended to satisfy the full range of procurement management and cost reduction needs, with services covering everything from support for the organization and management of purchases, to search and selection of new procurement sources, training, identification of e-sourcing and e-procurement application opportunities, analysis of procurement processes and improvement recommendations. During the year the BravoSolution Group transacted goods and services on its vertical markets and on the e-procurement portals set up for its clients for an estimated 9.3 billion euro, carrying out over 20,000 transactions. The total transacted since BravoSolution started operations can be estimated at December 31, 2006 at more than 19.3 billion euro, for a total of approximately 54,400 completed transactions. In 2006, BravoSolution S.p.A. recorded revenues of 15.4 million euro, up by 22.4% compared to 2005 (12.6 million euro), gross operating profit of 1.8 million euro (0.6 million euro in 2005) and operating profit of 0.3 million euro, compared to an operating loss of 1.0 million euro in BravoBus S.r.l., which is 51% owned by BravoSolution S.p.A. and operates in e-procurement for the local public transport sector in Italy and for companies and public institutions operating in and around Rome, closed 2006 with revenues of 0.8 million euro, well up from 2005 (0.5 million euro), and a higher net profit compared to The French subsidiary, BravoSolution France S.a.s., closed 2006 with revenues of 4.4 million euro (+28.7% compared to 2005) and a significant increase in net profit. In a market which is among the most developed and dynamic of those served by BravoSolution, the subsidiary conducted business with a number of leading French industry players. In 2006, the Spanish subsidiary, BravoSolution Espana S.A. recorded revenues of 2.3 million euro, sharply up compared to 2005 (+35.4%) and, for the first time, reported a profit before tax. Although demand for e-procurement services on the Spanish market is currently lower than on the Italian, French and British markets, the company made significant progress, achieving a leadership position in its own domestic market. BravoSolution UK Ltd. was set up in January 2005 after winning the international tender organized by OGC Buying Solutions (an agency of Britain s Treasury responsible for the civil service cost-cutting program), which designated BravoSolution the sole e-sourcing technology supplier for the British civil service for four years. In 2006 the company, whose clients include many of the key departments of the British civil service, profitably continued its operations on the British market and reported strong growth in revenues (from 0.7 million euro in 2005 to 3.3 million euro) and a net profit. 53

56 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Disputes With regard to the action taken by the Competition and Market Authority against eleven companies operating in the ready mixed concrete business in Italy, no developments have taken place compared to the situation described in the half year report. Calcestruzzi S.p.A. and Cemencal S.p.A. appealed against the sentence (made official on March 23, 2005) of the administrative tribunal of the region of Lazio (TAR) which overturned the ruling in the section in which the fines imposed [by the Authority] are not proportionate to the limited effects of the agreement. The TAR partly upheld the appeals regarding application of repeat offence penalties, while it rejected all other questions. The appeal against the sentence was deposited on March 30, 2006, on the grounds that the ruling of first instance was insufficiently and superficially motivated, and basically re-submitted the appeal grounds already presented to the court of first instance. Similar appeals were presented by all the other parties to the action. The Competition and Market Authority also challenged the TAR s sentence, with respect to the two points on which the TAR found against the authority in relation to the level of gravity of the infraction and the application of repeat offence penalties. Calcestruzzi S.p.A. and Cemencal S.p.A. proposed an interlocutory appeal against the appeal of the Authority, seeking its rejection. All the appeals are currently pending before the Consiglio di Stato. On July 28, 2006, pursuant to Law 231/01, the Public Prosecutor s Office of Caltanissetta notified Calcestruzzi S.p.A. that it was under investigation in connection with the inquiry into crimes allegedly committed by a former employee and a third-party supplier of aggregates to Calcestruzzi S.p.A. together with two company employees. At the same time the Public Prosecutor s Office of Caltanissetta issued a preventive attachment order on two ready mixed concrete production plants, located in Riesi and Gela, which in 2005 jointly produced approximately 26,000 cubic meters of ready mixed concrete out of a total of 9 million cubic meters produced by the Group in Italy. Following an appeal by the company, the attachment order was revoked on August 17, 2006, by the Court of Review of Caltanissetta. The Public Prosecutor s Office of Caltanissetta appealed this decision. On February 27, 2007, the Supreme Court upheld this appeal and sent the case back to the Court for a new examination. The grounds for its decision are not yet known and so it is currently not possible to offer an assessment of future developments. Calcestruzzi S.p.A. has publicly stated its full and transparent cooperation with the magistrates investigation, and its complete extraneousness in relation to the alleged offences. The dispute is still open on the Italcementi S.p.A. tax returns for 1987, 1996, 1997, 1998 and 1999; the adjusted assessments are substantially groundless, an opinion shared by independent experts. In relation to the sentence of February 2005 with which the Milan Regional Tax Commission confirmed the substantial annulment of the 1987 assessment, ordered by the court of first instance, the financial authorities presented an appeal to the superior appellate court in March 2006, which is still outstanding. With regard to the disputes on the 1996, 1997, 1998 and 1999 returns, illustrated in previous reports, the Milan Regional Tax Commission (Brescia branch) issued four sentences partially reversing the first degree judgments for 1996 and 1998, but confirming the judgments for 1997 and As a result of these developments, the tax recovery claims against the company have been reduced further. With respect to the above rulings, a precautionary provision has been made to cover the probable tax charge, including tax, fines and interest. 54

57 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Significant post balance-sheet events No significant events have taken place since closure of the financial year that require amendments to or additional comments on the Group s business, financial and equity situation at December 31,

58 Presentation 5 Annual Report Directors report Results and significant events for the year 17 Corporate governance Consolidated financial statements The international economy and industry trends 19 Parent company financial statements Business and financial performance in Performance by country and business 29 Energy Project 42 Dealings with related parties 43 Information systems 45 Sustainable development 46 Engineering technical support, research and development 51 Innovation 52 Group e-business initiatives 53 Disputes 54 Significant post balance-sheet events 55 Outlook 56 Outlook For the current year, a moderate slowdown could occur in international economic growth after years of strong expansion, largely as a consequence of the economic weakening in the USA. After a period of growth of exceptional duration, intensity and breadth, the outlook for the construction industry remains positive, although stronger differences are expected to emerge from one country to another. More specifically, North America will be affected by the current recession in residential building, although the impact will be buffered by steady performance in public works and industrial building; in the EU countries in which the Group operates, a moderate slowdown in construction industry growth is probable. Among emerging countries, the expansionary phase of the last few years appears set to continue, although the difficult political climate in Thailand is creating uncertainty in that country. In this situation, the Group expects modest growth in sales volumes accompanied by continued growth in the overall price trend. These effects, together with the upgrades to production facilities and the organizational changes to improve operating efficiency, should enable the Group to meet the cost increases that are foreseeable for The Group s objective for 2007, in terms of operating results, is to confirm the strong levels posted for financial year Bergamo, March 7, 2007 The Board of Directors Chairman Giampiero Pesenti 56

59 Consolidated financial statements 57

60 Financial statements Balance sheet (in thousands of euro) Notes Change Non-current assets Property, plant and equipment 1 4,005,906 3,905, ,153 Investment property 2 22,260 23,234 (974) Goodwill 3 1,836,834 1,812,029 24,805 Intangible assets 4 48,236 48,446 (210) Investments in associates 5 124, ,498 (6,451) Other investments 6 452, , ,056 Deferred tax assets 18 40,056 29,852 10,204 Other non-current assets 7 88, ,598 (334,254) Total non-current assets 6,617,885 6,706,556 (88,671) Current assets Inventories 8 683, ,515 (7,326) Trade receivables 9 1,472,493 1,277, ,559 Other current assets 239, ,044 21,486 Income tax assets 15,863 24,822 (8,959) Investments and financial receivables 65,443 53,038 12,405 Cash and cash equivalents , ,152 (96,459) Total current assets 2,796,211 2,680, ,706 Total assets 9,414,096 9,387,061 27,035 Shareholders' equity Share capital , ,549 Reserves , ,069 (71,328) Treasury shares 13 (42,914) (38,333) (4,581) Retained earnings 2,443,089 2,105, ,276 Group shareholders' equity 3,298,465 3,037, ,367 Minority interests 14 1,361,704 1,319,004 42,700 Total shareholders' equity 4,660,169 4,356, ,067 Non-current liabilities Interest-bearing loans and long-term borrowings 16 2,119,271 2,053,290 65,981 Employee benefit liabilities , ,002 (4,124) Provisions-non-current , ,414 21,854 Deferred tax liabilities , ,974 (3,200) Other non-current liabilities 20,065 16,143 3,922 Total non-current liabilities 2,972,256 2,887,823 84,433 Current liabilities Bank overdrafts and short-term borrowings , ,938 (504,467) Interest-bearing loans and short-term borrowings , ,848 26,230 Trade payables 770, ,704 54,758 Provisions - current 17 1,280 1,342 (62) Income tax liabilities 19 65,165 61,183 3,982 Other current liabilities , ,121 58,094 Total current liabilities 1,781,671 2,143,136 (361,465) Total liabilities 4,753,927 5,030,959 (277,032) Total shareholders' equity and liabilities 9,414,096 9,387,061 27,035 58

61 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Income statement Notes 2006 % 2005 % Change (in thousands of euro) Amount % Revenues 21 5,854, ,999, , Other revenues 77,412 53,181 Change in inventories (7,026) 21,798 Internal work capitalized 37,458 26,719 Goods and utilities expense 22 (2,126,774) (1,735,516) Services expense 23 (1,333,566) (1,219,379) Employees expense 24 (911,652) (848,995) Other operating income (expense) 25 (143,056) (144,701) Recurring gross operating profit 1,446, ,152, , Net capital gains on sale of fixed assets 26 18,014 24,620 Non-recurring employees expense for reorganization 26 (25,449) (37,588) Other non-recurring income (expense) 26 (4,969) (3,177) Gross operating profit 1,434, ,136, , Amortization and depreciation 27 (420,252) (368,461) Impairment (1,936) (2,289) Operating profit 1,012, , , Finance income 28 45,589 72,084 Finance costs 28 (146,040) (133,712) Gains (losses) on exchange rates and derivatives 28 (4,914) 12,714 Share of results of associates 29 11,324 18,614 Profit before tax 918, , , Income tax expense 30 (266,867) (194,971) Net profit for the year 651, , , Attributable to: Equity holders of the parent 449, , , Minority interest 201, , , Earnings per share (EPS) 31 - Basic savings share ordinary share Diluted savings share ordinary share

62 Statement of movements in consolidated total shareholders' equity Minority Total (in millions of euro) Attributables to Equity holders of the parent interests shareholder's equity Reserves Share Share Fair value Fair value Other Translation Treasury Retained Total capital premium reserve for reserve for reserves reserves shares earnings capital reserve available-for- derivative and sale financial financial reserves assets instruments Balances at January 1, (11.4) 1.9 (36.4) (28.1) 1, , ,185.1 Change in fair value on: Available-for-sale financial assets Derivative financial instruments Stock options Currency translation differences Net gains/(losses) recognized directly in equity Net profit for the period Total recognized income (expense) for the period Distribution of profits: Dividends (86.7) (86.7) (55.7) (142.4) Other (1.6) (1.6) - (1.6) Share capital increases Treasury share buyback (10.2) (10.2) - (10.2) Treasury share sale Change in consolidation area 45.6 (4.4) Balances at December 31, (2.5) (38.3) 2, , , ,356.1 Change in fair value on: Available-for-sale financial assets Derivative financial instruments Currency translation differences (119.3) (119.3) (87.7) (207.0) Financing of net investment (3.1) (3.1) (0.9) (4.0) Change in consolidation area 17.6 (16.9) Net gains/(losses) recognized directly in equity (119.3) - (16.9) (92.2) (51.8) (144.0) Net profit for the period Total recognized income (expense) for the period (119.3) Stock options Distribution of profits: Dividends (95.2) (95.2) (108.0) (203.2) Treasury share buyback (18.9) (18.9) - (18.9) Treasury share sale Balances at December 31, (42.9) 2, , , ,

63 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Consolidated cash flow statement (in thousands of euro) A) Cash flow from operating activities: Profit before tax 918, ,543 Adjustments for: Amortization, depreciation and impairment 422, ,207 Reversal undistributed results of associates (739) (15,947) Capital (gains)/losses on sale of fixed assets (23,624) (39,445) Change in employee benefit liabilities and other provisions 25,095 35,117 Stock options 4,316 2,654 Reversal finance costs 101,079 76,555 Cash flow from operating activities before tax, finance income/costs and change in working capital: 1,447,277 1,164,684 Change in working capital (175,282) (62,365) Cash flow from operating activities before tax and finance income/costs: 1,271,995 1,102,319 Net finance costs paid (113,810) (117,036) Dividends received 12,895 11,106 Taxes paid (280,581) (272,830) Total A) 890, ,559 B) Cash flow from investing activities: Investments in fixed assets: Intangible assets (16,617) (11,789) Property, plant and equipment and investment properties (487,381) (452,676) Financial (equity investments) net of cash acquisitions (*) (261,649) (680,357) Total investments (765,647) (1,144,822) Proceeds from divestments of fixed assets 43, ,758 Total divestments 43, ,758 Change in other long-term financial assets and liabilties 17,286 (24,056) Total B) (705,151) (1,064,120) C) Cash flow from financing activities: New interest-bearing loans and long-term borrowings 692, ,358 Repayments of long-term financing (258,412) (201,788) Change in short-term financing (475,073) 138,297 Net change in treasury shares (4,581) (10,227) Dividends paid (209,131) (142,038) Share capital increases by minorities - 230,500 Other changes in shareholders' equity 9,922 18,310 Other sources and applications (13,357) (49,154) Total C) (258,560) 462,258 D) Currency translation differences and other changes (23,247) 28,274 E) Cash flows for the year, net (A+B+C+D) (96,459) 149,971 F) Cash and cash equivalents at beginning of period 416, ,181 Cash and cash equivalents at the end of period (E+F) 319, ,152 (*) cash of acquired and consolidated companies 7,507 64,

64 Notes The Italcementi S.p.A. consolidated financial statements as at and for the year to December 31, 2006 were approved by the Board of Directors on March 7, At the meeting, the Board authorized publication of the financial statements in a press release dated March 8, 2007, containing key information from the financial statements. Accounting policies Italcementi S.p.A. is a corporate entity established in accordance with the laws of the Republic of Italy. It is subject to management and coordination by Italmobiliare S.p.A., whose key data from the most recently approved financial statements are provided in an annex to the parent company s separate financial statements. Italcementi S.p.A. and its subsidiaries form the Italcementi Group, an international player whose main lines of business are hydraulic binders, ready mixed concrete and aggregates. The Group is also active in other areas, some of which are instrumental to its core businesses: materials for the construction industry, additives, transport, energy, engineering, e- business. Declaration of compliance with the IFRS These consolidated financial statements have been drawn up in compliance with the international financial reporting standards (IFRS) applicable at December 31, 2006 adopted by the EC Commission. In compliance with European Regulation no of July 19, 2002, the principles adopted do not include the standards and interpretations published by the IASB and the IFRIC through December 31, 2006, that had not been adopted by the European Union at that date. Since December 31, 2005, a number of principles and interpretations adopted by the European Union have come into force and have been applied in the 2006 financial statements, specifically: IFRIC 4 Determining whether an arrangement contains a lease IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental funds IFRIC 6 Waste electrical and electronic equipment and the amendments to IAS 19 (Employee benefits), IAS 21 (Effects of changes in foreign exchange rates), IAS 39 (Financial instruments) and IFRS 6 (Exploration for and evaluation of mineral assets). Application of these principles and interpretations has not had a material impact for the Group. During 2006 the European Union adopted additional principles and interpretations whose application will affect the Italcementi Group as from January 1, 2007, given that early application of the principles in question has not been elected. Specifically: IFRS 7 Financial instruments: disclosures IFRIC 7 Applying the restatement approach under IAS 29 - financial reporting in hyperinflationary economies IFRIC 8 Scope of IFRS 2 IFRIC 9 Reassessment of embedded derivatives These principles and interpretations, to the extent to which they are applicable, are not expected to have a material impact. Accounting policies and basis of presentation The consolidated accounts adopt the cost principle, with the exception of derivative financial instruments and financial assets held for sale or for trading, which are stated at fair value. The carrying amounts of hedged assets and liabilities are adjusted to account for changes in fair value on the basis of the hedged risks. The consolidated financial statements are presented in euro and all amounts in the accounting schedules and in the notes are rounded to thousands of euro, unless otherwise specified. 62

65 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 The basis of presentation of the Group financial statements is as follows: - current and non-current assets and current and non-current liabilities are presented as separate classifications on the face of the balance sheet. Current assets, which include cash and cash equivalents, are assets that the Group intends to realize, sell or consume during its normal business cycle; current liabilities are liabilities that the Group expects to settle during the normal business cycle or in the twelve months after the balance sheet date; - on the income statement, costs are analyzed by the nature of the expense; - on the cash flow statement, the indirect method is used. Use of estimates The preparation of the consolidated financial statements and the notes in conformity with the IFRS requires management to make estimates that affect the values of assets, liabilities, income and expense, such as amortization, depreciation and provisions, and the disclosures of contingent assets and liabilities in the notes. Since these estimates assume operating continuity and are determined using the information available at the time, they could diverge from the actual future results. Assumptions and estimates are particularly sensitive with regard to measurement of fixed assets, which depend on forecasts of future results and cash flows, provisions for disputes and restructurings and commitments in respect of pension plans and other long-term benefits. Management conducts regular reviews of assumptions and estimates, and immediately recognizes any adjustments in the financial statements. Principles of consolidation The consolidated accounting schedules are based on the accounts at December 31, 2006, of the parent company Italcementi S.p.A. and the consolidated companies. Where necessary, the accounts have been adjusted to ensure alignment with the Group s classification criteria and accounting principles. Subsidiaries Subsidiaries are companies in which the Group has the power to determine, directly or indirectly, administrative and management decisions and to obtain the benefits thereof. Generally speaking, control is assumed to exist when the Group holds, directly or indirectly, more than one half of voting rights, including potential voting rights deriving from convertible securities. Subsidiaries are consolidated on a line-by-line basis as from the date at which control is obtained and until control is transferred out of the Group. Associates Associates are companies in which the Group has significant influence over administrative and management decisions even though it does not hold control. Generally speaking, significant influence is assumed to exist when the Group holds, directly, or indirectly, at least 20% of voting rights. Equity investments in associates are valued with the equity method, under which they are recognized initially at cost, and subsequently adjusted to reflect changes in the value of the Group s interest in the associate s equity. The Group s interest in the associate s net profit or loss is recognized in a specific income statement line item from the date at which the Group exerts significant influence until it relinquishes such influence. Joint ventures Joint ventures are companies whose business operations are controlled by the Group jointly with one or more other parties, under contractual arrangements. Joint control presupposes that strategic, financial and management decisions are taken with the unanimous consent of the parties that control the venture. Equity investments in joint ventures are consolidated on a proportionate basis, whereby assets, liabilities, income and expense are recognized line-by-line proportionately to the Group s interest. The balance sheets and income statements of joint ventures are consolidated from the date on which joint control is assumed and until such control is relinquished. 63

66 Transactions eliminated during consolidation All intragroup balances and transactions, including any unrealized gains in respect of third parties, are eliminated in full. Unrealized losses in respect of third parties deriving from intragroup transactions are eliminated, except in cases where it will not subsequently be possible to recover such losses. Unrealized gains in respect of third parties deriving from transactions with associates are eliminated against the equity investment carrying amount, while losses are eliminated proportionately to the Group s interest, unless it will not subsequently be possible to recover such losses. Consolidation area A list of the companies consolidated on a line-by-line basis, on a proportionate basis and with the equity method is provided in annex 1 to these notes. Business combinations On first-time adoption of the IFRS, as allowed by IFRS 1, the Group elected not to apply IFRS 3 retrospectively to business combinations that took place before January 1, Cost of business combinations Business combinations are recognized at purchase cost as provided by IFRS 3. Purchase cost is the sum of the fair values of the assets and liabilities acquired, contingent liabilities assumed and equity instruments issued at the transaction date, plus costs directly attributable to the purchase. Apportionment of the cost of business combinations The cost of business combinations is apportioned by recognizing the fair value of identifiable assets, liabilities and contingent liabilities at the acquisition date. Positive differences between the purchase cost and the interest in the fair value of the identifiable assets, liabilities and contingent liabilities at purchase are recognized as goodwill, under assets. Negative differences are taken immediately to the income statement. If on initial recognition the purchase cost of a business combination can only be determined provisionally, the apportioned amounts are adjusted within twelve months of the acquisition date. Minority interests Minority interests are recognized at the fair value of the net acquired assets. Business combinations achieved in stages When a business combination is achieved in stages, through a series of share purchases, each transaction is accounted for separately, using the cost and fair value information available at the date of each transaction to determine any goodwill. When control of an entity is obtained through a subsequent purchase, the previously held interest is revalued to reflect the fair value of the identifiable assets, liabilities and contingent liabilities at the date of the subsequent purchase; the revaluation offset is recognized in equity attributable to the Group. Purchase of interests held by minorities In the absence of a specific IFRS treatment, the Group applies the following criterion: purchases of interests held by minorities after control has been obtained do not require a revaluation of identifiable assets and liabilities. The difference between the purchase cost and the equity interest acquired is recognized as goodwill; similarly, in the absence of specific IFRS indications, transactions that reduce the interest held, without loss of control, are treated as sales to minorities and the difference between the interest sold and the price paid is recognized in the income statement. 64

67 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Translation of foreign currency postings The reporting currency of the subsidiaries located outside the euro zone is usually the local currency. Transactions in currencies other than the reporting currency Foreign currency transactions are initially translated into the reporting currency with the exchange at the transaction date. At closure of the reporting period, foreign currency monetary assets and liabilities are translated into the reporting currency at the closing exchange rate. Exchange rate gains and losses are taken to the income statement. Non-monetary foreign currency assets and liabilities valued at cost are translated at the exchange rate ruling at the transaction date; those valued at fair value are translated with the exchange rate at the date fair value was determined. Translation of the financial statements of foreign entities At closure of the reporting period, the assets, including goodwill, and liabilities of consolidated companies that report in currencies other than the euro are translated into the presentation currency of the Group s consolidated accounts at the exchange ruling at close. Income statement items, with the exception of companies operating in hyperinflationary economies (see below), are translated at the average rate for the period. Gains and losses arising from the translation of opening shareholders equity at the closing exchange rates and those arising from the different method used to translate profit and loss for the period are recognized in a specific equity item. In the event of subsequent disposal of a foreign entity, the cumulative translation differences are taken to the income statement. As allowed under IFRS 1, cumulative translation differences at the date of first-time adoption of the IFRS have been reclassified in Retained earnings under shareholders equity and therefore will not be taken to the income statement in the event of subsequent disposal. Accounting treatment of companies operating in hyperinflationary economies (Turkey) As from January 1, 2006, Turkey is no longer considered a hyperinflationary economy; consequently IAS 29 Financial reporting in hyperinflationary economies is no longer applied to the Group s Turkish companies. With regard to the 2005 comparatives, the financial statements of the Turkish companies are denominated in new Turkish lira (local currency and accounting currency) using the historical cost method, in the unit of measurement applicable at the close of the reporting period. The carrying amounts of non-monetary assets and liabilities are adjusted to reflect the change in the general price index between the purchase date and the closure of the reporting period. The adjusted accounts are subsequently translated into the consolidated presentation currency (euro) by applying the criterion described above in Translation of the financial statements of foreign entities for companies that adopt an accounting currency other than the euro, with the exception of the income statement items which are translated at the closing exchange rate. The gain or loss on the net monetary position is taken to the income statement, under Finance income/(costs). Property, plant and equipment Measurement Property, plant and equipment is recognized at cost, less accumulated depreciation and impairment losses. Cost includes the purchase or production cost and directly attributable costs of bringing the asset to the location and the conditions required for its operation. Production cost considers the cost of materials and direct labor costs. Finance costs relating to the purchase, construction and production of an asset are recognized as expense as incurred. The carrying amount of some assets existing at the IFRS first-time adoption date of January 1, 2004, reflects revaluations applied in prior periods in connection with specific local laws, based on the real economic value of the assets in question. Assets acquired through business combinations are stated at fair value, determined on a provisional basis at the purchase date and subsequently adjusted within the following twelve months. Subsequent to initial recognition, property, plant and equipment is carried at cost depreciated over the asset s useful life, less any impairment losses. 65

68 Assets under construction are recognized at cost and are depreciated when they enter useful life. When an asset consists of components with a significant cost and different useful lives, initial recognition and subsequent measurement are effected separately for each component. Subsequent expense Repair and maintenance expense is normally recognized as incurred. Component replacement costs are treated as separate assets and the net carrying amount of the replaced component is expensed. Depreciation Depreciation is generally calculated on a straight-line basis over the estimated useful life of each component of an asset. Land is not depreciated, with the exception of land used for quarrying operations. Asset useful life determines the depreciation rate until a subsequent review of residual useful life. The range of useful lives used for the various categories of assets is disclosed in the notes. Quarries Costs for the preparation and excavation of land to be quarried are amortized as the economic benefits of such costs are obtained. Quarry land is depreciated at rates reflecting the quantities extracted in the period in relation to the estimated total to be extracted over the period in which the quarry is to be worked. The Group makes specific provision for quarry environmental restoration obligations. Since the financial resources required to settle such obligations are directly related to the degree of use, the charge cannot be defined at inception with an offset to the asset cost, but is provided to reflect the degree of use of the quarry. Leases Finance leases, which transfer to the Group all risks and rewards incident to ownership of the leased asset, are recognized from the lease inception date at the lower of the leased asset fair value or the present value of the lease payments. Lease payments are apportioned between finance costs and reductions against the residual liability so as to obtain a constant rate of interest on the outstanding liability. The policies used for depreciation and subsequent measurement of leased assets are consistent with those used for the Group s own property, plant and equipment. Lease contracts where all risks and rewards incident to ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognized as expense on a straight-line basis over the lease term. Investment properties Investment properties are land and/or buildings held to earn rentals and/or for capital appreciation, rather than for use in the production or supply of goods and services. Investment properties are initially recognized at purchase cost, including costs directly attributable to the purchase. Subsequent to initial recognition, investment properties are measured at amortized cost. Goodwill Goodwill arising from business combinations is measured initially at cost and since January 1, 2004, is no longer subject to amortization. As from the purchase date, goodwill is apportioned to the cash-generating units that are expected to benefit from the synergies created by the acquisition and is tested on an annual basis or more frequently if indications of impairment emerge. When goodwill is attributed to a cash-generating unit part of whose assets are disposed of, the goodwill associated with the sold assets is taken into account when determining the capital gain or loss arising from the transaction. 66

69 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Intangible assets Intangible assets purchased separately are capitalized at cost, while those acquired through business combinations are recognized at provisionally estimated fair value at the purchase date and adjusted where necessary within the following twelve months. Subsequent to initial recognition, intangible assets are carried at cost amortized over asset useful life. Other than goodwill, the Group has not identified intangible assets with an indefinite useful life. Impairment of assets Goodwill is tested for impairment on an annual basis or more frequently if indications of impairment emerge. Tangible assets and amortizable intangible assets are tested for impairment if indications of impairment emerge. Impairment is the difference between the asset net carrying amount and its recoverable amount. Recoverable amount is the greater of fair value, less costs to sell, of an asset or cash-generating unit, and its value in use, determined as the present value of future cash flows. Fair value less costs to sell is determined through application of relevant valuation models adopting appropriate income multipliers, quoted share prices on an active market for similar enterprises or other available fair value indicators applicable to the assets being measured. In determining value in use, assets are measured at the level of cash-generating units on a continuing operations basis. Estimated future cash flows are discounted at a rate determined for each cash-generating unit using the weighted average cost of capital method (WACC). If an impairment loss on an asset other than goodwill subsequently reverses in full or in part, the asset net carrying amount is increased to reflect the new estimated recoverable amount, which may not exceed the amount that would have been reflected in the absence of the impairment loss. Impairment losses and impairment reversals are taken to the income statement. Financial assets All financial assets are recognized initially at cost at the purchase date, which corresponds to fair value plus additional costs attributable to the purchase. Subsequent to initial recognition, assets held for trading are classified as current financial assets and carried at fair value; any gains or losses are taken to income. Assets held to maturity are classified as current financial assets, if they mature within one year; otherwise they are classified as non-current assets and subsequently carried at amortized cost. Amortized cost is determined using the effective interest rate method, taking account of any acquisition discounts or premiums, which are apportioned over the entire period until maturity, less any impairment losses. Other financial assets are classified as available for sale and recognized at fair value. Any gains or losses are shown in a separate equity item until the assets are sold, recovered or discontinued, or until they are found to be impaired, in which case the cumulative gains or losses in equity are taken to the income statement. Equity instruments that are not listed on an active market or whose fair value cannot be measured reliably are carried at cost. Inventories Inventories are measured at the lower of purchase/production cost (using the weighted average cost method) and net realizable value. Purchase cost includes costs incurred to bring assets to their present location, less allowances for obsolete and slowmoving items. Production cost of finished products and semi-finished goods includes the cost of raw materials, direct labor and a portion of general production costs, determined on the basis of normal plant operations. Financial costs are not included. The net realizable value of raw and ancillary materials and consumables is their replacement cost. The net realizable value of finished products and semi-finished goods is the estimated selling price in the ordinary course of business, less estimated cost of completion and estimated costs to sell. 67

70 Trade receivables and other receivables Trade receivables and other receivables are stated at nominal value, less allowances for uncollectible amounts, which are provided as doubtful debts are identified. Cash and cash equivalents Cash and cash equivalents consists of cash on hand, bank demand deposits and other treasury investments with original maturity of not more than three months. The definition of cash and cash equivalents in the cash flow statements is identical to that in the balance sheet. Employee benefits The Group operates pension plans, post-employment medical benefit plans and leaving entitlement provisions. It also has other commitments, in the form of bonuses payable to employees on the basis of length of service in some Group companies ( Other long-term benefits ). Defined contribution plans Defined contribution plans are structured post-employment benefit programs where the Group pays fixed contributions to an insurance company or pension fund and will have no legal or constructive obligation to pay further contributions if the fund does not dispose of sufficient assets to pay all the employee benefits accruing in respect of services rendered during the current year and in previous years. These contributions are paid in exchange for the services rendered by employees and recognized as expense as incurred. Defined benefit plans Defined benefit plans are structured post-employment benefit programs that constitute a future obligation for the Group. In substance, the company assumes the actuarial and investment risks of the plan. In accordance with IAS 19, the Group uses the unitary credit projection method to determine the present value of obligations and the related benefit cost of current services rendered. These actuarial calculations require use of consistent and objective actuarial assumptions about demographic variables (mortality rate, personnel turnover rate) and financial variables (discount rate, future increments on salaries and medical benefits). When a defined benefit plan is funded in full or in part by contributions paid to a fund that is a separate legal entity or to an insurance company, the assets servicing the plan are estimated at fair value. Benefit obligations area therefore recognized net of the fair value of the plan assets that will be used to settle the obligations. Leaving entitlements provided by the Italian companies (TFR, trattamento di fine rapporto) are treated in the same way as benefit obligations arising from defined benefit plans. Treatment of actuarial gains and losses Actuarial gains and losses on post-employment defined benefit plans may arise as a result of changes in the actuarial assumption used in two consecutive periods or as a result of changes in the obligation value or in the fair value of any plan asset in respect of the actuarial assumptions used at the beginning of the period. The Group uses the corridor method, where actuarial gains and losses are recognized as income or expense when their unrecognized cumulative net value, for each plan, at the end of the previous period exceeds 10% of the larger of present value of the defined benefit obligation or the fair value of plan assets at that date. These gains or losses are taken to income over the estimated average residual working life of the employees participating in the plans. Actuarial gains and losses relating to Other long-term benefits (service medals, length of service benefits) and to early retirement benefits are recognized as income or expense immediately. 68

71 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Past service cost Changes in liabilities resulting from a change to an existing defined benefit plan are recognized as expense on a straightline basis over an average period until the benefits are vested. Costs for benefits that vest immediately upon changes to a plan are recognized as expense as incurred. Curtailment and settlement Gains or losses on the curtailment or settlement of a defined benefit plan are recognized as income or expense when the curtailment or settlement occurs. The gain or loss includes changes in the present value of the obligation, changes in the fair value of plan assets, actuarial gains or losses and past service costs not previously accounted for. At the curtailment or settlement date, the obligation and the fair value of the plan assets are re-measured using current actuarial assumptions. Share-based payments The Group has decided to apply IFRS 2 as from January 1, Options for the subscription and purchase of shares granted by Group companies to employees and directors give rise to recognition of a cost classified under employee expenses, with a corresponding increase in equity. In accordance with IFRS 2, only options granted after November 7, 2002, whose rights had not vested at December 31, 2003, have been measured and recognized at the transition date. Options for the subscription and purchase of shares are measured at fair value at the grant date and amortized over the vesting period. Fair value is determined using the binomial method, and taking account of dividends. Future volatility is determined on the basis of historic market prices, after correction for extraordinary events or factors. The cost of options is reviewed on the basis of the actual number of options that have vested at the beginning of the exercise period. Provisions for risks and charges The Group recognizes provisions for risks and charges when a present or constructive obligation arises as a result of a past event, the amount of which can be reliably estimated, and use of resources is probable to settle the obligation. Provisions reflect the best estimate of the amount required to settle the obligation or transfer it to third parties at the balance sheet date. If the present value of the financial resources that will be used is material, provisions are determined by discounting expected future cash flows at a rate that reflects the current market assessment of the time value of money and, where appropriate, the risks specific to the liability. When discounting is performed, movements in provisions due to the effect of time or changes in interest rates are recognized in financial items. Changes in estimates are recognized as income or expense for the period. The Group recognizes a separate provision for environmental restoration obligations on land used for quarry work, determined in relation to the use of the quarry in question. Pending publication of a standard/interpretation on accounting treatment of greenhouse gas emission quotas, after the withdrawal of IFRIC 3 by the International Accounting Standards Board, the Group recognizes a separate provision when emissions are greater than the allowed quota. Restructuring costs are provided when the Group company concerned has approved a detailed formal plan that has already been implemented or notified to the relevant third parties. Loans and borrowings Loans and borrowings are initially recognized at the fair value of the consideration paid/received less charges directly attributable to the financial asset/liability. After initial recognition, loans and borrowings are measured at amortized cost using the effective interest rate method. In view of their contractual characteristics, Floating rate subordinate securities are classified as Interest-bearing loans and long-term borrowings. 69

72 Trade payables and other payables Trade payables and other payables are stated at the fair value of the original consideration received. Revenues, other revenues, interest income and dividends Sale of goods and services Revenues are recognized to the extent that the economic benefits associated with the sale of goods or rendering of services are collected by the Group and the amount in question can be reliably determined. Revenues are recognized at the fair value of the consideration received or due, taking account of any trade discounts given and volume discounts. Revenues from the sale of goods are recognized when the company transfers the material risks and rewards incident to ownership of the goods to the purchaser. Rental income Rental income is recognized as other revenues, as received. Interest income Interest income is classified as finance income on an accrual basis using the effective interest rate method. Dividends Dividends are recognized as finance income as shareholders right to receive payment arises, in accordance with local laws. Government grants Government grants are recognized when there is a reasonable certainty that they will be received and all the requirements on which receipt depends have been fulfilled. Grants related to the purchase or production of fixed assets (grants related to assets) are recognized as deferred income and taken to the income statement over the useful life of the underlying assets. Derivative financial instruments The Group uses derivative financial instruments such as foreign currency forward contracts and interest-rate swaps and options to hedge exchange-rate and interest-rate risks. Derivative financial instruments are measured and recognized at fair value. The fair value of foreign currency forward contracts is determined on the basis of the current forward exchange rates for contracts with similar maturity profiles. The fair value of interest-rate contracts is determined on the basis of discounted flows using the zero coupon curve. Hedging transactions Derivative financial instruments are designated as hedging instruments or as non-hedging instruments. Transactions that qualify for application of hedge accounting are classified as hedging transactions; other transactions are designated as trading transactions, even if they are performed for the purposes of risk management. For accounting purposes, hedging transactions are classified as fair value hedges if they cover the risk of changes in the fair value of the underlying asset or liability; or as "cash flow hedges if they hedge cash flows arising from an existing asset or liability or from a future transaction, which are exposed to variability. With regard to fair value hedges, fair value gains and losses on the derivative instruments are taken to income immediately. Similarly, the underlying assets or liabilities are measured at fair value and any gain or loss attributable to the hedged risk is recognized as an income or expense offset. 70

73 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 If the movement refers to an interest-bearing financial instrument, it is amortized on the income statement until maturity. With regard to cash flow hedges (foreign currency forward contracts, fixed-rate interest swaps), movements in intrinsic value are reflected in a separate equity item, while time-based changes and the non-effective hedge component are recognized in the income statement. The effective component and non-effective component are calculated using the methods indicated in IAS 39. Gains or losses arising from changes in the fair value of derivatives designated for trading are recorded as income or expense. When the financial instrument matures, is sold, settled, exercised or no longer qualifies for hedge accounting, the derivative is no longer treated as a hedging contract. In this case, gains or losses on the derivative are retained in equity until the hedged transaction takes place. If the Group no longer expects the hedged transaction to take place, the net gain or loss in equity is taken to the income statement. Income taxes Current income taxes are provided in accordance with local tax laws in the countries in which the Group operates. Deferred tax is recognized using the balance sheet liability criterion, based on temporary differences between the tax base of assets and liabilities and their carrying amount in the balance sheet. Deferred tax liabilities are recognized on all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable income will be available against which such differences, losses or credits may be reversed. Taxable or deductible temporary differences do not generate recognition of deferred tax liabilities or assets only in the following cases: taxable temporary differences arising from the initial recognition of goodwill, unless goodwill is tax-deductible; taxable or deductible temporary differences arising from initial recognition of an asset or a liability in transactions that are not business combinations and affect neither accounting profit nor taxable profit at the transaction date; equity investments in subsidiaries, associates and joint ventures when - the Group is able to control the timing of the reversal of the taxable temporary differences and it is probable that such differences will not reverse in the foreseeable future; - it is not probable that the deductible temporary differences will reverse in the foreseeable future and that taxable income will be available against which the temporary difference can be used. Deferred tax assets are reviewed at the end of every reporting period and reduced to the extent that sufficient taxable income is no longer likely to be available in the future against which the assets can be used in full or in part. Deferred tax assets and liabilities are determined at tax rates expected to apply when the deferred tax asset (liability) is realized (settled), based on rates that have been enacted or substantially enacted at the balance sheet date. Taxes relating to items recognized directly in equity are recognized in equity, not income. 71

74 Changes to the accounts In accordance with Consob resolution no of , the consolidated income statement presents line items reflecting non-recurring transactions in 2006; for comparative purposes, line items reflecting non-recurring transactions, previously classified under a single line item captioned Other income/(expense), have been opened on the face of the 2005 income statement. The Finance income/(costs) caption has been opened into three line items: Finance income, Finance costs and Net exchange rate differences and net derivatives ; for comparative purposes, corresponding line items have been opened on the face of the 2005 income statement. These changes have not generated any change in Gross operating profit, Operating profit, Profit before tax and consolidated Net profit for the period. Non-recurring transactions The tables below itemize the most significant non-recurring transactions and their impact on total shareholders equity, financial position and net profit: 2006 Shareholders' equity Net profit for the year Net debt (in thousands of euro) amount % amount % amount % Book values 4,660, ,397 2,210,312 Net capital gains on sale of fixed assets 18, , , Non-recurring employee expenses for reorganizations (25,449) 0.5 (25,449) Other non-recurring income (expense) (4,969) 0.1 (4,969) Tax on non-recurring transactions Non-recurring taxes 14, , Total 1, , , Figurative value without non-recurring transactions 4,658, ,624 2,174, Shareholders' equity Net profit for the year Net debt (in thousands of euro) amount % amount % amount % Book values 4,356, ,572 2,215,048 Net capital gains on sale of fixed assets 24, , , Non-recurring employee expenses for reorganizations (37,588) 0.9 (37,588) 7.0 (17,243) 0.8 Other non-recurring income (expense) (3,177) 0.1 (3,177) Tax on non-recurring transactions 3, , Non-recurring taxes 42, , Total 30, , , Figurative value without non-recurring transactions 4,325, ,463 2,201,911 72

75 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Dealings with related parties The table below illustrates dealings with related parties in 2006: Revenues Other Interest Trade and other Financial (purchases) income income receivables receivables (in thousands of euro) goods and services (expense) (expense) (payables) (payables) Parent company , (730) - (1) (10,214) - Parent company subsidiaries (*) 4, ,736 - (80) - - (145) - Subsidiaries and associates 26, ,620 5,177 (44,231) - (31) (1,216) (2,595) Other related parties (686) (911) - (397) - Total 31,229 1, ,429 5,217 (45,727) (911) (32) (11,972) (2,595) % impact on book items 0.5% 1.3% 0.4% 0.7% 1.4% 1.0% 0.6% - 1.0% 0.1% (*) subsidiaries of Italmobiliare S.p.A. Receivables and payables in respect of the parent company, Italmobiliare S.p.A., mainly refer to the effects of the tax consolidation. Dividends paid to the parent company Italmobiliare S.p.A. in 2006 amounted to 34,331 thousand euro. Revenues from and purchases of goods and services with respect to subsidiaries and associates mainly concern transactions with companies consolidated on a proportionate basis, notably Société des Carrieres du Tournaisis, Medcem S.r.l. and Les Calcaires Girondins S.a.s., and with companies valued at equity, including the Ciments Quebec Inc. group, General Cave S.r.l. and Cementi della Lucania S.p.A. Compensation paid to directors and the chief operating officer The table below sets out compensation paid during the financial year to the directors and the chief operating officer of Italcementi S.p.A. for positions held in the Group: (in thousands of euro) Short-term benefits: compensation and remuneration 8,452 7,466 Post-employment benefits: provision for leaving and end-of-term entitlements 1, Other long-term benefits: length-of-service bonues and incentives 7 3,484 Share-based payments (stock options) Total 10,145 12,

76 Equity investments in joint ventures The Group s most important joint ventures in 2006 were the French construction materials companies and the Medcem S.r.l. shipping company. In 2005 the Group s most important joint ventures were the Indian companies in the Zuari Cement Co. group. As from June 1, 2006, following acquisition of the outstanding interest, these companies have been consolidated on a line-by-line basis. The following table sets out the portion of assets and liabilities and revenues and expenses reflected in the Group consolidated financial statements: December 31, December 31, (in millions of euro) Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Revenues Expenses (34.0) (49.1) Profit before tax 9.2 (0.1) Exchange rates used to translate the financial statements of foreign entities Exchange rates for 1 euro: Average rate Closing rate Currencies Full year Full year December 31, December 31, US dollar Canadian dollar Pound sterling Cypriot pound Moroccan dirham New Turkish lira Swiss franc Thai baht Indian rupee Mauritanian ouguiya Albanian lek Sri Lanka rupee Egyptian lira Kazakhstan tenge The exchange rates used to translate the financial statements of the foreign entities are those published by the Ufficio Italiano Cambi (UIC), with the exception of the rates for the New Turkish lira, published by the Turkish Central Bank. 74

77 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Consolidation area The following changes took place in the consolidation area with respect to December 31, 2005: Change Company Entered the consolidation area On a line-by-line basis Ready Mix Beton SAE (Egypt) Ready Mix Beton (Egypte) SAE (Egypt) Lyulyaka E.A.D. (Bulgaria) Arteskos 98 JSC (Bulgaria) Arteskos AD (Bulgaria) Trabel Affretement (France) Axim Building Technologies S.A. (Spain) Cie pour l Investissement Financier en Inde (France) C.T.G. USA LLC (USA) Shqiperia Cement Company SHPK (Albania) Italgen Maroc S.A. (Morocco) On a proportionate basis Dragages Transports & Travaux Maritimes S.A. (at 50%) (France) (*) Sabliers de l Odet (at 49.5%) (France) Sablimaris (at 49.8%) (France) Merged companies Merging company Merged company Anadolu (renamed Set Cimento) Set Cimento (Turkey) Compagnie des Ciments Belges S.A. Ath Beton (Belgium) (*) previously consolidated with the equity method The main changes in the consolidation area were as follows: the 2006 consolidation area includes the results of the Egyptian companies in the Suez group (Suez Cement Co., Tourah Cement Co., Suez Bag and Helwan ) as from January 1, 2006; whereas in 2005, the Asec Cement Company (renamed Helwan) was consolidated on a line-by-line basis as from August 1, 2005, and Suez Cement Company, Tourah Cement Co. and Suez Bag were consolidated on a line-by-line basis as from April 1, 2005; the Indian subsidiaries Zuari Cement Ltd., Sri Vishnu Cement Ltd. and Sitapuram Power have been consolidated on a line-by-line basis since June 1, 2006; previously they were consolidated on a proportionate basis; the Egyptian companies Ready Mixed Beton S.A.E. (RMB) and Ready Mixed Beton Egypte S.A.E. (RMBE), purchased in 2006, have been consolidated on a line-by-line basis as from October 1, Annex 1 lists the significant equity investments in subsidiaries, joint ventures and associates, and indicates the respective method of consolidation. 75

78 Segment reporting The Group s primary reporting format is by geographical sectors; the secondary format is by business sectors. The geographical areas in which the Group operates that provide the basis for the primary reporting format are: Italy, France-Belgium, Spain, Greece-Cyprus, North America, Egypt, Morocco, Bulgaria, Turkey, Thailand, India, Kazakhstan, Trading and Other. Trading includes cement and clinker marketing activities in countries where Group terminals are located: Gambia, Mauritania, Sri Lanka and Albania, as well as direct exports to markets not covered by Group subsidiaries. Other is a residual category for the operations of the Ciments Français S.A. sub-holding, essentially provision of services to subsidiaries. It also includes liquid and solid fuel procurements for Group companies. The Group management and organizational structure essentially reflects the primary geographical format. The business sectors that provide the basis for the secondary reporting format are: operations relating to the production and sale of cement/clinker, operations relating to construction materials: ready mixed concrete and aggregates, other operations such as: transport, additives for cement and ready mixed concrete, PVC and clay pipes, e-business and energy. Business operations are organized and managed by country and by type of activity. The Group s geographical sectors consist of the fixed assets of the individual entities located and operating in the geographical areas indicated above; sales refer mainly to the local market, exports are generally with other Group entities; exports to external countries are conducted through the Group companies of the international Trading sector. Consequently the revenues of the entities in each geographical sector, net of revenues within the Group, arise essentially in the areas in which the fixed assets are located. The cement/clinker business delivers a portion of its production to the ready mixed concrete sector. The transfer prices applied to goods and services trading are regulated on the basis of arm s length transactions. Primary segment The table below sets out primary sector revenues and results at December 31, Revenues Intragroup Contributive Recurring Gross Operating Share of revenues revenues gross operating profit results of operating profit associates (in thousands of euro) profit Italy 1,619,509 59,617 1,559, , , ,686 (113) France-Belgium 1,617,160 4,093 1,613, , , , Spain 341,082 13, ,779 84,858 85,199 66,640 - Greece-Cyprus 114,229 2, ,012 33,046 33,117 28,071 4,959 North America 659, , , , ,259 6,013 Egypt 491,314 58, , , , ,534 - Morocco 244, , , ,095 81,311 - Bulgaria 124,248 17, ,053 46,278 46,469 37,296 1 Turkey 245, ,905 55,393 54,941 40,266 - Thailand 208,495 23, ,908 52,221 52,408 29,918 - India 115, ,996 38,859 38,139 28,836 - Kazakhstan 36,750-36,750 10,849 11,067 8,362 (55) Cement & clinker trading 328, , ,908 19,644 19,553 17, Other 253, ,789 5,251 8,396 8,487 5,695 - (elimin. inter-country transactions) (546,054) (546,054) Total 5,854,101-5,854,101 1,446,897 1,434,493 1,012,305 11,324 76

79 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 The table below sets out primary sector revenues and results at December 31, Revenues Intragroup Contributive Recurring Gross Operating Share of revenues revenues gross operating profit results of operating profit associates (in thousands of euro) profit Italy 1,482,431 44,621 1,437, , , , France-Belgium 1,457,305 4,954 1,452, , , , Spain 297,849 11, ,903 77,477 77,634 61,059 - Greece-Cyprus 95,198 4,464 90,734 26,850 27,058 22,201 3,919 North America 603, , , ,288 91,511 1,448 Egypt 264,940 19, , , ,340 59,915 11,748 Morocco 220,506 3, ,074 96,547 96,321 79,178 - Bulgaria 99,702 20,016 79,686 34,480 34,353 25,898 - Turkey 220,434 1, ,387 50,063 49,314 32,714 - Thailand 185,749 17, ,556 52,002 52,186 31,241 - India 48,691-48,691 5,867 5,920 1,993 - Kazakhstan 25,196-25,196 8,675 8,706 6,696 - Cement & clinker trading 210,808 84, ,977 11,363 14,012 12,843 - Other 228, ,732 - (6,354) (6,508) (8,835) - (elimin. inter-country transactions) (440,978) (440,978) - 10 (236) (236) - Total 4,999,631-4,999,631 1,152,738 1,136, ,843 18,614 The table below sets out other primary sector data at December 31, December 31, 2006 Full year 2006 Non-current Current Operating Invested Capital Depreciation Impairment operating operating liabilities capital expenditure PPE and assets assets amortization intangible (in thousands of euro) assets Italy 894, , ,963 1,318, ,385 (103,041) (963) France-Belgium 1,484, , ,486 1,695, ,657 (95,599) 62 Spain 483, , , ,062 58,363 (18,011) (549) Greece-Cyprus 63,053 58,062 27,996 93,762 5,781 (4,495) (552) North America 515, , , ,883 68,342 (45,457) - Egypt 1,268, , ,605 1,307,492 24,984 (71,944) - Morocco 245,198 67,123 61, ,058 14,804 (18,790) 6 Bulgaria 133,619 23,637 21, ,787 8,790 (9,173) - Turkey 211,248 79,541 43, ,490 11,375 (14,675) - Thailand 323,744 69,279 35, ,675 10,553 (22,489) - India 227,978 15,533 27, ,952 22,276 (9,298) (5) Kazakhstan 21,537 8,350 2,769 27,586 5,659 (2,695) (10) Cement & clinker trading 23,572 65,105 42,399 47,985 3,659 (1,794) 75 Other 6,731 68,832 39,959 36,904 1,638 (2,792) - (elimin. inter-country transactions) 1,215 (109,373) (110,476) 2, Total 5,905,168 2,380,691 1,672,627 6,855, ,266 (420,252) (1,936) 77

80 The table below sets out other primary sector data at December 31, December 31, 2005 Full year 2005 Non-current Current Operating Invested Capital Depreciation Impairment operating operating liabilities capital expenditure PPE and assets assets amortization intangible (in thousands of euro) assets Italy 826, , ,296 1,197, ,373 (96,059) (1,022) France-Belgium 1,471, , ,491 1,504,792 96,353 (94,071) (388) Spain 440, ,960 78, ,166 48,465 (16,202) (373) Greece-Cyprus 62,206 49,306 25,875 86,221 6,887 (4,195) (661) North America 552, , , ,551 71,010 (37,777) - Egypt 1,342, ,398 84,011 1,409,453 18,975 (47,425) - Morocco 257,918 56,833 56, ,481 13,076 (17,225) 81 Bulgaria 129,994 23,169 20, ,537 8,520 (8,455) - Turkey 252,594 58,255 41, ,299 11,294 (16,600) - Thailand 324,636 60,407 30, ,892 11,391 (20,945) - India 71,409 8,798 8,171 72,036 2,008 (3,927) - Kazakhstan 20,248 5,840 1,717 24,787 3,492 (2,084) 74 Cement & clinker trading 22,621 44,390 30,936 37,374 13,159 (1,170) - Other 7, ,723 54, ,539 2,303 (2,326) - (elimin. inter-country transactions) 1,213 (91,966) (93,110) 2, Total 5,783,592 2,158,552 1,551,662 6,611, ,306 (368,461) (2,289) Non-current operating assets include net property, plant and equipment, goodwill, net intangible assets, quarry rights paid in advance and other non-current assets other than tax and financial assets. Current operating assets include inventories, trade receivables and other current assets other than tax and financial assets. Operating liabilities include trade payables, provisions and other liabilities other than tax liabilities and loans and borrowings. Invested capital reflects operating assets less operating liabilities net of provisions. Secondary segment Contributive revenues Capital expenditure Operating assets (in thousands of euro) Cement and clinker 3,847,908 3,161, , ,804 6,631,820 6,368,240 Ready mixed concrete and aggregates 1,751,477 1,617,549 69,692 85,104 1,269,623 1,098,309 Other 254, ,656 35,420 13, , ,595 Total 5,854,101 4,999, , ,306 8,285,859 7,942,144 78

81 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Assets Non-current assets 1) Property, plant and equipment Land and Quarries Technical plant, Other Total buildings materials and (in thousands of euro) equipment Net carrying amount at December 31, , ,394 2,199, ,759 3,905,753 Gross amount 1,812, ,393 5,909, ,390 9,037,577 Accumulated depreciation (955,652) (193,999) (3,710,542) (271,631) (5,131,824) Net carrying amount at December 31, , ,394 2,199, ,759 3,905,753 Additions 32,314 19, , , ,518 Change consolidation area and other 142,738 3, ,181 (214,098) 177,248 Disposals (2,709) (908) (6,352) (1,930) (11,899) Depreciation (52,774) (19,593) (312,035) (23,644) (408,046) Currency translation differences (43,861) (6,171) (97,339) (13,297) (160,668) Net carrying amount at December 31, , ,192 2,223, ,691 4,005,906 Gross amount 1,868, ,982 6,192, ,395 9,393,950 Accumulated depreciation (935,413) (210,790) (3,969,137) (272,704) (5,388,044) Net carrying amount at December 31, , ,192 2,223, ,691 4,005,906 Additions totaled million euro and mainly referred to capital expenditure in Europe for million euro, including Italy 165.4, France 88.9, Spain 58.4, and in North America for 68.3 million euro. Currency translation differences arose mainly from the changes in the dollar, the Turkish lira and the Egyptian lira against the euro. Other information Fixed assets pledged as security for bank loans were carried at a net amount of million euro at December 31, 2006 (510.9 million euro at December 31, 2005), of which million euro referred to fixed assets of Helwan Cement Company. Fixed assets held under finance leases and rental contracts were carried at a net amount of 37.2 million euro at December 31, 2006 (12.0 million euro at December 31, 2005). They consisted largely of plant and machinery and automobiles and aircraft. The increase was largely due to the rental contract signed by Italcementi S.p.A. in 2006 for a grinding plant in Novi Ligure, for an overall amount of 29.5 million euro. The carrying amount of this asset at December 31, 2006, net of depreciation for the period, was 28.5 million euro. Expense included in the value of Property, plant and equipment at December 31, 2006, amounted to 37.5 million euro. The useful lives adopted by the Group for the main asset categories are as follows: - Civil and industrial buildings years - Plant and machinery 5-30 years - Other property, plant and equipment 3-10 years The range between the above minimum and maximum limits indicates the presence of components with different useful lives within each asset category. 79

82 2) Investment property (in thousands of euro) Net carrying amount at December 31, ,234 Gross amount 40,119 Accumulated depreciation (16,885) Net carrying amount at December 31, ,234 Additions 131 Disposals (863) Depreciation (572) Currency translation differences 252 Other 78 Net carrying amount at December 31, ,260 Gross amount 38,997 Accumulated depreciation (16,737) Net carrying amount at December 31, ,260 Investment properties are carried at amortized cost; fair value at December 31, 2006, was million euro. 3) Goodwill The change in goodwill with respect to December 31, 2005 was as follows: (in thousands of euro) Net carrying amount at December 31, ,812,029 Acquisitions and changes in consolidation area 101,309 Sales - Impairment (942) Currency translation differences (75,562) Net carrying amount at December 31, ,836,834 The main acquisitions and changes in the consolidation area in 2006 were as follows: line-by-line consolidation of the Zuari Cement Ltd. group generated additional goodwill of 78.2 million euro (see note 3.1.1); the acquisition of the Egyptian companies RMB and RMBE generated goodwill of 11.9 million euro; the asset and liability values relating to the acquisition of the Suez group were finalized in 2006, generating an increase of 10.0 million euro in goodwill (at the acquisition exchange rate) (note 3.1.2). the final attribution in 2006 of asset and liability values relating to the acquisition of Cemill S.p.A., now merged with Cementificio di Montalto S.p.A., generated a decrease of 2.6 million euro in goodwill; the adjustment arose from recognition of the grinding center s plant and machinery at 4.2 million euro and recognition of deferred tax liabilities for 1.6 million euro. Goodwill impairment arose mainly at the Greek subsidiary Domiki Beton, for 0.6 million euro, and a number of Spanish subsidiaries, for 0.3 million euro. Currency translation differences arose mainly from the changes in the Egyptian lira, the Turkish lira and the dollar against the euro. 80

83 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Business combinations 3.1 Acquisitions during the year India In May 2006 an agreement was reached to acquire from Zuari Industries Limited the outstanding share in the equally owned joint venture Zuari Cement Limited. Previously Zuari Cement Ltd. and its subsidiaries Sri Vishnu and Sitapuram Power had been consolidated on a proportionate basis at 50%; consolidation on a line-by-line basis began as from June 1, The acquisition, including non-voting preference shares, is carried at million euro. The notes below reflect the impact on the Group of line-by-line consolidation of the Indian companies. Egypt During 2006 Suez Cement Co. acquired 52% of the Ready Mixed Beton S.A.E. (RMB) and 52% of Ready Mixed Beton Egypte S.A.E. (RMBE) for 10.9 million euro; these two companies are the leading Egyptian producers of ready mixed concrete. The acquisition will offer important synergies with the manufacturing operations of the Suez Cement Co. group. The Group s 2006 results include the results of the Egyptian companies as from January 1, In financial year 2005, Suez Cement Co., Tourah Portland Cement Co. and Suez Bag were consolidated on a line-by-line basis as from April 1, Helwan Cement as from August Acquisition of Zuari Cement Ltd. Consolidated financial statements Zuari Cement Ltd. group Book value of Change in Fair value acquisitions fair value attributed (in millions of euro) to acquisition Net property, plant and equipment and other non-current assets Inventories Trade receivables and other current assets Cash and cash equivalents Trade payables and other current liabilities (17.9) (17.9) Deferred tax liabilities (5.9) (2.9) (8.8) Provisions for risks and charges (2.2) (8.0) (10.2) Loans and borrowing (short/long term) (38.3) (38.3) Minority interests (0.4) Fair value of acquired net assets 69.0 Interest held previously (27.8) Goodwill 78.2 Revaluation of interest held previously (6.7) Cost of acquisition Share purchase price Cost relating to acquisition 4.0 Cost of acquisition

84 The total net outlay for the acquisition was as follows: (in millions of euro) Price paid for previous acquisitions Cash and cash equivalents acquired with the proportionate method (35.4) Net outlay for previous acquisitions 71.0 Price paid in Cash and cash equivalents acquired (5.0) Net outlay in The line-by-line consolidation of the Zuari Cement Limited group (consolidated on a proportionate basis until May 31, 2006) had the following effects on the 2006 consolidated financial statements: (in millions of euro) Zuari Cement Ltd. group Revenues (*) 44.6 Gross operating profit 15.3 Operating profit 11.4 Finance income (costs) (0.6) Income tax expense (3.4) Net profit for the period 7.3 Net profit attributable to the Group 7.3 Net profit attributable to minority interests - (*) after intragroup eliminations Had the financial statements of the Zuari Cement Limited group been consolidated line-by-line as from January 1, 2006, the additional contribution to 2006 consolidated results would have been as follows: (in millions of euro) Zuari Cement Ltd. group Revenues (*) 27.0 Gross operating profit 7.6 Operating profit 4.8 (*) after intragroup eliminations 82

85 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors Acquisition of Suez Cement Company Consolidated financial statements Suez Cement Company group Book value Temporary Change in Fair value (including Helwan Cement) of acquisitions fair value fair value (1) attributed to attributed to acquisition (in millions of euro) acquisition Net property, plant and equipment and other non-current assets Inventories (2.1) Trade receivables and other current assets Cash and cash equivalents Trade payables and other current liabilities (87.2) (87.2) - (87.2) Deferred tax liabilities (4.4) (65.6) (11.5) (77.1) Provisions for risks and charges (44.5) (47.0) - (47.0) Loans and borrowing (short/long term) (246.3) (240.9) - (240.9) Minority interests (222.7) (37.3) (260.0) Fair value of acquired net assets Interest held previously (217.6) - (217.6) Goodwill Revaluation of interest held previously (59.6) (14.4) (74.0) Cost of acquisition (1) at exchange rate on March 31, 2005, for Suez and on July 31, 2005, for Helwan The line-by-line consolidation of the Suez Cement Co. group as from April 1, 2005 (valued with the equity method until March 31, 2005) and of Helwan as from August 1, 2005, had the following effects on the 2005 consolidated financial statements: Suez Cement Helwan Total Company Cement (in millions of euro) Company Revenues (*) Gross operating profit Operating profit Finance income (costs) (11.9) (5.6) (17.5) Income tax expense (9.4) (3.9) (13.3) Share of result of associates Net profit attributable to the Group Net profit attributable to minority interests (*) after intragroup eliminations Had the financial statements of the Egyptian companies acquired during 2005 (the Suez group on April 1 and Helwan on August 1) been consolidated line-by-line from January 1, 2005, their contribution to the 2005 consolidated results would have been as follows: (in millions of euro) Suez Cement Co. group Revenues (*) Gross operating profit Operating profit (*) after intragroup eliminations 83

86 3.1.3 Acquisition of the RMB group Consolidated financial statements RMB group Book value of Change in Fair value acquisitions fair value attributed (in millions of euro) to acquisition Net property, plant and equipment and other non-current assets Inventories Trade receivables and other current assets Cash and cash equivalents Trade payables and other current liabilities (4.9) (4.9) Deferred tax liabilities - (1.6) (1.6) Provisions for risks and charges - - Loans and borrowing (short/long term) (0.9) (0.9) Minority interests (*) (4.2) Fair value of acquired net assets 4.5 Goodwill 6.4 Cost of acquisition 10.9 (*) before put option Share purchase price 10.8 Cost relating to acquisition 0.1 Cost of acquisition 10.9 Suez Cement Co. granted RMB minority shareholders a put option on their shares, exercisable at any time. In compliance with the international financial reporting standards relating to business combinations, the commitment in question at December 31, 2006 (9.6 million euro) is classified under Other current liabilities (note 20), minority interests have been reversed and the difference of 5.5 million euro added to goodwill. The total outlay for the acquisition was as follows: (in millions of euro) Price paid in Cash and cash equivalents acquired (1.8) Net outlay in Goodwill testing Goodwill acquired in a business combination is apportioned to the cash-generating units (CGUs). The Group tests goodwill recoverability at least once a year or more frequently if indications of impairment emerge. The tests conducted for 2006 led to recognition of an impairment loss of 552 thousand euro (662 thousand euro in 2005) attributable entirely to the Greek subsidiary Domiki Beton, which is active in ready mixed concrete in Crete. 84

87 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 The most significant goodwill values for Group CGUs are set out below: (in thousands of euro) Net carrying amount for goodwill Cash-generating units December 31, 06 December 31, 05 France/Belgium 552, ,123 Spain 222, ,220 Morocco 104, ,465 Egypt 532, ,146 India 100,049 21,920 Other 323, ,155 Total 1,836,834 1,812,029 The method adopted to determine CGU recoverable value is described under "Impairment of assets, in the section on principles of consolidation. The main assumptions used for the computation are set out below: (in %) Discount factor before tax Growth rate Cash-generating units France/Belgium Spain Morocco Egypt India The discount factors for each country are determined by applying a country-risk premium based on estimated long-term inflation to euro-zone deflated WACC. 4) Intangible assets Concessions Licenses and Other Total patents intangible (in thousands of euro) assets Net carrying amount at December 31, ,152 18,665 19,629 48,446 Gross amount 15,067 62,317 52, ,945 Accumulated amortization (4,915) (43,652) (32,932) (81,499) Net carrying amount at December 31, ,152 18,665 19,629 48,446 Additions 3,005 11,665 1,654 16,324 Disposals (1) (10,013) (111) (10,125) Change in consolidation area 1, ,571 Amortization (1,779) (4,834) (5,021) (11,634) Currency translation differences - (425) 25 (400) Other (2,394) 5, ,054 Net carrying amount at December 31, ,464 20,936 16,836 48,236 Gross amount 13,952 70,614 51, ,158 Accumulated amortization (3,488) (49,678) (34,756) (87,922) Net carrying amount at December 31, ,464 20,936 16,836 48,236 Concessions are amortized over the life of the conventions in question; amortization of quarrying right concessions is determined at rates reflecting the ratio of extracted material to total to be extracted. Licenses and patents refer mainly to use of software licenses for indefinite periods of time and are amortized over five years. 85

88 Additions and disposals of licenses and patents refer in the main to CO2 rights acquired from third parties by Italcementi S.p.A. to cover the deficits at the end of 2005 and 2006; the 2005 rights were subsequently delivered to the Italian Ministry of the Environment, during the first half of ) Investments in associates This caption reflects equity interests, including goodwill, in associates. The main associates are listed below: Value of investments Share of result December 31, December 31, (in millions of euro) Ciment Québec Vassiliko Cement Works Suez Cement Group Others (2.8) (2.1) Total The adjustments applied to values for the main associates, for compliance with Group principles, are set out below: Total assets Total liabilities Revenues Net profit (in millions of euro) Ciment Québec Vassiliko Cement Works ) Other equity investments This non-current asset caption reflects equity investments in the available for sale category as required by IAS 39. (in thousands of euro) At December 31, ,146 Acquisitions 101,762 Sales - Fair value taken to equity 20,399 Change in consolidation area and other changes (3,812) Currency translation differences (293) At December 31, ,202 Acquisitions consisted mainly of the purchase of shares in the Turkish company Goltas, for 89.4 million euro. 86

89 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Other equity investments at December 31, 2006, were as follows: Number December 31, (in thousands of euro) of shares 2006 Investments in listed companies Mediobanca S.p.A. 11,522, ,063 R.C.S. Mediagroup S.p.A. 16,749,744 63,532 Others 74,339 Total 342,934 Investments in non-listed companies 109,268 Total 452,202 The fair value of listed investments is determined on the basis of the official share price on the last accounting day. The fair value of non-listed companies, specifically the most significant investment, Asment, is determined with reference to the official share prices of comparable companies. Non-listed equity investments stated at cost are carried at 34.5 million euro. 7) Other non-current assets Other non-current assets are as follows: December 31, December 31, (in thousands of euro) Bank deposits relating to FRSS - 327,752 Derivative instruments 19,864 11,835 Concessions and licenses paid in advance 14,052 16,587 Non-current receivables 38,049 43,513 Guarantee deposits 11,723 17,328 Other 4,656 5,583 Total 88, ,598 Other non-current assets at December 31, 2006 amounted to 88,344 thousand euro (422,598 thousand euro at December 31, 2005). This significant reduction was essentially due to the transaction on floating rate subordinated securities (FRSS) conducted by Ciments Français and Unibeton, who exercised their FRSS buyback options on June 23 and June 29, 2006, respectively, for a symbolic amount, as contractually agreed. Consequently, the two companies are no longer required to pay interest to FRSS holders, nor are they any longer entitled to collect interest accruing on the related bank deposits. As a result of the transaction, the loan in question (see note 16) and the related bank deposits of million euro classified under non-current assets were cancelled, with no impact on consolidated net profit for the year. 87

90 8) Inventories December 31, December 31, (in thousands of euro) Raw and ancillary materials and consumables 438, ,760 Work in progress and semi-finished goods 113, ,561 Finished goods 119, ,639 Payments on account 11,656 9,555 Total 683, ,515 Inventories are carried net of write-down provisions totaling 88.9 million euro (84.7 million euro at December 31, 2005), mainly against the risk of slow-moving ancillary and consumable materials. 9) Trade receivables December 31, December 31, (in thousands of euro) Gross amount 1,539,461 1,341,729 Provision for bad debts (66,968) (63,795) Net amount 1,472,493 1,277,934 Trade receivables bear no interest and are due within 12 months, a term consistent with conditions on the markets in which the Group operates. The five-year trade factoring programs stipulated by Ciments Calcia and Arena came to an end in November 2006 and December 2006 respectively. At the end of December 2006, Ciments Calcia and Unibeton stipulated new five-year factoring programs. Factored receivables amounted to 32 million euro at December 31, The new factored receivables comply with IAS 39 since the risks associated thereto are transferred with the receivables, for approximately 90% of the factored amount. The balance sheet therefore continues to recognize: - the increase in factored receivables of 1.8 million euro, under other current liabilities; - the portion of non-transferred receivables for 2.7 million euro stated under trade receivables, with an offset of 2.5 million euro in loans and borrowings and of 0.2 million euro in miscellaneous receivables. 10) Cash and cash equivalents December 31, December 31, (in thousands of euro) Bank/postal demand accounts and cash on hand 79, ,009 Mutual funds 48,300 42,850 Short-term deposits 191, ,293 Total 319, ,152 88

91 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Short-term deposits have varying maturities within three months, in relation to the Group s cash requirements; interest matures at the respective short-term rates. The fair value of cash and cash equivalents was 319,693 and 416,152 thousand euro at December 31, 2006, and December 31, 2005, respectively. The decrease arose largely from use of cash to repay a portion of Suez Cement Co. debt and distribute a bonus dividend at Tourah. Cash and cash equivalents are also shown under Closing cash and cash equivalents on the cash flow statement. Share capital and reserves 11) Share capital At December 31, 2006, parent company fully paid-up share capital amounted to 282,548,942 euro represented by 282,548,942 shares with a par value of 1 euro each, as follows: December 31, December 31, Change Number of shares Ordinary shares 177,117, ,117,564 - Savings shares 105,431, ,431,378 - Total 282,548, ,548,942-12) Reserves Share premium reserve This reserve stood at 344,442 thousand euro (344,316 thousand euro at December 31, 2005). The increase of 126 thousand euro reflected the capital gain net of tax on the sale of ordinary treasury shares as stock option plan beneficiaries exercised their options (see note 13). Other reserves Translation reserve This reserve reflects exchange rate differences on the translation of the financial statements of consolidated foreign entities. At December 31, 2006, it stood at 986 thousand euro, and related to the following currencies: December 31, December 31, Change (in millions of euro) Egypt (Lira) (14.1) 30.5 (44.6) USA and Canada (Dollar) (8.0) 40.1 (48.1) Thailand (Baht) Morocco (Dirham) (1.4) 4.6 (6.0) India (Rupee) (0.3) Turkey (Lira) (24.6) Other countries (0.6) 1.7 (2.3) Total (119.3) 89

92 Available-for-sale reserve, derivative financial instrument reserve, other reserves Fair value reserve Fair value reserve Other reserves for available- for derivative for-sale financial financial (in millions of euro) assets instruments At December 31, (2.5) 49.8 Gains (losses) recognized directly in reserve Taxes taken directly to reserve 0.9 (4.8) - Gains (losses) taken directly to income and expense - (1.5) - Taxes taken directly to income and expense At December 31, The first two reserves reflect fair value adjustments to available-for-sale financial assets and hedging derivatives. Other reserves reflect accounting entries for stock option plans amounting to 8.0 million euro at December 31, 2006, and revaluations of 60.1 million euro on the Group equity investments in Suez and Zuari before acquisition of control. 13) Treasury shares Italcementi S.p.A. treasury shares at December 31, 2006, amounted to 42,914 thousand euro, as reflected in the treasury share reserve, illustrated below: No. ordinary Aggregate No. savings Aggregate Total shares par carrying shares par carrying carrying value 1 amount value 1 amount amount (thousands of euro) (thousands of euro) (thousands of euro) December 31, ,945,102 37, , ,333 Additions 1,022,538 18,903 18,903 Disposals (1,606,057) (14,323) (14,323) December 31, ,361,583 42, , ,914 The year s additions reflect purchases of 1,022,538 ordinary shares for 18,903 thousand euro. Disposals reflect the sale of ordinary shares after exercise of 1,606,057 options by stock option plan beneficiaries, for an overall value of 14,459 thousand euro, as follows: 14,323 thousand euro representing the carrying amount of the sold shares, deducted against the treasury shares reserve, and a net capital gain of 136 thousand euro on the sale, taken to the share premium reserve (see note 12). Ordinary treasury shares held at December 31, 2006, will service stock option plans for directors and managers. Dividends paid Dividends declared and paid by the parent company Italcementi S.p.A. in 2006 and 2005 are detailed below: December 31, 2006 December 31, 2005 (euro per share) (euro per share) (thousands of euro) (thousands of euro) Ordinary shares ,295 51,957 Savings shares ,917 34,758 Total dividends 95,212 86,715 90

93 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors ) Minority interests Minority interests at December 31, 2006, stood at 1,361.7 million euro, up by 42.7 million euro from December 31, Final valuation during 2006 of the Suez group assets and liabilities acquired in 2005 generated an increase of 44.7 million euro in minority interests. Net profit for 2006 attributable to minorities increased by 52.5 million euro, from million euro in 2005 to million euro in 2006; the translation reserve decreased by 87.7 million euro, reflecting changes in the main currencies against the euro. 15) Employee benefit liabilities Employee benefit liabilities at December 31, 2006 amounted to 202,878 thousand euro (207,002 thousand euro at December 31, 2005). The Group s main employee benefit plans are described below. Defined benefit plans The Group operates pension plans, post-employment medical benefit plans and leaving entitlement provisions. The most important pension plans are in the USA and France, and are financed by contributions paid by the company and by employees to external entities responsible for the administration and management of the pension funds. Early retirement schemes also operate, pursuant to local laws, in France and Belgium. Defined benefit plans also include the leaving entitlement provision for staff of the Group s Italian companies, determined on an actuarial basis. In some companies in France and Italy, the Group also recognizes liabilities in respect of future commitments, in the form of bonuses payable to employees on the basis of length of service; these liabilities are measured with actuarial assumptions. Net liabilities for pension plans, post-employment benefit plans and leaving entitlement provisions are determined with actuarial calculations performed by independent external actuaries. Liabilities determined on the basis of actuarial calculations at December 31, 2006, are as follows: Pension plans and Post-employment Total (in millions of euro) other long-term benefits medical benefits Dec. 31, 06 Dec. 31, 05 Dec. 31, 06 Dec. 31, 05 Dec. 31, 06 Dec. 31, 05 Discounted value of funded plans Fair value of plan assets (102.9) (105.8) (102.9) (105.8) Discounted net value of funded plans Discounted value of non-funded plans Net value of obligation Unrecognized experience adjustments (0.5) (14.3) (1.6) (4.2) (2.1) (18.5) Unrecognized costs on prior-period services (0.3) (0.3) Net liabilities of which: Liabilities Assets Net (assets)/liabilities

94 The movements in the net liability during the year are analyzed below: Pension plans and Post-employment Total (in millions of euro) other long-term benefits medical benefits Dec. 31, 06 Dec. 31, 05 Dec. 31, 06 Dec. 31, 05 Dec. 31, 06 Dec. 31, 05 Opening net liability Net costs charged to income Contributions or services paid (16.8) (15.5) (3.0) (3.3) (19.8) (18.8) Exchange rate differences (2.0) 3.0 (3.8) 4.9 (5.8) 7.9 Plans acquired on change to consolidation area Closing net liability Costs for the year were as follows: Pension plans and Post-employment Total (in millions of euro) other long-term benefits medical benefits Current cost of services (11.6) (11.4) (1.7) (1.4) (13.3) (12.8) Finance costs on obligations (11.0) (11.8) (3.1) (3.0) (14.1) (14.9) Revenues expected from plan assets Net actuarial losses recognized in year (0.2) (0.1) (0.2) (0.1) Cost of prior-period services (2.2) (1.8) 0.6 (0.9) (1.6) (2.8) Plan settlement or curtailment losses/(gains) Total (17.8) (13.1) (4.2) (5.4) (22.0) (18.5) of which: Employee expenses (17.9) (16.9) (4.2) (5.4) (22.0) (22.3) Other income/(expense) Real return on assets

95 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 The movements in plan asset fair values were as follows: Pension plans and Post-employment Total (in millions of euro) other long-term benefits medical benefits Dec. 31, 06 Dec. 31, 05 Dec. 31, 06 Dec. 31, 05 Dec. 31, 06 Dec. 31, 05 Opening fair value of plan assets Expected yield Experience adjustments 1.1 (2.0) 1.1 (2.0) Employer contributions Employee contributions Benefits paid (19.2) (20.8) (3.2) (3.3) (22.3) (24.1) Change in consolidation area Exchange rate differences (8.8) 10.7 (8.8) 10.7 Closing fair value of plan assets Group contributions to defined benefit plans in 2007 will amount to an estimated 16.0 million euro. The table below sets out the main plan asset categories as percentages of total fair value: Equities 33.8% 33.9% Debentures 60.7% 60.7% Investment properties 0.3% 0.3% Other 5.2% 5.1% The table below sets out key data for the last two financial years: (in millions of euro) Dec. 31, 06 Dec. 31, 05 Discounted value of funded plans Fair value of plan assets (102.9) (105.8) Net value of funded plans Change in value of funded plans other than experience adjustments as % of discounted value 2% 2% Experience adjustments (1.1) 2.0 as % of asset value -1% 2% The early retirement provision of 7.2 million euro formed in 2005 in connection with the re-organization of administrative and commercial operations in France and Belgium stood at 6.9 million euro at December 31,

96 Actuarial assumptions The actuarial assumptions used to determine liabilities arising from the Group s pension plans and other long-term benefits are illustrated below: Europe North America Other countries (in %) Discount factor , Expected yield on assets Future wage and salary increases n.a. n.a n.a.: not applicable The assumptions used at December 31, 2006, to determine commitments for post-employment medical benefits are as follows: - in France, an increase in contributions to provisions covering medical expenses of 5% for 10 years and 2% for subsequent years. The discount factor for 2006 is 4.75% (4.25% in 2005). - in the USA, the estimated increase in future medical expenses is determined by applying a growth rate of 10% for the following year (10% in 2005), gradually decreasing to 5% over the long term. The discount factor for 2006 is 5.75% (5.5% in 2005). Defined contribution plans The Group s defined contribution plans are pension plans and medical plans; expense relating to these plans in 2006 was 39.6 million euro (38.7 million euro in 2005). Stock options The Group has arranged stock option plans for directors, managers and employees who hold special posts, in Italcementi S.p.A., some Italian subsidiaries and Ciments Français S.A. The stock options granted by the parent company Italcementi S.p.A. refer to ordinary shares, and may be exercised between the beginning of the fourth year and the end of the tenth year after the grant date; directors whose term of office is not renewed may exercise their options immediately, and in any case within 10 years of the grant date; as a general rule, unexercised stock options assigned to managers are not recognized in the event of termination of employment, except in the case of retirement. Stock options are exercised at a rate of 1 share per option. The terms and conditions of Italcementi S.p.A. stock option plans at December 31, 2006, are set out below: Grant date No. options Exercised period Exercise Cancelled Unexercised Unit granted options options options subscription price April 24, , , March 13, , , , March 27, , , , March 17, ,053, ,475 1,047, March 7, , , , Total 3,893,148 1,606,05-2,287,091 94

97 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 The grant date is the date of the Board of Directors meeting that approved the stock option plan. The average residual life of unexercised options is approximately 5 years. The number and average exercise price of Italcementi S.p.A. in the periods in question are set out below: number average number average of options subscription price of options subscription price Unexercised options at beginning of year 3,261,745 e ,208,145 e Granted during year 631,403 e ,053,600 e Cancelled during year Exercised during year (1,606,057) e Expired during year Unexercised options at end of year 2,287,091 e ,261,745 e Vested options at end of year 612,750 1,242,200 The average ordinary share price for financial year 2006 was euro ( euro in 2005). The option exercise price at December 31, 2006, was between euro and euro. Only options granted after November 7, 2002, that had not vested at December 31, 2003, were measured and recognized at the date of transition to the IFRS. The following table sets out the characteristics of all Group stock option plans and their cost, carried under employee expenses : (in thousands of euro) Company Number of Vesting Employee expenses Grant date options period granted February 12, 2003 Ciments Francais S.A. 171,400 3 years March 7, 2003 Italcementi S.p.A. 965,945 3 years March 17, 2005 Italcementi S.p.A. 1,053,600 3 years April 14, 2005 Ciments Francais S.A. 169,400 3 years 1, March 7, 2006 Italcementi S.p.A. 631,403 3 years March 23, 2006 Ciments Francais S.A. 155,000 3 years 1,439 - Total 3,146,748 4,316 2,654 Stock option plan fair value at the grant date is estimated using a binomial model that takes dividends into account. The total option term is ten years. Volatility projections assume that past volatility, determined as the annual average for the past period net of extraordinary events, is indicative of future trends. No other stock option plan characteristic is taken into consideration when measuring fair value. 95

98 The following table sets out the assumptions used and results obtained in measuring the Italcementi S.p.A stock option plan: 2006 plan Option value at grant date e Share value e Exercise price e Volatility as % 23% Option term (years) 10 Dividend as % 1.95% Risk-free rate Net financial position An itemized correlation of the net financial position with the balance sheet is set out below: (in thousands of euro) Financial asset and liability category Balance sheet line item December 31, 2006 December 31, 2005 Cash, cash equivalents and current financial assets 387, ,767 Cash and cash equivalents Cash and cash equivalents 319, ,152 Current financial receivables Investments and financial receivables 65,155 52,750 Derivative instruments Other current assets 2,775 2,865 Short-term financing (479,445) (956,969) Bank overdrafts and short-term borrowings Bank overdrafts and short-term borrowings (295,471) (799,938) Interest-bearing loans and short-term borrowings Interest-bearing loans and short-term borrowings (182,078) (155,848) Derivative instruments Other current liabilities (1,896) (1,183) Medium/long-term financial assets 20, ,587 Bank deposits relating to FRSS Other non-current assets 327,752 Securities and debentures Other non-current assets 981 Derivative instruments Other non-current assets 19,864 11,835 Medium/long-term financing (2,139,335) (2,069,433) FRSS Interest-bearing loans and long-term borrowings (327,752) Interest-bearing loans and long-term Interest-bearing loans and long-term borrowings borrowings (2,119,270) (1,725,538) Derivative instruments Other non-current liabilities (20,065) (16,143) Net financial position (2,210,312) (2,215,048) 96

99 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors ) Loans and borrowings Loans and borrowings are shown below by category, subdivided by non-current and current liabilities: December 31, December 31, (in thousands of euro) Floating rate subordinated securities - 327,752 Bank overdrafts and drawings on lines of credit 1,087, ,034 Debentures 791, ,772 Financing entities 228, ,565 Finance lease payables 10,956 5,167 Non-current loans and borrowings 2,119,270 2,053,290 Fair value of hedging derivatives 20,065 16,143 Total interest-bearing loans and long-term borrowings 2,139,335 2,069,433 Amounts due to banks 283, ,171 Bank overdrafts and drawings on lines of credit 156, ,054 Debentures 9 17,159 Financing entities 22,656 17,248 Finance lease payables 1,001 1,225 Accrued interest expense 13,378 8,929 Current loans and borrowings 477, ,786 Fair value of hedging derivatives 1,896 1,183 Total interest-bearing loans and short-term borrowings 479, ,969 Total loans and borrowings 2,618,780 3,026,

100 Effective interest rate Maturity December 31, December 31, (in thousands of euro) FRSS - 327,752 FRSS Euribor 6 months ,652 FRSS Euribor 6 months ,100 Bank overdrafts and drawings on lines of credit 1,087, ,034 Debentures 791, ,772 EMTN 350 mln euro 5.88% 6,01% , ,072 For private investors EMTN 15 mln e 4.47% 4,50% ,000 15,000 For private investors 180 mln USD 5.63% 5,79% , ,700 For private investors 20 mln USD 5.73% 5,81% ,112 17,000 For private investors 150 mln USD 5.80% 5,92% ,020 - For private investors 150 mln USD 5.90% 6,02% ,020 - For private investors 3.50% 3,52% ,000 50,000 Financing entities 228, ,565 Billets de trésorerie 3,61% 205, ,000 Other (0% %) 23,733 30,565 Finance lease payables 10,956 5,167 Non-current loans and borrowings 2,119,270 2,053,290 Fair value of hedging derivatives 20,065 16,143 Interest-bearing loans and long-term borrowings 2,139,335 2,069,433 Amounts due to banks 283, ,171 Bank overdrafts and drawings on lines of credit 156, ,054 Debentures For private investors amortizable Euribor 3 months 9 17,159 Financing entities (nominal rate 0% - 3.7%) 22,656 17,248 Finance lease payables 1,001 1,225 Accrued interest expense 13,378 8,929 Bank overdrafts and short-term borrowings 477, ,786 Fair value of hedging derivatives 1,896 1,183 Interest-bearing loans and short-term borrowings 479, ,969 Total loans and borrowings 2,618,780 3,026,402 At December 31, 2006, bank overdrafts and drawings on lines of credit secured by mortgages and liens on property, plant and equipment amounted to million euro, of which 31.6 million euro short term and 83.5 million euro medium/long term. 98

101 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Non-current loans and borrowings by currency: December 31, December 31, (in millions of euro) Euro 1, ,731.3 (1) US and Canadian Dollar Egyptian Lira Thai Baht Indian Rupee Other Total 2, ,053.3 (1) of which million euro FRSS Non-current loans and borrowings by maturity: December 31, December 31, (in millions of euro) Beyond (2) Total 2, ,053.3 (2) of which million euro FRSS Main bank loans and lines of credit a) in 2006, Italcementi S.p.A. arranged a series of medium/long-term financing agreements with leading Italian banks to ensure adequate funding for its industrial and financial investment programs. Specifically, it arranged three confirmed standby lines of credit expiring between March 23, 2011, and November 10, 2012, for an aggregate amount of 400 million euro. One of the facilities, originally arranged in 2005, was increased from 150 to 275 million euro, with extended expiry and improved conditions. A second line, originally arranged in 2004 for 50 million euro, was re-negotiated with extended expiry and improved conditions. The third line of credit, for 75 million euro, is a new facility. Drawings on these lines of credit at December 31, 2006, amounted to 130 million euro; b) in 2006, Italcementi S.p.A. obtained a loan for 60 million euro, due in February 2026, with full hedging against interest-rate risks; c) in 2005, Italcementi S.p.A. arranged four confirmed standby lines of credit with final expiry date on February 28, 2013, for an aggregate amount of 550 million euro; one of the facilities, for 150 million euro, was renegotiated in 2006, as indicated in point a) above. Drawings on these lines at December 31, 2006 amounted to 190 million euro; d) in 2004, Italcementi S.p.A. obtained two loans for 200 and 50 million euro respectively, due in December The 50 million euro loan was discharged early in 2006, to take advantage of better credit conditions; 99

102 e) also in 2004, Italcementi S.p.A. arranged three confirmed standby lines with final expiry date on November 30, 2011, for an aggregate amount of 305 million euro. One of these facilities, for 50 million euro, was renegotiated in 2006, as indicated in point a) above; f) in 2006, Ciments Français S.A. renewed a 400 million euro credit line for 364 days and an 80 million euro mediumterm line of credit for five years, with two one-year extension options, to replace two medium-term facilities for 20 and 60 million euro expiring in July 2007 and November 2006 respectively. Ciments Français also negotiated new medium/long-term lines of credit for 320 million euro, of which 50 million euro for 10 years, 100 million euro for 5 years with a one-year extension option, and 170 million euro for 5 years with two one-year extension options. Drawings on medium-term facilities at December 31, 2006 totaled 50 million euro; g) on September 13, 2006 Suez Cement Company refinanced its 13-month 1,500 million Egyptian lira syndicated line of credit arranged to finance the acquisition of ASEC Cement Company (Helwan Cement Ltd.), obtaining a 4-year 300 million Egyptian lira syndicated line of credit and a 900 million Egyptian lira syndicated loan, amortizable in 4 years. The operation was arranged with a pool of local and international banks. No drawings had been made on the 300 million Egyptian lira syndicated facility at December 31, 2006; h) in 2005 Ciments Français S.A. arranged a medium-term 5-year 150 million euro line of credit; the facility was undrawn at December 31, 2006; i) on May 27, 2005, Ciments Français S.A. was granted a 700 million euro floating rate syndicated line of credit for 5 years, undrawn, with two one-year extensions. It has exercised the first one-year extension. The bank pool was managed by Calyon, HSBC-CCF, Natexis Banques Populaires and The Royal Bank of Scotland. The facility replaces the 550 million euro facility arranged on December 5, 2003, which was due to expire in 2008; l) on December 27, 2005 Ciments Français obtained a 6-year 158 million euro syndicated loan, consisting of a 114 million euro floating-rate tranche and a 44 million euro fixed-rate tranche, repayable on maturity; m) on April 29, 2002 Ciments Français obtained a 6-year million euro floating-rate syndicated loan, repayable on maturity; n) in 2001 Ciments Français obtained a 5.5 year 125 million euro amortizable loan. The loan may be repaid in full on October 22, 2007; o) in 2002, the loans obtained by Jalaprathan Public Cement Company Ltd. at the end of 1998 were refinanced, at the time of acquisition of control by Ciments Français, with a bank pool and through Group internal borrowings. The 7- year 30 million euro bank loan is at a fixed rate for the first two years. The repayment plan envisages 16 quarterly installments, from February 2004 to November Main debentures a) Ciments Français covers its long-term financial requirements largely through debenture issues; specifically, a Euro Medium Term Notes program (EMTN). The offering circular is renewed annually; the latest circular is dated July 19, The maximum authorized amount is 1,000 million euro. At December 31, 2006, debentures issued under the program amounted to approximately 365 million euro, including a 7-year 350 million euro debenture at a fixed rate of 5.875% issued on July 10, 2002, assisted by BNP Paribas and Lehman Brothers. b) on December 19, 2006, Ciments Français issued a 300 million US dollar private placement in the USA, repayable on maturity. The loan comprises two tranches: a 12-year 150 million US dollar tranche at a fixed rate of 5.80% and a 15- year 150 million US dollar tranche at a fixed rate of 5.90%; exchange-rate and interest-rate hedges have been set up on the entire loan, for the duration of the two tranches; c) on March 3, 2005, a 5-year 50 million euro debenture was issued at a fixed rate of 3.496%; 100

103 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 d) on November 15, 2002, Ciments Français issued a 200 million US dollar private placement in the USA. The loan comprises two tranches: a 10-year 180 million US dollar tranche at a fixed rate of 5.63% and a 12-year 20 million US dollar tranche at a fixed rate of 5.73%. Of the 200 million dollars, 150 have been lent to the US subsidiary Essroc; cross-currency swaps have been set up on the residual 50 million dollars to hedge exchange-rate and interest-rate risks. Floating rate subordinated securities The 15-year term of the FRSS issue matured in June 2005 for Unibeton and in December 2005 for Ciments Français. The companies exercised their repurchase option on June 23 and June 29, 2006, respectively, for a symbolic amount (see note 7). Financial instruments Risk management policy The Group uses derivative financial instruments to hedge the risk of fluctuations in interest rates and exchange rates in relation to the nature of the debt and international operations. Market risks a) Interest-rate risk The Group interest-rate risk management policy is designed to minimize the cost of net financial liabilities and reduce exposure to fluctuation risks. It hedges two types of risk: 1. the risk of variations in the market value of fixed-rate borrowing and lending transactions. Group fixed-rate debt is exposed to an opportunity cost risk in the event of a fall in interest rates. A change in interest rates will affect the market value of fixed-rate assets and liabilities; 2. the risk of changes in future flows on floating-rate borrowing and lending transactions. A change in interest rates will have a negligible impact on the market value of floating-rate financial assets and liabilities, but could affect future profits. The Group manages this dual risk by setting targets for apportionment of its net financial position between floating rates and fixed rates. It hedges interest-rate risks mainly by arranging interest-rate swaps, forward-rate agreements and interest-rate options with leading banks. Hedges with options are often asymmetric collars. Since these transactions are generally at zero cost, the net result of option sales never exceeds the value of the underlying (book exposure, future transaction or fixed commitment). Floating-rate net financial liabilities are largely indexed to Euribor for the period. b) Exchange-rate risks The Group companies are structurally exposed to exchange-rate risks on cash flows from business operations and financing operations denominated in currencies other than their respective reporting currencies. Exposure mainly affects US dollar solid fuel purchases, US dollar exports of cement and clinker by some subsidiaries (Bulgaria, Thailand, Egypt), and borrowings in US dollars transacted by Ciments Français S.A. The Group hedges these risks with forward currency purchase and sale contracts, as well as currency put and call options. Hedges are arranged with leading banks. The majority of hedges with options use asymmetric corridor structures. Since these transactions are generally at zero cost, the net result of option sales never exceeds the value of the underlying (book exposure, future transaction or fixed commitment). The Group does not transact forward and option contracts for speculative purposes

104 The impact of foreign currency translation on subsidiaries equity is recorded in a separate equity item. For Group companies in hyperinflationary economies, translation effects on the monetary position and results are taken to the income statement. c) Equities risk The Group is exposed to market fluctuations on listed shares held in portfolio recognized under Other equity investments. Credit risks a) Credit risk In compliance with Group procedures, customers electing extended terms of payment are vetted for credit worthiness before and during the life of the contract. Credit checks take the form of customer-balance monitoring by the administrative department. Consequently, the Group is not exposed to a material credit risk. b) Counterpart risk Exchange - and interest-rate instruments are transacted only with counterparts with high ratings, selected on the basis of a number of criteria: ratings attributed by specialist agencies, assets and equity as well as the nature and maturity of transactions. The majority of counterparts are leading international banks. No financial instruments are negotiated with counterparts in geographical regions exposed to political or financial risks (all counterparts are in western European countries or in the USA). c) Liquidity risk The Group aims to keep indebtedness at a level that ensures a balance between average maturity and the flexibility and diversification of its sources of funds. Consequently, it negotiates confirmed lines of credit and diversified sources of finance (bank credit lines, borrowings, debentures, drawings on lines of credit, commercial papers, finance leases and factoring). Group policy is designed to ensure that short-term debt at any time is less than or equal to undrawn confirmed lines of credit at more than one year. In addition to the customary clauses, some of the Group s financing contracts contain covenants requiring compliance with financial ratios. Nonetheless, no financing contract contains rating trigger clauses that could determine early repayment or higher interest rates in the event of a rating downgrade. 102

105 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Value of financial assets and liabilities The table below sets out the fair value and the carrying amount of financial assets and liabilities at December 31, 2006: December 31, 2006 December 31, 2005 (in millions of euro) Fair Value Carrying amount Fair Value Carrying amount Financial assets Cash and cash equivalents Derivative instruments Trade receivables 1, , , ,277.9 Bank deposits related to FRSS Other equity investments Other financial assets Total 2, , , ,486.7 Financial liabilities Trade payables Derivative instruments FRSS Finance lease payables Floating-rate loans and borrowings 1, , , ,662.7 Fixed-rate loans and borrowings Amounts due to banks Other short-term financing Total 3, , , ,742.0 Trade receivables and payables are current assets and liabilities and are carried at amounts that are reasonable approximations of their fair value. Derivative instruments are measured and recognized at fair value. The fair value of interest-rate contracts is based on the present value of cash flows using the zero coupon curve. The fair value of forward currency purchase contracts is based on the current exchange rates of contracts with similar maturity profiles. The fair value of foreign currency payables and receivables is determined using year-end exchange rates. The fair value of fixed-rate payables and receivables is based on a fixed rate with no credit margin, net of transaction costs directly related to the financial asset or liability. A 1% rise in the interest-rate curve would produce an estimated decrease of 53 million euro in the fair value of fixed-rate net debt after hedging

106 Fair value of derivative financial instruments The table shows the fair value of financial instruments in the balance sheet, subdivided by type of hedge: December 31, 2006 December 31, 2005 (in thousands of euro) Assets Liabilities Assets Liabilities Derivatives - Interest rates 2, , Future cash flow hedges Trading 1, , Derivatives - Exchange rates 617 1,542 1, Future cash flow hedges 278 1,065 1, Fair value hedges Trading Total current instruments 2,775 1,896 2,865 1,183 Derivatives - Interest rates 19,864 4,868 11,835 8,527 Future cash flow hedges 17,153 4,868 2,133 8,527 Fair value hedges 2,711 9,702 Derivatives - Exchange rates 15,197 7,616 Fair value hedges 15,197 7,616 Total medium/long-term instruments 19,864 20,065 11,835 16,143 Total 22,639 21,961 14,700 17,326 The Group does not set up hedges on sales and purchases of equities. Derivatives on trading interest rates and exchange rates refer to assets that do not qualify for recognition with hedge accounting criteria. 104

107 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Interest rate risk Notional value of derivative financial instruments by maturity (*) The notional value of interest-rate derivatives by maturity is summarized in the table below: Maturity less Maturity Maturity Maturity Total (in millions of euro) than 1 year 1 to 2 years 2 to 5 years beyond 5 years Fair value hedging SWAPS Fixed --> Floating Cash flow hedging SWAPS Floating --> Fixed SWAPS Fixed --> Fixed 175 Me 5.875% Euribor 3M Me 4.86% Euribor 3M MUSD 5.80% Euribor 3M % Total Me Euribor 3M+0.325% 3.536% Me Euribor 3M% 2.997% Me Euribor 6M 3.697% Me Euribor 6M+0.50% 3.275% Me 5.63% 5.665% Me 5.73% 5.635% MUSD 5.90% % Cash flow hedging OPTIONS Trading hedges SWAPS pay floating --> receive floating SWAPS Floating --> Fixed Total , Me Eurib 3M+0.7% - Eurib 3M+1% Me Eurib 3M+0.7% - Eurib 3M+0.75% Me Eurib 3M % - Eurib 3M +0.5% Me 4.40% Euribor 3M Options Total Total ,703.3 * assuming a 1% rise in interest rates: 3 month Euribor at December 29, 2006 = 3.725% + 1% = 4.725% 105

108 Exposure to interest-rate risks At December 31, 2006, 72% of Group net financial liabilities (not including the fair value of derivatives) was at a fixed rate or hedged against the risk of rate increases. 62% (of fixed-rate commitments) arose from the conversion of contracts initially arranged at floating rates. Amounts due to banks are stated at nominal value for the period in question (consistently with maturity of the instrument) and do not include fixed-rate to fixed-rate contracts. They take account of exercisable options assuming a 1% increase in interest rates. Net debt at inception and after interest-rate hedging The evolution of net debt at December 31, 2006 is illustrated in the table below: Maturity (in millions of euro) < 1 year 1-2 years 2-3 years 3-4 years 4-5 years beyond Fixed-rate financial liabilities Fixed-rate financial assets Fixed-rate NFP at inception FR/FltgR* hedges (292.9) (4.0) - (175.0) - - (113.9) FltgR/FR* hedges Fixed-rate NFP after hedging 1, Floating-rate financial liabilities 1, Floating-rate financial assets (385.8) (384.8) (1.0) Floating-rate NFP at inception 1, FR/FltgR* hedges FltgR/FR* hedges (983.0) (182.2) (287.2) (187.8) (57.2) (205.2) (63.4) Floating-rate NFP after hedging (108.8) (121.7) Fair value derivatives, net (0.7) 0.1 (4.6) (6.1) (1.1) (6.3) 17.2 Total NFP 2, * assuming a 1% increase in interest rates: 3 month Euribor at December 29, 2006 = 3.725% + 1% = 4.725% 106

109 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Exposure to interest-rate risk: Situation at: (in millions of euro) < 1 year 1-2 years 2-3 years 3-4 years 4-5 years beyond Fixed rate Fixed-rate NFP after hedging 1, Loans and borrowings (31.2) (26.3) (4.9) Fixed rate/fixed rate swaps Options (Trading) Floating rate Floating-rate NFP after hedging (108.8) (121.7) Loans and borrowings (4.6) (4.6) Floating rate/floating rate swaps Accrued interest on floating-rate financial instruments is recomputed at intervals of less than one year. The Group s other financial instruments not included in the tables above do not generate interest and consequently are not exposed to interest-rate risks. Exposure to exchange-rate risks Consolidated net exposure by currency of financial assets and liabilities denominated in currencies other than the local currency is illustrated in the table below: (in millions of euro) Euro (*) USD (*) Other (*) Financial assets ( ) Financial liabilities ( ) (4.3) (402.1) (12.9) Derivatives Net exposure (4.3) (12.1) 8.9 (*) assets and liabilities are expressed in euro when the local currency is not euro ( ) excluding trade payables and receivables Exposure to exchange-rate risks on shareholders equity mainly refers to the US dollar, the Thai baht, the Moroccan dirham, the Egyptian lira and the Indian rupee. No hedges of any kind are transacted on net investments in these Group companies

110 Exchange-risk hedges Exchange-risk hedges, stated at the closing exchange rates, are illustrated below: December 31, December 31, (in millions of euro) Forward purchases Cash flow hedging US dollars Fair value hedging US dollars Trading US dollars Others Total Forward sales Fair value hedging US dollars Trading US dollars Total Options Cash flow hedging US dollars Fair value hedging US dollars Trading US dollars Total Cross currency swap Fair value hedging US dollars Others Total Liquidity risk The tables below compare net debt (excluding net FRSS, derivative instruments and current financial receivables) by maturity with available lines of credit at the end of each period: At December 31, 2006 (*) Maturity Maturity Maturity Maturity Total less than 1-2 years 2-5 years beyond (in millions of euro) 1 year 5 years Interest-bearing loans and long-term borrowings , ,119.3 Other short-term borrowings Amounts due to banks Cash and cash equivalents (320.1) (320.1) Total , ,276.7 end 2007 end 2008 end 2011 Confirmed lines of credit, available at each period end 1, , (*) excluding fair value of financial instruments and current financial receivables 108

111 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 At December 31, 2005 (*) Maturity Maturity Maturity Maturity Total less than 1-2 years 2-5 years beyond (in millions of euro) 1 year 5 years Interest-bearing loans and long-term borrowings , ,725.6 Other short-term borrowings Amounts due to banks Cash and cash equivalents (416.2) (416.2) Total ,265.1 end 2006 end 2007 end 2010 Confirmed lines of credit, available at each period end 1, , (*) excluding FRSS, fair value of financial instruments and current financial receivables Covenants In addition to the customary clauses, some of the Group s financing contracts include covenants requiring compliance with financial ratios. At December 31, 2006, lines of credit and loans subject to covenants accounted for 63.7% of drawings represented by gross debt (2,613.6 million euro at December 31, 2006, excluding the fair value effects of derivatives). At December 31, 2006 the ratios in question were well within the limits set by the covenants. Lines of credit and financing contracts do not contain clauses that would require early requirement or rating triggers that would cause interest rates to rise in the event of a rating downgrade. Equally, they do not contain negative pledges or similar commitments that might affect the Group s ability to finance or refinance its operations. 17) Provisions Non-current and current provisions amounted to 312,548 thousand euro at December 31, 2006, an increase of 21,792 thousand euro from December 31, Opening Additions Decreases Currency Other Total Closing amount translation changes changes amount (in thousands of euro) differences Tax risks 69,521 5,180 (5,089) (4,601) 5,711 1,201 70,722 Environmental restoration quarries 80,929 14,834 (12,740) (1,162) 3,443 4,375 85,304 Legal disputes 34,141 16,626 (5,582) (1,313) 8,286 18,017 52,158 Other provisions 106,165 42,644 (32,862) (3,651) (7,932) (1,801) 104,364 Total 290,756 79,284 (56,273) (10,727) 9,508 21, ,548 Non-current portion 289, ,268 Current portion 1,342 1,280 Provisions for tax risks These provisions of 70,722 thousand euro cover tax-related liabilities that are considered probable as a result of tax audits and adjustments to tax returns; adequate provision for tax has been made with respect to tax audits notified to Group companies during the year that are considered probable and well founded

112 Other provisions Other provisions includes provisions for restoration of urban and industrial areas, provisions for disputes with employees, and the provision for the CO2 emissions deficit (see note below Emission rights ). Other provisions also includes provisions for the industrial, administrative and commercial reorganization plans in France, USA and Egypt, amounting to 42.0 million euro at December 31, 2006 (27.3 million euro at December 31, 2005); the provision for the year includes non-recurring employee expenses of 25.4 million euro for the Egyptian companies Suez Cement and Tourah (see note 26). Emission rights In June 2005, the IASB withdrew IFRIC 3 on the accounting treatment of emission rights. Pending publication of a new text, the Group has adopted the net method of accounting, whereby a provision is recognized when emissions produced are higher than the allocated allowances. Within the Group, the European Directive on greenhouse gas emission rights trading affects cement production in Italy, France, Belgium, Spain, Greece, electricity generation (Italy-Italgen S.p.A.) and lime production (France-Socli S.A.); to date all the national allocation plans have been approved, over a three-year period. The table below illustrates the net surplus/deficit by country for the year. The aggregate deficit at December 31, 2006 was 3.2 million euro (14.0 million euro at December 31, 2005) and is provided under non-current provisions Final Estimated Allowance Surplus/ Quotas Net Cumulative Book surplus/ emissions (deficit) purchased/ surplus/ surplus/ deficit (deficit) 2006 (sold) (deficit) (deficit) in Me (in kt) Intragroup Italy - cement plants (572) 8,185 7,682 (503) 101 (403) (403) (2.6) Italy - Italgen (101) France - cement plants (80) 4,124 4,060 (64) 52 (12) (92) (0.6) France - Socli lime (52) (28) 4 Belgium (21) 1,461 1, Spain 192 1,395 1, Greece Total (351) 15,851 15,747 (104) (104) 21 (3.2) The net cumulative surplus of 21,000 quotas at December 31, 2006, does not include the Italcementi S.p.A deficit, since this was returned to the Italian Ministry of the Environment in the first half of 2006; the 2005 deficit was covered in full with 476,000 quotas purchased on the market and 96,000 quotas purchased from Italgen S.p.A. The market value at December 29, 2006, was 6.48 euro per quota (21.19 euro per quota at December 30, 2005). The spot price on the international rights market at February 28, 2007, was 0.9 euro per quota. 110

113 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors ) Deferred tax Total net deferred tax liabilities amounted to 278,718 thousand euro at December 31, 2006, as follows: December 31, Result Other December 31, (in millions of euro) 2005 changes 2006 Tax loss carryforward 27,5 (10,4) 8,6 25,7 Property, plant and equipment (405,2) 31,6 (16,8) (390,3) Other equity investments (4,6) - (0,5) (5,1) Inventories (19,7) (2,9) - (22,6) Non-current provisions and Employee benefit liabilities 104,5 13,3 (0,7) 117,1 Other 5,4 (3,8) (5,1) (3,5) Total Net Deferred Tax (292,1) 27,8 (14,4) (278,7) Of which Deferred tax assets 29,9 40,1 Deferred tax liabilities (322,0) (318,8) Net deferred tax assets of 1.0 million euro were reflected in equity reserves at December 31, Off-balance-sheet deferred tax assets relating to losses for the year and previous years amounted to approximately 54.6 million euro (69.3 million euro at December 31, 2005). They relate to Group company losses reversal of which is not, to date, considered reasonably certain. 19) Income tax liabilities Income tax liabilities amounted to 65,165 thousand euro (61,183 thousand euro at December 31, 2005) and reflected amounts due to tax authorities accrued in the year. 20) Other current liabilities Other current liabilities included advances from customers, suppliers for fixed assets and amounts due for purchases of equity investments and securities. December 31, December 31, (in thousands of euro) Due to employees 101,643 96,062 Due to social security authorities 57,043 56,433 Due to tax authorities 74,785 63,587 Accruals and deferred income 14,539 11,411 Derivative instruments 1,896 1,183 Other amounts due 217, ,445 Total 467, ,

114 Companies operating in hyperinflationary economies Since January 1, 2006, the international authorities no longer consider Turkey a hyperinflationary economy. Consequently, IAS 29 (Financial reporting in hyperinflationary economies) is no longer applied to the Group s Turkish companies. Commitments December 31, December 31, (in millions of euro) Guarantees on company assets for loans and borrowings: - Pledges Mortgages and liens Total guarantees on company assets for loans and borrowings Deposits, guarantees and other Total Guarantees on company assets at December 31, 2006, consisted mainly of mortgages securing loans and borrowings at the Thai, Indian and Egyptian subsidiaries; at the same date, mortgages and liens on property, plant and equipment for 13.6 million euro were being cancelled as the relevant loan repayment plans were completed. In 2005 as a result of the transaction for acquisition of control of Suez Cement Company, the Group undertook to make investments for not less than 1 billion Egyptian lira (approximately 130 million euro) over the following 10 years, for modernization work, extensions and environmental protection measures at the Suez and Tourah facilities. Contracts and orders issued for investments at December 31, 2006, amounted to million euro. 21) Revenues Revenues from sales and services totaled 5,854,101 thousand euro, as follows: (in thousands of euro) Change % change Product sales 5,666,022 4,840, , Services 188, ,181 28, Total 5,854,101 4,999, , ) Goods and utilities expenses Goods and utilities expenses amounted to 2,126,774 thousand euro, as follows: (in thousands of euro) Change % change Raw materials and semi-finished goods 707, , , Fuel 422, ,962 79, Packaging, materials and machinery 333, ,053 30, Finished goods 249, ,480 62, Electricity, water, gas 458, ,123 90, Change in inventories of raw materials, consumables, other (45,198) (15,175) (30,023) Total 2,126,774 1,735, ,

115 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors ) Services expenses Services expenses amounted to 1,333,566 thousand euro, as follows: (in thousands of euro) Change % change External services and maintenance 480, ,423 64, Transport 526, ,235 10, Legal fees and consultancy 56,365 47,267 9, Rents 94,789 82,168 12, Insurance 41,574 39,642 1, Subscriptions 10,409 9, Other 123, ,930 14, Total 1,333,566 1,219, , ) Employee expenses Employee expenses totaled 911,652 thousand euro, as follows: (in thousands of euro) Change % change Wages and salaries 574, ,056 34, Social security contributions 196, ,045 6, Provisions and pension funds 30,768 26,319 4, Cost of stock option plans 4,316 2,654 1, Other expenses 105,339 89,920 15, Total 911, ,995 62, Other expenses related mainly to costs of temporary personnel, canteen costs, employee insurance costs and personnel training and recruitment. The number of employees is shown below: (heads) Number of employees at period end (**) 22,869 (*) 21,854 Average number of employees (**) 22,268 (*) 20,313 (*) includes personnel of Suez Group companies as from April 1, 2005, and of ASEC as from August 1, 2005 (**) includes 100% of employees of the Indian companies of the Zuari Cement group as from June 1, 2006, and of the Egyptian companies RMB and RMBE as from October 1,

116 25) Other operating income/(expense) Other operating expense net of other operating income amounted to 143,056 thousand, as follows: (in thousands of euro) Change % change Other taxes 68,715 63,510 5, Provision for bad debts 12,097 11, Provision for environmental restoration - quarries 28,380 24,761 3, Miscellaneous expense 35,409 48,132 (12,723) Miscellaneous income (1,545) (3,145) 1, Total 143, ,701 (1,645) ) Non-recurring income/(expense) (in thousands of euro) Net capital gains on sale of fixed assets 18,014 24,620 Non-recurring employee expenses for reorganizations in France/Belgium (20,345) Non-recurring employee expenses for reorganizations in Tourah - Egypt (7,600) (17,243) Non-recurring employee expenses for reorganizations in Suez - Egypt (17,849) Total employee expenses for reorganizations (25,449) (37,588) Fine at Calcestruzzo Italia 1,000 Other expenses (4,969) (4,177) Other non-recurring income/(expense) (4,969) (3,177) Total non-recurring income/(expense) (12,404) (16,145) 27) Amortization and depreciation The total amount of 420,252 thousand euro (368,461 thousand euro at December 31, 2005) refers in the main to depreciation of property, plant and equipment for 408,046 thousand euro (355,655 thousand euro at December 31, 2005). 114

117 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors ) Finance income/(costs), net exchange rate differences and net derivatives Finance costs, net of finance income, net exchange rate differences and net derivatives, amounted to 105,365 thousand euro, as follows: (in thousands of euro) Income Costs Income Costs Interest income 24,414 36,455 Interest expense (130,099) (116,976) Sub total 24,414 (130,099) 36,455 (116,976) Net interest in respect of net financial position - (105,685) - (80,521) Dilution of capital Suez Cement Company 7,992 Net dividends 13,001 14,207 Capital gains from sale of equity investments 7,133 Other finance income 8,174 6,297 Other finance costs (15,941) (16,736) Total finance income/(costs) 45,589 (146,040) 72,084 (133,712) Gains/(losses) from interest rate derivative contracts Gains/(losses) from exchange rate derivative contracts (67) 516 Net exchange rate differences (4,985) 10,272 Gain (loss) on net monetary position in Turkey 1,028 Gains (losses) on exchange rates and derivatives (4,914) 12,714 Total finance income (costs), net of gains (losses) on exchange rates and derivatives (105,366) (48,914) Net finance costs rose sharply, from 48.9 million euro in 2005 to million euro in Net interest expense in respect of net debt amounted to million euro in 2006, compared with 80.5 million euro in 2005; the 25.2 million euro increase was largely due to consolidation effect arising from the acquisition of the Egyptian companies in 2005 for 10.7 million euro and the impact of the FRSS for 2.7 million euro (net interest income in 2005). 29) Share of results of associates The share of results of associates was as follows: (in thousands of euro) Suez Group (Egypt) - 11,748 Vassiliko (Cyprus) 4,958 3,918 Ciment Quebec (Canada) 9,125 5,130 Others (2,759) (2,182) Total 11,324 18,

118 30) Income tax expense Income tax expense for the year was 266,867 thousand euro, as follows: (in thousands of euro) Change Current and deferred tax 278, ,066 29,196 Prior-year tax and other non-recurring fiscally driven (income)/expense, net 2,782 (7,841) 10,623 Non-recurring tax (14,177) (46,254) 32,077 Total 266, ,971 71,896 Non-recurring tax includes tax effects on non-recurring transactions reported in the specific income statement items (see note Non-recurring transactions ). Non-recurring tax income in 2005 amounted to 46.3 million euro, of which 42.8 million euro from tax treatment on FRSS; non-recurring tax income in 2006 amounted to 14.2 million euro, including 14.0 million euro of prior-year tax refunds. In Italy the IRES income tax rate applied by the parent company on estimated taxable income for the year is 33% (as in 2005); taxes for the other Group companies are calculated using local tax rates. The reconciliation between the theoretical tax charge and the tax charge recognized in the income statement is set out below: (in thousands of euro) 2006 Consolidated profit before tax 918,264 IRES tax rate applicable in Italy % 33.0% Theoretical tax charge 303,027 Effect of difference between Italian and foreign tax rate (1) (22,775) Effect of tax rate reduction for tax relief/allowances (3,019) Tax effect on permanent differences (1,378) Net effect for the year of unrecognized deferred tax on temporary differences 416 Effect of change in tax rates (2) (16,136) Withholding tax on foreign dividends 3,635 Adjustment of estimate for previously recognized/unrecognized deferred tax (3) (4,468) Other tax from prior years (11,149) Actual income tax charge 27.0% 248,153 Actual regional production tax charge - IRAP (for Italian companies) 18,714 Actual income tax charge in the income statement 266,867 1) The difference between the Italian tax rate and the rates in the foreign countries where the Group operates refers principally to Egypt, Bulgaria and Turkey. 2) The positive effect of 16.1 million euro generated by tax rate reductions arose on the recalculation of net deferred tax liabilities to account for the reduction of tax rates in Turkey (from 30% to 20%), in Spain (from 35% to 30%) and in Bulgaria (from 15% to 10%). 3) The adjustment gain on previously unrecognized estimated deferred tax arose mainly from recognition of prior-year tax losses in a number of the Group s Turkish and Indian companies. 116

119 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors ) Earnings per share Earnings per share is determined on the net profit for the year attributable to equity holders of the parent company and is stated separately for ordinary shares and savings shares. Basic earnings per share Basic earnings per share is computed by dividing net profit for the year attributable to ordinary and savings shareholders by the weighted average number of outstanding ordinary and savings shares for the year. Earnings per savings share is increased with respect to ordinary shares by an amount equivalent to 3% of share nominal value. The weighted average number of shares and attributable net profit are shown below: ordinary savings ordinary savings (no. shares in thousands) shares shares shares shares Shares at beginning of period 177, , , ,431 Treasury shares at beginning of period (3,945) (106) (3,117) (106) Weighted average number of treasury shares purchased during year (644) (509) Weighted average number of treasury shares sold during year 1,002 Weighted average number of shares at end of year 173, , , ,326 (in thousands of euro) Attributable net profit 277, , , ,731 (euro) Basic earnings per share Diluted earnings per share Diluted earnings per share is computed in the same way as basic earnings per share, taking account of the dilution effect of stock options. The weighted average number of shares and attributable net profit are shown below: ordinary savings ordinary savings (no. shares in thousands) shares shares shares shares Weighted average number of shares at end of year 173, , , ,326 Dilution effect of stock options Weighted average number of shares at end of year 174, , , ,326 (in thousands of euro) Attributable net profit for diluted earnings per share 278, , , ,349 (euro) Diluted earnings per share

120 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Cash flow statement B) Cash flow from investing activities Equity investments net of acquired cash and cash equivalents The main equity investments made by the Group in 2006 are set out below: (in millions of euro) Company Suez Cement Company 47.5 Asec Cement Company Zuari Cement Ltd RMB S.A.E. 9.1 Goltas Cimento 89.4 Ciments Français S.A. (*) Cementificio di Montalto S.p.A Cemill S.p.A Calcestruzzi Lamon Beton S.p.A Other Total (*) including treasury shares The net investments in Zuari Cement and RMB are stated net of acquired cash, totaling 5.0 million euro for Zuari and 1.8 million euro for RMB. Post balance sheet events No significant events have taken place since closure of the financial year that require amendments to or additional comments on the Group s business, financial and equity situation at December 31, Bergamo, March 7, 2007 The Board of Directors Chairman Giampiero Pesenti 118

121 Annexes 119

122 The following table has been prepared in accordance with CONSOB Resolution no , art. 126, of May 14, 1999, which requires listed companies to disclose their investments in unlisted companies when such investments exceed 10% of the companies voting capital. The table also shows the consolidation method and indicates investments valued with the equity method. List of companies Interest held by Group companies Method Company Registered Share % % office capital direct indirect % Parent company Italcementi S.p.A. Bergamo I e 282,548,942 Line-by-line Aliserio S.r.l. Bergamo I e 2,270, Italcementi S.p.A. Line-by-line Axim Italia S.r.l. Sorisole (BG) I e 2,000, Italcementi S.p.A SICIL.FIN. S.r.l. Line-by-line Azienda Agricola Lodoletta S.r.l. Bergamo I e 10, Italcementi S.p.A. Betodomi S.A. Iraklion GR e 117, Domiki Béton S.A. BetonGenoa S.r.l. - winding up Genoa I e 10, Calcestruzzi S.p.A Cemencal S.p.A. BravoBus S.r.l. Bergamo I e 600, BravoSolution S.p.A. Line-by-line BravoSolution Espana S.A. Madrid E e 120, BravoSolution S.p.A. Line-by-line BravoSolution France S.a.s. Boulogne Billancourt F e 2,000, BravoSolution S.p.A. Line-by-line BravoSolution S.p.A. Bergamo I e 21,802, Italcementi S.p.A. Line-by-line BravoSolution UK Ltd London GB GBP 50, BravoSolution S.p.A. Line-by-line C.T.G. S.p.A. Bergamo I e 500, Italcementi S.p.A. Line-by-line Ciments Français S.A. CTG USA LLC Nazareth USA C.T.G. S.p.A. Line-by-line Essroc Cement Corp. Calcementi Jonici S.r.l. Siderno (RC) I e 9,000, Italcementi S.p.A. Line-by-line 0.10 SICIL.FIN. S.r.l. Calcestruzzi S.p.A. Bergamo I e 138,000, Italcementi S.p.A. Line-by-line 0.10 SICIL.FIN. S.r.l. Cava delle Capannelle S.r.l. Bergamo I e 31, Calcestruzzi S.p.A. Cemencal S.p.A. Bergamo I e 12,660, Calcestruzzi S.p.A. Line-by-line Cementi della Lucania S.p.A. Potenza I e 619, Italcementi S.p.A. Equity Cementi e Calci di S. Marinella S.r.l. Bergamo I e 10, Italcementi S.p.A. Line-by-line Cementificio di Montalto S.p.A. Bergamo I e 10,000, Italcementi S.p.A. Line-by-line DO CLAS S.r.l. Milan I e 30, Calcestruzzi S.p.A. Domiki Beton S.A. Iraklion GR e 2,309, Calcestruzzi S.p.A. Line-by-line 1.41 Halyps Building Materials S.A. E.C.I.T. S.r.l. Ravenna I e 104, Calcestruzzi S.p.A. Equity E.I.C.A. S.r.l. Norcia (PG) I e 49, Calcestruzzi S.p.A. Line-by-line E.S.A. Monviso S.p.A. Bergamo I e 1,340, Calcestruzzi S.p.A. Line-by-line Cemencal S.p.A. Ecoinerti S.r.l. Recanati (MC) I e 91, Calcestruzzi S.p.A. Proportionate Ecoserio S.r.l. Bergamo I e 48, Calcestruzzi S.p.A. Generalcave S.r.l. Fiumicino (RM) I e 31, Speedybeton S.p.A. Equity Gres Dalmine Resine Wavin S.c.a r.l. Sorisole (BG) I e 91, Società del Gres ing. Sala S.p.A. Gruppo Italsfusi S.r.l. Savignano s/p. (MO) I e 156, Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN. S.r.l. I.GE.PO. - Impresa Gestione Porti S.r.l. winding up Vibo Valentia I e 25, Italcementi S.p.A. 120

123 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Interest held by Group companies Method Company Registered Share % % office capital direct indirect % IMES S.r.l. S. Cipriano Pic. (SA) I e 206, Italcementi S.p.A. Equity 1.00 SICIL.FIN S.r.l. Immobiliare Salesiane S.r.l. Bergamo I e 350, Italcementi S.p.A SICIL.FIN S.r.l. Intercom S.r.l. Bergamo I e 2,750, Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN S.r.l. Intertrading S.r.l. Bergamo I e 4,160, Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN. S.r.l. Italcementi Ingegneria S.r.l. Bergamo I e 266, Italcementi S.p.A. Italgen Maroc S.A. Casablanca MAR MAD 300, Italgen S.p.A. Line-by-line Italgen S.p.A. Bergamo I e 20,000, Italcementi S.p.A. Line-by-line 0.10 SICIL.FIN S.r.l. Italsigma S.r.l. Bergamo I e 1,500, Axim Italia S.r.l. Proportionate Italsintex S.p.A. Bergamo I e 7,686, Società del Gres ing. Sala S.p.A. Line-by-line 0.01 SICIL.FIN. S.r.l. ITC-Factor S.p.A. Bergamo I e 1,500, Italcementi S.p.A. Line-by-line 0.50 SICIL.FIN. S.r.l. M.P.M. Ambiente S.r.l. Trezzo sull Adda (MI) I e 130, Società del Gres ing. Sala S.p.A. Mantovana Inerti S.r.l. Cavriana (MN) I e 702, Calcestruzzi S.p.A. Proportionate Medcem S.r.l. Napoli I e 5,500, Intercom S.r.l. Proportionate Nuova Sacelit S.r.l. Sorisole (BG) I e 7,500, Italcementi S.p.A. Line-by-line Procalmi S.r.l. - winding up Milan I e 51, Cemencal S.p.A. S.A.F.R.A. S.r.l. Bologna I e 51, Calcestruzzi S.p.A. Equity SAMA S.r.l. Bergamo I e 1,000, Italcementi S.p.A. Line-by-line 1.00 SICIL.FIN S.r.l. Shqiperia Cement Company Shpk Tirana ALB LEK 74,250, Italcementi S.p.A. Line-by-line SICIL.FIN. S.r.l. Bergamo I e 650, Italcementi S.p.A. Line-by-line Silicalcite S.r.l. Bergamo I e 4,000, Italcementi S.p.A. Equity Silos Granari della Sicilia S.r.l. Bergamo I e 5,980, Intertrading S.r.l. Line-by-line 0.10 SICIL.FIN S.r.l. Società del Gres ing. Sala S.p.A. Sorisole (BG) I e 5,858, Nuova Sacelit S.r.l. Line-by-line 0.10 SICIL.FIN S.r.l. Société Internationale Italcementi Luxembourg L e 17,715, Italcementi S.p.A. Line-by-line (Luxembourg) S.A SICIL.FIN S.r.l. Société Internationale Italcementi France S.a.s. Paris F e 1,621,075, Italcementi S.p.A. Line-by-line SO.RI.TE. S.r.l. Turin I e 100, Calcestruzzi S.p.A. Speedybeton S.p.A. Pomezia (RM) I e 300, Calcestruzzi S.p.A. Line-by-line Terminal Riuniti S.r.l. Bergamo I e 1,000, Italcementi S.p.A. Line-by-line 0.10 SICIL.FIN S.r.l. Ciments Français S.A. Puteaux F e 153,421, Société Int. Italcementi France S.a.s. Line-by-line 1.17 Ciments Français S.A. (voting rights: Société Int. Italcementi France S.a.s.) Ontario Inc. Markham CAN CAD IM Scott Holdings Limited Equity Canada Inc. Mississauga CAN Essroc Canada Inc. Line-by-line Canada Inc. Picton CAN CAD Essroc Canada Inc. Line-by-line Canada Inc. Picton CAN CAD Essroc Canada Inc. Line-by-line Canada Inc. Picton CAN CAD Essroc Canada Inc. Line-by-line Ontario Inc. Concord CAN CAD 18,300, Essroc Canada Inc. Equity Quebec Inc. St. Basile CAN CAD 6, Ciment Quebec Inc. Equity 121

124 Interest held by Group companies Method Company Registered Share % % office capital direct indirect % Afyon Cimento Sanayi Tas Istanbul TR YTL 120, Ciments Français S.A. Line-by-line 1.02 Set Group Holding 0.96 Set Cimento Altas Ambarlj Liman Tesisleri Tas Istanbul TR YTL 500, Set Cimento Ammos Development Quarries Ltd Mandra GR e 18, Halyps Building Materials S.A. Arena S.A. Guerville F e 126,000, Ciments Français S.A. Line-by-line Arrowhead Investment Company Carson City USA USD 1, Essroc Corporation Line-by-line Arteskos 98 JSC Dimitrovgrad BUL LEV 70, Devnya Cement A.D. Line-by-line Arteskos AD Dimitrovgrad BUL LEV 67, Arteskos 98 JSC Line-by-line Asia Cement Products Co., Ltd Bangkok TH BT 10,000, Asia Cement Public Co., Ltd 1 Line-by-line Asia Cement Public Co., Ltd Bangkok TH BT 4,680,000, Ciments Français S.A. Line-by-line Vaniyuth Co. Ltd 1 Asment (Ciments de Temara) Temara MAR MAD 171,875, Ciments Français S.A Procimar S.A. Asociacion de Empresas de Transporte a Granel S. Sebastian E e 23, Sociedad Financiera y Minera S.A. Atlantica de Graneles y Moliendas S.A. Vizcaya E e 5,000, Sociedad Financiera y Minera S.A. Proportionate Axim Building Technologies S.A. Malaga E e 60, Sociedad Financiera y Minera S.A. Line-by-line 1.00 Compania General de Canteras S.A. Axim Concrete Technologies (Canada) Inc. Cambridge CAN CAD 1,275, Axim Concrete Technologies Inc. Line-by-line Axim Concrete Technologies Inc. Middlebranch USA USD 1, Essroc Corporation Line-by-line Axim Maroc Casablanca MAR MAD 1,000, Ciments du Maroc Line-by-line Axim S.A. Guerville F e 495, Ciments Calcia S.A. Line-by-line Bayarne S.a.s. Guerville F e 112, Ciments Calcia S.A. BCE S.A. Tourcoing F e 38, Unibéton S.A. Line-by-line BCEAP S.n.c. Guerville F e 16, V.B.H. S.n.c. Line-by-line Unibéton S.A. Berkeley Resource Recovery Ltd Winchester USA USD 1, Riverton Investment Corporation Line-by-line Betomar S.A. Casablanca MAR MAD 84,397, Ciments du Maroc S.A. Line-by-line Beton.Ata LLP Almaty KAZ TEN 224,000, Shymkent Cement Equity Béton Contrôle de Gascogne S.A. Soorts Hossegor F e 40, Béton Contrôle du Pays Basque S.A. Béton Contrôle de l'adour S.A. Bayonne F e 150, Béton Contrôle du Pays Basque S.A. Line-by-line Béton Contrôle des Abers S.A. Lannilis F e 104, Unibéton S.A. Equity Béton Contrôle du Pays Basque S.A. Bayonne F e 120, Unibéton S.A. Line-by-line Béton du Cap Inc. Cap de la Madeleine CAN CAD 7, Ciment Quebec Inc. Equity Béton Saône S.A. Macon F e 40, Unibéton S.A. Equity Bonafini S.A. Argences F e 45, Tratel S.A. Line-by-line 3.21 Larricq S.A. Bureau Engineering Travaux Publics (SA BETP) Guerande F e 523, Comp. Financière et de Participations S.A Arena S.A. Canteras Aldoyar S.L. Olazagutia E e 1,508, Hormigones y Minas S.A. Capitol Cement Corporation Winchester USA USD 1,000, Riverton Investment Corporation Line-by-line Carrières Bresse Bourgogne Saint Marcel F e 387, Dragages et Carrières S.A. Proportionate Cementos Capa S.L. Archidona E e 1,260, Sociedad Financiera y Minera S.A. Line-by-line Centro Administrativo y de Servicios de Malaga S.A. Malaga E e 60, Sociedad Financiera y Minera S.A. Line-by-line Chatelet S.A. Cayeux s/m. F e 118, GSM S.A. Line-by-line Cie pour l Investissement Financier en Inde Paris F e 7,350, Ciments Français S.A. Line-by-line 1 percentage interest held by the Ciments Français Group 122

125 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Interest held by Group companies Method Company Registered Share % % office capital direct indirect % Cifrinter Luxembourg L e 8,928, Ciments Français S.A. Line-by-line Ciments Français Europe N.V. Ciment du Littoral S.A. Bassens F e 37, Ste d Investissement & Line-by-line de Partecipations du Littoral Ciment Quebec Inc. St. Basile CAN CAD 19,461, Groupe Ciment Quebec Inc. Equity Cimento de Bissau Limitada Bissau GNB XOF 2,000, Tercim S.A. Ciments Calcia S.A. Guerville F e 593,836, Ciments Français S.A. Line-by-line Ciments du Maroc Casablanca MAR MAD 721,800, Ciments Français S.A. Line-by-line 3.52 Procimar S.A. Ciments du Nord Nouadhibou MAU OUG 1,340,000, Ciments du Maroc Ciments Français Europe N.V. Amsterdam NL e 395,811, Sodecim S.a.s. Line-by-line Ciments Français S.A. Ciments Français Participations S.n.c. Puteaux F e 1, Ciments Français S.A. Line-by-line Comp. Financière et de Participations S.A. Cisnel Descargas S.L. Madrid E e 3, Sodecim S.a.s. Compagnie des Ciments Belges S.A. Tournai B e 271,923, Ciments Français Europe N.V. Line-by-line Ciments Français S.A Ciments Calcia S.A Compagnie Financière des Ciments S.A Compagnie Financière et de Participations S.A. Compagnie Financière des Ciments S.A. Tournai B e 5,580, Ciments Français S.A. Line-by-line Compagnie Financière et de Participations S.A. Puteaux F e 180, Ciments Français S.A. Line-by-line Compania General de Canteras S.A. Malaga E e 479, Sociedad Financiera y Minera S.A. Line-by-line 3.29 Sax S.a.s. Conglomerantes Hidraulicos Especiales S.A. Madrid E e 2,511, Sociedad Financiera y Minera S.A. Consumer Materials Inc. Winchester USA USD 1, Riverton Investment Corporation Line-by-line De Paepe Béton N.V. Ghent B e 500, Compagnie des Ciments Belges S.A. Line-by-line Decoux S.A. Beaucaire F e 120, Tratel S.A. Line-by-line Devnya Bulk Services Devnya BUL LEV 50, Devnya Cement AD Devnya Cement AD Devnya BUL LEV 1,028,557, Marvex Line-by-line Devnya Cement St Devnya BUL LEV 1,500, Devnya Cement AD Devnya Finance Devnya BUL LEV 50,000, Devnya Cement AD Equity Dobrotitsa BSK A.D. Dobritch BUL Devnya Cement AD Dragages et Carrières S.A. Saint Marcel F e 1,000, GSM S.A. Proportionate Dragages Transports & Travaux Maritimes S.A. La Rochelle F e 1,702, GSM S.A. Proportionate Ecocem Valorizacion de Residuos S.A. Barcellona E e 109, Sociedad Financiera y Minera S.A. Entreprise Lorraine d Agriculture - ELDA S.A.R.L. Heillecourt F e 10, GSM S.A. ES Cement Co. Nazareth USA Essroc Cement Corp. Line-by-line Essroc Canada Inc. Mississauga CAN CAD 307,936, Essroc Corporation Line-by-line Essroc Cement Corp. Nazareth USA USD 8,330, Essroc Corporation Line-by-line Essroc Corporation Nazareth USA USD 1, Essroc International Line-by-line Essroc International Puteaux F e 244,398, Ciments Français S.A. Line-by-line Essroc Puerto Rico Holdings Inc. Nazareth USA USD 1, Essroc San Juan Inc. Line-by-line Essroc San Juan Inc. Espinosa P.RICO USD 10, Essroc Cement Corp. Line-by-line ET Béton Aspropyrgos GR e 2,616, Halyps Building Materials S.A. Line-by-line Eurarco France S.A. Les Crotoy F e 1,520, GSM S.A. Line-by-line 123

126 Interest held by Group companies Method Company Registered Share % % office capital direct indirect % Eurocalizas S.L. Cantabria E e 783, Hormigones y Minas S.A. Eurotech Cement S.h.p.k. Durres ALB LEK 270,000, Halyps Building Materials S.A. Line-by-line Exportaciones de Cemento del Norte de Espana S.A. Bilbao E e 60, Sociedad Financiera y Minera S.A. Fraimbois Granulats S.A.R.L. Moncel les Luneville F e 75, GSM S.A. Gacem Company Limited Serrekunda GAM GMD 4,500, Tercim S.A. Line-by-line Goltas Goller Bolgesi Cimento Sanayi ve Ticaret Isparta TR YTL 20,000, Sadecib S.A. (voting rights: Sadecib S.A.) Granulats de la Drôme S.a.s. Saint Jean de Vedas F e 1,011, GSM S.A. Line-by-line Granulats Ouest - GO Saint Herblain F e 784, GSM S.A. Line-by-line Graves de l Estuaire de la Gironde L.G.E.G. St. Jean de Blaignac F GSM S.A. Proportionate Greyrock Inc. Nazareth USA USD 1, Essroc Cement Corp. Line-by-line Greyrock WV Inc Nazareth USA USD 10, Riverton Investment Corporation Line-by-line Groupe Ciment Quebec Inc. St. Basile CAN CAD 57,000, Essroc Canada Inc. Equity GSM S.A. Guerville F e 18,675, Arena S.A. Line-by-line Halyps Building Materials S.A. Aspropyrgos GR e 34,951, Ciments Français S.A. Line-by-line Sociedad Financiera y Minera S.A. (voting rights: Ciments Français S.A Sociedad Financiera y Minera S.A.) Helleniki Lithotomi S.A. Atene GR e 60, Compagnie Financière et de Participations S.A. Helwan Cement Co. Cairo EGY LE 1,176,967, Suez Cement Company Line-by-line Hormigones Olatzi S.A. Olazagutia E e 283, Hormigones y Minas S.A. Hormigones Txingudi S.A. San Sebastian E e 60, Hormigones y Minas S.A. Hormigones y Minas S.A. S. Sebastian E e 8,689, Sociedad Financiera y Minera S.A. Line-by-line IM Scott Holdings Limited Markham CAN CAD Ontario Inc. Equity Immobilière des Technodes S.A. Guerville F e 8,024, Ciments Français S.A. Line-by-line Ciments Calcia S.A. Industrie Sakia el Hamra Indusaha S.A. Laayoune MAR MAD 55,550, Ciments du Maroc Line-by-line Innocon Inc. Richmond Hill CAN CAD 18,300, Ontario Inc. Equity Innocon Partnership Agreement Inc. Richmond Hill CAN CAD 2, Essroc Canada Inc. Equity Interbulk Trading S.A. Lugano CH CHF 7,470, Cifrinter Line-by-line Intertrading S.r.l Ciments Français Europe N.V. International Cement Traders Ltd Colombo SRI L. LKR 401,416, Ciments Français S.A. Line-by-line Inversiones e Iniciativas en Aridos S.L. Madrid E e 3, Ciments Français S.A. Line-by-line Investcim S.A. Puteaux F e 124,874, Ciments Français S.A. Line-by-line IPTP Corporation Las Vegas USA USD 1, Riverton Corporation Line-by-line Capitol Cement Corporation Italmed Cement Company Ltd Limassol CYP CYP 12,318, Halyps Building Materials S.A. Line-by-line Jalaprathan Cement Public Co, Ltd Bangkok TH BT 1,200,000, Asia Cement Public Co., Ltd 2 Line-by-line Ciments Français S.A Vesprapat Holding Co, Ltd 2 Jalaprathan Concrete Products Co, Ltd Bangkok TH BT 280,000, Jalaprathan Cement Public Co, Ltd 2 Line-by-line Johar S.A. Luxemont et Villotte F e 1,221, Tratel S.A. Line-by-line JTC Bangkok TH BT 13,000, Jalaprathan Concrete Products Co, Ltd 2 2 percentage interest held by the Ciments Français Group 124

127 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Interest held by Group companies Method Company Registered Share % % office capital direct indirect % Larricq S.A. Airvault F e 508, Tratel S.A. Line-by-line Les Calcaires Girondins S.a.s. Cenon F e 100, GSM S.A. Proportionate Les Calcaires Sud Charentes Cherves Richemont F e 1, GSM S.A. Les Graves de l Estuaire S.a.s. Le Havre F e 297, GSM S.A. Proportionate Les Sabliers de l Odet Quimper F e 134, Dragages Transports & Proportionate Travaux Maritimes S.A GSM S.A. Lyulyaka E.A.D. Devnya BUL LEV 759, Devnya Cement AD Line-by-line Marvex Devnya BUL LEV 89,424, Sociedad Financiera y Minera S.A. Line-by-line Matériaux Routiers du Bearn S.A.R.L. Rebenacq F e 15, GSM S.A. Mauritano-Française des Ciments Nouakchott MAU OUG 1,111,310, Ciments Français S.A. Line-by-line Menaf Puteaux F e 352,500, Ciments Français S.A. Line-by-line 4.26 Ciments Français Participations S.n.c. Met Teknik Servis ve Maden Sanayi Ticaret A.S. Istanbul TR YTL 50, Set Group Holding MTB - Maritime Trading & Brokerage S.r.l. Genoa I e 70, Interbulk Trading S.A. Equity Nadco Inc. Nazareth USA USD 1, Essroc Cement Corp. Line-by-line Naga Property Co Bangkok TH BT 100,000, Jalaprathan Cement Public Co. Ltd Line-by-line Neuciclaje S.A. Bilbao E e 364, Sociedad Financiera y Minera S.A. Novhorvi S.A. Vitoria E e 180, Hormigones y Minas S.A. Nugra S.A. Madrid E e 60, Sociedad Financiera y Minera S.A. Port St. Louis Aménagement S.n.c. Guerville F e 8, GSM S.A. Port St. Louis Remblaiement S.A.R.L. Guerville F e 7, GSM S.A. Procimar S.A. Casablanca MAR MAD 27,000, Ciments Français S.A. Line-by-line Provence Aménagement S.A. Port Frejus F e 480, Arena S.A. R.G. Aggregates B.V. Vlaardingen NL e 18, Compagnie des Ciments Belges S.A. Raingeard Carrières Bétons et Compagnie S.n.c. Saint Herblain F e 705, GSM S.A. Line-by-line 0.02 Arena S.A. Ready Mix Beton (Egypt) SAE Cairo EGY LE 10,000, Suez Cement Company Line-by-line Ready Mix Beton SAE Cairo EGY LE 5,000, Suez Cement Company Line-by-line Riverton Corporation Winchester USA USD 859, Riverton Investment Corporation Line-by-line Riverton Investment Corporation Winchester USA USD 8, Essroc Cement Corp. Line-by-line Riverton Lime&Stone Co. Inc. Winchester USA USD 3, Riverton Corporation Line-by-line Rular Trading B.V. Vlaardingen NL e 18, R.G. Aggregates B.V. S.A. Dijon Béton Dijon F e 184, GSM S.A. Equity Saarlandische Zementgesellschaft MBH Saarbrucken D e 52, Cifrinter Sables et Graviers de la Garonne (GIE) Pessac F e GSM S.A. Line-by-line Sablimaris Lanester F e 1,769, Dragages Transports & Travaux Maritimes S.A. Proportionate Les Sabliers de l Odet Sadecib S.A. Puteaux F e 67,136, Ciments Français S.A. Line-by-line Santes Béton Sarl Santes F e 10, V.B.H. S.n.c. Proportionate Sas des Gresillons Guerville F e 40, GSM S.A. Sax S.a.s. Guerville F e 482, Ciments Français S.A. Line-by-line SCI Batlongue Arudy F e 53, GSM S.A. SCI Coralie Allonnes F e 3, Bonafini S.A Larricq S.A. SCI de Balloy Avon F e 20, GSM S.A Arena S.A

128 Interest held by Group companies Method Company Registered Share % % office capital direct indirect % SCI Delrieu Frères Fumel F e 17, Socli S.A Ciments Calcia S.A. SCI des Granets Cayeux sur M. F e 4, GSM S.A. SCI du Colombier Rungis F e 2, GSM S.A. SCI du Domaine de Saint Louis Guerville F e 6, GSM S.A. SCI Lepeltier S. Doulchard F e 6, GSM S.A. SCI Taponnat Cherves Richemont F e 1, GSM S.A. SCI Triel Carrières Guerville F e 13, GSM S.A. Scori S.A. Plaisir F e 1,092, Ciments Calcia S.A. Set Beton Madencilik Sanayi ve Tas Istanbul TR YTL 21,494, Ciments Français S.A. Line-by-line Set Cimento Istanbul TR YTL 31,693, Set Group Holding Line-by-line 3.00 Devnya Cement AD Set Group Holding Istanbul TR YTL 18,508, Ciments Français S.A. Line-by-line Shymkent Cement Shymkent KAZ TEN 350,000, Ciments Français S.A. Line-by-line Sitapuram Power Limited Hyderabad IN INR 140,000, Zuari Cement Ltd Line-by-line Sri Vishnu Cement Ltd Snc Rouennaise de Transformation Grand Couronne F e 7, Ciments Calcia S.A. Sociedad Financiera y Minera S.A. Madrid E e 39,160, Sodecim S.a.s. Line-by-line Ciments Français Europe N.V Hormigones y Minas S.A Sociedad Financiera y Minera S.A. (voting rights: Sodecim S.a.s Ciments Français Europe N.V Hormigones y Minas S.A.) Société Calcaires Lorrains Heillecourt F e 40, GSM S.A. Proportionate Société Civile Bachant le Grand Bonval Guerville F e 1, GSM S.A. Société Civile Carrière de Maraval Frejus F e 1, GSM S.A. Société Civile d'exploitation Agricôle de l'aves-nois Reims F e 3, Société Civile Bachant le Grand Bonval GSM S.A. Société Civile Immobilière Berault Guerville F e 3, GSM S.A. Line-by-line Société de la Grange d'etaule Gray F e 3, Ciments Calcia S.A. Société des Carrières du Tournaisis S.C.T. S.A. Tournai B e 12,297, Ciments Français Europe N.V. Proportionate Ciments Français S.A Ciments Calcia S.A Compagnie Financière des Ciments S.A Compagnie des Ciments Belges S.A. Société Foncière de la petite Seine S.a.s. Saint Sauveur les Bray F e 50, GSM S.A. Société Immobilière Marguerite VIII Casablanca MAR MAD 100, Ciments du Maroc Société Immobilière Marguerite X Casablanca MAR MAD 100, Ciments du Maroc Société Parisienne des Sablières S.A. Pont de L Arche F e 320, GSM S.A. Proportionate Socli S.A. Izaourt F e 144, Ciments Calcia S.A. Line-by-line Sodecim S.a.s. Puteaux F e 458,219, Ciments Français S.A. Line-by-line Sri Vishnu Cement Ltd Bangalore IN INR 248,549, Zuari Cement Ltd Line-by-line Ste d Investissement & de Partecipations du Littoral Guerville F e 37, Ciments Calcia S.A. Line-by-line STE des Calcaires de Souppes sur Loing Souppes sur Loing F e 2,145, GSM S.A. Proportionate 126

129 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 58 Parent company financial statements Notes 62 Annexes 119 Report of the Independent Auditors 128 Quota posseduta dalle società del Gruppo Metodo Denominazione Sede Capitale % % diretta indiretta % Ste Extraction & Amenagement de la Plaine de Marolles Avon F e 40, GSM S.A. Stinkal S.a.s. Ferques F e 1,120, GSM S.A. Equity St. Basile Transport Inc. St. Basile CAN CAD 9, Ciment Quebec Inc. Equity Suez Bag Company Cairo EGY LE 9,000, Suez Cement Company Line-by-line 4.52 Tourah Portland Cement Company Suez Bosphorus Cimento Sanayi Ticaret Istanbul TR YTL 50, Suez Cement Company Suez Cement Company Cairo EGY LE 909,282,535-53,15 24,10 Menaf Line-by-line Ciments Français S.A Ciments du Maroc 5.00 Tercim S.A. Technodes S.a.s. Guerville F e 3,200, Ciments Français S.A. Line-by-line Tercim S.A. Puteaux F e 50,814, Ciments Français S.A. Line-by-line 0.01 Sax S.a.s. To Ready Mix Ltd Markham CAN CAD IM Scott Holdings Limited Equity Tomahawk Inc. Wilmington USA USD 1, Essroc Cement Corp. Line-by-line Tourah Portland Cement Company Cairo EGY LE 238,414, Suez Cement Company Line-by-line Trabel Affretement Gaurain Ramecroix B e 61, Tratel S.A. Line-by-line 0.16 Ciments Calcia S.A. Trabel Transports S.A. Gaurain B e 750, Tratel S.A. Line-by-line Compagnie des Ciments Belges S.A. Tragor S.A. Pessac F e 892, Tratel S.A. Line-by-line Tratel S.A. L Ile S. Denis F e 6,025, Ciments Calcia S.A. Line-by-line Unibéton Est S.a.s. Heillcourt F e 40, Unibéton Holding S.A. Unibéton Holding S.A. Guerville F e 45, Arena S.A. Unibéton Ile de France S.a.s. L Ile Saint Denis F e 40, Unibéton Holding S.A. Unibéton Luxembourg S.A. Luxembourg L e 35, Unibéton S.A. Unibéton Med S.a.s. Lambesc F e 40, Unibéton Holding S.A. Unibéton Normandie S.a.s. Rouen F e 40, Unibéton Holding S.A. Unibéton S.A. Guerville F e 27,159, Arena S.A. Line-by-line Unibéton S.O. S.a.s. Pessac F e 40, Unibéton Holding S.A. Unibéton Var S.a.s. Lambesc F e 40, Unibéton S.A. Line-by-line Uniwerbéton S.a.s. Heillecourt F e 160, Unibéton S.A. Line-by-line Valoise S.a.s. Pierrelaye F e 39, GSM S.A. Proportionate Vaniyuth Co. Ltd Bangkok TH BT 100, Investcim S.A. Line-by-line Vassiliko Cement Works Ltd Nicosia CYP CYP 13,434, Italmed Cement Company Ltd Equity Comp. Financière et de Participations S.A. Ventore S.L. Malaga E e 14, Sociedad Financiera y Minera S.A. Line-by-line 0.44 Hormigones y Minas S.A. Vesprapat Holding Co, Ltd Bangkok TH BT 20,000, Sax S.a.s. Line-by-line Vulkan A.D. Dimitrovgrad BUL LEV 452,967, Ciments Français S.A. Line-by-line Devnya Cement A.D. V.B.H. S.n.c. Tourcoing F e 5, Unibéton S.A. Line-by-line Zuari Cement Ltd Hyderabad IN INR 4,279,614, Ciments Français S.A. Line-by-line Cie pour l Investissement Financier en Inde (voting rights: Ciments Français S.A.) 127

130

131 Parent company financial statements 129

132 Financial statements Balance Sheet (euro) Change Non-current assets Property, plant and equipment 570,312, ,209,487 68,102,980 Investment properties 14,969,393 16,194,640 (1,225,247) Intangible assets 11,959,408 9,504,401 2,455,007 Investments in subsidiaries and associates 1,740,299,654 1,729,155,144 11,144,510 Other investments 276,156, ,488,829 15,667,635 Other non-current assets 9,250,874 8,078,083 1,172,791 Total non-current assets 2,622,948,260 2,525,630,584 97,317,676 Current assets Inventories 147,143, ,029,421 9,113,794 Trade receivables 364,073, ,931,658 43,141,353 Other current assets 26,180,835 45,456,623 (19,275,788) Income tax assets 201,948 4,649,163 (4,447,215) Equity investments and financial receivables 185,790, ,899,075 (16,108,826) Cash and cash equivalents 263, ,513 39,529 Total current assets 723,652, ,189,453 12,462,847 Total assets 3,346,600,560 3,236,820, ,780,523 Shareholders' equity Share capital 282,548, ,548,942 - Reserves 517,871, ,354,875 20,516,455 Treasury shares (42,913,581) (38,333,077) (4,580,504) Retained earnings 1,438,205,318 1,421,105,693 17,099,625 Total shareholders' equity 2,195,712,009 2,162,676,433 33,035,576 Non-current liabilities Interest-bearing loans and long-term borrowings 587,217, ,641, ,576,431 Employee benefit liabilities 48,785,248 47,806, ,810 Provisions -- non-current 22,069,467 22,494,666 (425,199) Deferred tax liabilities 31,084,634 22,064,049 9,020,585 Other non-current liabilities 33, ,766 (83,995) Total non-current liabilities 689,190, ,124, ,066,632 Current liabilities Bank overdrafts and short-term borrowings 177,426, ,536,068 (94,109,500) Interest-bearing loans and short-term borrowings 52,454,999 28,417,608 24,037,391 Trade payables 168,802, ,723,247 12,079,681 Income tax liabilities 148, ,585 Other current liabilities 62,864,689 64,342,531 (1,477,842) Total current liabilities 461,697, ,019,454 (59,321,685) Total liabilities 1,150,888,551 1,074,143,604 76,744,947 Total shareholders' equity and liabilities 3,346,600,560 3,236,820, ,780,

133 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 130 Parent company financial statements Report of the Independent Auditors 134 Summary of resolutions 136 Income Statement (euro) 2006 % 2005 % Change % Revenues 1,046,649, ,111, ,538, Other revenues 34,250,366 28,962,730 Change in inventories 2,945,126 7,030,715 Internal work capitalized - 124,263 Goods and utilities expense (486,653,136) (414,187,608) Services expense (223,903,543) (211,963,269) Employees expense (177,221,384) (166,907,274) Other operating income (expense) (19,920,887) (27,298,561) Gross operating profit - recurring 176,146, ,872, ,273, Net capital gains on sale of fixed assets 10,400,156 7,422,160 Non-recurring income (expense) 326,373 - Gross operating profit 186,872, ,294, ,578, Amortization and depreciation (72,487,902) (66,800,673) Impairment (196,127) - Operating profit 114,188, ,493, ,694, Finance income 76,083,762 67,291,806 Finance expense (27,046,260) (18,895,466) Gains (losses) on exchange rates and derivatives (593,491) 1,405,025 Profit before tax 162,632, ,295, ,337, Income tax expense (50,321,294) (33,411,726) Net profit for the period 112,311, ,883, ,427,

134 Statement of movements in shareholders' equity (euro) Reserves Share Share Fair value Fair value Other Treasury Retained Total capital premium reserve for reserve for reserves shares earnings shareholder's reserve available- derivative equity for-sale financial financial instruments assets Balance at December 31, ,548, ,316,309 1,226,209 1,412,233,643 2,040,325,103 Application of IAS ,506,901 (796,308) (28,105,882) (296,525) 79,308,186 Balance at January 1, ,548, ,316, ,506,901 (796,308) 1,226,209 (28,105,882) 1,411,937,118 2,119,633,289 Change in fair value on: Available-for-sale financial assets 40,870,783 40,870,783 Derivative financial instruments 1,772,790 1,772,790 Stock options 1,458,191 1,458,191 Net gains (losses) recognized directly in equity 40,870,783 1,772,790 1,458,191 44,101,764 Net profit for the period 95,883,632 95,883,632 Total recognized income (expense) for the period 40,870,783 1,772,790 1,458,191 95,883, ,985,396 Replenishment prior-year earnings for distribution of profits 1,645,873 1,645,873 Distribution of profits: Dividends (86,715,057) (86,715,057) Other (1,645,873) (1,645,873) Treasury share buyback (10,227,195) (10,227,195) Balance at December 31, ,548, ,316, ,377, ,482 2,684,400 (38,333,077) 1,421,105,693 2,162,676,433 Change in fair value on: Available-for-sale financial assets 15,202,306 15,202,306 Derivative financial instruments 3,419,753 3,419,753 Stock options 1,768,969 1,768,969 Net gains (losses) recognized directly in equity 15,202,306 3,419,753 1,768,969 20,391,028 Net profit for the period 112,311, ,311,617 Total recognized income (expense) for the period 15,202,306 3,419,753 1,768, ,311, ,702,645 Distribution of profits: Dividends (95,211,992) (95,211,992) Treasury share buyback (18,903,239) (18,903,239) Treasury share sale 14,322,735 14,322,735 Change from sale of treasury shares 125, ,427 Balance at December 31, ,548, ,441, ,579,990 4,396,235 4,453,369 (42,913,581) 1,438,205,318 2,195,

135 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 130 Parent company financial statements Report of the Independent Auditors 134 Summary of resolutions 136 Cash flow statement (euro) A) Cash flow from operating activities: Profit before tax 162,632, ,295,358 Amortization, depreciation and impairment 72,973,316 66,800,673 Impairment non-current financial assets 203,939 - Capital (gains)/losses on sale of fixed assets (12,488,162) (14,696,732) Change in employee benefit liabilities and other provisions 553,610 1,291,277 Stock options 1,768,969 1,458,191 Reversal net finance costs (income) (49,048,973) (41,237,037) Cash flow from operating activities before tax, finance costs/income and change in working capital: 176,595, ,911,730 operating working capital (44,705,589) (6,091,097) other assets / liabilities (21,684,470) 25,409,836 Total change in working capital (66,390,059) 19,318,739 Net finance costs paid (15,047,011) (14,451,674) Dividends received 85,123,438 33,746,776 Taxes (paid) or recovered (21,238,063) (48,695,898) B) Cash flow from investing activities: Investments in fixed assets: Total A) 159,043, ,829,673 Intangible assets (15,205,444) (6,204,878) Property, plant and equipment and investment properties (133,827,590) (103,825,291) (Financial equity investments) (11,246,692) (296,415,481) Other assets (30,228) - Total investments (160,309,954) (406,445,650) Proceeds from divestments of fixed assets 23,745, ,199,785 Total divestments 23,745, ,199,785 Change in other long-term financial assets/liabilities 4,489,788 (4,566,535) C) Cash flow from financing activities: Total B) (132,074,903) (149,812,400) New interest-bearing loans and long-term borrowings 196,764, ,092,448 Repayments of long-term financing (57,978,024) (403,841) Change in short-term financing (82,172,789) (80,239,825) Change in other financial assets 16,108,827 (37,887,080) Other changes in shareholders' equity - 4,098,615 Change in Share premium reserve 135,985 - Change in treasury shares (4,580,504) (10,227,195) Dividends paid (95,207,440) (88,553,341) Total C) (26,929,483) 16,879,781 D) Cash flows for the year (A+B+C ) 39,529 (102,946) E) Opening cash and cash equivalents 223, ,458 Closing cash and cash equivalents (D+E ) 263, ,

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137

138 Summary of resolutions The Shareholders' Meeting held on April 18, 2007, in via Madonna della Neve 8, Bergamo, chaired by Giampiero Pesenti, attended in person or by proxy by 339 shareholders representing a total of 116,458,720 ordinary shares out of a total of 177,117,564 ordinary shares outstanding, carried the following resolutions 1) - to approve the financial statements for the year to and as at December 31, 2006, and also the accompanying Directors report on operations; - to assign the net profit for the year, including the full amount of Retained earnings, for the sum of 70,965, euro as follows: 0.36 euro to the 174,327,606 ordinary shares (net of the 2,789,958 ordinary treasury shares held at April 18, 2007), for a total of 62,757, euro, 0.39 euro to the 105,325,878 savings shares (net of the 105,500 savings treasury shares held at April 18, 2007), for a total of 41,077, euro, to be paid as from May 24, 2007, with coupon detachment on May 21, 2007, to the Translation reserve, 38, euro and to carry forward an amount of 79,406, euro; 2) to set at 18 (eighteen) the number of members of the Board of Directors for the three-year period and to appoint as members: Pierfranco Barabani Alberto Bombassei Alberto Clô Federico Falck Pietro Ferrero Danilo Gambirasi Karl Janjöri Italo Lucchini Emma Marcegaglia Sebastiano Mazzoleni Yves René Nanot Carlo Pesenti Giampiero Pesenti Marco Piccinini Ettore Rossi Attilio Rota Carlo Secchi Emilio Zanetti 3) subject to revocation of the unexecuted part of the resolution authorizing the acquisition and disposal of treasury shares carried by the ordinary Shareholders' Meeting of April 13, 2006: - to authorize, pursuant to art of the Italian Civil Code, within 18 months of the date of resolution, the purchase, on one or more occasions, of ordinary and/or savings treasury shares, establishing that: the purchase price for each share shall not be more than 15% lower or higher than the average share price on the Italian Stock Exchange in the three sessions preceding each transaction; the total counter-value shall in no case be more than 150,000,000 euro; the maximum number of ordinary and/or savings shares purchased shall not have an aggregate nominal value, including the shares already owned by the Company and any shares already owned by subsidiaries, in excess of one tenth of the share capital; 136

139 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 130 Parent company financial statements Report of the Independent Auditors 134 Summary of resolutions to establish that considerations paid or received for purchases or sales of treasury shares be recognized directly in shareholders' equity in compliance with International Accounting Standard 32 and that such considerations always be reflected in the accounts in the form envisaged by the regulations in effect from time to time; - to grant, pursuant to par 1, art ter of the Italian Civil Code, separate powers to the Chairman, each of the Deputy Chairmen and the interim Chief Executive Officer to dispose at any time of purchased treasury shares, even before all purchases have been made; 4) to extend the engagement for the audit of the separate financial statements and the consolidated financial statements for financial years and for the limited review of the half-year reports at June 30, to the independent auditors Reconta Ernst & Young S.p.A. establishing an overall fee of 590,000 euro, subdivided as follows: Audit of the Italcementi S.p.A. separate and consolidated financial statements and limited review of the minor investee companies: euro 418, Regular inspections, pursuant to art. 155, par 1, letter a) of Legislative Decree 58/98: euro 42, Limited review of the Italcementi separate and consolidated half-year report: euro 122, Inspection of the Unico and Modello 770 forms euro 8.000,00 *. *.* At a meeting held after the Shareholders' Meeting, the Board of Directors appointed the following officers for the threeyear period : Giampiero Pesenti Chairman Pierfranco Barabani Executive Deputy Chairman Carlo Pesenti Chief Executive Officer and confirmed Rodolfo Danielli as Chief Operating Officer. The Board of Directors named the Executive Committee for the three-year period , as follows: Giampiero Pesenti Chairman Carlo Pesenti Pierfranco Barabani Yves René Nanot Attilio Rota Paolo Santinoli was confirmed as Secretary to the Board of Directors and the Executive Committee. Chief Executive Officer Carlo Pesenti was named executive Director responsible for supervising the workings of the internal control system. Independent Director Alberto Clô was named Lead Independent Director. The Board of Directors also formed the committees contemplated by the Voluntary Code of Conduct, as follows: Remuneration Committee Karl Janjöri Italo Lucchini Emilio Zanetti Internal Control Committee Alberto Clô Federico Falck Carlo Secchi Attilio Rota 137

140 Presentation 5 Annual Report Directors report 16 Corporate governance Consolidated financial statements Financial statements 130 Parent company financial statements Report of the Independent Auditors 134 Summary of resolutions 136 Corporate bodies after the appointments of April 18, 2007 Antonio Catani Honorary Chairman Board of Directors (Term ends on approval of financial statements at ) Giampiero Pesenti 1 Chairman Pierfranco Barabani 1 Executive Deputy Chairman Carlo Pesenti 1-2 Chief Executive Officer - CEO Alberto Bombassei 5 Alberto Clô 4-5 Federico Falck 4-5 Pietro Ferrero 5 Danilo Gambirasi Karl Janjöri 3-5 Italo Lucchini 3 Emma Marcegaglia 5 Sebastiano Mazzoleni Yves René Nanot 1 Marco Piccinini Ettore Rossi 5-6 Attilio Rota Carlo Secchi 4-5 Emilio Zanetti 3-5 Paolo Santinoli 7 Secretary Board of Statutory Auditors (Term ends on approval of financial statements at ) Acting Auditors Maria Martellini Chairman Claudio De Re Claudio Cavalli Substitute Auditors Eugenio Mercorio Dino Fumagalli 6 Pietro Curcio Rodolfo Danielli Chief Operating Officer - COO Reconta Ernst & Young S.p.A. Independent Auditors 1 Member of the Executive Committee 2 Executive Director responsible for supervising the workings of the internal control system 3 Member of the Remuneration Committee 4 Member of the Internal Control Committee 5 Independent Director (in accordance with the Voluntary Code of Conduct) 6 Member of the Compliance Committee 7 Secretary to the Executive Committee 138

141 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Italcementi S.p.A. Corporate governance The Corporate Governance system of companies whose securities on regulated markets has undergone many extensive changes as a result of the Law for the protection of savings (Law no. 262 of December 28, 2005-hereinafter «Law on Savings»), which introduced significant amendments to Legislative Decree no. 58 of February 24, 1998 (consolidated finance act), including list voting for the appointment of the Board of Directors, the attribution of the post of Chairman of the Board of Statutory Auditors to the Auditor elected by the minority, secret voting for the appointment of company officers, compliance with the independence requirements for the members of the Board of Statutory Auditors by at least one director, designation of a director responsible for drawing up the company accounts, establishment of a term of six financial years for auditing engagements, etc. Further amendments were introduced on December 1, 2006, with the «Corrective Decree» (Legislative Decree no. 303 of December 29, 2006), to guarantee the coordination and consistency of the dispositions introduced by the Law with existing regulations. In addition to simple technical adjustments, this latest decree introduces wide-ranging amendments in the regulations introduced by the Law on Savings in order to restore consistency to the system ; these include abolition of secret voting for appointment of company officers and establishment of a term of nine financial years for the engagement of independent auditors. Under the Corrective Decree, Consob is sto issue by March 31, 2007, a series of regulations for the enactment of the new dispositions, in order to complete the new legislation and enable listed companies to update their By-laws in compliance with the new deadline set for June 30, Finally, in March 2006, the Corporate Governance Committee formed by Borsa Italiana S.p.A. approved the new Code of Conduct supplementing legislative regulations with the principles considered international best practice. The Committee has provided further details regarding the composition, election, responsibilities and independence requirements of the members of the Board of Directors and indications regarding coordination of all the bodies and offices involved in corporate governance. In this new legislative and regulatory context, which is still incomplete pending the publication of the Consob enactment regulations, Italcementi S.p.A. has updated its Code of Conduct and its Procedural Code for Transactions with Related Parties in line with the new text approved by the Corporate Governance Committee; whereas, pending the publication of the Consob regulations, not issued at the date of this report, it has no choice but to postpone adoption of the statutory amendments required by law, or otherwise deemed appropriate, to an extraordinary Shareholders Meeting to be held before the end of the first half of the year. The Corporate Governance system adopted by Italcementi S.p.A. over the last few years comprises the company By-laws and the following codes and/or regulations (the full texts are available on the corporate web site at 1) Code of Conduct, 2) Code of Ethics, 3) Treatment of Confidential Information, 4) Internal Dealing Code of Conduct (internal dealing), 5) Procedural Code for Transactions with Related Parties, 6) Insider Register Procedure, 7) Organization, Management & Control Model. An analysis of the corporate governance structure envisaged in the binding rules set out in the company By-laws and in the company s codes and/or regulations, shows that Italcementi S.p.A. complies with generally accepted best practice, whose application is reflected in the resolutions carried by the Board of Directors and the organization notices issued by the company. The Code of Conduct and corporate governance rules The Code of Conduct (the «Code») is a self-governance system incorporating legal, regulatory and Civil Code requirements, to which the company and its bodies voluntarily adhere. Its purpose is to communicate the organizational 139

142 model implemented by Italcementi S.p.A. in order to maximize value for shareholders. The company Board of Directors has updated the «Code» to take account of the new text approved by the Corporate Governance Committee in March At the same time, since, as explained below, this is a period of transition, the amendments to the system of corporate governance will actually take place gradually over the coming months. In view of the fact that one of the items on the agenda at the next Shareholders Meeting will be the appointment of the Board of Directors for the three-year period , we believe it appropriate to refer verification of directors honorability and independence requirements to the new Board of Directors, which will consequently appoint from among its members the Lead independent director, should this be necessary, the executive director responsible for supervising the internal control system, and create the internal committees of the Board of Directors, in compliance with the new dispositions regarding composition and independence and professional requirements. The new Board of Directors will also be responsible for verifying the number of posts deemed compatible with the post of director, as defined in the «Code». Resolutions regarding the statutory amendments required by the reform will be carried by a subsequent extraordinary Shareholders Meeting and, consequently, it will not be possible to apply some dispositions of the new «Code» until that time; specifically, the appointment of the Board of Directors from lists of candidates, the indication of the eligibility of such candidates to qualify as independent and the appointment of directors indicated by minority shareholders. As prescribed by the «Code», the outcome of the assessment regarding independence requirements, to be entrusted to the Board of Directors elected by the forthcoming Shareholders Meeting, will be announced in a statement issued to the market. The «Code» also provides for the formation of bodies and offices and for adoption of specific procedures and conduct, with the sole exceptions mentioned below and with the modifications necessary to take account of the specific nature of Italcementi S.p.A. The Board of Directors is always willing to consider other changes to the Code of Conduct and assess their application to Italcementi s Corporate Governance system, provided that, compatibly with its current situation, such recommendations enhance the reliability of the company in the eyes of investors. * * * The report below illustrates and comments on the new amended version of the «Code» adopted by the company rather than the version in force in the previous financial year. a) Shareholding and organizational structure Share capital and majority shareholder The share capital amounts to 282,548,942 euro, consisting of 282,548,942 shares with a nominal value of 1 euro each, of which 177,117,564 ordinary shares and 105,431,378 savings shares. With reference to the authorizations granted by the Shareholders Meetings of April 22, 2005 and April 13, 2006, during the year the company bought back 1,022,538 ordinary shares for an overall amount of 18,903, euro. During the year the company did not buy back any savings shares. During 2006, in response to requests for the exercise of options granted to directors and managers, the company sold to the parties concerned a total of 1,606,057 ordinary treasury shares at the per-share price established at the time the options were granted, pursuant to the relevant Regulation. Therefore at December 31, 2006, the company held: - 3,361,583 ordinary treasury shares, equal to 1.90% of the share capital represented by ordinary shares, to be used to service the Stock option plan for Directors and the Stock option plan for Managers ; - 105,500 savings treasury shares, equal to 0.1% of the share capital represented by savings shares. During the current year, a number of directors and managers exercised stock options. As required by the shareholders resolution of April 13, 2006 and the respective stock option plans, the company sold to the parties concerned 313,625 ordinary treasury shares at the per-share price established at the time the options were granted. As a result of these transactions, at March 7, 2007, the company held 3,047,958 ordinary treasury shares. 140

143 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Italmobiliare S.p.A., which directs and co-ordinates Italcementi S.p.A. pursuant to art and following articles of the Italian Civil Code, is the majority shareholder: at December 31, 2005, it directly and indirectly held 58.73% of Italcementi S.p.A. ordinary shares, net of own shares held by the company. The company is not aware of the existence of any voting trusts. Board of Directors The amended version of the «Code» provides for directors to be appointed under a transparent procedure that guarantees, among other things, timely and adequate information regarding the personal and professional characteristics of candidates and requires the lists of candidates to be deposited at the company head office within the terms set out in the By-laws and the timely publication of the lists on the company web site. As already noted, the lists will also be required to indicate whether candidates qualify as independent pursuant to the «Code». The company By-laws will regulate list voting pursuant to the requirements of the new laws to be issued. Currently they do not contain specific indications regarding the composition of the Board of Directors. Moreover, under the new laws, at least one member of the Board of Directors, or two members if the board has more than seven members, must meet the independence requirements established by law for the members of the Board of Statutory Auditors, while the law requires that all directors meet the honorability requirements established by a regulation of the Italian Ministry of Justice for statutory auditors. The text of the «Code» approved by the Corporate Governance Committee requires that a suitable number of nonexecutive directors be independent, in other words that they do not have, nor have recently had, directly or indirectly, dealings with the company or with parties associated with the company such as to currently influence their independence of judgment. No limits are set on the re-election of directors, even if holding the same post for more than nine years of the last twelve years could constitute a motive for failure to meet the independence requirement of the «Code». As established by the By-laws, the Board of Directors has full powers of ordinary and extraordinary management. It may thus perform all acts (including sales) that it deems necessary to achieve the company s business object, with the exception of those acts that by law may only be performed by the Shareholders Meeting. In addition to the powers conferred on the Board of Directors by law and under the By-laws with regard to issue of shares and debentures, in compliance with art of the Italian Civil Code, resolutions in respect of the matters listed below are attributed not only to the extraordinary Shareholders Meeting but also to the Board of Directors: mergers of companies that are wholly owned or ninety per cent owned; transfer of the registered office, provided that it remains in Italy; formation or suppression of secondary offices, in Italy and abroad; reduction of share capital in the event of withdrawal by the partner; amendment of the By-laws to comply with legal requirements. The Board of Directors meets at least once every calendar quarter as set out in the By-laws. During the meetings, the directors and the Board of Statutory Auditors receive reports on significant transactions performed by the authorized persons in line with their powers. Like the former version, the amended «Code» emphasizes the key role of the Board of Directors and establishes and integrates its specific duties, which, under the new text, include but are not limited to: assignment and revocation of proxies to senior managers; examination of strategic, industrial and financial plans and assessment of business forecasts and the organizational, administrative and general accounting structure of the company and the subsidiaries; examination and approval of interim accounts; prior examination and approval of transactions of strategic importance and transactions with related parties; assessment of the company operating structure; determination of remuneration of directors with special duties; reports at Shareholders Meetings; examination and approval of the Corporate Governance system. The text approved by the Corporate Governance Committee attributes an important new duty to the Board of Directors, namely, prior examination and approval of any subsidiary transactions with a material impact on the strategy, business, assets or finance of Italcementi S.p.A.; prior examination and approval of other dealings with related parties that the 141

144 officers deem to require approval by the Board of Directors, taking account of the nature, value and other characteristics of the transactions in question; a review of the size, composition and workings of the Board of Directors and of its committees, at least on an annual basis. The Board of Directors consists mainly of non-executive members, of whom a sufficient number are independent. The «Code» requires that when lists of candidates are presented, they indicate which candidates would qualify as independent. When the Chairman of the Board of Directors is the person with primary responsibility for management of the company, and when the post of Chairman is held by the person who controls the company, the Board of Directors designates a lead independent director to act as a reference for and coordinate the requests and contributions of the non-executive directors, and of the independent directors in particular. The Chairman coordinates the Board s activities and chairs its meetings. He ensures that the directors are provided suitably in advance with all useful information about significant issues so as to be able to discuss them at meetings, except in cases of necessity or in urgent or confidential cases. Through the relevant internal functions, the Chairman also ensures that the directors take part in initiatives designed to increase their knowledge of the company situation and dynamics, and are informed about the main legislative and regulatory developments concerning the company and its corporate bodies. The directors act and take resolutions with due diligence and independently, with a view to achieving the primary goal of creating shareholder value. They accept their positions in the knowledge that they are able to dedicate the time necessary to perform their duties diligently. Under the «Code», effective performance of the duties of a director signifies not holding more than: - 5 executive directorships, - 10 non-executive or independent directorships or statutory auditorships in companies listed on regulated markets in Italy and abroad, in financial companies, banks, insurance and other large companies, excluding the subsidiaries of Italcementi S.p.A., the parent companies and the subsidiaries of parent companies. A list of the director, statutory auditor and chief operating officer positions held by each director in other companies listed on regulated markets in Italy or abroad, in financial companies, banks, insurance and other large companies is set out below: Giampiero Pesenti Italmobiliare S.p.A. Chairman - Chief Executive Officer Franco Tosi S.r.l. Chairman Ciments Français S.A. Deputy Chairman (representing Italcementi S.p.A.) Fincomind AG Deputy Chairman Fondazione Italcementi Cav. Lav. Carlo Pesenti Deputy Chairman Ciments du Maroc Director Compagnie Monegasque de Banque Director Credit Mobilier de Monaco Director Finter Bank Zürich Director Mittel S.p.A. Director Pirelli S.p.A. Director RAS S.p.A. Director Soparfinter S.A. Director Giovanni Giavazzi Fondazione Italcementi Cav. Lav. Carlo Pesenti Chairman Pierfranco Barabani Ciments Français S.A. Director (representing Société Internationale Italcementi (Luxembourg) S.A.) 142

145 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Carlo Pesenti Italmobiliare S.p.A. Director - Chief Operating Officer Banche Popolari Unite S.c.p.a. Director Ciments Français S.A. Director Mediobanca S.p.A. Director RCS MediaGroup S.p.A. Director Unicredito S.p.A. Director Alberto Bombassei Brembo S.p.A. Chairman Autostrade S.p.A. Director Pirelli S.p.A. Director Alberto Clô ASM Brescia S.p.A. Director Autostrade S.p.A. Director ENI S.p.A. Director De Longhi S.p.A. Director Federico Falck Actelios S.p.A. Chairman Falck S.p.A. Chairman Riesfactoring S.p.A. Chairman Banca Popolare di Sondrio S.c.r.l. Director Camfin S.p.A. Director Bruno Isabella Sirap Gema S.p.A. Chairman S.A.B. S.p.A. Chairman Actelios S.p.A. Director Falck S.p.A. Director Italo Lucchini Italmobiliare S.p.A. Deputy Chairman Banche Popolari Unite S.c.p.a. Director Fondazione Italcementi Cav. Lav. Carlo Pesenti Director BMW Italia S.p.A. Chairman Board of Statutory Auditors BMW Financial Services Italia S.p.A. Chairman Board of Statutory Auditors SABAF S.p.A. Chairman Board of Statutory Auditors Sebastiano Mazzoleni Ciments Français S.A. Director (representing Sicil.Fin. S.r.l.) Yves René Nanot Ciments Français S.A. Chairman - Chief Operating Officer Rhodia S.A. Chairman Asia Cement Public Co. Ltd. Director Ciments du Maroc Director Imerys S.A. Director Provimi S.A. Director Suez Cement Company Director Zuari Cement Ltd. Director 143

146 Marco Piccinini Finter Bank & Trust Bahamas Ltd. Deputy Chairman Compagnie Monegasque de Banque Director Credit Mobilier de Monaco Director Ferrari S.p.A. Director Finter Bank Zürich Director Groupe Société des Bains de Mer à Director Monaco (SBM) Poltrona Frau S.p.A. Director Ettore Rossi Ciments Français S.A. Director (representing Société Internationale Italcementi France S.a.s.) Fondazione Italcementi Cav. Lav. Carlo Pesenti Chairman Board of Auditors Attilio Rota Banca d Italia - Bergamo branch Director Emilio Zanetti Banche Popolari Unite S.c.p.a. Chairman Banca Popolare di Bergamo S.p.A. Chairman Sesaab S.p.A. Chairman BPU Assicurazioni S.p.A. Deputy Chairman BPU Assicurazioni Vita S.p.A. Deputy Chairman BPU Partecipazioni Assicurative S.p.A. Deputy Chairman SACBO S.p.A. Director A list of the director or statutory auditor positions held by each member of the Board of Statutory Auditors in other companies listed on Italian regulated markets is set out below: Maria Martellini Banca Popolare di Milano S.c.r.l. Director Class Editori S.p.A. Director Claudio Cavalli Fondazione Italcementi Cav. Lav. Carlo Pesenti Acting Auditor Claudio De Re Italmobiliare S.p.A. Acting Auditor Milano Assicurazioni S.p.A. Substitute Auditor Pietro Curcio Italmobiliare S.p.A. Substitute Auditor Eugenio Mercorio Credito Bergamasco S.p.A. Acting Auditor Italmobiliare S.p.A. Acting Auditor Fondazione Italcementi Cav. Lav. Carlo Pesenti Substitute Auditor Dino Fumagalli Italmobiliare S.p.A. Substitute Auditor Legal representation - Appointed bodies The By-laws establish that the Chairman and, if appointed, the Deputy Chairman (or Deputy Chairmen) and the Chief Executive Officer (or joint Chief Executive Officers) are the company s legal representatives in respect of third parties or in lawsuits. The Board of Directors has vested an Executive Committee with all of its powers except those that the Italian Civil Code and the By-laws do not allow to be delegated. 144

147 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 The Board is informed of the resolutions taken by the Executive Committee during the first meeting it holds after such resolutions are passed. The Board of Directors has appointed two Deputy Chairmen (including one Executive Deputy Chairman), a Chief Executive Officer and a Chief Operating Officer. The «Code» establishes that the Board of Directors is to be informed in its subsequent meeting, or at least on a quarterly basis, of the activities of the Chief Executive Officer and other executive directors, and especially of any significant transactions, the main transactions performed with related parties and those giving rise to potential conflicts of interest that were not presented for its prior approval. The Board of Directors decides the remuneration and possible allocation of stock options to directors with special offices (in their absence) in line with the company s deed of incorporation, having heard the opinion of the Board of Statutory Auditors and on the basis of the proposals drawn up by the Remuneration Committee. A significant portion of the pay of the Chairman, the Executive Deputy Chairman and the Chief Executive Officer is linked to business results and the achievement of specific objectives. A consistent approach and coordination of activities are ensured by the presence of Italcementi S.p.A. s Chairman, Executive Deputy Chairman, Chief Executive and Chief Operating Officers, directors and heads of division in the Boards of Directors of the main subsidiaries. Transactions with related parties The «Code» states that transactions with related parties are to be performed in a transparent manner and in line with criteria of substantial and procedural correctness. Therefore, those directors who have an interest, even if only potential or indirect, in a transaction, are required to: a) inform the Board of the existence of their interest and its circumstances on a timely basis and in detail; b) leave the Board meetings when the related resolutions are to be taken. Nevertheless, depending on the specific circumstances, the Board of Directors may allow the participation of the director concerned in the discussion and/or the vote. Under the specific corporate procedure, material transactions with related parties (that is, transactions whose object, consideration, manner or timing may have effects on the safekeeping of the company assets or on the completeness and correctness of information), including those conducted through subsidiaries, must have the prior approval of the Board of Directors. Furthermore, depending on the nature, amount or other characteristics of transactions, the Board of Directors ensures that transactions are organized with the assistance of independent asset assessors and financial, legal or technical consultants, so that they are not agreed at conditions different from those that would have been established by nonrelated parties. The Internal Control Committee is responsible for conducting regular reviews of the procedural code for transactions with related parties adopted by the Board of Directors and recommending any updates deemed necessary. Creation of committees The «Code» provides that the Board of Directors set up a Remuneration Committee and an Internal Control Committee from among its members. These committees resolutions are not binding and are made only to assist the Board. The Committees must have not fewer than three members and may have access to the corporate information and functions necessary for the performance of their duties. They may also use the services of external consultants. Each Committee elects a chairman and a secretary (who is not required to be a committee member) and meets when convened by its chairman or his substitute. Meetings may be called in an informal manner (also verbally). The meetings are deemed to be correctly called when the majority of committee members are present, including those present via audio- or video-conferencing links. Each Committee carries decisions by majority vote of the members present

148 The Remuneration Committee, formed of non-executive directors, the majority independent, drafts and presents to the Board proposals for the remuneration of the company s directors (in their absence) with special duties, and of the Chief Operating Officer, and conducts regular reviews of the criteria adopted for remuneration of senior managers with strategic responsibilities, enforcing application on the basis of information provided by the chief executive. The Remuneration Committee also performs the consultative functions requested from time to time by the Board of Directors on remuneration and related matters. The Internal Control Committee is composed of independent directors. In addition to the duties indicated above, other duties include verification, together with the senior manager responsible for drafting the company accounts and the independent auditors, of correct application of accounting principles and their consistency for the purposes of the consolidated financial statements; at the request of the Chief Executive Officer, issue of opinions on specific matters regarding identification of the main company risks and planning, implementation and management of the internal control system; assessment of the work program and the reports drawn up by the Controller; reporting to the Board of Directors. The Internal Control Committee also reports at least every six months, at the time of approval of the half-year financial statements and the annual report, on internal control activities and the suitability of the internal control system, and performs additional tasks assigned by the Board of Directors. The Internal Control Committee also assists the Board of Directors with its periodic review of the internal control system. The «Code» provides that the Internal Control Committee not only be composed of independent directors but also include at least one director with suitable accounting and financial experience, assessed by the Board of Directors at the time of appointment. The Chairman of the Board of Statutory Auditors or another statutory auditor designated by him attends the Committee meetings, as may the Chairman of the Board of Directors and the Chief Executive Officer. If invited to do so, the Chief Operating Officer, the internal control staff and heads of certain functions also attend. Among the committees indicated by the Corporate Governance Committee, the Italcementi S.p.A. «Code» does not provide for an Appointments Committee given that the company s shareholding structure has a permanent majority shareholder holding the absolute majority of voting rights. In any case, it is already normal procedure for the Chairman or, at his request, the Chief Executive Officer to provide the Shareholders Meeting called to approve appointments with data and information about the professional qualifications of the candidates and their eligibility as independent directors. Moreover, in inviting issuers to consider the possibility of forming an Appointments Committee within the Board of Directors, the Corporate Governance Committee states that,... this solution has its origin in systems characterized by a highly dispersed shareholding base, to ensure adequate level of independence of the directors with respect to management.... Controls systems The Board of Directors designates an executive director (normally, the Chief Executive Officer) to supervise the workings of the internal control system, whose function is to: a) identify key corporate risks, taking account of characteristics of the business operations of the company and the subsidiaries and present regular reports on such risks to the Board of Directors; b) execute the guidelines indicated by the Board of Directors, with regard to the planning, implementation and management of the internal control system, continuously monitoring its overall adequacy, effectiveness and efficiency; and also update the system in line with developments in business scenarios, legislation and regulations. On the recommendation of the executive director designated to supervise the workings of the internal control system and after consultation with the Internal Control Committee, the Board of Directors appoints and revokes the Controller, establishes his remuneration consistently with company policy and also equips him with appropriate resources and organization structures. The Controller is responsible for checking that the internal control system is always adequate, fully operational and effective. He is not responsible for any other operating area and does not report to any head of an operating area, including administration and finance. The Controller reports on management of risks, on compliance with the plans drawn up to limit risks and assesses the ability of the internal control system to provide an adequate overall risk profile for the Internal Control Committee, the 146

149 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 executive director designated to supervise the workings of the internal control system and the Board of Statutory Auditors, as required by law. Shareholders Meetings The «Code» provides for the Board of Directors to urge assiduous attendance of all directors at Shareholders Meetings and to encourage and facilitate the participation of as many shareholders as possible and to ensure that voting rights may be easily exercised. To this end, the Board of Directors reports to the Shareholders Meeting on activities performed and planned and ensures that the shareholders receive adequate information on the necessary matters to enable them to take the decisions for which the Shareholders' Meeting is responsible with due diligence. Regulations for the proceedings of the Shareholders Meeting do not exist. The wide-ranging powers of the Chairman assigned by the law and general practice, as well as article 12 of the By-laws, which expressly authorizes the Chairman to direct the discussions and establish the order and method of voting (which may not be by secret ballot), are considered sufficient for the orderly running of such meetings. Board of Statutory Auditors The «Code» reviews and supplements regulations for the appointment of the Board of Statutory Auditors, which today is based on a transparent procedure guaranteeing, among other things, timely and adequate information about candidates personal and professional qualifications. The By-laws already provide for the presentation of lists to ensure appointment of one Acting Auditor and one Substitute Auditor by minority shareholders. In addition, the «Code» provides that each list set out the professional and honorability standards required by current laws for each candidate auditor, and similarly to the procedure envisaged for election of the Board of Directors, that the information be published in a timely manner on the company web site. Under the new legislation, the Chairman of the Board of Statutory Auditors is appointed by the Shareholders' Meeting from the auditors elected by minority shareholders. The «Code» provides that the statutory auditors qualify as independent in compliance with the criteria that apply to the directors. The Board of Statutory Auditors verifies correct application of and compliance with these criteria after appointment and subsequently on an annul basis; the outcome of this check and of the check on the procedure adopted by the Board of Directors to assess the independence qualifications of directors will be included in the corporate governance report, or in the auditors report to the Shareholders' Meeting. The statutory auditors accept the position when they believe they are able to devote the necessary time to diligent performance of their duties. The company By-laws not only set out specific requirements for the professional qualifications of the members of the Board of Statutory Auditors, they also provide that persons who do not meet the requirements as set by law and persons who are acting auditors in more than five companies listed on Italian regulated markets, excluding the parent companies, the subsidiaries of Italcementi S.p.A. and the subsidiaries of its parent companies, may not be elected as auditors or if elected must relinquish the position. In this connection, the law attributes to Consob responsibility for setting the limits on the number of directorships and auditorships that statutory auditors may hold in listed companies. Once Consob has supplemented the regulations, the company By-laws will be amended accordingly. The «Code» reiterates the autonomy and independence of the Board of Statutory Auditors and indicates that auditors are bound to keep information confidential and are prohibited by law from using confidential information for immediate or future personal or financial gain, directly or indirectly. In addition to the duties attributed by law and under the By-laws, the «Code» requires the Board of Statutory Auditors to: a) monitor the independence of the independent auditors, checking both compliance with relevant laws and the nature and entity of services other than account auditing rendered to the company and to the subsidiaries by the independent auditors and by entities belonging to the group to which the independent auditors belong; b) assess the results set out in the report and any letter of recommendations presented by the independent auditors; c) monitor the effectiveness of the auditing process

150 Under the Code of Conduct approved by the Corporate Governance Committee, these last two duties could be assigned to the Internal Control Committee rather than to the Board of Statutory Auditors. The company believes it is more consistent to assign these duties to the Board of Statutory Auditors, which already assesses the proposals of the independent auditors and their work plan. b) Enactment of corporate governance rules The company By-laws provide for the company to be governed by a Board of Directors composed of a minimum of 11 and a maximum of 21 directors, whose term of office is established upon their appointment, and may not exceed three financial years. Directors may be re-elected. The Shareholders' Meeting of May 4, 2004, appointed a Board of Directors for the three-year period , and set the number of members at 18. Assignment of duties and conferral of proxies The company By-laws assign a role of key importance to the Board of Directors, as described above. Legal representation of the company is attributed by the By-laws to the Chairman and, also, to the Deputy Chairman (or Deputy Chairmen) and to the Chief Executive Officer (or Chief Executive Officers) if appointed. The distribution of powers within the Board of Directors is as follows: to the Executive Committee, composed of five members, all the powers of the Board of Directors, with the exception of those that may not be delegated pursuant to the Italian Civil Code and the By-laws. As specified in the act of appointment, the resolutions of the Executive Committee shall be reported to the Board of Directors at the following meeting of the Board of Directors; to the Chairman, Giampiero Pesenti, among other duties and in addition to the powers assigned by the company Bylaws and the Code of Conduct, those of ensuring application of the principles of Corporate Governance approved by the Board of Directors and proposing possible amendments; indicating Group general strategic guidelines to be followed in management; indicating general policies for the annual and interim financial statements and the Group general financial policies; approving, for subsequent presentation to the Board of Directors or the Executive Committee, key transactions regarding acquisitions, sales, technical capital expenditure, developments in new initiatives and, in general, extraordinary transactions; approving significant amendments to the Group corporate structure; indicating general policies for the recruitment, training and management of personnel and determining, also on the basis of the recommendations of the Chief Executive Officer, the financial treatment (after consultation with the Remuneration Committee and approval of the Board of Directors where required by the Code of Conduct), promotions, transfers, suspensions, severance or contract review of Group senior managers in Italy and in the other countries in which the Group operates; supervise public relations. In addition to the powers necessary to perform the designated duties, the Chairman is also vested with powers to perform transactions regarding real estate and movable assets, up to a limit of 50 million euro for each transaction with separate signature and up to 75 million euro with joint signature with the Chief Executive Officer or the Chief Operating Officer; to the Executive Deputy Chairman, Pierfranco Barabani, powers to perform real estate activities for up to 15 million euro per transaction; to the Chief Executive Officer, Carlo Pesenti, among other duties, responsibility for supervising management policies, growth strategies and coordination of the operations of the company and the main subsidiaries it controls directly or indirectly, issuing the necessary directives to the Chief Operating Officer and the other corporate bodies that report directly to him; drafting the company and consolidated annual, half-year and quarterly financial statements required by law; jointly with the Chief Operating Officer, drawing up the budgets of Italcementi S.p.A. and the Group and longterm plans; supervising the financial management of the company and the Group; signing technical-administrative management contracts with the subsidiaries and associates; in accordance with the general instructions of the Chairman, defining personnel management policies in Italcementi S.p.A. and the main subsidiaries controlled directly or 148

151 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 indirectly; recruiting technical, administrative and commercial personnel in any category and role; appointing consultants. The Chief Executive Officer is also vested with the powers necessary to perform transactions relating to industrial operations (technical, production, commercial, administrative) and real estate up to a limit of 50 million euro per transaction with separate signature and up to 75 million euro per transaction with joint signature with the Executive Deputy Chairman or the Chief Operating Officer; the director Yves René Nanot is responsible for supervising international development projects and operations, up to a limit of 25 million euro per transaction. The limit is raised to 50 million euro in the case of joint signature with the Chief Operating Officer and up to 100 million euro in the case of joint signature with the Chef Executive Officer. Furthermore, the Board of Directors has designated the Chief Operating Officer, Rodolfo Danielli, to supervise and direct the technical, production, commercial and administrative operations of Italcementi S.p.A.; to direct, coordinate and control the operations of the industrial subsidiaries; to draw up and present to the Chief Executive Officer proposals for changes to the corporate organization; to maximize the efficiency of the corporate production units and Italian subsidiaries and ensure their compliance with laws and regulations; to cooperate with the Chief Executive Officer in drawing up personnel management guidelines. The Chief Operating Officer is also vested with the powers necessary to perform activities relating to industrial operations (technical, production, commercial, administrative and certain financial operations) up to a limit of 20 million euro. The maximum amounts established respectively for the Executive Deputy Chairman and the Chief Operating Officer may be doubled in the case of joint signature one with the other or, if appointed, with one of the Deputy Chief Operating Officers. The Chief Executive Officer and the Chief Operating Officer have conferred specific and limited powers on managers in line with their functions. Given the quantitative limits established for all powers conferred by the Board of Directors and the explicit and special obligation, established by the company s Code of Conduct, to provide the Board of Directors with appropriate disclosures about significant transactions that have an impact on the balance sheet and income statement performed by the company or the subsidiaries, key transactions with related parties and transactions leading to potential conflicts of interest, no limits have been established for the prior approval by the Board of Directors of significant transactions or transactions with related parties (see, inter alia, the limits imposed by the Procedural Code for Transactions with Related Parties attached hereto). The Chief Executive Officer and the other executive directors have informed the Board of Directors and the Board of Statutory Auditors about their activities, on a regular basis as required by the «Code» and the By-laws. In addition, they have presented to the Board of Directors all significant transactions that have an impact on the balance sheet and income statement performed by the company, key transactions with related parties and transactions leading to potential conflicts of interest, even if within the limits of their powers. Composition and meetings of the Board of Directors Italcementi S.p.A. s Board of Directors consists of 14 non-executive directors out of the total of 18. Of the non-executive directors, 8 are independent. The Chairman is considered as an executive director, given his powers. At its meeting of March 7, 2006, the Board of Directors assessed the independence and honorability of the directors on the basis of the information provided by each party in line with the requirements of the «Code» in force at the time: its findings are set out on the page showing the company officers at the beginning of this Annual Report and in the tables attached to this report. The Board of Directors met five times during 2006; 15 directors, of whom 6 independent directors, attended all the meetings, 2 directors, one executive and one independent, attended 4 meetings and one director, independent, attended 3 meetings. The entire Board of Statutory Auditors attended all the meetings, except on one occasion. The Chief Operating Officer also attended all the board meetings, upon invitation

152 The Executive Committee did not meet during In 2007 to date the Board of Directors has met twice, first to review 2006 revenues and projections for 2007 and the second time to approve, among other things, the 2006 draft financial statements. At the present time, four further meetings are planned to approve the interim accounts and appoint company officers and attribute powers arising on the election of the Board of Directors by the Shareholders' Meeting. Group interdepartmental bodies A number of bodies not provided for by the By-laws have been set up to implement the Board of Directors policies. These bodies have co-ordination and operating integration duties that do not, however, modify the responsibilities and powers of the functions represented in the bodies. Italcementi S.p.A. s Chairman, Chief Executive Officer, Chief Operating Officer and Director of International Development make up a committee called Office of the Chairman, headed by the Chairman, which provides strategic guidance and monitors the Group with respect to the general directives of the Boards of Directors of Italcementi S.p.A. and Ciments Français S.A. A Committee of Managers operates at Group level, chaired by the Chief Operating Officer of Italcementi S.p.A. who is also the Chief Operating Officer of Ciments Français S.A., under the supervision of the Chief Executive Officer. The committee includes a number of heads of function from both companies. The Committee of Managers meets periodically to ensure consistency with the strategic decisions taken and objectives set by the Boards of Directors of the Group companies. The Group also has a Conference of Managers to increase internal awareness about strategic and organizational objectives and key projects. The Conference is made up of the members of the Office of the Chairman, the Committee of Managers and a limited number of other top managers from Group companies. Remuneration and stock options of Directors and the Chief Operating Officer Pursuant to the By-laws, the amount set aside for the Board of Directors when the shareholders approve the allocation of net income for the year is apportioned among all the directors, giving two portions to those directors who are also members of the Executive Committee and one portion to each of the others. Based on the proposals of the Remuneration Committee and the opinion of the Board of Statutory Auditors, the Board of Directors has also decided the amounts to be paid to: the Chairman, whose pay is determined year by year and comprises a fixed amount and a variable amount tied to achievement of objectives; the Deputy Chairman, whose pay has been fixed for the entire duration of his term of office; the Executive Deputy Chairman, whose pay is determined year by year and comprises a fixed amount and a variable amount tied to achievement of objectives; the Chief Executive Officer, whose pay is determined year by year and comprises a fixed amount and a variable amount tied to achievement of objectives; the Chief Operating Officer, whose pay is determined year by year and comprises a fixed amount and a variable amount tied to achievement of objectives. In addition, at the beginning of his term of office the Chairman was assigned an End of term entitlement, which vests when he leaves office. The Chairman, the Chief Executive Officer and the Chief Operating Officer receive stock options each year, in line with the proposals made by the Remuneration Committee. The number of options varies, depending on attainment of objectives established by the Board of Directors, in line with the regulations of the stock option plans for directors and managers. 150

153 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Composition and activities of the Committees The Remuneration Committee has three non-executive members, the majority of whom are independent directors. It met three times in 2006 (attended by all members) to draft proposals for the remuneration of and allocation of stock options to directors and managers and to provide information about the objectives assigned by Italmobiliare S.p.A. to Carlo Pesenti, its Chief Operating Officer, as Chief Executive Officer of Italcementi S.p.A. The Internal Control Committee has four members who are all non-executive and independent. The Internal Control Committee met four times during 2006; it reviewed many corporate and subsidiary functions to ensure that their operations comply with laws and regulations, it examined the reports prepared by the Controller and the independent auditors to check the adequacy of the internal control system, and it reported on its activities and the adequacy of the internal control system to the Board of Directors, during the meetings held to approve the annual and half-year reports. Internal control system The internal control system is a set of rules, procedures and organizational structures designed to ensure, through processes to identify, measure, manage and monitor key risks, correct management of the company consistently with objectives, ensuring the safekeeping of the company s assets, the efficiency and effectiveness of its operations, the reliability of financial information, compliance with the law and regulations. The Board of Directors exercises its functions with respect to the internal control system based on national and international reference models and best practice and pays particular attention to the Organization & Management Model adopted pursuant to Legislative Decree no. 231 of June 8, With the assistance of the Internal Control Committee, the Board of Directors sets guidelines for the internal control system so that the main risks relating to the company and the subsidiaries are correctly identified and appropriately measured, managed and monitored, and also sets criteria for the compatibility of such risks with correct and proper management of the company. At least once a year, it assesses the adequacy, effectiveness and operation of the internal control system with respect to the characteristics of the company. The Board of Directors, to which the Internal Control Committee reports on a six-monthly basis, deems the internal control system to be adequate for the Group structure and its core businesses. Board of Statutory Auditors On the occasion of the renewal of the Board of Statutory Auditors by the Shareholders' Meeting of April 13, 2006, the majority shareholder presented a list of candidates. The minority shareholders did not present any lists. Consequently, none of the current Statutory Auditors represent the minority shareholders

154 Structure of the Board of Directors and the committees Board of directors Executive Internal Control Remuneration Committee Committee Committee Position Member Executive Non Independ. Attendance No. of Member Attendance Member Attendance Member Attendance executive other positions Chairman Giampiero Pesenti 5/ Deputy Chairman Giovanni Giavazzi 5/5 1 Executive Deputy Chairman Pierfranco Barabani 5/5 1 - Chief Executive Officer Carlo Pesenti 5/5 6 - Director Alberto Bombassei 4/5 3 Director Alberto Clô 5/5 4 4/4 Director Federico Falck 5/5 5 4/4 Director Danilo Gambirasi 5/5 - Director Bruno Isabella 5/5 4 Director Karl Janjöri 5/5-3/3 Director Italo Lucchini 5/5 7 3/3 Director Sebastiano Mazzoleni 5/5 1 Director Yves René Nanot 4/5 7 - Director Massimo Pellegrini 5/5 - Director Marco Piccinini 3/5 7 Director Ettore Rossi 5/5 2 4/4 Director Attilio Rota 5/5 1-4/4 Director Emilio Zanetti 5/5 7 3/3 Board of statutory auditors Position Member Attendance No. of other (*) positions Chairman Luigi Guatri (until April 13, 2006) 5/5 - Chairman Maria Martellini (from April 13, 2006) 6/6 2 Acting Auditor Claudio De Re 11/11 2 (1) Acting Auditor Claudio Cavalli 11/11 1 Substitute Auditor Eugenio Mercorio - 2 (2) Substitute Auditor Dino Fumagalli - 1 Substitute Auditor Pietro Curcio - 1 (*) The number in brackets shows other acting auditor positions held in companies listed on regulated markets. The Italcementi S.p.A. By-laws establish that persons who are already acting statutory auditors for more than five companies listed on Italian regulated markets, excluding subsidiaries of Italcementi S.p.A., its parent companies and subsidiaries of parent companies, may not be appointed as statutory auditors of Italcementi or that if they are appointed they must decline the office. Statutory auditors are appointed using lists aimed at ensuring that the minority shareholders appoint one acting statutory auditor and one substitute statutory auditor. Only shareholders who, alone or together with other shareholders, can prove title to shares with voting rights at ordinary shareholders meetings equal to at least 3% of the share capital with voting rights, may present lists. 152

155 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Other requirements of the code of conduct The table illustrates the extent to which the «Code» complies with other provisions of the Code of Conduct in the text approved by the Corporate Governance Committee. YES NO Summary of reasons for any non-compliance with Code recommendations Proxy system and transactions with related parties Has the Board of Directors conferred powers defining their: a) limits b) manner of execution c) reporting frequency? Has the Board of Directors reserved the right to review and approve transactions that have a significant impact on the balance sheet and income statement (including those with related parties)? Has the Board of Directors defined guidelines and criteria for the identification of significant transactions? Are these guidelines and criteria described in the report? Has the Board of Directors established special procedures for the review and approval of transactions with related parties? Are these procedures for the approval of relations with related parties described in the report? Procedures for the latest appointment of directors and statutory auditors Were the names of the director candidates presented at least ten days in advance? This was consistent with the decision not to create an appointments committee. Also, the majority shareholder notified to the company several days before the Shareholders Meeting the list of director candidates it intended to propose and the company immediately disclosed the list to the market through institutional channels. Was adequate information given in the presentation of the candidates? Did the presentations include representation about the candidates eligibility to qualify as independent? Were the names of the statutory auditor candidates presented at least ten days in advance? Was adequate information given in the presentation of the statutory auditor candidates? Shareholders' Meetings Has the company approved a Procedure for the running of the Shareholders Meeting? The extensive powers of the Chairman assigned by law and general practice as well as the By-law that specifically authorizes him to direct the discussion and establish the order and method of voting (which may not be by secret ballot) are considered sufficient for the orderly running of the Shareholders Meeting. Is the Procedure attached to the report (or is information provided indicating where the Procedure may be obtained/downloaded)? Internal control Has the company appointed internal control staff? Are the internal control staff hierarchically not subordinate to the heads of operating divisions? Internal Control unit (ex art. 9.3 of the «Code») Investor relations Has the company appointed an Investor Relations manager? Investor Relations unit Internal Control Division ITALCEMENTI S.p.A. Direzione Finanza di Gruppo Investor Relations Department Via G. Camozzi n. 124, Bergamo - Italy tel fax investor.relations@italcementi.it 153

156 Code of Ethics The Code of Ethics, approved for the first time in 1993 and subsequently amended, establishes that all employees and those parties that have a relationship with the Group or act to carry out its objectives shall base their relations and conduct on principles of honesty, fairness, integrity, transparency, confidentiality and mutual respect. The Italcementi S.p.A. Board of Directors meeting of February 2, 2001, approved the Code of Ethics in force today, which sets out the rules for loyalty and fidelity, impartiality, protection of privacy and confidentiality of information, protection of the individual, the environment and company assets. It also establishes the guidelines for control processes and the keeping of accounting/management information and introduces rules for relations with customers, suppliers, government agencies, political party and trade union organizations and the mass media. Confidential information With respect to the management of confidential information, and in line with the obligation of confidentiality and prohibition on use of such information for personal gain, the «Code» provides for the adoption of procedures for the external communication of documents and information, especially as regards price-sensitive information, which may be communicated only by the employees generally or specifically authorized to do so. The Board of Directors meeting of February 2, 2001, approved a specific procedure that requires strict compliance with the terms and conditions of communication established by current legislation, to ensure contextuality and equality. The organization notices issued by the Chief Executive Officer define the general guidelines for relations with institutional investors and other shareholders and identify the company personnel authorized to manage such relations. These guidelines are in line with the requirement for constant monitoring established by the «Code». Internal Dealing Code of Conduct The company Board of Directors has updated its Internal Dealing Code of Conduct, originally adopted to implement the dispositions in the Borsa Italiana regulation, to take account of the new dispositions adopted by Consob to implement the regulations (Market abuse) introduced in 2005 with the Law on Savings. The Internal Dealing Code regulates the information to be disclosed to the company, and by the company to the market, when Relevant persons carry out transactions of any type on their own behalf on Italcementi shares and on other financial instruments linked to such shares. For the purposes of the Internal Dealing Code, Relevant persons are the members of the Board of Directors, the Board of Statutory Auditors and the Chief Operating Officer of Italcementi S.p.A. and anyone who holds an interest of at least 10% in the voting capital of Italcementi S.p.A., and any other party who controls Italcementi S.p.A. The Relevant persons are required to inform Italcementi S.p.A., which in turn informs the market, about completed transactions for an aggregate amount of 5,000 euro by the end of the year. Given the Group s particular structure, the Internal Dealing Code is associated with the Code adopted by Italmobiliare S.p.A., in that disclosures to the market by Italcementi S.p.A. regarding transactions on Italcementi securities by parties classified as Relevant persons in both companies are considered to be made also pursuant to the Code of Conduct of the parent company Italmobiliare S.p.A. The Internal Dealing Code also establishes that the Relevant persons may not perform transactions on securities that are subject to disclosure to the company: during the 30 calendar days before the Italcementi S.p.A. Board of Directors meets to approve the full-year and halfyear reports, including the day on which the meeting is held: during the 15 calendar days before the Italcementi S.p.A. Board of Directors meets to approve the quarterly reports, including the day on which the meeting is held. Procedural Code for transactions with related parties As recommended by the Corporate Governance Committee, the company Code of Conduct requires the Board of Directors to review and give prior approval to transactions: of significant strategic, business or financial interest to the company, arranged with a related party by the company or by company subsidiaries, 154

157 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 other transactions with/among related parties. For which prior approval by the Board of Directors is expressly requested under the specific company procedure. The Procedural Code for Transactions with Related Parties, initially adopted by the Board on February 4, 2003, and subsequently amended on a number of occasions, supplements the guidelines on this matter set out in the Code of Conduct. Its aim is to provide disclosure guidelines for all interested parties in their position as related parties when undertaking transactions with Italcementi S.p.A. The Procedural Code classifies these transactions into three separate categories depending on their size and the parties involved. The first category is that of Significant transactions, i.e., larger transactions with the greatest impact on the company s balance sheet and income statement, which Consob requires must be disclosed to the market. Such transactions require prior approval by the Board of Directors, after consultation with the Internal Control Committee and/or with the assistance of independent experts to value assets and provide financial or technical assistance. The second category relates to Intragroup transactions, i.e., those with/among Italcementi S.p.A. subsidiaries. The third category is Transactions with other related parties (e.g., directors, statutory auditors, members of their families, etc.). In the second and third categories, a distinction is made between ordinary transactions and atypical, unusual or nonstandard transactions. The prior authorization of the Board of Directors after consultation with the Internal Control Committee is required for transactions that exceed the established ceilings. It is not needed for the other transactions, but the Board must be informed. No special procedures are established for the smallest transactions and those performed as part of the core business of Italcementi S.p.A. Under the latest amendments introduced by the Board of Directors, the Procedural Code for transactions with related parties requires the Internal Control Committee to conduct regular checks on the adequacy of the procedure for transactions with related parties adopted by the Board of Directors and to recommend any updates deemed necessary. Furthermore, the Board of Directors may propose updates to the Procedural Code if changes in laws or in the company s organization or business operations make such amendments necessary; such updates may only be adopted after consultation with the Internal Control Committee. The Procedural Code also establishes that the company must be put in a position, through disclosures by the parties concerned, to identify transactions with related parties in order to comply with obligations. In compliance with the Consob Issuers Regulation for correct identification of the notion of «related parties», reference must be made to IAS 24. The Consob resolution of April 6, 2001, recommends that the Boards of Statutory Auditors of listed companies prepare summaries of the inspections performed during the year. This information should include details of any transactions with related parties. Accordingly, at their meeting of March 13, 2002, the directors undertook to inform the statutory auditors of their positions as related parties in transactions with the company. Organization, management & control model In order to raise the effectiveness of the control system and corporate governance with a view to prevention of offenses against the company and against government agencies, during 2004 the Board of Directors adopted an Organization, management and control model (the «Model»), pursuant to Legislative Decree 231/01. In adopting the «Model», the company intends to foster and establish a corporate culture geared to legality, with express censure of all conduct that violates the law and the regulations of the «Model» itself. In 2006, the provisions of the «Model» were extended to cover the offenses envisaged under the new law regulating market abuse and failure by directors to disclose conflicts of interest. Responsibility for enforcing the «Model», ensuring that it functions correctly and proposing amendments is assigned to an independent professional body known as the Compliance Committee. The current members of the Compliance Committee are an independent director, an external professional consultant and the head of Internal Auditing

158 Equity investments of Directors, Statutory Auditors and Chief operating Officers Full name Company in which Number of shares held Number of shares Number of shares Number of shares shares held at the end of the purchased sold held at the end previous financial year of the current year Giampiero Pesenti Italcementi S.p.A. ordinary shares: 10,972 1 ordinary shares: 100,000 ordinary shares: 100,000 ordinary shares: 10,972 1 savings shares: 10,608 1 savings shares: - savings shares: - savings shares: 10,608 1 Giovanni Giavazzi Italcementi S.p.A. ordinary shares: 10,000 ordinary shares: - ordinary shares: - ordinary shares: 10,000 savings shares: 5,000 savings shares: - savings shares: - savings shares: 5,000 Pierfranco Barabani Italcementi S.p.A. ordinary shares: 78,780 2 ordinary shares: - ordinary shares: - ordinary shares: 78,780 2 savings shares: 884 savings shares: - savings shares: - savings shares: 884 Carlo Pesenti Italcementi S.p.A. ordinary shares: 1,500 1 ordinary shares: 43,100 ordinary shares: 43,100 ordinary shares: 1,500 1 savings shares: 3,000 1 savings shares: - savings shares: - savings shares: 3,000 1 Ciments Français S.A. ordinary shares: 50 ordinary shares: - ordinary shares: - ordinary shares: 50 Federico Falck Italcementi S.p.A. ordinary shares: 41,600 ordinary shares: - ordinary shares: - ordinary shares: 41,600 savings shares: 6,760 savings shares: - savings shares: - savings shares: 6,760 Danilo Gambirasi Italcementi S.p.A. ordinary shares: 1,248 ordinary shares: - ordinary shares: - ordinary shares: 1,248 Sebastiano Mazzoleni Italcementi S.p.A. ordinary shares: 1,352 ordinary shares: 2,000 ordinary shares: - ordinary shares: 3,352 savings shares: 1,040 savings shares: 6,000 savings shares: 6,000 savings shares: 1,040 Yves René Nanot Ciments Français S.A. ordinary shares: 23,550 ordinary shares: 30,000 ordinary shares: - ordinary shares: 53,550 Massimo Pellegrini Italcementi S.p.A. ordinary shares: 136,286 3 ordinary shares: - ordinary shares: - ordinary shares: 136,286 3 savings shares: 139,776 4 savings shares: - savings shares: - savings shares: 139,776 4 Attilio Rota Italcementi S.p.A. ordinary shares: 108,186 5 ordinary shares: - ordinary shares: - ordinary shares: 108,186 5 Emilio Zanetti Italcementi S.p.A. ordinary shares: 30,602 6 ordinary shares: - ordinary shares: - ordinary shares: 30,602 6 Rodolfo Danielli Italcementi S.p.A. ordinary shares: 0 ordinary shares: 299,000 ordinary shares: 84,000 ordinary shares: 215,000 Bravosolution S.p.A. ordinary shares: 533,333 ordinary shares: - ordinary shares: - ordinary shares: 533,333 Claudio Cavalli Italcementi S.p.A. ordinary shares: 0 ordinary shares: 420 ordinary shares: - ordinary shares: 420 Claudio De Re Italcementi S.p.A. ordinary shares: 2,600 ordinary shares: - ordinary shares: - ordinary shares: 2,600 savings shares: 6,000 savings shares: - savings shares: - savings shares: 6,000 1 shares held by spouse 2 shares held in part directly, in part by spouse 3 of which 97,806 ordinary shares as bare property 4 of which 122,356 savings shares as bare property 5 shares held in part directly (in part only with usufruct and voting rights), in part by spouse 6 of which 26,442 ordinary shares only with usufruct and voting rights 156

159 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Stock option plans Stock option plan for directors Executing the Shareholders resolution of April 24, 2001, at a meeting of May 9, 2001, the Italcementi S.p.A. Board of Directors approved a stock option plan for directors who hold special positions in compliance with the articles of association or perform specific operating functions. Based on the results of financial year 2005 in 2006 a total of 267,400 options were assigned under the stock option plan. 148,925 options were exercised during the year. The number of options assigned under the plan at December 31, 2006, was 961,700 equivalent to 0.34% of share capital. Consequently options assigned and unexercised at December 31, 2006, totaled 812,775. The main characteristics of the plan are set out below: a) Reasons for the introduction of the plan The plan reflects the desire to tie overall remuneration of the plan recipients to the medium/long-term success of the company and to creation of shareholder value, and also to reward achievement, by creating conditions that maximize the involvement of all senior management in reaching the company s goals. b) Plan recipients The recipients are a number of members of the Board of Directors of Italcementi S.p.A. and its subsidiaries who hold special positions in compliance with the articles of association or perform specific operating functions. c) Quantity of options to be assigned The quantity of options to be assigned to each recipient will be determined by the Board of Directors of Italcementi S.p.A. on a proposal of the Remuneration Committee, in compliance with regulations governing conflicts of interest. If exercised, the options entitle the holder to subscribe or purchase shares at a rate of 1:1. d) Term and objectives The plan envisages annual assignment cycles; the options may be exercised in the period between the fourth and tenth year after assignment. If a director s position lapses because his term of office has not been renewed, options may be exercised immediately, provided that this is within the maximum term of 10 years from assignment. Assignment of options shall be tied to the results achieved in respect of the targets set by the Board of Directors. These targets shall be notified to the recipients. e) Procedures and conditions of the plan Option rights may be exercised provided that the director has duly completed the term of office during which the options were assigned without resigning early and without his position being revoked by the Shareholders Meeting. Options are nominative, personal and non-transferable, except as provided in the case of death. The total number of Italcementi shares servicing the plan has been set at 3000,000. f) Share capital increase; sale of shares In the case of options for the subscription of shares, by virtue of the powers conferred by the Shareholders Meeting, the Board of Directors shall increase paid-in share capital by issuing shares to be reserved, pursuant to art. 2441, par 5, of the Italian Civil Code, for members of the Board of Directors of Italcementi S.p.A. and/or its subsidiary companies and to be issued at a price equivalent to the mean share price in the period between the date of the rights offer and the same day in the previous calendar month. For this purpose the Independent Auditors has expressed a favorable opinion on the congruity of the new-share issue price, as required by art. 158 of Legislative Decree no. 58/

160 Similarly, in the case of options for the purchase of shares, by virtue of its authorization by the Shareholders Meeting to purchase and dispose of treasury shares, the Board of Directors shall sell Italcementi shares at a price equivalent to the mean share price in the period between the date of the rights offer and the same day in the previous calendar month. g) Characteristics of shares The shares held by plan participants following exercise of options shall have regular dividend entitlement rights and may be sold on the market through the management company as from the beginning of the fifth year after assignment of the options. Italcementi S.p.A. shall have right of first refusal on shares put up for sale. In the event of a merger/demerger, assigned options shall give the holder the right to subscribe or purchase Italcementi shares proportionately to the swap rate; in the event that Italcementi S.p.A. is cancelled from the stock exchange list, the term for option exercise shall be brought forward as appropriate and shares may be put up for sale immediately. h) Other powers attributed to the Board of Directors The Board of Directors may temporarily suspend exercise of option rights in specific cases envisaged by the Regulation and in the event of specific requirements; it may also modify certain conditions of the plan to ensure that treatment of recipients is equivalent to the treatment offered in the first instance. Stock option plan for managers By a resolution of the Board of Directors of March 20, 2000, the company approved a stock option plan for managers, in respect of which, based on the results reported in 2005 a total of 364,003 options were assigned in The total number of options assigned to Group managers as at December 31, 2006, was 2,428,598. These figures do not include options assigned to the Chief Operating Officer and the Chief Executive Officer in the period in which they were company employees. Including these options, the total number of options assigned as at December 31, 2006, was 2,931,448 equivalent to 1.04% of share capital. A total of 1,457,132 options were exercised during the year. Therefore, options assigned at 31 December, 2006, and not yet exercised numbered 1,474,316. The main characteristics of the plan are set out below. a) Reasons for the introduction of the plan The plan reflects the desire to tie overall remuneration of the plan recipients to the medium/long-term success of the company and to creation of shareholder value, and also to enhance managers sense of belonging and give them an incentive to remain with the company. b) Plan recipients The plan recipients are some members of the management of Italcementi S.p.A. and some of its subsidiaries, on the payroll at the dates scheduled for the assignment of options, who are designated by the Italcementi S.p.A. Chief Executive Officer, in accordance with the criteria established by the Remuneration Committee, in connection with the essential nature of their positions and their organizational level. c) Quantity of options to be assigned The quantity of options to be assigned to each recipient will be determined by virtue of the organizational level of the individual and the performance of the company and of the individual. If exercised, the options give the recipient the right to subscribe or purchase shares at a rate of 1:1. As a general rule, options that have not been exercised if the contract of employment with the Group is terminated shall not be recognized, except in the case of retirement. 158

161 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 In the event of the death of the option holder, the options may be exercised by entitled parties within six months of the date of the death, provided that the term falls within the period in which the options may be exercised. d) Term and objectives The plan envisages annual assignment cycles; the options may be exercised in the period between the fourth and tenth year after assignment. Assignment of the options is subject to the results achieved in respect of individually notified objectives. e) Procedures and conditions of the plan Options are nominative, personal and non-transferable, except as provided in the case of death. The total number of Italcementi shares servicing the plan has been set at 6,000,000 shares. f) Loans or contributions for subscription or purchase of shares The management company may indicate to interested parties the names of banks that may be willing to grant loans guaranteed by the shares, to facilitate their subscription or purchase. g) Share capital increase; sale of shares In the case of options for the subscription of shares, by virtue of the powers conferred by the Shareholders Meeting, the Board of Directors shall increase paid-in share capital for an amount equivalent to the options to be assigned, by issuing shares to be reserved, pursuant to art. 2441, par 8, of the Italian Civil Code, for members of the managerial staff of Italcementi S.p.A. and its subsidiaries and to be issued at a price equivalent to the mean share price in the period between the date of the rights offer and the same day in the previous calendar month. Similarly, in the case of options for the purchase of shares, by virtue of its authorization by the Shareholders Meeting to purchase and dispose of treasury shares, the Board of Directors shall sell Italcementi shares at a price established by the Board of Directors at the time of the offer, on a proposal by the Chief Executive Officer and based on the opinion of the Remuneration Committee. h) Characteristics of shares The shares held by plan participants following exercise of options shall have regular dividend entitlement rights and shall be sellable on the market as from the beginning of the fifth year after assignment of the options. Italcementi S.p.A. shall have right of first refusal on shares put up for sale. In the event of a merger/demerger, assigned options shall give the holder the right to subscribe or purchase Italcementi shares proportionately to the swap rate; in the event that Italcementi S.p.A. is cancelled from the stock exchange list, the term for option exercise shall be brought forward as appropriate and shares may be put up for sale immediately. i) Other powers attributed to the Board of Directors The Board of Directors may temporarily suspend exercise of option rights in specific cases envisaged by the Regulation and in respect of specific requirements; it may also modify certain conditions of the plan to ensure that treatment of recipients is equivalent to the treatment offered in the first instance

162 Annexes Annex 1 Compensation paid to directors, statutory auditors and chief operating offices for the year 2006 The compensation shown in the table is recognized on an accrual basis. Therefore, in compliance with the Consob Regulation for Issuers, the column: Remuneration for post, if shown, refers to one or more of the following items: (i) for directors, the share of the profit for financial year 2006 (on an annualized basis: 98,000 euro to each member of the Executive Committee and 49,000 euro to each of the other directors) and for statutory auditors their fee for the year; (ii) payment for the specific post held; (iii) remuneration for membership of the Remuneration Committee, the Internal Control Committee and the Compliance Committee; (iv) lump-sum reimbursement of expenses; Non-monetary benefits includes fringe benefits (based on a taxable income criterion) including insurance policies; Bonuses and other incentives includes remuneration amounts accruing on a non-recurring basis; Other compensation includes (i) remuneration for posts held in listed and non-listed subsidiaries; (ii) any considerations for professional services in favor of the company and/or its subsidiaries; (iii) remuneration for work as an employee (gross of social security and tax charges paid by the employee, excluding collective compulsory social security charges paid by the company and leaving entitlements) and (iv) end-of-term payments. It should also be noted that: a portion of the compensation attributed to the Chairman, the Executive Deputy Chairman and the Chief Operating Officer is variable, and depends on the company s business results or attainment of specific targets; the remuneration approved by the Board of Directors for the Chief Executive Officer Carlo Pesenti (who is also Chief Operating Officer of the parent company Italmobiliare S.p.A., where he is also employed as a senior manager) and the share of the profits which Mr Pesenti is entitled are paid over to the company by which he is employed and absorbed in the remuneration paid to him by that company. 160

163 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 (in thousands of euro) Name and surname Post held Period for End of Remuneration Non- Bonuses Other which the post term of for post monetary and other compensation was held office benefits incentives Giampiero Pesenti Chairman Member of Executive Committee , Giovanni Giavazzi Deputy Chairman Pierfranco Barabani Executive Deputy Chairman Member of Executive Committee Carlo Pesenti Chief Executive Officer Member of Executive Committee Alberto Bombassei Director Alberto Clô Director Federico Falck Director Danilo Gambirasi Director Bruno Isabella Director Karl Janjöri Director Italo Lucchini Director Sebastiano Mazzoleni Director Yves René Nanot Director Member of Executive Committee ,010.4 Massimo Pellegrini Director Marco Piccinini Director Ettore Rossi Director Attilio Rota Director Member of Executive Committee Emilio Zanetti Director Rodolfo Danielli Chief Operating Officer ,039.8 Luigi Guatri Chairman Board of Statutory Auditors Maria Martellini Chairman Board of Statutory Auditors Claudio Cavalli Acting Auditor Claudio De Re Acting Auditor

164 Presentation 5 Annual Report 15 Corporate governance Italcementi S.p.A. Corporate governance 139 Annexes 160 Annex 1 (continued) Stock options granted to directors and chief operating officers Italcementi S.p.A. Options held at Options granted Options exercised Options Options held at beginning of the year during the year during the year expired end of the year during the year A B = Name and surname Post held Number Average Average Number Average Average Number Average Average Number Number Average Average options stock option maturity options stock option maturity options stock option market options options stock option maturity price price price price on price exercise Giampiero Pesenti Chairman 390, , , , Carlo Pesenti Chief Executive Officer 313, , , , Rodolfo Danielli Chief Operating Officer 414, , , Notes on principles and purpose of stock option plans See the sections in the Corporate Governance Report on Stock option plan for directors and Stock option plan for managers. Ciments Français S.A. Options held at Options granted Options exercised Options Options held at beginning of the year during the year during the year expired end of the year during the year A B = Name and surname Post held Number Average Average Number Average Average Number Average Average Number Number Average Average options stock option maturity options stock option maturity options stock option market options options stock option maturity price price price price on price exercise Yves René Nanot Director 161, , , , Notes on principles and purpose of stock option plans The stock option plan serves the dual purpose of correlating senior management incentives with company performance and of strengthening senior management s loyalty to and interest in the company. It envisages subscription by senior managers of a specified number of Ciments Français shares, at special conditions. Under the regulation: granted options may not be exercised earlier than 3 years after the date of the Board of Directors resolution that approved the benefit; shares issued on exercise of options are unavailable for one year; the subscription price is set at 95% of the average price in the twenty trading sessions preceding the Board of Directors resolution that approved the benefit; options that are not exercised within 10 years of the Board of Directors resolution lapse. 162

165 April 2007 Project of Edita by Gilcar Milan Printed on ecological paper

166 The Italcementi Group in North America The Italcementi Group operates in the USA, Canada and Puerto Rico through the Essroc subsidiary. Established in 1866 as the Coplay Cement company, Essroc has 8 cement plants (Bessemer, Frederick, Logansport, Martinsburg, Nazareth, Picton, San Juan and Speed). North America is currently the third-largest contributor to Group revenues, accounting for more than 11% of turnover. The North American operation provides the Group with a significant positioning in the Western countries on a market offering growth potential. The revamping and extension project for the Martinsburg facility will enhance operations, especially on the Atlantic seaboard.